485BPOS 1 d485bpos.txt POST-EFFECTIVE AMENDMENT NO. 12 (FORM N-4) AGL OF DELAWARE OVATION VA Registration Nos. 333-102139 811-05301 As filed with the Securities and Exchange Commission on May 3, 2010 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] [ ] Post-Effective Amendment No. [ 12 ] [ X ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. [ 137] [ X ] VARIABLE ACCOUNT I OF AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE (Exact Name of Registrant) AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE (Name of Depositor) 600 King Street Wilmington, DE 19801 (Address of Depositor's Principal Executive Offices) (Zip Code) (713) 831-8470 (Depositor's Telephone Number, including Area Code) NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. (Name of Guarantor) 175 Water Street, 18th Floor New York, New York 10038 (212) 770-7000 (Guarantor's Telephone Number, Including Area Code) Lauren W. Jones, Esq. Chief Counsel American General Life Companies, LLC 2929 Allen Parkway, AT-30 Houston, Texas 77019-2191 (Name and Address of Agent for Service for Depositor, Registrant and Guarantor) Approximate Date of Proposed Public Offering: Continuous. It is proposed that the filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [ X ] on May 3, 2010 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Being Registered: (i) Units of interest in Variable Account I of American General Life Insurance Company of Delaware under variable annuity contracts and (ii) a guarantee related to insurance obligations under the variable annuity contracts. PROSPECTUS ALLIANCEBERNSTEIN OVATION VARIABLE ANNUITY ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE THROUGH ITS VARIABLE ACCOUNT I This prospectus describes a variable annuity contract being offered to individuals and groups. It is a flexible premium, deferred annuity contract with a fixed investment option. Please read this prospectus carefully before investing and keep it for future reference. The contract has several investment options to which you can allocate your money - both variable investment options listed below and a fixed investment option. The fixed investment option is part of our general account, which earns a minimum of 3% interest. The variable investment options are portfolios of the AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Variable Products Series Fund, Inc. (managed by AllianceBernstein L.P.) AllianceBernstein VPS Growth Portfolio (Class A and B)* AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class A)* AllianceBernstein VPS Growth and Income Portfolio (Class A and B)* AllianceBernstein VPS Global Thematic Growth Portfolio AllianceBernstein VPS International Value Portfolio (Class A)* (Class A and B)* AllianceBernstein VPS Money Market Portfolio (Class A and B)* AllianceBernstein VPS Balanced Wealth Strategy Portfolio AllianceBernstein VPS Large Cap Growth Portfolio (Class A and B)* (Class A)* AllianceBernstein VPS Small Cap Growth Portfolio (Class A)* AllianceBernstein VPS Intermediate Bond Portfolio (Class A)* AllianceBernstein VPS Real Estate Investment Portfolio (Class A)* AllianceBernstein VPS Value Portfolio (Class B) AllianceBernstein VPS International Growth Portfolio (Class A)*
* Class A shares are only available to purchasers of contracts prior to February 1, 2001. To learn more about the contract, you can obtain a copy of the Statement of Additional Information ("SAI") dated May 3, 2010. The SAI has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this prospectus. The table of contents of the SAI appears on the last page of this prospectus. For a free copy of the SAI, call us at (800) 255-8402 or write to us at Delaware Valley Financial Services, LLC, 300 Berwyn Park, P.O. Box 3031, Berwyn, PA 19312-0031. In addition, the SEC maintains a website at http://www.sec.gov that contains the prospectus, SAI, materials incorporated by reference and other information that we have filed electronically with the SEC. VARIABLE ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THEY ARE NOT A DEPOSIT OF ANY BANK OR INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE SEC HAS NOT APPROVED OR DISAPPROVED OF THE CONTRACT OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS DATED MAY 3, 2010 ================================================================================ TABLE OF CONTENTS ================================================================================ DEFINITIONS...................................................................................... 4 FEE TABLE........................................................................................ 5 PORTFOLIO EXPENSES............................................................................... 5 MAXIMUM AND MINIMUM EXPENSE EXAMPLES............................................................. 6 THE CONTRACT..................................................................................... 8 General Description........................................................................... 8 Purchasing a Contract......................................................................... 8 Allocation of Premium......................................................................... 9 Right to Examine Contract..................................................................... 9 Accumulation Units............................................................................ 9 Transfers During the Accumulation Phase....................................................... 9 Transfer Policies............................................................................. 10 Restrictions Initiated By the Funds and Information Sharing Obligations....................... 12 Dollar Cost Averaging ("DCA") Program......................................................... 12 Asset Rebalancing Program..................................................................... 13 INVESTMENT OPTIONS............................................................................... 14 Variable Investment Options................................................................... 14 The Fund and Its Portfolios................................................................... 14 Fixed Investment Option....................................................................... 15 CHARGES AND DEDUCTIONS........................................................................... 16 Insurance Charges............................................................................. 16 Mortality and Expense Risk Charge............................................................. 16 Administrative Charge......................................................................... 16 Optional Death Benefit Charges................................................................ 16 Surrender Charge.............................................................................. 17 Contract Maintenance Fee...................................................................... 17 Premium Taxes................................................................................. 17 Income Taxes.................................................................................. 17 Fund Expenses................................................................................. 18 Fees and Expenses and Money Market Investment Options......................................... 18 Reduction or Elimination of Certain Charges and Additional Amounts Credited................... 18 ACCESS TO YOUR MONEY............................................................................. 19 Generally..................................................................................... 19 Systematic Withdrawal Program................................................................. 19 ANNUITY PAYMENTS................................................................................. 20 Generally..................................................................................... 20 Annuity Options............................................................................... 21 Variable Annuity Payments..................................................................... 21 Transfers During Income Phase................................................................. 22 Deferment of Payments......................................................................... 22 DEATH BENEFIT.................................................................................... 22
2 Death of Owner Before the Annuity Date........................................................ 22 Traditional Death Benefit..................................................................... 22 Optional Death Benefits....................................................................... 23 Payment to Surviving Joint Owner or Beneficiary............................................... 26 Death of Owner After the Annuity Date......................................................... 26 Death of Annuitant............................................................................ 27 TAXES............................................................................................ 27 Annuity Contracts in General.................................................................. 27 Qualified Plans............................................................................... 28 Tax Treatment of Distributions - Non-Qualified Contracts...................................... 30 Tax Treatment of Distributions - Qualified Contracts.......................................... 31 Minimum Distributions......................................................................... 34 Tax Treatment of Death Benefits............................................................... 34 Diversification and Investor Control.......................................................... 35 Contracts Owned by a Trust or Corporation..................................................... 36 Multiple Contracts............................................................................ 36 Tax Treatment of Assignments of Qualified Contracts........................................... 36 Tax Treatment of Gifting, Assigning, or Transferring Ownership of a Non-Qualified Contract.... 36 Trustee to Trustee Transfers of Qualified Contracts........................................... 37 Partial 1035 Exchanges........................................................................ 37 Economic Growth and Tax Relief Reconciliation Act of 2001..................................... 37 OTHER INFORMATION................................................................................ 37 American General Life Insurance Company of Delaware........................................... 37 The General Account........................................................................... 39 Guarantee of Insurance Obligations............................................................ 39 Registration Statements....................................................................... 39 Ownership..................................................................................... 40 Voting Rights................................................................................. 40 Payments in Connection with Distribution of the Contract...................................... 40 Administration of the Contract................................................................ 41 Legal Proceedings............................................................................. 42 Variations in Contract or Investment Option Terms and Conditions.............................. 42 FINANCIAL STATEMENTS............................................................................. 42 Where You Can Find More Information........................................................... 42 APPENDIX A....................................................................................... 44 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................................... 49
3 ================================================================================ DEFINITIONS ================================================================================ We have capitalized certain terms used in this prospectus. To help you understand these terms, we have defined them in this glossary. Accumulation Unit - An accounting unit of measure used to calculate your Contract Value prior to the Annuity Date. Administrative Office - The Annuity Service Office, c/o Delaware Valley Financial Services, LLC, 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania 19312-0031. Annuitant - The person you designate to receive annuity payments and whose life determines the duration of annuity payments involving life contingencies. Certain annuity options under the contract may permit a Joint Annuitant. Annuity Date - The date on which annuity payments begin. Annuity Unit - An accounting unit of measure used to calculate annuity payments after the Annuity Date. Contract Anniversary - An anniversary of the date we issued your contract. Contract Value - The dollar value as of any Valuation Date of all amounts accumulated under your contract. Contract Year - Each period of twelve months commencing with the date we issued your contract. Premium Year - Any period of twelve months commencing with the date we receive a premium payment and ending on the same date in each succeeding twelve-month period thereafter. Valuation Date - Each day that the New York Stock Exchange is open for trading. Valuation Period - The period between the close of business on any Valuation Date and the close of business for the next succeeding Valuation Date. 4 ================================================================================ FEE TABLE ================================================================================ The following table describes the fees and expenses that you will pay at the time that you buy the contract, surrender the contract, or transfer cash value between investment options. State premium taxes may also be deducted. MAXIMUM OWNER TRANSACTION EXPENSES Maximum Withdrawal Charges/(1)/ (as a percentage of each Purchase Payment) .................... 6% TRANSFER FEE $10 per transfer after the first 12 transfers in any Contract Year. The following describes the fees and expenses that you may pay periodically during the time that you own the contract, not including underlying funds fees and expenses. CONTRACT MAINTENANCE FEE/(2)/.................................................................. $30 VARIABLE ACCOUNT ANNUAL EXPENSES (deducted from the average daily ending net asset value allocated to the Variable Portfolio) Variable Account Annual Expenses............................................................ 1.40% Optional Annual Ratchet Plan................................................................ 0.10% Optional Equity Assurance Plan/(3)/ Ages 60+ /(4)/.......................................................................... 0.20% Optional Estate Benefit Payment............................................................. 0.20% Optional Accidental Death Benefit/(5)/...................................................... 0.05% ---- TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES.................................................. 1.95% ====
================================================================================ PORTFOLIO EXPENSES ================================================================================ The following shows the minimum and maximum total operating expenses charged by the underlying Portfolios of the AllianceBernstein Variable Products Series Fund, Inc. ("Fund") before any waivers or reimbursements that you may pay periodically during the time you own the contract. More detail concerning the Fund's fees and expenses is contained in the prospectus for the Fund. Please read the Fund prospectus carefully before investing.
TOTAL ANNUAL UNDERLYING PORTFOLIO OPERATING EXPENSES MINIMUM MAXIMUM/(6)/ ---------------------------------------------------- ------- ---------- As of December 31, 2009 (expenses that are deducted from underlying portfolios of the Fund, including management fees, other expenses and 12b-1 fees, if applicable) 0.69% 1.62% ---- ----
---------- FOOTNOTES TO FEE TABLE: (1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment) Years............................................ 1 2 3 4 5 6 7 8+ 6% 6% 5% 5% 4% 3% 2% 0%
(2) The contract maintenance fee may be waived if Contract Value is $50,000 or more. 5 (3) The Enhanced Equity Assurance Plan includes both the Annual Ratchet Plan and the Equity Assurance Plan. The fee for the Enhanced Equity Assurance Plan up to age 59 is 0.17% and age 60+ is 0.30%. (4) If you are age 59 or younger, the fee for the Equity Assurance Plan is 0.07%. (5) This feature is not available for an Individual Retirement Annuity or other qualified plans. (6) For individual expenses of each of the Variable Portfolios available in your contract, please refer to the Fund prospectus. ================================================================================ MAXIMUM AND MINIMUM EXPENSE EXAMPLES ================================================================================ These Examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include owner transaction expenses, contract maintenance fees, variable account annual expenses and expenses of the underlying portfolios of the Fund. The Examples assumes that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; and that the maximum and minimum fees and expenses of the Fund are reflected. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: MAXIMUM EXPENSE EXAMPLES (ASSUMING MAXIMUM VARIABLE ACCOUNT ANNUAL EXPENSES OF 2.25% (INCLUDING THE ENHANCED EQUITY ASSURANCE PLAN, AT AGES 60+, ESTATE BENEFIT PAYMENT AND THE ACCIDENTAL DEATH BENEFIT) AND INVESTMENT IN AN UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.80%) (1) If you surrender your contract at the end of the applicable time period and you elect the optional benefits at the maximum charges offered (the Enhanced Equity Assurance Plan, which is the combination of the Annual Ratchet and Equity Assurance Plan, Ages 60+ at 0.30%); Estate Benefit Payment, 0.20% and the Accidental Death Benefit, 0.05%: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $1,007 $1,723 $2,474 $4,248 ============ ============ ============ ============ (2) If you annuitize your contract at the end of the applicable time period: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $353 $1,074 $1,817 $3,774 ============ ============ ============ ============ (3) If you do not surrender your contract and you elect the optional benefits at the maximum charges offered (the Enhanced Equity Assurance Plan, which is the combination of the Annual Ratchet and Equity Assurance Plan, Ages 60+ at 0.30%); Estate Benefit Payment, 0.20% and the Accidental Death Benefit, 0.05%): 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $407 $1,232 $2,074 $4,248 ============ ============ ============ ============ 6 MINIMUM EXPENSE EXAMPLES (ASSUMING MINIMUM VARIABLE ACCOUNT ANNUAL EXPENSES OF 1.70% AND INVESTMENT IN AN UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.64%) (1) If you surrender your contract at the end of the applicable time period and you do not elect any optional benefits: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $837 $1,230 $1,650 $2,676 ============ ============ ============ ============ (2) If you annuitize your contract at the end of the applicable time period: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $237 $730 $1,250 $2,676 ============ ============ ============ ============ (3) If you do not surrender your contract and you do not elect any optional benefits: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------------ ------------ ------------ $237 $730 $1,250 $2,676 ============ ============ ============ ============ EXPLANATION OF FEE TABLE AND EXPENSES (1) The purpose of the Fee Table and Expense Examples is to show you the various expenses you would incur directly or indirectly by investing in the contract. The Fee Tables and Expense Examples represent both the Variable Account expenses as well as portfolio company investment management expenses. We converted the contract maintenance fee to a percentage (0.03%). The actual impact of the contract maintenance fee may differ from this percentage and may be waived for Contract Values over $50,000. Additional information on the portfolio company fees can be found in the Fund prospectus. (2) In addition to the stated assumptions, the Expense Examples also assume Variable Account Annual Expenses as indicated and that no transfer fees were imposed. Although premium taxes may apply, they are not reflected in the Expense Examples. (3) Expense Examples reflecting application of optional features and benefits use the highest fees and charges being offered for those features. These examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. CONDENSED FINANCIAL INFORMATION APPEARS IN THE CONDENSED FINANCIAL INFORMATION APPENDIX OF THIS PROSPECTUS 7 ================================================================================ THE CONTRACT ================================================================================ GENERAL DESCRIPTION An annuity is a contract between you, as the owner, and a life insurance company. The contract provides tax deferral for your earnings, which means your earnings accumulate on a tax-deferred basis until you take money out of your contract. It also provides a death benefit and a guaranteed income in the form of annuity payments beginning on a date you select. Until you, or another person you select as the Annuitant, begin to receive annuity payments, your annuity is in the accumulation phase. The income phase starts when we begin making annuity payments. If you die during the accumulation phase, we guarantee a death benefit to the surviving joint owner, if applicable, or to your beneficiary. The contract is called a variable annuity because you can allocate your money among variable investment options. Each available subaccount of our variable account invests in shares of a corresponding portfolio of a mutual fund. Depending on market conditions, the various portfolios may make or lose money. If you allocate money to the portfolios, your Contract Value during the accumulation phase will depend on their investment performance. In addition, the amount of the variable annuity payments you may receive will depend on the investment performance of the portfolios you select for the income phase. If portfolios lose money, your Contract Value or the amount of any variable annuity payments you may receive can decline. The contract also has a fixed investment option that is part of our general account. Premium you allocate to the fixed investment option will earn interest at a fixed rate that we set. We guarantee the interest rate will never be less than 3%. Your Contract Value in the general account during the accumulation phase will depend on the total interest we credit. During the income phase, each annuity payment you receive from the fixed portion of your contract will be for the same amount. PURCHASING A CONTRACT Premium is the money you give us as payment to buy the contract, as well as any additional money you give us to invest in the contract after you own it. The minimum initial investment for both qualified and non-qualified contracts is $2,000. You may add premium payments of $1,000 or more to your contract at any time during the accumulation phase. You can pay scheduled subsequent premium of $100 or more per month by enrolling in an automatic investment plan. We may refuse any premium. In general, we will not issue a contract to anyone who is over age 85. You may assign this contract before beginning the Income Phase by sending us a written request for an assignment. Your rights and those of any other person with rights under this contract will be subject to the assignment. WE RESERVE THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the Statement of Additional Information for details on the tax consequences of an assignment. We no longer accept applications for new contracts. 8 ALLOCATION OF PREMIUM When you purchase a contract, you will tell us how to allocate your initial premium among the investment options. We will allocate additional premium in the same way unless you tell us otherwise. At the time of application, we must receive your initial premium at our Administrative Office before the contract will be effective. We will issue your contract and allocate your initial premium within two business days. If you do not give us all the necessary information we need to issue the contract, we will contact you to obtain it. If we are unable to complete this process within five business days, we will send your money back unless you allow us to keep it until we get all the necessary information. RIGHT TO EXAMINE CONTRACT If you change your mind about owning this contract, you can cancel it within ten days after receiving it (or longer if required by state law) by mailing it back to our Administrative Office c/o Delaware Valley Financial Services, LLC, 300 Berwyn Park, P.O. Box 3031, Berwyn, PA 19312-0031. You will receive your Contract Value as of the day we receive your request, which may be more or less than the money you initially invested. In certain states or if you purchase your contract as an individual retirement annuity, we may be required to return your premium. If you cancel your contract during the right to examine period, we will return to you an amount equal to your premium payments less any partial surrender. ACCUMULATION UNITS The value of an Accumulation Unit may go up or down from day to day. When you pay a premium, we credit your contract with Accumulation Units. The number of Accumulation Units credited is determined by dividing the amount of premium allocated to a subaccount by the value of the Accumulation Unit for that subaccount. We calculate the value of an Accumulation Unit as of the close of business of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for trading. Except in the case of initial premium, we credit Accumulation Units to your contract at the value next calculated after we receive your premium at our Administrative Office. The Accumulation Unit value for each portfolio will vary from one Valuation Period to the next based on the investment experience of the assets in the portfolio and the deduction of certain charges and expenses. The SAI contains a detailed explanation of how Accumulation Units are valued. Your value in any portfolio is determined by multiplying its unit value by the number of units you own. Your value within the variable investment options is the sum of your values in all the portfolios. The total value of your contract, referred to as the Contract Value, equals your value in the variable investment options plus your value in the fixed investment option. TRANSFERS DURING THE ACCUMULATION PHASE Subject to our rules, restrictions and policies, during the Accumulation Phase you may transfer funds between the variable investment options and the fixed investment option by telephone or through the American General Life Insurance Company of Delaware ("AGL of Delaware") website (http://www.sunamerica.com) or in writing 9 by mail or facsimile. When receiving instructions over the telephone or the Internet, we follow procedures we have adopted to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or the Internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. Any transfer request will be priced as of the day it is confirmed in good order by us if the request is processed before Market Close. If the transfer request is processed after Market Close, the request will be priced as of the next business day. Funds already in your contract cannot be transferred into the dollar cost averaging ("DCA") Fixed Accounts. You must transfer at least $1,000 per transfer. If less than $1,000 remains in any Variable Portfolio after a transfer, that amount must be transferred as well. TRANSFER POLICIES We do not want to issue this variable annuity contract to contract owners engaged in trading strategies that seek to benefit from short-term price fluctuations or price inefficiencies in the Variable Portfolios of this product ("Short-Term Trading") and we discourage Short-Term Trading as more fully described below. However, we cannot always anticipate if a potential contract owner intends to engage in Short-Term Trading. Short-Term Trading may create risks that may result in adverse effects on investment return of an underlying fund. Such risks may include, but are not limited to: (1) interference with the management and planned investment strategies of an Underlying Fund and/or (2) increased brokerage and administrative costs due to forced and unplanned fund turnover; both of which may dilute the value of the shares in the Underlying Fund and reduce value for all investors in the Variable Portfolio. In addition to negatively impacting the contract owner, a reduction in Contract Value may also be harmful to Annuitants and/or beneficiaries. We have adopted the following administrative procedures to discourage Short-Term Trading. We charge for transfers in excess of 12 in any Contract Year. Currently, the fee is $10 for each transfer exceeding this limit. Transfers resulting from your participating in the DCA or asset rebalancing programs are not counted towards the number of free transfers per Contract Year. In addition to charging a fee when you exceed a specific number of transfers, all transfer requests in excess of 15 transfers within a rolling twelve-month look-back period must be submitted by United States Postal Service first-class mail ("U.S. Mail"). Once a contract triggers this "Standard U.S. Mail Policy," all transfer requests must be submitted by U.S. Mail for 12 months from the date of the triggering transfer. For example, if you made a transfer on August 16, 2006 and within the previous twelve months (from August 17, 2005 forward) you made 15 transfers including the August 16th transfer, then all transfers made for twelve months after August 16, 2006 must be submitted by U.S. Mail (from August 17, 2006 through August 16, 2007). We will not accept transfer requests submitted by any other medium except U.S. Mail during this 12-month period. Transfer requests required to be submitted by U.S. Mail can only be cancelled by a written request sent by U.S. Mail with the appropriate paperwork received prior to the execution of the transfer. All transfers made on the same day prior to Market Close are considered one transfer request. Transfers resulting from your participation in the DCA or Asset Rebalancing programs are not included for the purposes of determining the number of transfers 10 before applying the Standard U.S. Mail Policy. We apply the Standard U.S. Mail Policy uniformly and consistently to all contract owners except for omnibus group contracts as described below. We believe that the Standard U.S. Mail Policy is a sufficient deterrent to Short-Term Trading. However, we may become aware of transfer patterns among the Variable Portfolios and/or Fixed Accounts which reflect what we consider to be Short-Term Trading or otherwise detrimental to the Variable Portfolios but have not yet triggered the limitations of the Standard U.S. Mail Policy described above. If such transfer activity comes to our attention, we may require you to adhere to our Standard U.S. Mail Policy prior to reaching the specified number of transfers ("Accelerated U.S. Mail Policy"). To the extent we become aware of Short-Term Trading activities which cannot be reasonably controlled by the Standard U.S. Mail Policy or the Accelerated U.S. Mail Policy, we also reserve the right to evaluate, in our sole discretion, whether to impose further limits on the number and frequency of transfers you can make, impose minimum holding periods and/or reject any transfer request or terminate your transfer privileges. We will notify you in writing if your transfer privileges are terminated. In addition, we reserve the right not to accept transfers from a third party acting for you and not to accept pre-authorized transfer forms. Some of the factors we may consider when determining whether to accelerate the Standard U.S. Mail Policy, reject or impose other conditions on transfer privileges include: (1) the number of transfers made in a defined period; (2) the dollar amount of the transfer; (3) the total assets of the Variable Portfolio involved in the transfer and/or transfer requests that represent a significant portion of the total assets of the Variable Portfolio; (4) the investment objectives and/or asset classes of the particular Variable Portfolio involved in your transfers; (5) whether the transfer appears to be part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies; and/or (6) other activity, as determined by us, that creates an appearance, real or perceived, of Short-Term Trading. Notwithstanding the administrative procedures above, there are limitations on the effectiveness of these procedures. Our ability to detect and/or deter Short-Term Trading is limited by operational systems and technological limitations. We cannot guarantee that we will detect and/or deter all Short-Term Trading. To the extent that we are unable to detect and/or deter Short-Term Trading, the Variable Portfolios may be negatively impacted as described above. Additionally, the Variable Portfolios may be harmed by transfer activity related to other insurance companies and/or retirement plans or other investors that invest in shares of the Underlying Fund. You should be aware that the design of our administrative procedures involves inherently subjective decisions, which we attempt to make in a fair and reasonable manner consistent with the interests of all owners of this contract. We do not enter into agreements with contract owners whereby we permit or intentionally disregard Short-Term Trading. 11 The Standard and Accelerated U.S. Mail Policies are applied uniformly and consistently to contract owners utilizing third party trading services/strategies that perform asset allocation services for a number of contract owners at the same time. You should be aware that such third party trading services may engage in transfer activities that can also be detrimental to the Variable Portfolios, including trading relatively large groups of contracts simultaneously. These transfer activities may not necessarily be intended to take advantage of short-term price fluctuations or price inefficiencies. However, such activities can create the same or similar risks as Short-Term Trading and negatively impact the Variable Portfolios as described above. Omnibus group contracts may invest in the same Underlying Funds available in your contract but on an aggregate, not individual basis. Thus, we have limited ability to detect Short-Term Trading in omnibus group contracts and the Standard U.S. Mail Policy does not apply to these contracts. Our inability to detect Short-Term Trading may negatively impact the Variable Portfolios as described above. WE RESERVE THE RIGHT TO MODIFY THE POLICIES AND PROCEDURES DESCRIBED IN THIS SECTION AT ANY TIME. To the extent that we exercise this reservation of rights, we will do so uniformly and consistently unless we disclose otherwise. For information regarding transfers during the Income Phase, SEE TRANSFERS DURING INCOME PHASE BELOW. 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 contract owner's transfer request. Additionally, a Fund may instruct us to restrict all purchases or transfers into the Fund by a particular contract owner. We will follow the Fund's instructions. The availability of transfers from any variable investment option offered under the contract 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 Short-Term Trading, the Funds have the right to request information regarding contract owner transaction activity. If a Fund requests, we will provide mutually agreed upon information regarding contract owner transactions in the Fund. DOLLAR COST AVERAGING ("DCA") PROGRAM The contract has a feature that allows you to dollar cost average your allocations to the portfolios by authorizing us to make periodic allocations of Contract Value from either the money market portfolio or the fixed investment option to one or more of the other portfolios. Dollar cost averaging is a systematic method of investing in which securities are purchased at regular intervals in fixed dollar amounts so that the cost of the securities gets averaged over time and possibly over various market cycles. It will result in the reallocation of Contract Value to one or more portfolios and these amounts will be credited at the Accumulation Unit value as of the Valuation Dates on which the exchanges are effected. The amounts exchanged from a portfolio will result in a debiting of a greater number of units when the Accumulation Unit value is low and a lower number of units when the Accumulation Unit value is high. 12 To elect dollar cost averaging, your Contract Value must be at least $12,000. You must send us a completed dollar cost averaging request form, which is available from the Administrative Office. Transfer may occur on such periodic schedules such as monthly or weekly. We will not consider your request unless your Contract Value is at least the required amount or the premium submitted is at least $12,000. In addition to the dollar cost averaging program described above, we also offer six-month and twelve-month dollar cost averaging programs that are available only for new premium payments of at least $12,000. Either initial premium or subsequent premium payments are eligible for these programs. You may not include existing Contract Value in the six-month or twelve-month dollar cost averaging program. If you select either program, your premium will be allocated to the DCA account. The DCA account is a guaranteed account available for the six-month and twelve-month dollar cost averaging programs. Your Contract Value in the DCA account will earn interest at a rate guaranteed for six months or twelve months, as applicable, from the date we receive your new premium. The interest rate applicable to each account varies. Therefore, each premium allocation to either of these programs may earn interest at a different rate. The full amount of the premium you allocate to the DCA account will be transferred on a monthly basis over either a six-month or twelve-month period, as applicable, into portfolios you have chosen. The monthly amount transferred from the DCA account is either one-sixth or one-twelfth of the premium allocated to it depending on which program you select. You may not change the amount or frequency of transfers under either program. The interest rate credited to the DCA account may be different from the interest rate credited to the fixed investment option. If the dollar cost averaging program is terminated, we will automatically transfer any Contract Value remaining in the DCA account to the fixed investment option. Please note that the six-month and twelve-month dollar cost averaging programs may not be available in your state. Please contact us for more information. There is no charge for participating in any dollar cost averaging program. In addition, your periodic transfers under a dollar cost averaging program are not counted against your twelve free transfers per Contract Year. We reserve the right to modify, suspend or terminate any dollar cost averaging program at any time. Dollar cost averaging does not guarantee profits, nor does it assure you will not have losses. ASSET REBALANCING PROGRAM Once your premium has been allocated among the investment options, the earnings may cause the percentage invested in each investment option to differ from your allocation instructions. You can direct us to automatically rebalance your contract to return to your allocation percentages by selecting our asset rebalancing program. Rebalancing may be on a monthly, quarterly, semiannual or annual basis. The minimum amount of each rebalancing is $1,000. There is no charge for participating in the asset rebalancing program. In addition, a rebalancing is not counted against your twelve free transfers each Contract Year. We reserve the right to modify, suspend or terminate this program at anytime. We also reserve the right to waive the $1,000 minimum amount for asset rebalancing. 13 ================================================================================ INVESTMENT OPTIONS ================================================================================ VARIABLE INVESTMENT OPTIONS Variable Account I Our board of directors authorized the organization of the variable account in 1986. The variable account is maintained pursuant to Delaware insurance law and is registered with the SEC as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not supervise the management or the investment practices of the variable account. We own the assets in the variable account and use them to support the variable portion of your contract and other variable annuity contracts described in other prospectuses. The variable account's assets are separate from our other assets and are not chargeable with liabilities arising out of any other business we conduct. Income, gains or losses, whether or not realized, are credited to or charged against the subaccounts of the variable account without regard to income, gains or losses arising out of any of our other business. As a result, the investment performance of each subaccount of the variable account is entirely independent of the investment performance of our general account and of any of our other variable accounts. The variable account is divided into subaccounts, each of which invests in shares of a different portfolio of a mutual fund. One or more of these funds may sell its shares to other funds. The variable account maintains subaccounts that are not available under the contract. We may, from time to time, add or remove subaccounts and the corresponding portfolios. No substitution of shares of one portfolio for another will be made until you have been notified and the SEC has approved the change. If deemed to be in the best interest of persons having voting rights under the contract, the variable account may be operated as a management company under the 1940 Act, may be deregistered under that Act in the event such registration is no longer required, or may be combined with one or more other variable accounts. THE FUND AND ITS PORTFOLIOS The AllianceBernstein Variable Products Series Fund, Inc. is a mutual fund registered with the SEC. It has additional portfolios that are not available under the contract. You should carefully read the fund's prospectus before investing. The fund prospectus is attached to this prospectus and contains information regarding management of the portfolios, investment objectives, investment advisory fees, and other charges. The prospectus also discusses the risks involved in investing in the portfolios. Below is a summary of the investment objectives of the portfolios available under the contract. There is no assurance that any of these portfolios will achieve its stated objectives. Note: Portfolio shares are Class A unless otherwise indicated. AllianceBernstein VPS Growth Portfolio (Class A and B)* - seeks long-term growth of capital. AllianceBernstein VPS Growth and Income Portfolio (Class A and B)* - seeks long-term growth of capital. 14 AllianceBernstein VPS International Value Portfolio (Class A)* - seeks long-term growth of capital. AllianceBernstein VPS Money Market Portfolio (Class A and B)* - seeks maximum current income to the extent consistent with safety of principal and liquidity. AllianceBernstein VPS Large Cap Growth Portfolio (Class A and B)* - seeks long-term growth of capital. AllianceBernstein VPS Small Cap Growth Portfolio (Class A)* - seeks long-term growth of capital. AllianceBernstein VPS Real Estate Investment Portfolio (Class A)* - seeks total return from long-term growth of capital and income. AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class A)* - seeks long-term growth of capital. AllianceBernstein VPS Global Thematic Growth Portfolio (Class A and B)* - seeks long-term growth of capital. AllianceBernstein VPS Balanced Wealth Strategy Portfolio (Class A)* - seeks to maximize total return consistent with the adviser's determination of reasonable risk. AllianceBernstein VPS Intermediate Bond Portfolio (Class A)* - seeks to generate current income and price appreciation without assuming what the adviser considers undue risk. AllianceBernstein VPS Value Portfolio (Class B) - seeks long-term growth of capital. AllianceBernstein VPS International Growth Portfolio (Class A)* - seeks long-term growth of capital. * Class A shares are only available to purchasers of contracts prior to February 1, 2001. FIXED INVESTMENT OPTION Premium you allocate to the fixed investment option is guaranteed and goes into our general account. The general account is not registered with the SEC. The general account is invested in assets permitted by state insurance law. It is made up of all of our assets other than assets attributable to our variable accounts. Unlike our variable account assets, assets in the general account are subject to claims of owners like you, as well as claims made by our other creditors. We credit money allocated to the fixed investment option with interest on a daily basis at the guaranteed rate then in effect. The rate of interest to be credited to the general account is determined wholly within our discretion. However, the rate will not be changed more than once per year. The interest rate will never be less than 3%. If you allocate premium to the fixed investment option, the fixed portion of your Contract Value during the accumulation phase will depend on the total interest we credit to your contract. During the income phase, each annuity payment you receive from the fixed portion of your contract will be for the same amount. 15 We reserve the right to delay any payment from the general account for up to six months from the date we receive the request at our Administrative Office, as permitted by law. ================================================================================ CHARGES AND DEDUCTIONS ================================================================================ INSURANCE CHARGES Each day, we deduct insurance charges from your Contract Value. This is done as part of our calculation of the value of Accumulation Units during the accumulation phase and of Annuity Units during the income phase. The insurance charges are the mortality and expense risk charge, the administrative charge, and the charges for the optional death benefits described under "Death Benefit." MORTALITY AND EXPENSE RISK CHARGE The mortality and expense risk charge is equal, on an annual basis, to 1.25% of the daily value of the variable portion of your contract. We will not increase this charge. It compensates us for assuming the risks associated with our obligations to make annuity payments, provide the death benefit, and cover the cost of administering the contract. If the charges under the contract are not sufficient, we will bear the loss. If the charges are sufficient, we will keep the balance of this charge as profit. ADMINISTRATIVE CHARGE The administrative charge is equal, on an annual basis, to 0.15% of the daily value of the variable portion of your contract. It compensates us for our administrative expenses, which include preparing the contract, confirmations and statements, and maintaining contract records. If this charge is not enough to cover the costs of administering the contract, we will bear the loss. OPTIONAL DEATH BENEFIT CHARGES If you elect an optional death benefit, we will calculate and deduct a charge against the assets in the variable account equal to an annual charge as shown below. Annual Ratchet Plan............................................. 0.10% Equity Assurance Plan Attained Age 0-59............................................ 0.07% Attained Age 60+............................................. 0.20% Estate Benefit Payment.......................................... 0.20% Accidental Death Benefit........................................ 0.05% 16 SURRENDER CHARGE If you surrender your contract prior to the Annuity Date during the first seven years after a premium payment, we will assess a surrender charge as a percentage of premium withdrawn as shown below: PREMIUM YEAR --------------------------------------- 1 2 3 4 5 6 7 THEREAFTER --- --- --- --- --- --- --- ---------- Surrender 6% 6% 5% 5% 4% 3% 2% None Charge................... For purposes of calculating the surrender charge, we treat surrenders as coming from the oldest premiums first (i.e., first-in, first-out). However, we will not assess a surrender charge on that portion of a surrender equal to the greater of: (1) the Contract Value less premium paid, or (2) up to 10% of premium paid, less the amount of any prior surrender. You will not receive the benefit of this "free withdrawal amount" if you participate in the systematic withdrawal program. If you make a partial surrender, we will deduct the surrender charge, if any, pro rata from the remaining value in your contract. If insufficient value remains in your contract, then we will deduct the surrender charge from the amount you are to receive as a result of your surrender request. Likewise, we will deduct a surrender charge on a full surrender from the amount you are to receive. CONTRACT MAINTENANCE FEE During the accumulation phase, we will deduct a contract maintenance fee of $30 from your contract on each Contract Anniversary. We will not increase this fee. It compensates us for the expenses incurred to establish and maintain your contract. If you surrender the entire value of your contract, the contract maintenance fee will be deducted prior to the surrender. During the income phase, we will prorate the contract maintenance fee and deduct it from the annuity payments. We do not deduct the contract maintenance fee if your Contract Value is $50,000 or more when the deduction is to be made. PREMIUM TAXES We will deduct from your Contract Value any premium tax imposed by the state or locality where you reside. Premium taxes currently imposed on the contract by various states range from 0% to 3.5% of premiums paid. These taxes are due either when premium is paid or when annuity payments begin. It is our current practice to charge you for these taxes when annuity payments begin or if you surrender the contract in full. In the future, we may discontinue this practice and assess the tax when it is due or upon the payment of the death benefit. INCOME TAXES Although we do not currently deduct any charges for income taxes attributable to your contract, we reserve the right to do so in the future. 17 FUND EXPENSES There are deductions from and expenses paid out of the assets of the various portfolios. These charges are described in the prospectus for the AllianceBernstein Variable Products Series Fund, Inc. and are summarized in the fee table. FEES AND EXPENSES AND MONEY MARKET INVESTMENT OPTIONS During periods of low short-term interest rates, and in part due to Contract fees and expenses that are assessed as frequently as daily, the yield of the money market investment option may become extremely low and possibly negative. If the daily dividends paid by the underlying mutual fund for the money market investment option are less than the Contract's fees and expenses, the money market investment option's unit value will decrease. In the case of negative yields, your Contract Value in the money market investment option will lose value. REDUCTION OR ELIMINATION OF CERTAIN CHARGES AND ADDITIONAL AMOUNTS CREDITED We may reduce or eliminate the surrender charge or the administrative charge or change the minimum premium requirement when the contract is sold to groups of individuals under circumstances that reduce our sales expenses. We will determine the eligibility of such groups by considering factors such as: (1) the size of the group; (2) the total amount of premium we expect to receive from the group; (3) the nature of the purchase and the persistency we expect in that group; (4) the purpose of the purchase and whether that purpose makes it likely that expenses will be reduced; and (5) any other circumstances that we believe are relevant in determining whether reduced sales expenses may be expected. We may also waive or reduce the surrender charge and/or contract maintenance fee in connection with contracts sold to employees, employees of affiliates, registered representatives, employees of broker-dealers which have a current selling agreement with us, and immediate family members of those persons. Any reduction or waiver may be withdrawn or modified by us. 18 ================================================================================ ACCESS TO YOUR MONEY ================================================================================ GENERALLY Contract Value is available in the following ways: . by surrendering all or part of your Contract Value during the accumulation phase; . by receiving annuity payments during the income phase; or . when we pay a death benefit. Generally, surrenders are subject to a surrender charge and a contract maintenance fee. Surrenders may also be subject to income tax and a penalty tax. To make a surrender you must send a complete and detailed written request to our Administrative Office. We will calculate your surrender as of the close of business of the NYSE at the value next determined after we receive your request. To surrender your entire Contract Value, you must also send us your contract. Under most circumstances, partial surrenders must be for a minimum of $500. We require that your Contract Value be at least $2,000 after the partial surrender. If the Contract Value would be less than $2,000 as a result of a partial surrender, we may cancel the contract. Unless you provide us with different instructions, partial surrenders will be made pro rata from each investment option in which your contract is invested. We may be required to suspend or postpone the payment of a surrender for an undetermined period of time when: . the NYSE is closed (other than a customary weekend and holiday closings); . trading on the NYSE is restricted; . an emergency exists such that disposal of or determination of the value of shares of the portfolios is not reasonably practicable; or . the SEC, by order, so permits for the protection of owners. SYSTEMATIC WITHDRAWAL PROGRAM The systematic withdrawal program allows you to make regularly scheduled withdrawals from your Contract Value of at least $200 each on a monthly, quarterly, semiannual, or annual basis. In order to initiate the program, your Contract Value must be at least $24,000. A maximum of 10% of your Remaining Premium may be withdrawn in a Contract Year. 19 Surrender charges are not imposed on withdrawals under this program up to the maximum amount above, nor is there any charge for participating in this program. You may not elect this program if you have made a partial surrender earlier in the same Contract Year. In addition, the free withdrawal amount is not available in connection with partial surrenders you make while participating in the systematic withdrawal program. You will be entitled to the free withdrawal amount on and after the Contract Anniversary next following the termination of the systematic withdrawal program. Systematic withdrawals will begin on the first scheduled withdrawal date selected by you following the date we process your request. In the event that your value in a specified portfolio or the fixed investment option is not sufficient to make a withdrawal or if your request for systematic withdrawal does not specify the investment options from which to deduct withdrawals, withdrawals will be deducted pro rata from your Contract Value in each portfolio and the fixed investment option. You may cancel the systematic withdrawal program at any time by written request. It will be cancelled automatically if your Contract Value falls below $1,000. In the event the systematic withdrawal program is canceled, you may not elect to participate in the program again until the next Contract Anniversary. If your contract is issued in connection with an individual retirement annuity or 403(b) Plan, you are cautioned that your rights to implement a systematic withdrawal program may be subject to the terms and conditions of your plan, regardless of the terms and conditions of your contract. Moreover, implementation of the systematic withdrawal program may subject you to adverse tax consequences, including a 10% tax penalty if you are under age 59 1/2. See "Taxes" for a discussion of the various tax consequences. For information, including the necessary enrollment form, please check with our Administrative Office. We reserve the right to modify, suspend or terminate this program at any time. ================================================================================ ANNUITY PAYMENTS ================================================================================ GENERALLY Beginning on the Annuity Date, the Annuitant will receive monthly annuity payments. You may choose annuity payments that are fixed, variable or a combination of fixed and variable. You select the Annuity Date, which must be the first day of a month and must be at least one year after we issue your contract. You may change the Annuity Date at least 30 days before payments are to begin. However, annuity payments must begin by the first day of the month following the Annuitant's 90th birthday. Certain states may require that annuity payments begin prior to such date and we must comply with those requirements. You may change the Annuitant at any time prior to the Annuity Date. If you are not the Annuitant and the Annuitant dies before the Annuity Date, you must notify us and designate a new Annuitant. 20 ANNUITY OPTIONS The contract offers the three annuity options described below. Other annuity options may be made available, including other guarantee periods and options without life contingencies, subject to our discretion. If you do not choose an annuity option, we will make annuity payments in accordance with Option 2. However, if the annuity payments are for joint lives, we will make payments in accordance with Option 3. Where permitted by state law, we may pay the annuity in one lump sum if your Contract Value is less than $2,000. In addition, if your annuity payments would be less than $100 per month, we have the right to change the frequency of your payment to be on a semiannual or annual basis so that the payments are at least $100. Option 1 - Life Income Under this option, we will make monthly annuity payments as long as the Annuitant is alive. Annuity payments stop when the Annuitant dies. Option 2 - Life Income With 10 Year Guarantee Under this option, we will make monthly annuity payments as long as the Annuitant is alive with the additional guarantee that payments will be made for a period you select of at least 10 years. If the Annuitant dies before all guaranteed payments have been made, the rest will be paid to the beneficiary for the remainder of the period. Option 3 - Joint and Last Survivor Annuity Under this option, we will make monthly annuity payments as long as either the Annuitant or Joint Annuitant is alive. Upon the death of the Annuitant, we will continue to make annuity payments so long as the Joint Annuitant is alive. VARIABLE ANNUITY PAYMENTS The value of variable income payments, if elected, is based on an assumed interest rate ("AIR") of 5% compounded annually. Variable income payments generally increase or decrease from one income payment date to the next based upon the performance of the applicable variable investment options. If the performance of the variable investment options selected is equal to the AIR, the income payments will remain constant. If performance of variable investment options is greater than the AIR, the income payments will increase and if it is less than the AIR, the income payments will decline. If you choose to have any portion of your annuity payments based on the variable investment options, the amount of your payments will depend upon: . your Contract Value in the portfolios on the Annuity Date; . the 5% assumed investment rate used in the annuity table for the contract; . the performance of the portfolios you selected; and . the annuity option you selected. 21 If the actual performance exceeds the 5% assumed rate, the annuity payments will increase. Similarly, if the actual rate is less than 5%, the annuity payments will decrease. The SAI contains more information. TRANSFERS DURING INCOME PHASE Transfers during the income phase are subject to the same limitations as transfers during the accumulation phase. See "The Contract - Transfers During Accumulation Phase." However, you may only make one transfer each month and you may only transfer money among the variable investment options. You may not transfer money from the fixed investment option to the variable investment options or from the variable investment options to the fixed investment option. DEFERMENT OF PAYMENTS We may defer making fixed annuity payments for up to six months subject to state law. We will credit interest to you during the deferral period. ================================================================================ DEATH BENEFIT ================================================================================ DEATH OF OWNER BEFORE THE ANNUITY DATE If you die before the Annuity Date and the contract is jointly owned, the death benefit is payable to the surviving joint owner. If you die before the Annuity Date and there is no surviving joint owner, the death benefit is payable to the beneficiary. We will determine the value of the death benefit as of the date we receive proof of death in a form acceptable to us. If ownership is changed from one natural person to another natural person, the death benefit will equal the Contract Value. If the surviving joint owner, if any, or designated beneficiary is your spouse, he or she can elect to continue the contract and become the owner. We determine the amount of the death benefit based on the death benefit option you select at the time of application, if any, and calculate it in accordance with the terms of that option as described below. The amount of the death benefit will never be less than the traditional death benefit. If you select both the annual ratchet plan and the equity assurance plan, the death benefit will be the greatest of the traditional death benefit, the annual ratchet plan, or the equity assurance plan. The estate benefit payment and/or the accidental death benefit, as applicable, will be paid in addition to any other benefit. Not all death benefit options may be available in all states. TRADITIONAL DEATH BENEFIT Under the traditional death benefit, we will pay the amount equal to the greatest of: (1) the Contract Value; (2) the total of all premiums paid, less any surrenders; or 22 (3) the greatest Contract Value at any seventh Contract Anniversary, reduced proportionally by any surrenders subsequent to that Contract Anniversary in the same proportion that the Contract Value was reduced on the date of a surrender, plus any premiums paid subsequent to that Contract Anniversary. The traditional death benefit will be paid unless you specify otherwise. OPTIONAL DEATH BENEFITS Annual Ratchet Plan. We will pay a death benefit equal to the greatest of: (1) the Contract Value; (2) the total of all premium paid, less the dollar amount of any surrenders; or (3) the greatest Contract Value at any Contract Anniversary, reduced proportionally by any surrenders subsequent to that Contract Anniversary in the same proportion that the Contract Value was reduced on the date of a surrender, plus any premiums paid subsequent to that Contract Anniversary. The annual ratchet plan will be in effect if: (1) you select it on your application; and (2) the charge for the annual ratchet plan is shown in your contract. The annual ratchet plan will cease to be in effect when we receive your written request to discontinue it. Equity Assurance Plan. We will pay a death benefit equal to the greatest of: (1) the Contract Value; (2) the greatest Contract Value at any seventh Contract Anniversary, plus any premium subsequent to the Contract Anniversary, reduced proportionally by any surrenders subsequent to that Contract Anniversary in the same proportion that the Contract Value was reduced on the date of a surrender; or (3) an amount equal to (a) plus (b) where: (a) is equal to the total of all premium paid on or before the first Contract Anniversary following your 85th birthday, adjusted for surrenders as described below and then accumulated at the compound interest rates shown below for the number of completed years, not to exceed 10, from the date of receipt of each premium to the earlier of the date of death or the first Contract Anniversary following your 85th birthday: 23 . 0% per annum if death occurs during the 1st through 24th month from the date of premium payment; . 2% per annum if death occurs during the 25th through 48th month from the date of premium payment; . 4% per annum if death occurs during the 49th through 72nd month from the date of premium payment; . 6% per annum if death occurs during the 73rd through 96th month from the date of premium payment; . 8% per annum if death occurs during the 97th through 120th month from the date of premium payment; . 10% per annum (for a maximum of 10 years) if death occurs more than 120 months from the date of premium payment; and (b) is equal to all premium paid after the first Contract Anniversary following your 85th birthday, adjusted for surrenders as described below. In determining the death benefit, for each surrender we will make a proportionate reduction to each premium paid prior to the surrender. The proportion is determined by dividing the amount of the Contract Value surrendered by the Contract Value immediately prior to the surrender. The equity assurance plan, which we only issue up to age 75, will be in effect if: (1) you select it on your application; and (2) the charge for the equity assurance plan is shown in your contract. The equity assurance plan will cease to be in effect when we receive your written request to discontinue it or upon the allocation of Contract Value to either the money market portfolio or fixed investment option unless such allocation is made as part of dollar cost averaging. Estate Benefit Payment. If you select the estate benefit payment, we will pay it in addition to any other death benefit in effect at the time of your death. If selected, we will increase the death benefit otherwise payable upon your death by the amount of the estate benefit payment determined as follows: . If you are age 60 or younger on the effective date of your contract, the estate benefit payment will equal the lesser of (a) 70% of net premium or (b) 70% of the Contract Value less net premium. . If you are between ages 61 and 70 on the effective date of your contract, the estate benefit payment will equal the lesser of (a) 50% of net premium or (b) 50% of the Contract Value less net premium. 24 . If you are between ages 71 and 80 on the effective date of your contract, the estate benefit payment will equal the lesser of (a) 30% of net premium or (b) 30% of the Contract Value less net premium. If upon your death your spouse elects to continue the contract in his or her name, the spouse's age as of the date of your death will be the age we use to determine the amount of estate benefit payment payable upon the spouse's death. The estate benefit payment will not be available if your spouse is older than 80 as of the date of your death. Net premium is equal to the total of all premium paid after adjusting each premium for surrenders. We adjust each premium by making a proportionate reduction from the amount of the premium prior to the surrender. We determine the proportion by dividing the amount of the Contract Value surrendered by the Contract Value immediately prior to each surrender. The estate benefit payment will be in effect if: (1) you select it on your application; and (2) the charge for the estate benefit payment is shown in your contract. The estate benefit payment will cease to be in effect when we receive your written request to discontinue it. Accidental Death Benefit. If you select the accidental death benefit at the time of application, we will pay it in addition to any other death benefit in effect at the time of your death. The accidental death benefit is not available if the contract is used in connection with an individual retirement annuity. If selected at the time of application, the accidental death benefit payable under this option will be equal to the lesser of: (1) the Contract Value as of the date the death benefit is determined; or (2) $250,000. The accidental death benefit is payable if you die as a result of injury prior to the Contract Anniversary following your 75th birthday. The death must also occur before the Annuity Date and within 365 days of the date of the accident that caused the injury. The accidental death benefit does not apply to the death of a surviving joint owner. The accidental death benefit will not be paid for any death caused by or resulting (in whole or in part) from the following: . suicide or attempted suicide, while sane or insane, or intentionally self-inflicted injuries; . sickness, disease or bacterial infection of any kind, except pyogenic infections which occur as a result of an injury or bacterial infections which result from the accidental ingestion of contaminated substances; 25 . hernia; . injury sustained as a consequence of riding in, including boarding or alighting from, any vehicle or device used for aerial navigation except if you are a passenger on any aircraft licensed for the transportation of passengers; . declared or undeclared war or any act thereof; or . service in the military, naval or air service of any country. The accidental death benefit will be in effect if: (1) you select it on your application; and (2) the charge for the accidental death benefit is shown in your contract. The accidental death benefit will cease to be in effect upon the Contract Anniversary following your 75th birthday or when we receive your written request to discontinue it. PAYMENT TO SURVIVING JOINT OWNER OR BENEFICIARY Upon your death if prior to the Annuity Date, the surviving joint owner or the beneficiary, as applicable, may elect the death benefit to be paid as follows: (1) payment of the entire death benefit within five years of the date of your death; or (2) payment over the recipient's lifetime with distribution beginning within one year of your date of death. If no payment option is elected within sixty days of our receipt of proof of your death, a single sum settlement will be made at the end of the sixty-day period following such receipt. Upon payment of a death benefit, the contract will end. DEATH OF OWNER AFTER THE ANNUITY DATE If you are not the Annuitant, and if your death occurs on or after the Annuity Date, no death benefit will be payable under the contract. Any guaranteed payments remaining unpaid will continue to be paid to the Annuitant pursuant to the annuity option in force at the date of your death. If the contract is not owned by an individual, the Annuitant will be treated as the owner and any change of the named Annuitant will be treated as if the owner died. 26 DEATH OF ANNUITANT Before the Annuity Date If you are not the Annuitant, and if the Annuitant dies before the Annuity Date, you may name a new Annuitant. If you do not name a new Annuitant within sixty days after we are notified of the Annuitant's death, we will deem you to be the new Annuitant. After the Annuity Date If an Annuitant dies after the Annuity Date, the remaining payments, if any, will be as specified in the annuity option in effect when the Annuitant died. We will require proof of the Annuitant's death. The remaining benefit, if any, will be paid to the beneficiary at least as rapidly as under the method of distribution in effect at the Annuitant's death. If you were not the Annuitant and no beneficiary survives the Annuitant, we will pay any remaining benefit to you. ================================================================================ TAXES ================================================================================ Note: The basic summary below addresses broad federal taxation matters, and generally does not address state taxation issues or questions. It is not tax advice. We caution you to seek competent tax advice about your own circumstances. We do not guarantee the tax status of your annuity. Tax laws constantly change; therefore, we cannot guarantee that the information contained herein is complete and/or accurate. ANNUITY CONTRACTS IN GENERAL Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs taxation of annuities in general. An owner is not taxed on increases in the value of an annuity contract until distribution occurs, either in the form of a non-annuity distribution or as income payments under the annuity option elected. For a lump sum payment received as a total surrender (total redemption), the recipient is taxed on the portion of the payment that exceeds the cost basis of the contract. For a payment received as a withdrawal (partial redemption), federal tax liability is determined on a last-in, first-out basis, meaning taxable income is withdrawn before the cost basis of the contract is withdrawn. For non-qualified contracts, the cost basis is generally the Purchase Payments. The taxable portion of the lump-sum payment is taxed at ordinary income tax rates. Tax penalties may also apply. If you purchase your contract under a pension plan, a specially sponsored employer program, as an individual retirement annuity, or under an individual retirement account, your contract is referred to as a qualified contract. Examples of qualified plans or arrangements are: Individual Retirement Annuities and Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities ("TSAs", also referred to as 403(b) annuities or 403(b) contracts), plans of self-employed individuals (often referred to as H.R. 10 Plans or Keogh Plans), pension and profit sharing plans including 401(k) plans, and governmental 457(b) plans. Typically, for employer plans and tax-deductible IRA contributions, you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. However, you normally will have a cost basis in 27 a Roth IRA, a Roth 403(b) or a Roth 401(k) account, and you may have cost basis in a traditional IRA or in another qualified contract. For annuity payments, the portion of each payment that is in excess of the exclusion amount is includible in taxable income. The exclusion amount for payments based on a fixed annuity option is determined by multiplying the payment by the ratio that the cost basis of the contract (if any, and adjusted for any period or refund feature) bears to the expected return under the contract. The exclusion amount for payments based on a variable annuity option is determined by dividing the cost basis of the contract (adjusted for any period certain or refund guarantee) by the number of years over which the annuity is expected to be paid. Payments received after the investment in the contract has been recovered (i.e. when the total of the excludable amount equals the investment in the contract) are fully taxable. The taxable portion is taxed at ordinary income tax rates. For certain types of qualified plans there may be no cost basis in the contract within the meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under the contracts should seek competent financial advice about the tax consequences of any distributions. The Company is taxed as a life insurance company under the Code. For federal income tax purposes, the Separate Account is not a separate entity from the Company and its operations form a part of the Company. QUALIFIED PLANS The contracts offered by this prospectus are designed to be suitable for use under various types of qualified plans. Taxation of owners in each qualified plan varies with the type of plan and terms and conditions of each specific plan. Owners and Beneficiaries are cautioned that benefits under a qualified plan may be subject to limitations under the Code and the employer-sponsored plan, in addition to the terms and conditions of the contracts issued pursuant to the plan. Following are general descriptions of the types of qualified plans with which the contracts may be used. Such descriptions are not exhaustive and are for general information purposes only. The tax rules regarding qualified plans are very complex and will have differing applications depending on individual facts and circumstances. Each purchaser should obtain competent tax advice prior to purchasing a contract issued under a qualified plan. Contracts issued pursuant to qualified plans include special provisions restricting contract provisions that may otherwise be available and described in this prospectus. Generally, contracts issued pursuant to qualified plans are not transferable except upon surrender or annuitization. Various penalty and excise taxes may apply to contributions or distributions made in violation of applicable limitations. Furthermore, certain contractual withdrawal penalties and restrictions may apply to surrenders from qualified contracts. Plans of Self-Employed Individuals: "H.R. 10 Plans" Section 401 of the Code permits self-employed individuals to establish qualified plans for themselves and their employees, commonly referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the plan for the benefit of the employees will not be included in the gross income of the employees until distributed from the plan. The tax consequences to owners may vary depending upon the particular plan design. However, the Code places limitations and restrictions on these plans, such as: amounts of allowable contributions; form, manner and timing of distributions; vesting and non-forfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. Purchasers of contracts for use 28 with an H.R. 10 Plan should obtain competent tax advice as to the tax treatment and suitability of such an investment. Tax-Sheltered Annuities Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by public schools and certain charitable, education and scientific organizations described in Section 501(c)(3) of the Code. These qualifying employers may make contributions to the contracts for the benefit of their employees. Such contributions are not includible in the gross income of the employee until the employee receives distributions from the contract. The amount of contributions to the tax-sheltered annuity is limited to certain maximums imposed by the Code. One of these limits, on the amount that the employee may contribute on a voluntary basis, is imposed by the annuity contract as well as by the Code. That limit for 2009 is $16,500. The limit may be increased by up to $3,000 for certain employees with at least fifteen years of full-time equivalent service with an eligible employer, and by an additional $5,500 in 2009 for employees age 50 or older, provided that other applicable requirements are satisfied. Total combined employer and employee contributions for 2009 may not exceed the lesser of $49,000 or 100% of compensation. Furthermore, the Code sets forth additional restrictions governing such items as transferability, distributions, nondiscrimination and withdrawals. Any employee should obtain competent tax advice as to the tax treatment and suitability of such an Investment. Traditional IRAs Section 408(b) of the Code permits eligible individuals to contribute to an individual retirement program known as a traditional IRA. Under applicable limitations, certain amounts may be contributed to an IRA which will be deductible from the individual's gross income. The ability to deduct an IRA contribution to a traditional IRA is subject to limits based upon income levels, retirement plan participation status, and other factors. The maximum IRA (traditional and/or Roth) contribution for 2009 is the lesser of $5,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2009. IRAs are subject to limitations on eligibility, contributions, transferability and distributions. Sales of contracts for use with IRAs are subject to special requirements imposed by the Code, including the requirement that certain informational disclosure be given to persons desiring to establish an IRA. Purchasers of contracts to be qualified as IRAs should obtain competent tax advice as to the tax treatment and suitability of such an investment. Roth IRAs Section 408(A) of the Code permits an individual to contribute to an individual retirement program called a Roth IRA. Contributions to a Roth IRA are not deductible but distributions are tax-free if certain requirements are satisfied. The maximum IRA (traditional and/or Roth) contribution for 2009 is the lesser of $5,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2009. Unlike traditional IRAs, to which everyone can contribute even if they cannot deduct the full contribution, income limits for Roth IRAs are limitations on who can establish such a contract. Generally, for 2009 you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is less than: $176,000 for married filing jointly or qualifying widow(er), $10,000 for married filing separately and you lived with your spouse at any time during the year, and $120,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year. Certain persons may be eligible to convert a traditional IRA into a Roth IRA. 29 Conversion into Roth IRAs normally require taxes to be paid on any previously untaxed amounts included in the amount converted. If the contracts are made available for use with Roth IRAs, they may be subject to special requirements imposed by the Internal Revenue Service ("IRS"). Purchasers of the contracts for this purpose will be provided with such supplementary information as may be required by the IRS or other appropriate agency. Pension and Profit-Sharing Plans Section 401(a) of the Code permits certain employers to establish various types of retirement plans, including 401(k) plans, for employees. However, public employers may not establish new 401(k) plans. These retirement plans may permit the purchase of the contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees will not be includible in the gross income of the employee until distributed from the plan. The tax consequences to owners may vary depending upon the particular plan design. However, the Code places limitations on all plans on such items as amount of allowable contributions; form, manner and timing of distributions; vesting and non-forfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. Purchasers of contracts for use with pension or profit sharing plans should obtain competent tax advice as to the tax treatment and suitability of such an investment. Deferred Compensation Plans-Section 457(b) Under Section 457(b) of the Code, governmental and certain other tax-exempt employers may establish, for the benefit of their employees, deferred compensation plans, which may invest in annuity contracts. The Code, as in the case of qualified plans, establishes limitations and restrictions on eligibility, contributions and distributions. Under these plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. Funds in a non-governmental 457(b) plan remain assets of the employer and are subject to claims by the creditors of the employer. All 457(b) plans of state and local governments must hold assets and income in a qualifying trust, custodial account, or annuity contract for the exclusive benefit of participants and their Beneficiaries. TAX TREATMENT OF DISTRIBUTIONS - NON-QUALIFIED CONTRACTS If you make partial or total withdrawals from a non-qualified contract, the Code generally treats such withdrawals as coming first from taxable earnings and then coming from your Purchase Payments. Purchase payments made prior to August 14, 1982, however, are an important exception to this general rule, and for tax purposes generally are treated as being distributed first, before either the earnings on those contributions, or other purchase payments and earnings in the contract. If you annuitize your contract, a portion of each income payment will be considered, for tax purposes, to be a return of a portion of your Purchase Payment, generally until you have received all of your Purchase Payment. Any portion of each income payment that is considered a return of your Purchase Payment will not be taxed. Additionally, the taxable portion of any withdrawals, whether annuitized or other withdrawals, generally is subject to applicable state and/or local income taxes, and may be subject to an additional 10% penalty tax unless withdrawn in conjunction with the following circumstances: 30 . after attaining age 59 1/2; . when paid to your beneficiary after you die; . after you become disabled (as defined in the Code); . when paid as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint expectancies) of you and your designated beneficiary for a period of 5 years or attainment of age 59 1/2, whichever is later; . under an immediate annuity contract; . which are attributable to Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS Generally, you have not paid any taxes on the Purchase Payments used to buy a qualified contract. As a result, most amounts withdrawn from the contract or received as income payments will be taxable income. Exceptions to this general include withdrawals attributable to after-tax Roth IRA, Roth 403(b), and Roth 401(k) contributions. Withdrawals from Roth IRAs are generally treated for federal tax purposes as coming first from the Roth contributions that have already been taxed, and as entirely tax free. Withdrawals from Roth 403(b) and Roth 401(k) accounts, and withdrawals generally from qualified contracts, are treated generally as coming pro-rata from amounts that already have been taxed and amounts that are taxed upon withdrawal. Withdrawals from Roth IRA, Roth 403(b) and Roth 401(k) accounts which satisfy certain qualification requirements, including the Owner's attainment of age 59 1/2 and at least five years in a Roth account under the plan or IRA, will not be subject to federal income taxation. The taxable portion of any withdrawal or income payment from a qualified contract will be subject to an additional 10% penalty tax, under the Code, except in the following circumstances: . after attainment of age 59 1/2; . when paid to your beneficiary after you die; . after you become disabled (as defined in the Code); . as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint expectancies) of you and your designated beneficiary for a period of 5 years or attainment of age 59 1/2, whichever is later; . payments to employees after separation from service after attainment of age 55 (does not apply to IRAs); . dividends paid with respect to stock of a corporation described in Code Section 404(k); 31 . for payment of medical expenses to the extent such withdrawals do not exceed limitations set by the Code for deductible amounts paid during the taxable year for medical care; . payments to alternate payees pursuant to a qualified domestic relations order (does not apply to IRAs); . for payment of health insurance if you are unemployed and meet certain requirements; . distributions from IRAs for higher education expenses; . distributions from IRAs for first home purchases; . distributions from IRAs to individuals called to active duty; or . amounts distributed from a Code Section 457(b) plan other than amounts representing rollovers from an IRA or employer sponsored plan to which the 10% penalty would otherwise apply. The Code generally requires the Company (or, in some cases, a plan administrator) to withhold tax on the taxable portion of any distribution or withdrawal from a contract. For "eligible rollover distributions" from contracts issued under certain types of qualified plans, not including IRAs, 20% of the distribution must be withheld, unless the payee elects to have the distribution "rolled over" or transferred to another eligible plan in a direct "trustee-to-trustee" transfer. This requirement is mandatory and cannot be waived by the owner. Withholding on other types of distributions, including distributions from IRAs can be waived. An "eligible rollover distribution" is the taxable portion of any amount received by a covered employee from a traditional IRA or retirement plan qualified under Sections 401 or 403 or, if from a plan of a governmental employer, under Section 457(b) of the Code, or from a tax-sheltered annuity qualified under Section 403(b) of the Code other than (1) substantially equal periodic payments calculated using the life (or life expectancy) of the employee, or joint lives (or joint life expectancies) of the employee and his or her designated Beneficiary, or for a specified period of ten years or more; (2) financial hardship withdrawals; and (3) minimum distributions required to be made under the Code. Failure to "roll over" the entire amount of an eligible rollover distribution (including an amount equal to the 20% portion of the distribution that was withheld) could have adverse tax consequences, including the imposition of a penalty tax on premature withdrawals, described later in this section. Withdrawals or distributions from a contract other than eligible rollover distributions are also subject to withholding on the taxable portion of the distribution, but the owner may elect in such cases to waive the withholding requirement. If not waived, withholding is imposed (1) for periodic payments, at the rate that would be imposed if the payments were wages, or (2) for other distributions, at the rate of 10%. If no withholding exemption certificate is in effect for the payee, the rate under (1) above is computed by treating the payee as a single individual claiming no withholding exemptions. The Code limits the withdrawal of an employee's voluntary Purchase Payments from a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner (1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4) becomes disabled (as defined in the Code); or (5) experiences a financial hardship (as defined in the Code). In the case of hardship, the owner can only withdraw Purchase Payments. Additional 32 plan limitations may also apply. Amounts held in a TSA annuity contract as of December 31, 1988 are not subject to these restrictions. Qualifying transfers of amounts from one TSA contract to another TSA contract under section 403(b) or to a custodial account under section 403(b)(7), and qualifying transfers to a state defined benefit plan to purchase service credits, are not considered distributions, and thus are not subject to these withdrawal limitations. Transfers among 403(b) annuities and/or 403(b)(7) custodial accounts generally are subject to rules set out in the Code, regulations, IRS pronouncements, and other applicable legal authorities. If amounts are transferred from a custodial account described in Code section 403(b)(7) to this contract the transferred amount will retain the custodial account withdrawal restrictions. On July 26, 2007, the Department of the Treasury published final 403(b) regulations that are largely effective on January 1, 2009. (However, the IRS has issued guidance that provides relief during 2009 for sponsors of 403(b) plans with respect to the requirements to have a written 403(b) plan in place January 1, 2009.) These comprehensive regulations include several new rules and requirements, such as a requirement that employers maintain their 403(b) plans pursuant to a written plan. The final regulations, subsequent IRS guidance, and the terms of the written plan may impose new restrictions on both new and existing contracts, including restrictions on the availability of loans, distributions, transfers and exchanges, regardless of when a contract was purchased. Prior to the effective date of the final regulations, provisions applicable to tax-free transfers and exchanges of 403(b) annuity contracts or custodial accounts became effective September 25, 2007, replacing existing rules under IRS Revenue Ruling 90-24 ("90-24 transfer"). Under these new rules, transfers and exchanges (both referred to below as "transfers") are available only to the extent permitted under the employer's 403(b) plan once established. Additionally, transfers occurring after September 24, 2007 that do not comply with these new rules can become taxable on January 1, 2009, or the date of the transfer, whichever is later. If you make a transfer to a contract or custodial account that is not part of the employer's 403(b) plan (other than a transfer to a different plan), and the provider and employer fail to enter into an information sharing agreement by January 1, 2009, the transfer would be considered a "failed" transfer that is subject to tax. Additional guidance issued by the IRS generally permits a failed transfer to be corrected no later than December 31, 2009 by re-transferring to a contract or custodial account that is part of the employer's 403(b) plan or that is subject to an information-sharing agreement with the employer. In general, certain contracts originally established by a 90-24 transfer prior to September 25, 2007 are exempt (or grandfathered) from some of the requirements of the final regulations; provided that no salary reduction or other contributions have ever been made to the contract, and that no additional transfers are made to the contract on or after September 25, 2007. Further, contracts that are not grandfathered are generally required to be part of, and subject to the requirements of an employer's 403(b) plan upon its establishment, but no later than by January 1, 2009. The new rules in the final regulations generally do not affect a participant's ability to transfer some or all of a 403(b) account to a state-defined benefit plan to purchase service credits, where such a transfer is otherwise consistent with applicable rules and requirements and with the terms of the employer's plan. You may wish to discuss the new regulations and/or the general information above with your tax advisor. Withdrawals from other qualified contracts are often limited by the Code and by the employer's plan. 33 MINIMUM DISTRIBUTIONS Generally, the Code requires that you begin taking annual distributions from qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year in which you separate from service from the employer sponsoring the plan. If you own an IRA, you must begin taking distributions when you attain age 70 1/2. If you own more than one TSA, you may be permitted to take your annual distributions in any combination from your TSAs. A similar rule applies if you own more than one IRA. However, you cannot satisfy this distribution requirement for your TSA contract by taking a distribution from an IRA, and you cannot satisfy the requirement for your IRA by taking a distribution from a TSA. On December 23, 2008, the Worker, Retiree and Employer Recovery Act of 2008 (the "2008 Act") was signed into law. The 2008 Act waives the required minimum distribution rules for individual retirement plans for calendar year 2009. At this time, it is unclear whether the 2009 required minimum distribution waiver applies to annuity payments such as those that would be distributed under your contract. You should consult your tax adviser with any questions you have about the 2009 required minimum distribution waiver legislation, its application to your contract and whether annuity payments made under your contract in 2009 can be rolled over tax-free under the 2008 Act. The 2008 Act does not address any waiver for calendar year 2010 or any subsequent year. You may be subject to a surrender charge on withdrawals taken to meet minimum distribution requirements, if the withdrawals exceed the contract's maximum penalty free amount. Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax advisor for more information. You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select monthly, quarterly, semiannual, or annual withdrawals for this purpose. This service is provided as a courtesy and we do not guarantee the accuracy of our calculations. Accordingly, we recommend you consult your tax advisor concerning your required minimum distribution. You may terminate your election for automated minimum distribution at any time by sending a written request to our Annuity Service Center. We reserve the right to change or discontinue this service at any time. The IRS issued regulations, effective January 1, 2003, regarding required minimum distributions from qualified annuity contracts. One of the regulations effective January 1, 2006 require that the annuity Contract Value used to determine required minimum distributions include the actuarial value of other benefits under the contract, such as optional death benefits. This regulation does not apply to required minimum distributions made under an irrevocable annuity income option. You should discuss the effect of these regulations with your tax advisor. TAX TREATMENT OF DEATH BENEFITS Any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefits are paid as lump sum or annuity payments. Estate taxes may also apply. Certain enhanced death benefits may be purchased under your contract. Although these types of benefits are used as investment protection and should not give rise to any adverse tax effects, the IRS could take the position 34 that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In that case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the owner is under 59 1/2. If you own a qualified contract and purchase these enhanced death benefits the IRS may consider these benefits "incidental death benefits" or "life insurance." The Code imposes limits on the amount of the incidental benefits and/or life insurance allowable for qualified contracts and the employer-sponsored plans under which they are purchased. If the death benefit(s) selected by you are considered to exceed these limits, the benefit(s) could result in taxable income to the owner of the qualified contract, and in some cases could adversely impact the qualified status of the qualified contract or the plan. You should consult your tax advisor regarding these features and benefits prior to purchasing a contract. DIVERSIFICATION AND INVESTOR CONTROL Section 817(h) of the Code imposes certain diversification standards on the underlying assets of non-qualified variable annuity contracts. These requirements generally do not apply to qualified contracts, which are considered "Pension Plan Contracts" for purposes of these Code requirements. The Code provides that a variable annuity contract will not be treated as an annuity contract for any period (and any subsequent period) for which the investments are not adequately diversified, in accordance with regulations prescribed by the United States Treasury Department ("Treasury Department"). Disqualification of the contract as an annuity contract would result in imposition of federal income tax to the owner with respect to earnings allocable to the contract prior to the receipt of any payments under the contract. The Code contains a safe harbor provision which provides that annuity contracts, such as your contract, meet the diversification requirements if, as of the close of each calendar quarter, the underlying assets meet the diversification standards for a regulated investment company, and no more than 55% of the total assets consist of cash, cash items, U.S. government securities and securities of other regulated investment companies. The Treasury Department has issued regulations which establish diversification requirements for the investment portfolios underlying variable contracts such as the contracts. The regulations amplify the diversification requirements for variable contracts set forth in the Code and provide an alternative to the safe harbor provision described above. Under the regulations an investment portfolio will be deemed adequately diversified if (1) no more than 55% of the value of the total assets of the portfolio is represented by any one investment; (2) no more than 70% of the value of the total assets of the portfolio is represented by any two investments; (3) no more than 80% of the value of the total assets of the portfolio is represented by any three investments; and (4) no more than 90% of the value of the total assets of the portfolio is represented by any four investments. For purposes of determining whether or not the diversification standards imposed on the underlying assets of variable contracts by Section 817(h) of the Code have been met, "in the case of government securities, each United States government agency or instrumentality shall be treated as a separate issuer." The diversification regulations do not provide guidance as to the circumstances under which you, and not the Company, would be considered the owner of the shares of the Variable Portfolios under your non-qualified contract, because of the degree of control you exercise over the underlying investments. This requirement is sometimes referred to as "investor control." It is unknown to what extent owners are permitted to select investments, to make transfers among Variable Portfolios or the number and type of Variable Portfolios owners may select from. If any guidance is provided which is considered a new position, then the guidance should generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be 35 applied retroactively. This would mean that you, as the owner of the non-qualified contract, could be treated as the owner of the underlying Variable Portfolios. Due to the uncertainty in this area, we reserve the right to modify the contract in an attempt to maintain favorable tax treatment. These investor control limitations generally do not apply to qualified contracts, which are referred to as "Pension Plan Contracts" for purposes of this rule, although the limitations could be applied to qualified contracts in the future. CONTRACTS OWNED BY A TRUST OR CORPORATION A Trust or Corporation ("Non-Natural Owner") that is considering purchasing this contract should consult a tax advisor. Generally, the Code does not treat a non-qualified contract owned by a non-natural owner as an annuity contract for Federal income tax purposes. Under Section 72(u) of the Code, the investment earnings on premiums for the contracts will be taxed currently to the owner if the owner is a non-natural person, e.g., a corporation or certain other entities. Such contracts generally will not be treated as annuities for federal income tax purposes. The non-natural owner pays tax currently on the contract's value in excess of the owner's cost basis. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by qualified plans. MULTIPLE CONTRACTS The Code provides that multiple non-qualified annuity contracts which are issued within a calendar year to the same contract owner by one company or its affiliates are treated as one annuity contract for purposes of determining the tax consequences of any distribution. Such treatment may result in adverse tax consequences including more rapid taxation of the distributed amounts from such combination of contracts. For purposes of this rule, contracts received in a Section 1035 exchange will be considered issued in the year of the exchange. (However, they may be treated as issued on the issue date of the contract being exchanged, for certain purposes, including for determining whether the contract is an immediate annuity contract.) Owners should consult a tax adviser prior to purchasing more than one non-qualified annuity contract from the same issuer in any calendar year. TAX TREATMENT OF ASSIGNMENTS OF QUALIFIED CONTRACTS Generally, a qualified contract, including an IRA, may not be assigned or pledged. One exception to this rule is if the assignment is part of a permitted loan program under an employer-sponsored plan or pursuant to a qualified domestic relations order meeting the requirements of the plan or arrangement under which the contract is issued (or, in the case of an IRA, pursuant to a decree of divorce or separation maintenance or a written instrument incident to such decree.) TAX TREATMENT OF GIFTING, ASSIGNING, OR TRANSFERRING OWNERSHIP OF A NON-QUALIFIED CONTRACT Under Code section 72(e)(4)(c), if you transfer ownership of your non-qualified contract to a person other than your spouse (or former spouse if incident to divorce) for less than adequate consideration, you will be taxed on the earnings above the purchase payments at the time of transfer. If you transfer ownership of your non-qualified contract and receive payment less than the contract's value, you will also be liable for the tax on the 36 contract's value above your purchase payments not previously withdrawn. The new contract owner's purchase payments (basis) in the contract will be increased to reflect the amount included in your taxable income. TRUSTEE TO TRUSTEE TRANSFERS OF QUALIFIED CONTRACTS The Code limits the withdrawal of Purchase Payments from certain TSAs and certain other qualified contracts. Withdrawals generally can be made when an owner: (1) reaches age 59 1/2 (70 1/2 in the case of Section 457(b) Plans); (2) separates from employment from the employer sponsoring the plan; (3) dies; (4) becomes disabled (as defined in the Code); or (5) experiences a financial hardship (as defined in the Code). In the case of hardship, the owner can only withdraw Purchase Payments. Transfers of amounts from one qualified contract to another qualified contract of the same plan type or to a state defined benefit plan to purchase service credits are not considered distributions, and thus are not subject to these withdrawal limitations. Such transfers may, however, be subject to limitations under the annuity contract or plan. PARTIAL 1035 EXCHANGES Section 1035 of the Code provides that an annuity contract may be exchanged in a tax-free transaction for another annuity contract. Historically, it was generally understood that only the exchange of an entire annuity contract, as opposed to a partial exchange, would be respected by the IRS as a tax-free exchange. In 1998, the U.S. Tax Court ruled that the direct transfer of a portion of an annuity contract into another annuity contract qualified as a tax-free exchange. In 1999, the IRS acquiesced in that Tax Court decision, but stated that it would nonetheless continue to challenge partial exchange transactions under certain circumstances. In Rev. Proc. 2008-24, the IRS announced that it will consider all the facts and circumstances to determine whether a partial exchange and subsequent withdrawal from, or surrender of, either the surviving annuity contract or the new annuity contract within 12 months of the partial exchange should be treated as an integrated transaction, and thus whether the two contracts should be treated as a single contract to determine the tax treatment of the surrender or withdrawal under Section 72 of the Code. Although Rev. Proc. 2008-24 and the IRS's acquiescence in the Tax Court decision indicate that the IRS will respect partial exchanges of annuity contracts under certain circumstances, uncertainty remains, and owners should seek their own tax advice regarding such transactions and the tax risks associated with subsequent surrenders or withdrawals. ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 For tax years beginning in 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) expands the range of eligible tax-free rollover distributions that may be made among qualified contracts. The changes made to the Code by EGTRRA are scheduled to expire on December 31, 2010. Congress may, however, decide to promulgate legislation making the changes permanent or delaying their expiration. ================================================================================ OTHER INFORMATION ================================================================================ AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE American General Life Insurance Company of Delaware ("AGL of Delaware") is a stock life insurance company initially organized under the laws of Pennsylvania and reorganized under the laws of Delaware. AGL 37 of Delaware home office address is 600 King Street, Wilmington, Delaware 19801. AGL of Delaware was incorporated in 1962. AGL of Delaware is an indirect wholly owned subsidiary of American International Group, Inc. American International Group, Inc., a Delaware corporation, is a holding company which, through its subsidiaries, is primarily engaged in a broad range of insurance and insurance-related activities in the United States and abroad. American General Life Companies is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc., including AGL of Delaware. Effective in the state of Delaware on December 8, 2009, AGL of Delaware changed its name from AIG Life Insurance Company to American General Life Insurance Company of Delaware. Prior to this name change, the Policies were issued under the name AIG Life Insurance Company. The name change is still pending approval in some jurisdictions. We may provide you with various forms, reports and confirmations that reflect our prior name until we receive all regulatory approvals and complete the name change process. On March 4, 2009, American International Group, Inc. issued and sold to the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury (the "Trust"), 100,000 shares of American International Group, Inc.'s Series C Perpetual, Convertible, Participating Preferred Stock (the "Stock") for an aggregate purchase price of $500,000, with an understanding that additional and independently sufficient consideration was also furnished to American International Group, Inc. by the Federal Reserve Bank of New York (the "FRBNY") in the form of its lending commitment (the "Credit Facility") under the Credit Agreement, dated as of September 22, 2008, between American International Group, Inc. and the FRBNY. The Stock has preferential liquidation rights over American International Group, Inc. common stock, and, to the extent permitted by law, votes with American International Group Inc.'s common stock on all matters submitted to American International Group, Inc.'s shareholders. The Trust has approximately 79.8% of the aggregate voting power of American International Group Inc.'s common stock and is entitled to approximately 79.8% of all dividends paid on American International Group, Inc.'s common stock, in each case treating the Stock as if converted. The Stock will remain outstanding even if the Credit Facility is repaid in full or otherwise terminates. AGL of Delaware is not a guarantor of the Credit Facility obligations and it has not pledged any assets to secure those obligations. We may occasionally publish in advertisements, sales literature and reports the ratings and other information assigned to American International Group, Inc. 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 should not be considered as bearing on the investment performance of assets held in the variable account. The ratings are not recommendations to purchase our life insurance or annuity products or to hold or sell these products, nor do the ratings 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 performance of the variable account or the degree of risk associated with an investment in the variable account. 38 THE GENERAL ACCOUNT Money allocated to any Fixed Accounts goes into the AGL of Delaware's general account. The general account consists of all of the AGL of Delaware's assets other than assets attributable to a Variable Account. All of the assets in the general account are chargeable with the claims of any of the AGL of Delaware's contract holders as well as all of its creditors. The general account funds are invested as permitted under state insurance laws. Circumstances affecting American International Group, Inc. can have an impact on AGL of Delaware. For example, the recent downgrades and ratings actions taken by the major rating agencies with respect to American International Group, Inc. resulted in corresponding downgrades and ratings actions being taken with respect to AGL of Delaware's ratings. There can be no assurance that such ratings agencies will not take further action with respect to such ratings. Accordingly, we can give no assurance that any further changes in circumstances for American International Group, Inc. will not impact us. GUARANTEE OF INSURANCE OBLIGATIONS Insurance obligations under all contracts with a date of issue 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 of Delaware. Insurance obligations include, without limitation, Contract Value invested in any available fixed investment option, death benefits, and income options. The guarantee does not guarantee variable Contract Value or the investment performance of the variable investment options available under the contracts. The guarantee provides that contract owners can enforce the guarantee directly. As of December 29, 2006 at 4:00 p.m. Eastern time (the "Point of Termination"), the Guarantee was terminated for prospectively issued contracts. The Guarantee will not cover any contracts with a date of issue later than the Point of Termination. The Guarantee will continue to cover all contracts, since the contracts are no longer sold, until all insurance obligations under such contracts are satisfied in full. 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 is an indirect wholly owned subsidiary of American International Group, Inc. and an affiliate of AGL of Delaware. REGISTRATION STATEMENTS Registration statements under the Securities Act of 1933, as amended, related to the contracts offered by this prospectus are on file with the SEC. This prospectus does not contain all the information contained in the registration statements and exhibits. For further information regarding the variable account, AGL of Delaware and its general account, the Variable Portfolios and the contract, please refer to the registration statements and exhibits. 39 OWNERSHIP This prospectus describes both individual flexible premium deferred variable annuity contracts and group flexible premium deferred variable annuity contracts. The individual and group contracts described in this prospectus are identical except that the individual contract is issued directly to the individual owner. A group contract is issued to a contract holder for the benefit of the participants in the group. If you are a participant in the group you will receive a certificate evidencing your ownership. You, either as the owner of an individual contract or as the owner of a certificate, are entitled to all the rights and privileges of ownership. As used in this prospectus, the term contract is equally applicable to an individual contract or to a certificate. VOTING RIGHTS To the extent required by law, we will vote the portfolio shares held in the variable account at shareholder meetings in accordance with instructions received from persons having a voting interest in the portfolio. However, if legal requirements or our interpretation of present law changes to permit us to vote the portfolio shares in our own right, we may elect to do so. Prior to the Annuity Date, you hold a voting interest in each portfolio in whose corresponding subaccount you have Contract Value. We determine the number of portfolio shares that are attributable to you by dividing the corresponding value in a particular portfolio by the net asset value of one portfolio share. After the Annuity Date, we determine the number of portfolio shares that are attributable to you by dividing the reserve maintained in a particular portfolio to meet the obligations under the contract by the net asset value of one portfolio share. The number of votes that you will have a right to cast will be determined as of the record date established by each portfolio. We will solicit voting instructions by mail prior to the shareholder meeting. Each person having a voting interest in a portfolio will receive proxy material, reports and other materials relating to the appropriate portfolios. We will vote shares in accordance with instructions received from the person having a voting interest. We will vote shares for which we receive no timely instructions and any shares not attributable to owners in proportion to the voting instructions we have received. The voting rights relate only to amounts invested in the variable account. There are no voting rights with respect to funds allocated to the fixed investment option. PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT Payments to Broker-Dealers Registered representatives of broker-dealers sell the contract. We pay commissions to the broker-dealers for the sale of your contract ("Contract Commissions"). There are different structures by which a broker-dealer can choose to have their Contract Commissions paid. For example, as one option, we may pay upfront Contract Commission only, that may be up to a maximum 7% of each Purchase Payment you invest (which may include promotional amounts). Another option may be a lower upfront Contract Commission on each Purchase Payment, with a trail commission of up to a maximum 1.50% of Contract Value annually. We pay Contract Commissions directly to the broker-dealer with whom your registered representative is affiliated. Registered 40 representatives may receive a portion of these amounts we pay in accordance with any agreement in place between the registered representative and his/her broker-dealer firm. We may pay broker-dealers support fees in the form of additional cash or non-cash compensation. These payments may be intended to reimburse for specific expenses incurred or may be based on sales, certain assets under management, longevity of assets invested with us or a flat fee. These payments may be consideration for, among other things, product placement/preference, greater access to train and educate the firm's registered representatives about our products, our participation in sales conferences and educational seminars and allowing broker-dealers to perform due diligence on our products. The amount of these fees may be tied to the anticipated level of our access in that firm. We enter into such arrangements in our discretion and we may negotiate customized arrangements with firms, including affiliated and non-affiliated broker-dealers based on various factors. We do not deduct these amounts directly from your Purchase Payments. We anticipate recovering these amounts from the fees and charges collected under the contract. You should discuss with your broker-dealer and/or registered representative any potential conflicts of interest that may arise as a result of the way they are compensated for selling the contract. Our affiliate, American General Equity Services Corporation ("AGESC"), 2727-A Allen Parkway, 2G-7, Houston, Texas 77019, acts as the distributor of the contract.AGESC is an affiliate of AGL of Delaware. No underwriting fees are paid in connection with the distribution of the contracts. Payments We Receive In addition to amounts received pursuant to established 12b-1 Plans from the Underlying Funds, we receive compensation of up to 0.20% annually based on assets under management from the Series Fund's investment adviser or its affiliates for services related to the availability of the Underlying Funds in the contract. Furthermore, the Series Fund's investment adviser or its affiliates may help offset the costs we incur for training to support sales of the Underlying Funds in the contract. ADMINISTRATION OF THE CONTRACT We are ultimately responsible for the administrative servicing of your contract, and have engaged an administrator for servicing assistance. Please contact our Annuity Service Center if you have any comment, question or service request: Delaware Valley Financial Services, LLC P.O. Box 3031 Berwyn, PA 19312-0031 (800) 255-8402 We send out transaction confirmations and quarterly statements. During the Accumulation Phase, you will receive confirmation of transactions within your contract. Transactions made pursuant to contractual or systematic agreements, such as deduction of dollar cost averaging, may be confirmed quarterly. Purchase Payments received through the automatic payment plan or a salary reduction arrangement may also be confirmed quarterly. For all other transactions, we send confirmations immediately. It is your responsibility to review these documents carefully and notify us of any inaccuracies immediately. We investigate all inquiries. 41 To the extent that we believe we made an error, we retroactively adjust your contract, provided you notify us within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments we deem warranted are made as of the time we receive notice of the error. LEGAL PROCEEDINGS AGL of Delaware is a party to various lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions that permit damage awards disproportionate to the actual damages incurred. Based upon information presently available, AGL of Delaware believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on AGL of Delaware's results of operations, cash flows and financial position. VARIATIONS IN CONTRACT OR INVESTMENT OPTION TERMS AND CONDITIONS We have the right to make some variations in the terms and conditions of a Contract 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 contract owner approval and SEC and other regulatory approvals. Here are some of the potential variations: State Law Requirements AGL of Delaware is subject to the insurance laws and regulations in every jurisdiction in which the Contracts are sold. As a result, various time periods and other terms and conditions described in this prospectus may vary depending on where you reside. These variations will be reflected in your Contract and related endorsements. Expenses or Risks AGL of Delaware may vary the charges and other terms within the limits of the Contract where special circumstances result in sales, administrative or other expenses, mortality risks or other risks that are different from those normally associated with the Contract. 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. ================================================================================ FINANCIAL STATEMENTS ================================================================================ WHERE YOU CAN FIND MORE INFORMATION The financial statements of AGL of Delaware, Variable Account I and National Union can be found in the Statement of Additional Information ("SAI"). You may obtain a free copy of this SAI if you contact our Annuity Service Center at 800-255-8402 or by writing to Delaware Valley Financial Services, LLC, 42 300 Berwyn Park, P.O. Box 3031, Berwyn, PA 19312-0031. The financial statements have also been filed electronically with the SEC and can be obtained through its website at http://www.sec.gov. The SEC allows us to "incorporate by reference" some of the information AGL of Delaware files with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus. AGL of Delaware files information electronically pursuant to EDGAR, and it is available to the public through the SEC's website at http://www.sec.gov. You can also inspect and copy this information at SEC public facilities at the following locations: CHICAGO, ILLINOIS 175 W. Jackson Boulevard Chicago, IL 60604 NEW YORK, NEW YORK 3 World Financial, Room 4300 New York, NY 10281 To obtain copies by mail contact the Washington, D.C. location. After you pay the fees as prescribed by the rules and regulations of the SEC, the required documents are mailed. AGL of Delaware will provide without charge to each person to whom this prospectus is delivered, upon written or oral request, a copy of the above documents incorporated by reference. Requests for these documents should be directed to AGL of Delaware's Annuity Service Center, as follows: Annuity Service Center Delaware Valley Financial Services, LLC P.O. Box 3031 Berwyn, PA 19312-0031 Telephone Number: (800) 255-8402 43 APPENDIX A CONDENSED FINANCIAL INFORMATION ACCUMULATION UNIT VALUES* (FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD) AS OF DECEMBER 31, 2009
2009 2008 2007 2006 2005 ------------ ------------ ------------ ------------ ------------ ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN VPS AMERICAS GOVERNMENT INCOME PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period - 23.24 21.75 21.35 19.92 End of Period - - 23.24 21.75 21.35 Accum Units o/s @ end of Period - - 1,202,377.66 1,452,149.43 1,850,979.65 ALLIANCEBERNSTEIN VPS BALANCED SHARES PORTFOLIO (CLASS A)/(2)/, /(3)/ Accumulation Unit Value Beginning of Period - 27.67 27.24 24.71 24.11 End of Period - - 27.67 27.24 24.71 Accum Units o/s @ end of Period - - 4,285,324.90 5,275,426.90 6,215,453.27 ALLIANCEBERNSTEIN VPS BALANCED WEALTH STRATEGY PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 8.16 - - - - End of Period 10.05 8.16 - - - Accum Units o/s @ end of Period 6,539,640.00 7,402,988.47 - - - ALLIANCEBERNSTEIN VPS GLOBAL BOND PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period - 19.18 17.63 17.03 18.70 End of Period - - 19.18 17.63 17.03 Accum Units o/s @ end of Period - - 763,435.84 802,681.57 909,829.66 ALLIANCEBERNSTEIN VPS GLOBAL DOLLAR GOVERNMENT PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period - 37.42 36.31 33.47 30.96 End of Period - - 37.42 36.31 33.47 Accum Units o/s @ end of Period - - 464,036.02 565,836.99 592,892.47 ALLIANCEBERNSTEIN VPS GLOBAL THEMATIC GROWTH PORTFOLIO (CLASS A)/(4)/ Accumulation Unit Value Beginning of Period 10.46 20.16 17.01 15.88 15.51 End of Period 15.84 10.46 20.16 17.01 15.88 Accum Units o/s @ end of Period 1,336,164.00 1,523,531.74 1,902,103.59 2,487,488.16 3,423,150.52 ALLIANCEBERNSTEIN VPS GROWTH PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 17.06 30.08 26.99 27.67 25.06 End of Period 22.42 17.06 30.08 26.99 27.67 Accum Units o/s @ end of Period 1,074,544.00 1,256,001.40 1,647,759.26 2,304,530.60 3,101,146.80 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------- ------------- ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN VPS AMERICAS GOVERNMENT INCOME PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period 19.26 18.19 16.62 16.27 14.68 End of Period 19.92 19.26 18.19 16.62 16.27 Accum Units o/s @ end of Period 2,109,973.86 2,758,312.92 3,548,971.26 2,680,204.65 1,548,657.99 ALLIANCEBERNSTEIN VPS BALANCED SHARES PORTFOLIO (CLASS A)/(2)/, /(3)/ Accumulation Unit Value Beginning of Period 22.42 19.09 21.66 21.48 19.35 End of Period 24.11 22.42 19.09 21.66 21.48 Accum Units o/s @ end of Period 7,041,779.49 7,622,703.48 7,743,164.11 6,989,487.68 3,514,022.78 ALLIANCEBERNSTEIN VPS BALANCED WEALTH STRATEGY PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period - - - - - End of Period - - - - - Accum Units o/s @ end of Period - - - - - ALLIANCEBERNSTEIN VPS GLOBAL BOND PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period 17.30 15.49 13.43 13.66 13.69 End of Period 18.70 17.30 15.49 13.43 13.66 Accum Units o/s @ end of Period 899,581.83 1,026,964.16 1,062,698.15 644,219.96 536,432.90 ALLIANCEBERNSTEIN VPS GLOBAL DOLLAR GOVERNMENT PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period 28.51 21.67 18.92 17.55 15.60 End of Period 30.96 28.51 21.67 18.92 17.55 Accum Units o/s @ end of Period 627,509.72 763,041.69 896,548.14 477,157.98 417,248.95 ALLIANCEBERNSTEIN VPS GLOBAL THEMATIC GROWTH PORTFOLIO (CLASS A)/(4)/ Accumulation Unit Value Beginning of Period 14.91 10.49 18.26 24.77 32.00 End of Period 15.51 14.91 10.49 18.26 24.77 Accum Units o/s @ end of Period 4,421,253.91 5,422,693.79 6,496,492.59 8,743,308.66 11,058,564.75 ALLIANCEBERNSTEIN VPS GROWTH PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 22.15 16.63 23.45 31.08 38.20 End of Period 25.06 22.15 16.63 23.45 31.08 Accum Units o/s @ end of Period 3,848,854.38 4,585,494.49 5,363,610.89 7,309,996.91 9,249,411.34
44 APPENDIX A CONDENSED FINANCIAL INFORMATION ACCUMULATION UNIT VALUES* (FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD) AS OF DECEMBER 31, 2009
2009 2008 2007 2006 2005 ------------ ------------ ------------ ------------ ------------ ALLIANCEBERNSTEIN VPS GROWTH AND INCOME PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 28.31 48.33 46.63 40.32 38.99 End of Period 33.73 28.31 48.33 46.63 40.32 Accum Units o/s @ end of Period 1,743,418.00 2,042,069.75 2,715,782.19 3,756,306.62 5,141,951.23 ALLIANCEBERNSTEIN VPS HIGH YIELD PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period - 11.79 11.85 11.02 10.98 End of Period - - 11.79 11.85 11.02 Accum Units o/s @ end of Period - - 1,786,381.64 2,324,942.36 2,778,501.71 ALLIANCEBERNSTEIN VPS INTERMEDIATE BOND PORTFOLIO (CLASS A)/(5)/ Accumulation Unit Value Beginning of Period 15.73 17.04 16.48 16.08 15.99 End of Period 18.38 15.73 17.04 16.48 16.08 Accum Units o/s @ end of Period 5,672,450.00 6,699,868.71 3,351,829.60 3,681,289.13 4,352,829.29 ALLIANCEBERNSTEIN VPS INTERNATIONAL GROWTH PORTFOLIO (CLASS A)/(6)/ Accumulation Unit Value Beginning of Period 21.35 42.33 36.34 29.01 24.34 End of Period 29.38 21.35 42.33 36.34 29.01 Accum Units o/s @ end of Period 1,531,121.00 1,803,261.94 2,362,514.61 1,193,404.36 1,304,175.39 ALLIANCEBERNSTEIN VPS INTERNATIONAL RESEARCH GROWTH PORTFOLIO (CLASS A)/(7)/, /(8)/ Accumulation Unit Value Beginning of Period - - 21.47 17.22 14.65 End of Period - - - 21.47 17.22 Accum Units o/s @ end of Period - - - 2,496,539.39 2,997,745.66 ALLIANCEBERNSTEIN VPS INTERNATIONAL VALUE PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 11.91 25.80 24.72 18.51 16.07 End of Period 15.82 11.91 25.80 24.72 18.51 Accum Units o/s @ end of Period 1,181,470.00 1,467,425.90 1,939,150.63 2,320,036.54 2,217,641.06 ALLIANCEBERNSTEIN VPS LARGE CAP GROWTH PORTFOLIO (CLASS A) /(9)/ Accumulation Unit Value Beginning of Period 19.76 33.22 29.57 30.12 26.53 End of Period 26.80 19.76 33.22 29.57 30.12 Accum Units o/s @ end of Period 1,755,830.00 2,041,219.93 2,639,142.37 3,599,113.71 4,740,081.81 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------- ------------- ALLIANCEBERNSTEIN VPS GROWTH AND INCOME PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 35.47 27.15 35.32 35.69 31.78 End of Period 38.99 35.47 27.15 35.32 35.69 Accum Units o/s @ end of Period 6,252,145.38 7,482,975.05 8,592,750.44 11,231,684.75 11,974,779.78 ALLIANCEBERNSTEIN VPS HIGH YIELD PORTFOLIO (CLASS A) /(1)/ Accumulation Unit Value Beginning of Period 10.31 8.54 8.93 8.79 9.40 End of Period 10.98 10.31 8.54 8.93 8.79 Accum Units o/s @ end of Period 3,417,986.67 4,045,172.23 3,613,913.91 3,170,428.79 2,199,740.81 ALLIANCEBERNSTEIN VPS INTERMEDIATE BOND PORTFOLIO (CLASS A)/(5)/ Accumulation Unit Value Beginning of Period 15.63 15.26 14.35 13.49 12.32 End of Period 15.99 15.63 15.26 14.35 13.49 Accum Units o/s @ end of Period 5,433,740.27 7,057,574.51 9,194,405.86 6,387,464.57 3,686,407.51 ALLIANCEBERNSTEIN VPS INTERNATIONAL GROWTH PORTFOLIO (CLASS A)/(6)/ Accumulation Unit Value Beginning of Period 19.86 14.04 14.86 18.22 24.00 End of Period 24.34 19.86 14.04 14.86 18.22 Accum Units o/s @ end of Period 1,401,476.37 1,420,591.69 1,588,243.58 2,067,502.81 2,498,271.77 ALLIANCEBERNSTEIN VPS INTERNATIONAL RESEARCH GROWTH PORTFOLIO (CLASS A)/(7)/, /(8)/ Accumulation Unit Value Beginning of Period 12.63 9.74 11.65 15.22 19.26 End of Period 14.65 12.63 9.74 11.65 15.22 Accum Units o/s @ end of Period 3,061,809.56 3,247,657.09 3,712,444.26 4,256,222.36 4,285,660.01 ALLIANCEBERNSTEIN VPS INTERNATIONAL VALUE PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 13.02 9.15 9.78 N/A N/A End of Period 16.07 13.02 9.15 9.78 N/A Accum Units o/s @ end of Period 2,082,812.58 1,630,939.86 1,404,664.76 379,508.360 N/A ALLIANCEBERNSTEIN VPS LARGE CAP GROWTH PORTFOLIO (CLASS A) /(9)/ Accumulation Unit Value Beginning of Period 24.77 20.31 29.70 36.38 44.22 End of Period 26.53 24.77 20.31 29.70 36.38 Accum Units o/s @ end of Period 5,873,691.48 7,463,057.43 8,937,374.82 12,017,393.03 14,573,794.49
45 APPENDIX A CONDENSED FINANCIAL INFORMATION ACCUMULATION UNIT VALUES* (FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD) AS OF DECEMBER 31, 2009
2009 2008 2007 2006 2005 ------------ ------------ ------------ ------------ ------------ ALLIANCEBERNSTEIN VPS MONEY MARKET PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 13.64 13.58 13.19 12.84 12.72 End of Period 13.47 13.64 13.58 13.19 12.84 Accum Units o/s @ end of Period 1,320,513.81 1,320,513.81 1,059,770.37 1,342,407.05 1,442,244.54 ALLIANCEBERNSTEIN VPS REAL ESTATE INVESTMENT PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 18.09 28.53 33.85 25.39 23.05 End of Period 23.10 18.09 28.53 33.85 25.39 Accum Units o/s @ end of Period 561,469.00 701,479.01 1,019,318.74 1,414,727.25 1,708,870.82 ALLIANCEBERNSTEIN VPS SMALL CAP GROWTH PORTFOLIO (CLASS A) /(10)/ Accumulation Unit Value Beginning of Period 8.18 15.24 13.55 12.41 11.96 End of Period 11.44 8.18 15.24 13.55 12.41 Accum Units o/s @ end of Period 1,533,873.00 1,734,457.96 2,114,866.54 2,927,271.51 3,244,606.88 ALLIANCEBERNSTEIN VPS SMALL/MID CAP VALUE PORTFOLIO (CLASS A) /(11)/ Accumulation Unit Value Beginning of Period 12.72 20.03 19.97 17.70 16.79 End of Period 17.92 12.72 20.03 19.97 17.70 Accum Units o/s @ end of Period 1,355,597.00 1,624,289.66 2,221,633.62 2,682,822.89 3,232,495.43 ALLIANCEBERNSTEIN VPS UTILITY INCOME PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 22.08 35.32 29.27 23.98 20.96 End of Period - 22.08 35.32 29.27 23.98 Accum Units o/s @ end of Period - 985,614.53 1,357,657.75 1,629,171.44 1,805,419.66 ALLIANCEBERNSTEIN VPS U.S. LARGE CAP BLENDED STYLE PORTFOLIO (CLASS B) /(12)/ Accumulation Unit Value Beginning of Period 8.19 14.14 13.76 12.70 11.75 End of Period - 8.19 14.14 13.76 12.70 Accum Units o/s @ end of Period - 165,766.07 223,522.23 215,707.52 209,861.06 ALLIANCEBERNSTEIN VPS VALUE PORTFOLIO (CLASS B) Accumulation Unit Value Beginning of Period 8.28 14.23 15.06 12.62 12.13 End of Period 9.88 8.28 14.23 15.06 12.62 Accum Units o/s @ end of Period 2,373,117.00 2,802,926.54 4,086,127.22 4,947,042.38 5,697,257.83 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------- ------------- ALLIANCEBERNSTEIN VPS MONEY MARKET PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 12.81 12.92 12.96 12.69 12.15 End of Period 12.72 12.81 12.92 12.96 12.69 Accum Units o/s @ end of Period 1,818,282.96 2,737,200.03 5,024,576.71 6,134,815.43 7,745,515.60 ALLIANCEBERNSTEIN VPS REAL ESTATE INVESTMENT PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 17.24 12.55 12.40 11.35 9.09 End of Period 23.05 17.24 12.55 12.40 11.35 Accum Units o/s @ end of Period 2,135,907.75 2,181,343.97 2,290,698.45 1,716,032.29 1,351,325.43 ALLIANCEBERNSTEIN VPS SMALL CAP GROWTH PORTFOLIO (CLASS A) /(10)/ Accumulation Unit Value Beginning of Period 10.59 7.21 10.72 12.46 13.45 End of Period 11.96 10.59 7.21 10.72 12.46 Accum Units o/s @ end of Period 3,879,840.19 4,466,854.35 4,670,605.08 5,098,525.15 5,129,672.13 ALLIANCEBERNSTEIN VPS SMALL/MID CAP VALUE PORTFOLIO (CLASS A) /(11)/ Accumulation Unit Value Beginning of Period 14.27 10.24 11.08 N/A N/A End of Period 16.79 14.27 10.24 11.08 N/A Accum Units o/s @ end of Period 3,582,738.05 3,759,334.76 3,537,441.46 1,544,796.39 N/A ALLIANCEBERNSTEIN VPS UTILITY INCOME PORTFOLIO (CLASS A) Accumulation Unit Value Beginning of Period 17.09 14.46 18.83 24.64 22.42 End of Period 20.96 17.09 14.46 18.83 24.64 Accum Units o/s @ end of Period 1,964,001.61 2,151,384.93 2,458,811.07 2,898,031.19 2,067,949.10 ALLIANCEBERNSTEIN VPS U.S. LARGE CAP BLENDED STYLE PORTFOLIO (CLASS B) /(12)/ Accumulation Unit Value Beginning of Period 10.91 N/A --- --- --- End of Period 11.75 10.91 --- --- --- Accum Units o/s @ end of Period 196,331.03 106,799.38 --- --- --- ALLIANCEBERNSTEIN VPS VALUE PORTFOLIO (CLASS B) Accumulation Unit Value Beginning of Period 10.85 8.56 9.98 N/A N/A End of Period 12.13 10.85 8.56 9.98 N/A Accum Units o/s @ end of Period 6,361,376.80 6,157,155.02 5,613,963.76 2,388,654.53 N/A
46 * Funds were first invested in the Portfolios as listed below: ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Americas Government Income Portfolio (Class A)/(1)/ May 3, 1994 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Balanced Shares Portfolio (Class A)/(2), /(3) December 28, 1992 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Balanced Wealth Strategy Portfolio (Class A) July 1, 2004 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Global Bond Portfolio (Class A)/(1)/ July 15, 1991 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Global Dollar Government Portfolio (Class A)/(1)/ May 2, 1994 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Global Thematic Growth Portfolio (Class A)/(4)/ January 11, 1996 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Growth Portfolio (Class A) September 15, 1994 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Growth and Income Portfolio (Class A) January 14, 1991 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS High Yield Portfolio (Class A)/(1)/ October 27, 1997 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Intermediate Bond Portfolio (Class A)/(5)/ September 17, 1992 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS International Growth Portfolio (Class A)/(6)/ September 23, 1994 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS International Research Growth Portfolio (Class A)/(7)/, /(8)/ December 28, 1992 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS International Value Portfolio (Class A) May 10, 2001 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Large Cap Growth Portfolio (Class A)/(9)/ June 26, 1992 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Money Market Portfolio (Class A) December 30, 1992 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Real Estate Investment Portfolio (Class A) January 9, 1997 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Small Cap Growth Portfolio (Class A)/(10)/ August 5, 1996 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class A)/(11)/ May 2, 2001 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Utility Income Portfolio (Class A) May 10, 1994 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Global Thematic Growth Portfolio (Class B) /(4)/ September 22, 1999 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Growth Portfolio (Class B) June 1, 1999 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Growth and Income Portfolio (Class B) June 1, 1999 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Large Cap Growth Portfolio (Class B) /(9)/ July 14, 1999 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Money Market Portfolio (Class B) June 16, 1999 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS U.S. Large Cap Blended Style Portfolio (Class B)/(12)/ May 5, 2003 ----------------------------------------------------------------------------------------------------------------- AllianceBernstein VPS Value Portfolio (Class B) May 1, 2001 -----------------------------------------------------------------------------------------------------------------
----------------------------------- (1) Effective April 25, 2008, AllianceBernstein VPS Americas Government Income Portfolio, AllianceBernstein VPS Global Bond Portfolio, AllianceBernstein VPS Global Dollar Government Portfolio, and AllianceBernstein VPS High Yield Portfolio were acquired by AllianceBernstein VPS U.S. Government/High Grade Securities Portfolio. (2) Effective February 1, 2006, AllianceBernstein VPS Total Return Portfolio changed its name to AllianceBernstein VPS Balanced Shares Portfolio. (3) Effective September 26, 2008, AllianceBernstein VPS Balanced Shares Portfolio was acquired by AllianceBernstein VPS Balanced Wealth Strategy Portfolio. (4) Effective May 1, 2009, AllianceBernstein VPS Global Technology Portfolio changed its name to AllianceBernstein VPS Global Thematic Growth Portfolio. Effective May 2, 2005, AllianceBernstein VPS Technology Portfolio changed its name to AllianceBernstein VPS Global Technology Portfolio. (5) Effective April 28, 2008, AllianceBernstein VPS U.S. Government/High Grade Securities Portfolio changed its name to AllianceBernstein VPS Intermediate Bond Portfolio. (6) Effective February 1, 2006, AllianceBernstein VPS Worldwide Privatization Portfolio changed its name to AllianceBernstein VPS International Growth Portfolio. (7) Effective February 1, 2006, AllianceBernstein VPS International Portfolio changed its name to AllianceBernstein VPS International Research Growth Portfolio. 47 (8) Effective December 7, 2007, AllianceBernstein VPS International Research Growth Portfolio was acquired by AllianceBernstein VPS International Growth Portfolio. (9) Effective May 2, 2005, AllianceBernstein VPS Premier Growth Portfolio changed its name to AllianceBernstein VPS Large Cap Growth Portfolio. (10) Effective May 1, 2004, AllianceBernstein VPS Quasar Portfolio changed its name to AllianceBernstein VPS Small Cap Growth Portfolio. (11) Effective May 2, 2005, AllianceBernstein VPS Small Cap Value Portfolio changed its name to AllianceBernstein VPS Small/Mid Cap Value Portfolio. (12) Effective February 13, 2009, AllianceBernstein VPS U.S. Large Cap Blended Style Portfolio was liquidated. 48 ================================================================================ TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ================================================================================ Additional information concerning the operation of the variable account is contained in the Statement of Additional Information, which is available without charge upon written request. Please use the request form at the back of this prospectus and send it to our Annuity Service Center at Delaware Valley Financial Services, LLC, P.O. Box 3031, Berwyn, PA 19312-0031. GENERAL INFORMATION AGL of Delaware Variable Account I National Union Fire Insurance Company of Pittsburgh, Pa. SERVICES DISTRIBUTOR CALCULATION OF PERFORMANCE DATA AllianceBernstein Money Market Portfolio Investment Subaccount Yield and Effective Yield Quotations Yield Quotations for Other Subaccounts Standardized Performance Data Non-Standardized Performance Data Tax Deferred Accumulation ANNUITY PROVISIONS Variable Annuity Payments Annuity Unit Value Net Investment Factor Additional Provisions MATERIAL CONFLICTS FINANCIAL STATEMENTS Separate Account Financial Statements AGL of Delaware Financial Statements National Union Statutory Basis Financial Statements American International Group, Inc. Financial Information INDEX TO FINANCIAL STATEMENTS Variable Account I Financial Statements AGL of Delaware Financial Statements National Union Statutory Basis Financial Statements 49 Please forward a copy (without charge) of the American General Life Insurance Company of Delaware AllianceBernstein Ovation Variable Annuity Statement of Additional Information to: Please print or type and fill in all information.) ------------------------------------- Name ------------------------------------- Address ------------------------------------- City/State/Zip ------------------------------------- Date ------------------------------------- Signed Return to: Annuity Service Center Delaware Valley Financial Services, LLC P.O. Box 3031 Berwyn, PA 19312-0031 50 THIS DOCUMENT IS NOT PART OF ANY PROSPECTUS [American General Life Companies LOGO] PRIVACY NOTICE -------------------------------------------------------------------------------- American General Life Companies knows . We have physical, electronic, and that your privacy is important. You procedural safeguards in place that have received this notice as required were designed to protect Nonpublic by law and because you are now or may Personal Information. be a customer of one of our companies. This notice will advise . We do not share Nonpublic Personal you of the types of Nonpublic Information about you except as Personal Information we collect, how allowed by law. we use it, and what we do to protect your privacy. . We may disclose all types of Nonpublic Personal Information that "Nonpublic Personal Information" we collect, including information refers to personally identifiable regarding your transactions or information that is not available to experiences with us, when needed, the public. to: "Employees, Representatives, Agents, (i) Our Employees, Representatives, and Selected Third Parties" refers to Agents, and Selected Third Parties, individuals or entities who act on as permitted by law; or our behalf. (ii) other organizations with which . Our Employees, Representatives, we have joint marketing agreements Agents, and Selected Third as permitted by law. Parties may collect Nonpublic Personal Information about you, . The types of companies and persons including information: to whom we may disclose Nonpublic Personal Information as permitted - Given to us on applications by law include: banks; attorneys; or other forms; trustees; third-party administrators; insurance agents; - About transactions with us, insurance companies; insurance our affiliates, or third support organizations; credit parties; reporting agencies; registered broker-dealers; auditors; - From others, such as credit regulators; and reinsurers. reporting agencies, employers, and federal and . We do not share your Nonpublic state agencies. Personal Health Information unless authorized by you or allowed by . The types of Nonpublic Personal law. Information we collect depends on the products we offer to you . Our privacy policy applies, to the and may include your: name; extent required by law, to our address; Social Security Number; agents and representatives when account balances; income; they are acting on behalf of assets; insurance premiums; American General Life Companies. coverage and beneficiaries; credit reports; marital status; . You will be notified if our privacy and payment history. We may also policy changes. collect Nonpublic Personal Health Information, such as . Our privacy policy applies to medical reports, to underwrite current and former customers. insurance policies, process claims, or for other related THIS PRIVACY NOTICE IS PROVIDED FOR YOUR functions. INFORMATION ONLY. YOU DO NOT NEED TO CALL OR TAKE ANY ACTION. . We restrict access to Nonpublic Personal Information to those Employees, Representatives, Agents, or Selected Third Parties who provide products or services to you and who have been trained to handle Nonpublic Personal Information as described in this Notice. . We have policies and procedures that direct our Employees, Representatives, Agents and Selected Third Parties acting for us, on how to protect and use Nonpublic Personal Information. -------------------------------------------------------------------------------- This Privacy Notice is provided on CALIFORNIA, NEW MEXICO AND VERMONT behalf of the following companies: RESIDENTS ONLY: AGC Life Insurance Company, AIG Life of Bermuda, Ltd., AIG Premier Following the law of your state, we will Insurance Company, American General not disclose nonpublic personal Assurance Company, American General financial information about you to Equity Services Corporation, American nonaffiliated third parties (other than General Indemnity Company, American as permitted by law) unless you General Life and Accident Insurance authorize us to make that disclosure. Company, American General Life Your authorization must be in writing. Insurance Company, American General If you wish to authorize us to disclose Property Insurance Company, American your nonpublic personal financial International Life Assurance Company information to nonaffiliated third of New York, Delaware American Life parties, you may write to us at: Insurance Company, The United States American General Life Companies Service Life Insurance Company in the City of Center, P.O. Box 4373, Houston, Texas New York, American General Life 77210-4373. Insurance Company of Delaware (formerly known as AIG Life Insurance (C) 2010 American International Group, Company), American General Life Inc. All rights reserved. Insurance of Bermuda, Ltd.. AGLC0375-STF Rev0210 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I ALLIANCEBERNSTEIN OVATION VARIABLE ANNUITY INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE 600 KING STREET WILMINGTON, DELAWARE 19801 STATEMENT OF ADDITIONAL INFORMATION DATED MAY 3, 2010 This Statement of Additional Information ("SAI") is not a prospectus. It should be read in conjunction with the prospectus for American General Life Insurance Company of Delaware Variable Account I (the "Separate Account" or "Variable Account I") dated May 3, 2010, describing the individual and group flexible premium deferred variable annuity contract (the "Contract" or "Contracts"). The description of the Contract or Contracts in the related prospectus is fully applicable to your certificate and the use of the word "Contract" or "Contracts" 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 of Delaware ("AGL of Delaware") at its Administrative Office by phone at (800) 255-8402 or by writing to: Delaware Valley Financial Services, LLC, 300 Berwyn Park, P.O. Box 3031, Berwyn, PA 19312-0031. 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 of Delaware.............................................................. 3 Variable Account I........................................................... 3 National Union Fire Insurance Company of Pittsburgh, Pa...................... 4 SERVICES........................................................................ 4 DISTRIBUTOR..................................................................... 5 CALCULATION OF PERFORMANCE DATA................................................. 5 AllianceBernstein Money Market Portfolio Subaccount Investment Option Yield and Effective Yield Calculations........................................... 5 Yield Quotations for Other Subaccounts....................................... 6 Standardized Performance Data................................................ 7 Non-Standardized Performance Data............................................ 7 Tax Deferred Accumulation.................................................... 8 ANNUITY PROVISIONS.............................................................. 9 Variable Annuity Payments.................................................... 9 Annuity Unit Value........................................................... 10 Net Investment Factor........................................................ 10 Additional Provisions........................................................ 11 MATERIAL CONFLICTS.............................................................. 11 FINANCIAL STATEMENTS............................................................ 12 Separate Account Financial Statements........................................ 12 AGL of Delaware Financial Statements......................................... 12 National Union Statutory Basis Financial Statements.......................... 13 American International Group, Inc. Financial Information..................... 13 INDEX TO FINANCIAL STATEMENTS................................................... 13 Variable Account I Financial Statements...................................... 13 AGL of Delaware Financial Statements......................................... 14 National Union Statutory Basis Financial Statements.......................... 14
2 GENERAL INFORMATION AGL OF DELAWARE Effective in the state of Delaware on December 8, 2009, AGL of Delaware changed its name from AIG Life Insurance Company to American General Life Insurance Company of Delaware. Prior to this name change, the Policies were issued under the name AIG Life Insurance Company. The name change is still pending approval in some jurisdictions. AGL of Delaware is a stock life insurance company initially organized under the laws of Pennsylvania and reorganized under the laws of Delaware. We were incorporated in 1962. AGL of Delaware is an indirect wholly-owned subsidiary of American International Group, Inc. American International Group, Inc., a Delaware corporation, is a holding company which, through its subsidiaries, is engaged primarily in a broad range of insurance and insurance-related activities in the United States and abroad. American General Life Companies is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc., including AGL of Delaware. On March 4, 2009, American International Group, Inc. issued and sold to the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury (the "Trust"), 100,000 shares of American International Group, Inc.'s Series C Perpetual, Convertible, Participating Preferred Stock (the "Stock") for an aggregate purchase price of $500,000, with an understanding that additional and independently sufficient consideration was also furnished to American International Group, Inc. by the Federal Reserve Bank of New York (the "FRBNY") in the form of its lending commitment (the "Credit Facility") under the Credit Agreement, dated as of September 22, 2008, between American International Group, Inc. and the FRBNY. The Stock has preferential liquidation rights over American International Group, Inc. common stock, and, to the extent permitted by law, votes with American International Group Inc.'s common stock on all matters submitted to American International Group, Inc.'s shareholders. The Trust has approximately 79.8% of the aggregate voting power of American International Group Inc.'s common stock and is entitled to approximately 79.8% of all dividends paid on American International Group, Inc.'s common stock, in each case treating the Stock as if converted. The Stock will remain outstanding even if the Credit Facility is repaid in full or otherwise terminates. AGL of Delaware is not a guarantor of the Credit Facility obligations and it has not pledged any assets to secure those obligations. VARIABLE ACCOUNT I We hold the Fund shares in the subaccounts of Variable Account I in which any of your single premium payment is invested. Variable Account I is registered as a unit investment trust with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940. We created the Separate Account on June 5, 1986. For record keeping and financial reporting purposes, Variable Account I is divided into 99 separate subaccounts, 18 of which are available under the Contracts offered by the prospectus as variable investment options. All of these 18 subaccounts, and the remaining 75 subaccounts 3 are offered under other AGL of Delaware contracts. We hold the Fund shares in which we invest your premium payment for an investment option in the subaccount that corresponds to that investment option. One or more of the Funds may sell its shares to other funds. The assets in Variable Account I are our property. The assets in the Separate Account may not be used to pay any liabilities of AGL of Delaware other than those arising from the Contracts. AGL of Delaware is obligated to pay all amounts under the Contracts due the contract owners. We act as custodian for the Separate Account's assets. 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 Contracts 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 a wholly-owned subsidiary of American International Group, Inc. and an affiliate of AGL of Delaware. SERVICES AGL of Delaware and American International Group, Inc. are parties to a service and expense agreement. Under the service and expense agreement, American International Group, Inc. provides services to AGL of Delaware and certain other life insurance companies under the American International Group, Inc. holding company system at cost. Those services include data processing systems, customer services, product development, actuarial, internal auditing, accounting and legal services. During 2009, 2008 and 2007, AGL of Delaware paid American International Group, Inc. for these services $1,201,564, $1,103,919 and $609,011, respectively. In 2003, American General Life Companies, LLC ("AGLC") started paying for almost all of AGL of Delaware's expenses and allocating these charges back to AGL of Delaware. Previously, most of these expenses, such as payroll expenses, were paid by AGL of Delaware directly. AGL of Delaware, AGLC and American International Group, Inc. are parties to a services agreement. AGL of Delaware and AGLC are both wholly-owned subsidiaries of American International Group, Inc. and therefore affiliates of one another. AGLC is a Delaware limited liability company established on August 30, 2002. Prior to that date, AGLC was a Delaware business trust. Its address is 2727-A Allen Parkway, Houston, Texas 77019-2191. Under the services agreement, AGLC provides shared services to AGL of Delaware and certain other life insurance companies under the American International Group, Inc. holding company system at cost. Those services include data processing systems, customer services, product development, actuarial, internal auditing, accounting and legal services. During 2009, 2008 and 4 2007, AGL of Delaware paid AGLC for these services $60,892,128, $46,017,927 and $44,931,348, respectively. We have not designed the Contracts 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. DISTRIBUTOR American General Equity Services Corporation ("AGESC"), 2727-A Allen Parkway, 2-G7, Houston, Texas 77019, a Delaware corporation and an affiliate of AGL of Delaware, is the principal underwriter and distributor of the Contracts for the Separate Account under a Distribution Agreement between AGESC and AGL of Delaware. AGESC also acts as principal underwriter for AGL of Delaware's other separate account and for the separate accounts of certain AGL of Delaware 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 Contracts. Commissions not to exceed 7% of premiums will be paid to entities that sell the Contract. Additional payments may be made for other services not directly related to the sale of the Contract, including the recruitment and training of personnel, production of promotional literature and similar services. Commissions are paid by Variable Account I directly to selling dealers and representatives on behalf of AGESC. CALCULATION OF PERFORMANCE DATA ALLIANCEBERNSTEIN MONEY MARKET PORTFOLIO SUBACCOUNT INVESTMENT OPTION YIELD AND EFFECTIVE YIELD CALCULATIONS. We calculate the AllianceBernstein Money Market Portfolio Subaccount investment option's yield by a standard method that the SEC prescribes. Under that method, we base the current yield quotation on a seven day period and calculate that yield as follows: . We take the net change in the value of your single premium payment during the period. . We divide that net change by the value of your single premium payment at the beginning of the period to obtain the base period return. . We multiply the base period return by the fraction 365/7 to obtain the current yield figure. . We carry the current yield figure to the nearest one-hundredth of one percent. 5 We do not include realized capital gains or losses and unrealized appreciation or depreciation of the option's division in the calculation. The AllianceBernstein Money Market Portfolio Subaccount investment option's historical yield for the seven day period ended December 31, 2009 was -1.39%. We determine the AllianceBernstein Money Market Portfolio Subaccount investment option's effective yield by taking the base period return (computed as described above) and calculating the effect of assumed compounding. The formula for the effective yield is: (base period return +1) raised to the power of (365/7) - 1. The AllianceBernstein Money Market Portfolio Subaccount investment option's historical effective yield for the seven day period ended December 31, 2009 was -1.38%. Yield and effective yield do not reflect the deduction of any Separate Account or Contract charges. The yield and effective yield calculations above do not reflect the Daily charge (mortality and expense risk charge) or any other charges and deductions of the Separate Account or of the Contracts. If these charges had been reflected, then the yield and effective yield calculations would have been lower than what is currently shown. YIELD QUOTATIONS FOR OTHER SUBACCOUNTS Yield quotations will be based on the thirty-day period ended on the date of the most recent balance sheet of Variable Account I included in the registration statement, and are calculated by dividing the net investment income per Accumulation Unit earned during the period by the maximum offering price per unit on the last day of the period, according to the following formula: Yield = 2[((a - b)/cd + 1)/6/ - 1] Where: a = net investment income earned during the period by the portfolio attributable to shares owned by the subaccount. b = expenses accrued for the period (net of reimbursements). c = the average daily number of Accumulation Units outstanding during the period. d = the maximum offering price per Accumulation Unit on the last day of the period. Yield quotations for a subaccount reflect all recurring contract charges (except surrender charge). For any charge that varies with the size of the account, the account size is assumed to be the respective subaccount's mean account size. A surrender charge may be assessed at the time of withdrawal in an amount ranging up to 6% of the requested withdrawal amount, with the specific percentage applicable to a particular withdrawal depending on the length of time the premium was held under the contract, and whether withdrawals had previously been made during that Contract Year. 6 STANDARDIZED PERFORMANCE DATA The total return quotations for all of the subaccounts will be average annual total return quotations for one, five, and ten year periods (or, where a subaccount has been in existence for a period of less than one, five or ten years, for such lesser period) ended on the date of the most recent balance sheet of Variable Account I and for the period from the date monies were first placed into the subaccounts until the aforesaid date. This type of performance information is referred to as standardized performance and is based on the life of the subaccount. The quotations are computed by finding the average annual compounded rates of return over the relevant periods that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1+T)/n/ = ERV Where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the particular period at the end of the particular period. The average annual total return quotations reflect all portfolio expenses and all contract charges except optional benefit charges and assume a total surrender at the end of the particular period. For any charge that varies with the size of the account, the account size is assumed to be the respective subaccount's mean account size. NON-STANDARDIZED PERFORMANCE DATA Non-standardized performance data will be calculated in a manner similar to the average annual total return described above for the subaccounts. It is average annual total return for the underlying portfolios for one, three, five, and ten year periods (or, where a portfolio has been in existence for a period of less than one, three, five or ten years, for such lesser period). For purposes of determining non-standardized average annual total return, the actual investment performance of each portfolio is reflected from the date such portfolio commenced operations even though the contract may not have been available at that time. The quotations are computed by finding the average annual compounded rates of return over the relevant periods that would equate the initial amount invested to the ending redeemable value, according to the following formula: 7 P(1+T)/n/ = ERV Where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the particular period at the end of the particular period. Non-standardized average annual total return quotations reflect all portfolio expenses and all contract charges except the contract maintenance fee and the optional benefit charges. For any charge that varies with the size of the account, the account size is assumed to be the respective subaccount's mean account size. The calculations do not assume a total surrender as of the end of the particular period and, therefore, no surrender charge is reflected. TAX DEFERRED ACCUMULATION In reports or other communications to you or in advertising or sales materials, we may also describe the effects of tax deferred compounding on Variable Account I's investment returns or upon returns in general. These effects may be illustrated in charts or graphs and may include comparisons at various points in time of returns under the contract or in general on a tax-deferred basis with the returns on a taxable basis. Different tax rates may be assumed. In general, individuals who own annuity contracts are not taxed on increases in the value under the annuity contract until some form of distribution is made from the contract. Thus, the annuity contract will benefit from tax deferral during the accumulation phase, which generally will have the effect of permitting an investment in an annuity contract to grow more rapidly than a comparable investment under which increases in value are taxed on a current basis. The chart shows accumulations on an initial investment or premium of a given amount, assuming hypothetical gross annual returns compounded annually, and a stated assumed rate. The values shown for the taxable investment do not include any deduction for management fees or other expenses but assume that taxes are deducted annually from investment returns. The values shown for the variable annuity in a chart reflect the deduction of contractual expenses such as the 1.25% mortality and expense risk charge, the 0.15% administrative charge, and the $30 contract maintenance fee, but not the expenses of an underlying investment portfolio. In addition, these values assume that the owner does not surrender the contract or make any partial surrenders until the end of the period shown. The chart assumes a full surrender at the end of the period shown and the payment of taxes at the 31% rate on the amount in excess of the premium. 8 In developing tax-deferral charts, we will follow these general principles: (1)the assumed rate of earnings will be realistic; (2)the chart will depict accurately the effect of all fees and charges or provide a narrative that prominently discloses all fees and charges; (3)comparative charts for accumulation values for tax-deferred and non-tax-deferred investments will depict the implications of any surrender; and (4)a narrative accompanying the chart will disclose prominently that there may be a 10% tax penalty on a surrender by an owner who has not reached age 59 1/2. The rates of return illustrated are hypothetical and are not an estimate or guaranty of performance. Actual tax rates may vary for different taxpayers. ANNUITY PROVISIONS VARIABLE ANNUITY PAYMENTS A variable annuity is an annuity with payments which are not predetermined as to dollar amount and will vary in amount with the net investment results of the applicable subaccounts. At the Annuity Date, the Contract Value in each subaccount will be applied to the applicable annuity tables contained in the contract. The annuity table used will depend upon the payment option chosen. The same Contract Value amount applied to each payment option may produce a different initial annuity payment. If, as of the Annuity Date, the then current annuity rates applicable to contract will provide a larger income than that guaranteed for the same form of annuity under the contract, the larger amount will be paid. The first annuity payment for each subaccount is determined by multiplying the amount of the Contract Value allocated to that subaccount by the factor shown in the table for the option selected, divided by 1000. The dollar amount of subsequent annuity payments is determined as follows: (a)The dollar amount of the first annuity payment is divided by the Annuity Unit value as of the Annuity Date. This establishes the number of Annuity Units for each monthly payment. The number of Annuity Units remains fixed during the annuity payment period, subject to any transfers. (b)The fixed number of Annuity Units is multiplied by the Annuity Unit value for the Valuation Period fourteen days prior to the date of payment. The total dollar amount of each variable annuity payment is the sum of all subaccount variable annuity payments less the pro-rata amount of the administrative charge. 9 ANNUITY UNIT VALUE The value of an Annuity Unit for each subaccount was arbitrarily set initially at $10. This was done when the first portfolio shares were purchased. The Annuity Unit value at the end of any subsequent Valuation Period is determined by multiplying the subaccount's Annuity Unit value for the immediately preceding Valuation Period by the quotient of (a) and (b) where: . is the net investment factor for the Valuation Period for which the Annuity Unit value is being determined; and . is the assumed investment factor for such Valuation Period. The assumed investment factor adjusts for the interest assumed in determining the first variable annuity payment. Such factor for any Valuation Period shall be the accumulated value, at the end of such period, of $1.00 deposited at the beginning of such period at the assumed investment rate of 5%. NET INVESTMENT FACTOR The net investment factor is used to determine how investment results of a portfolio affect the Annuity Unit value of the subaccount from one Valuation Period to the next. The net investment factor for each subaccount for any Valuation Period is determined by dividing (a) by (b) and subtracting (c) from the result, where: . (a) is equal to: (i)the net asset value per share of the portfolio held in the subaccount determined at the end of that Valuation Period, plus (ii)the per share amount of any dividend or capital gain distribution made by the portfolio held in the subaccount if the "ex-dividend" date occurs during that same Valuation Period, plus or minus (iii)a per share charge or credit, which we determine, for changes in tax reserves resulting from investment operations of the subaccount. . (b) is equal to: (i)the net asset value per share of the portfolio held in the subaccount determined as of the end of the prior Valuation Period, plus or minus (ii)the per share charge or credit for any change in tax reserves for the prior Valuation Period. 10 . (c) is equal to: (i)the percentage factor representing the mortality and expense risk charge, plus (ii)the percentage factor representing the administrative charge. The net investment factor may be greater or less than the assumed investment factor. Therefore, the Annuity Unit value may increase or decrease from Valuation Period to Valuation Period. ADDITIONAL PROVISIONS We will require proof of age and sex of the Annuitant before making any life annuity payment provided for by the contract. If the age or sex of the Annuitant has been misstated, we will compute the amount payable based on the correct age and sex. If annuity payments have begun, any underpayment that may have been made will be paid in full with the next annuity payment, including interest at the minimum annual rate of 3%. Any overpayments, including interest at the minimum annual rate of 3%, unless repaid to us in one sum, will be deducted from future annuity payments until we are repaid in full. If a contract provision requires that a person be alive, we may require due proof that the person is alive before we act under that provision. We will give the payee under an annuity payment option a settlement contract for the payment option. You may assign the contract prior to the Annuity Date. You must send a dated and signed written request to our Administrative Office accompanied by a duly executed copy of any assignment. We are not responsible for the validity of any assignment. MATERIAL CONFLICTS We are required to track events to identify any material conflicts from using underlying Funds for both variable universal life and variable annuity separate accounts. The boards of the Funds, AGL of Delaware, 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; . investment management of an underlying Fund changes; or . voting instructions given by owners of variable universal life insurance policies and variable annuity contracts differ. 11 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 investment portfolio 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 underlying Funds involved from investment by our variable investment options. We may take other action to protect contract 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 underlying Fund's adviser or its investment in the Contracts. If we do ignore voting instructions, we give you a summary of our actions in the next semi-annual report to contract owners. FINANCIAL STATEMENTS PricewaterhouseCoopers LLP ("PwC"), located at 1201 Louisiana Street, Suite 2900, Houston, Texas 77002, is the independent registered public accounting firm for the Separate Account, AGL of Delaware and National Union. American International Group, Inc. uses PwC as its corporate-wide auditing firm. SEPARATE ACCOUNT FINANCIAL STATEMENTS The statement of net assets as of December 31, 2009 and the related statement of operations for the period then ended and the statement of changes in net assets for each of the two periods ended December 31, 2009 of the Separate Account, included in this Statement of Additional Information, have been so included in reliance on the report of PwC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. AGL OF DELAWARE FINANCIAL STATEMENTS The balance sheets of AGL of Delaware as of December 31, 2009 and 2008 and the statements of income (loss), comprehensive income (loss), shareholder's equity and cash flows for each of the three years in the period ended December 31, 2009, included in this Statement of Additional Information, have been so included in reliance on the report of PwC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. 12 NATIONAL UNION STATUTORY BASIS FINANCIAL STATEMENTS The statutory financial statements of admitted assets, liabilities, capital and surplus of National Union as of December 31, 2009 and 2008, and the related statutory financial statements of income and changes in capital and surplus and of cash flow for each of the three years in the period ended December 31, 2009, included in this Statement of Additional Information, have been so included in reliance on the report of PwC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. AMERICAN INTERNATIONAL GROUP, INC. FINANCIAL INFORMATION The consolidated financial statements and financial statement schedules 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) incorporated in this SAI by reference to the Annual Report on Form 10-K filed on February 26, 2010, and Amended Annual Report on Form 10-K/A filed on March 31, 2010, of American International Group, Inc. for the year ended December 31, 2009, have been so incorporated in reliance on the report of PwC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. American International Group, Inc. does not underwrite any insurance contract referenced herein. INDEX TO FINANCIAL STATEMENTS You should consider the financial statements of AGL of Delaware that we include in this SAI as bearing on the ability of AGL of Delaware to meet its obligations under the Contracts. You should only consider the financial statements of National Union that we include in this SAI as bearing on the ability of National Union to meet its obligations under Contracts with a date of issue prior to December 29, 2006 at 4:00 p.m. Eastern time. I. Variable Account I Financial Statements Report of Independent Registered Public Accounting Firm Statement of Net Assets as of December 31, 2009 Statement of Operations for the year ended December 31, 2009 Statement of Changes in Net Assets for the years ended December 31, 2009 and 2008, except as indicated Notes to Financial Statements 13 II. AGL of Delaware Financial Statements Report of Independent Registered Public Accounting Firm Balance Sheets as of December 31, 2009 and 2008 Statements of Income (Loss) for the years ended December 31, 2009, 2008 and 2007 Statements of Comprehensive Income (Loss) for the years ended December 31, 2009, 2008 and 2007 Statements of Shareholder's Equity for the years ended December 31, 2009, 2008 and 2007 Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007 Notes to Financial Statements III. National Union Statutory Basis Financial Statements Report of Independent Auditors Statements of Admitted Assets as of December 31, 2009 and 2008 Statements of Liabilities, Capital and Surplus as of December 31, 2009 and 2008 Statements of Income and Changes in Capital and Surplus for the years ended December 31, 2009, 2008, and 2007 Statements of Cash Flow for the years ended December 31, 2009, 2008, and 2007 Notes to Statutory Basis Financial Statements 14 [LOGO] AMERICAN GENERAL Life Companies Variable Account I Variable Annuity 2009 ANNUAL REPORT December 31, 2009 American General Life Insurance Company of Delaware [LOGO] PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP 1201 LOUISIANA SUITE 2900 HOUSTON TX 77002-5678 TELEPHONE (713) 356 4000 FACSIMILE (713) 356 4717 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of American General Life Insurance Company of Delaware and Contract Owners of American General Life Insurance Company of Delaware Variable Account I In our opinion, the accompanying statement of net assets, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the Sub-accounts listed in Note A of American General Life Insurance Company of Delaware Variable Account I at December 31, 2009, the results of each of their operations for the period then ended and the changes in each of their net assets for each of the two periods then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of the 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 fund shares owned at December 31, 2009 by correspondence with the investment companies, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP April 27, 2010 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF NET ASSETS DECEMBER 31, 2009
Due from (to) American General NET ASSETS Investment Life Insurance Contract owners Contract owners ATTRIBUTABLE TO securities - at Company Of - annuity - accumulation CONTRACT OWNER Sub-accounts fair value Delaware NET ASSETS reserves reserves RESERVES ------------ --------------- ---------------- ------------ --------------- --------------- --------------- AIM V.I. Capital Appreciation Fund - Series I $ 194,622 $ (1) $ 194,621 $ 1,166 $ 193,455 $ 194,621 AIM V.I. International Growth Fund - Series I 259,413 -- 259,413 10,095 249,318 259,413 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 67,025,290 (1) 67,025,289 49,777 66,975,512 67,025,289 AllianceBernstein Global Thematic Growth Portfolio - Class A 22,325,322 -- 22,325,322 62,870 22,262,452 22,325,322 AllianceBernstein Global Thematic Growth Portfolio - Class B 10,377,924 -- 10,377,924 8,021 10,369,903 10,377,924 AllianceBernstein Growth and Income Portfolio - Class A 61,240,046 (1) 61,240,045 181,150 61,058,895 61,240,045 AllianceBernstein Growth and Income Portfolio - Class B 62,430,642 -- 62,430,642 105,147 62,325,495 62,430,642 AllianceBernstein Growth Portfolio - Class A 25,494,474 -- 25,494,474 17,938 25,476,536 25,494,474 AllianceBernstein Growth Portfolio - Class B 17,831,024 -- 17,831,024 163 17,830,861 17,831,024 AllianceBernstein Intermediate Bond Portfolio - Class A 107,090,219 (1) 107,090,218 151,692 106,938,526 107,090,218 AllianceBernstein Intermediate Bond Portfolio - Class B 1,362,096 -- 1,362,096 -- 1,362,096 1,362,096 AllianceBernstein International Growth Portfolio - Class A 46,814,295 -- 46,814,295 99,360 46,714,935 46,814,295 AllianceBernstein International Value Portfolio - Class A 19,453,479 -- 19,453,479 3,397 19,450,082 19,453,479 AllianceBernstein Large Cap Growth Portfolio - Class A 49,044,240 (1) 49,044,239 209,357 48,834,882 49,044,239 AllianceBernstein Large Cap Growth Portfolio - Class B 30,250,772 -- 30,250,772 58,576 30,192,196 30,250,772 AllianceBernstein Money Market Portfolio - Class A 18,416,453 154 18,416,607 1,460 18,415,147 18,416,607 AllianceBernstein Money Market Portfolio - Class B 20,525,043 174 20,525,217 29,417 20,495,800 20,525,217 AllianceBernstein Real Estate Investment Portfolio - Class A 13,499,525 -- 13,499,525 115,307 13,384,218 13,499,525 AllianceBernstein Small Cap Growth Portfolio - Class A 18,310,189 1 18,310,190 44,215 18,265,975 18,310,190 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 25,274,627 -- 25,274,627 77,082 25,197,545 25,274,627 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- -- -- -- -- -- AllianceBernstein Utility Income Portfolio - Class A -- -- -- -- -- -- AllianceBernstein Value Portfolio - Class B 23,982,043 -- 23,982,043 113,592 23,868,451 23,982,043 BlackRock Basic Value V.I. Fund - Class I 3,183,127 -- 3,183,127 2,840 3,180,287 3,183,127 BlackRock Global Allocation V.I. Fund - Class I 1,661,557 (2) 1,661,555 -- 1,661,555 1,661,555 BlackRock Global Growth V.I. Fund - Class I 362,685 -- 362,685 -- 362,685 362,685 BlackRock High Income V.I. Fund - Class I 281,141 2,063 283,204 -- 283,204 283,204 BlackRock International Value V.I. Fund - Class I 1,187,155 (1) 1,187,154 -- 1,187,154 1,187,154 BlackRock Large Cap Core V.I. Fund - Class I 1,287,006 (1) 1,287,005 2,571 1,284,434 1,287,005 BlackRock Large Cap Growth V.I. Fund - Class I 508,253 (1) 508,252 -- 508,252 508,252 BlackRock Money Market V.I. Fund - Class I 145,823 (1) 145,822 -- 145,822 145,822 BlackRock Total Return V.I. Fund - Class I 196,346 1,039 197,385 -- 197,385 197,385 BlackRock Utilities and Telecommunications V.I. Fund - Class I 353,847 -- 353,847 -- 353,847 353,847 BlackRock Value Opportunities V.I. Fund - Class I 962,131 -- 962,131 -- 962,131 962,131 Delaware VIP Balanced Series - Standard Class -- -- -- -- -- -- Delaware VIP Cash Reserve Series - Standard Class 38,958 -- 38,958 -- 38,958 38,958 Delaware VIP Growth Opportunities Series - Standard Class 86,574 -- 86,574 -- 86,574 86,574 Delaware VIP High Yield Series - Standard Class 318,267 -- 318,267 -- 318,267 318,267 Delaware VIP Limited-Term Diversified Income Series - Standard Class 73,693 74 73,767 -- 73,767 73,767 Delaware VIP Value Series - Standard Class 1,453,945 -- 1,453,945 4,425 1,449,520 1,453,945 Dreyfus Stock Index Fund, Inc. - Initial Shares 1,714,968 (1) 1,714,967 15,357 1,699,610 1,714,967 Fidelity VIP Asset Manager Portfolio - Initial Class 1,421,358 -- 1,421,358 12,389 1,408,969 1,421,358 Fidelity VIP Contrafund Portfolio - Initial Class 829,519 -- 829,519 19,905 809,614 829,519 Fidelity VIP Growth Portfolio - Initial Class 909,811 -- 909,811 12,505 897,306 909,811 Fidelity VIP High Income Portfolio - Initial Class 272,757 -- 272,757 -- 272,757 272,757 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 1,072,370 -- 1,072,370 42,093 1,030,277 1,072,370 Fidelity VIP Money Market Portfolio - Initial Class 1,119,228 -- 1,119,228 24,684 1,094,544 1,119,228 Fidelity VIP Overseas Portfolio - Initial Class 92,010 (1) 92,009 -- 92,009 92,009 LVIP Delaware Foundation Moderate Allocation Fund - Standard Class 357,797 -- 357,797 -- 357,797 357,797 UBS U.S. Allocation Portfolio -- -- -- -- -- --
See accompanying notes. VA I - 2 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF NET ASSETS - CONTINUED DECEMBER 31, 2009
Due from (to) American General NET ASSETS Investment Life Insurance Contract owners Contract owners ATTRIBUTABLE TO securities - at Company Of - annuity - accumulation CONTRACT OWNER Sub-accounts fair value Delaware NET ASSETS reserves reserves RESERVES ------------ --------------- ---------------- ---------- --------------- --------------- --------------- Van Eck Worldwide Emerging Markets Fund - Initial Class $ 306,758 $-- $ 306,758 $ -- $306,758 $ 306,758 Van Eck Worldwide Hard Assets Fund - Initial Class 244,781 -- 244,781 9,745 235,036 244,781 Vanguard 500 Index Fund 18,141 -- 18,141 18,141 -- 18,141 Vanguard Dividend Growth Fund 136,680 -- 136,680 136,680 -- 136,680 Vanguard GNMA Fund 239,317 (1) 239,316 239,316 -- 239,316 Vanguard Health Care Fund 42,422 -- 42,422 42,422 -- 42,422 Vanguard Inflation-Protected Securities Fund 291,497 -- 291,497 291,497 -- 291,497 Vanguard International Growth Fund 9,198 -- 9,198 9,198 -- 9,198 Vanguard LifeStrategy Conservative Growth Fund 206,136 (1) 206,135 206,135 -- 206,135 Vanguard LifeStrategy Growth Fund 416,797 (2) 416,795 416,795 -- 416,795 Vanguard LifeStrategy Income Fund 412,976 -- 412,976 412,976 -- 412,976 Vanguard LifeStrategy Moderate Growth Fund 443,889 1 443,890 443,890 -- 443,890 Vanguard Prime Money Market Fund 3,586 -- 3,586 3,586 -- 3,586 Vanguard PRIMECAP Fund 2,348 -- 2,348 2,348 -- 2,348 Vanguard Small-Cap Growth Index Fund 13,543 (1) 13,542 13,542 -- 13,542 Vanguard Small-Cap Value Index Fund 17,840 -- 17,840 17,840 -- 17,840 Vanguard Total Bond Market Index Fund 121,940 -- 121,940 121,940 -- 121,940 Vanguard Total International Stock Index Fund 167,508 -- 167,508 167,508 -- 167,508 Vanguard U.S. Growth Fund 3,125 (1) 3,124 3,124 -- 3,124 Vanguard VIF Balanced Portfolio 5,336,392 -- 5,336,392 5,336,392 -- 5,336,392 Vanguard VIF Capital Growth Portfolio 448,372 -- 448,372 448,372 -- 448,372 Vanguard VIF Diversified Value Portfolio 564,208 (3) 564,205 564,205 -- 564,205 Vanguard VIF Equity Income Portfolio 379,491 1 379,492 379,492 -- 379,492 Vanguard VIF Equity Index Portfolio 428,432 (1) 428,431 428,431 -- 428,431 Vanguard VIF Growth Portfolio 151,812 (1) 151,811 151,811 -- 151,811 Vanguard VIF High Yield Bond Portfolio 345,786 -- 345,786 345,786 -- 345,786 Vanguard VIF International Portfolio 1,619,404 -- 1,619,404 1,619,404 -- 1,619,404 Vanguard VIF Mid-Cap Index Portfolio 343,210 -- 343,210 343,210 -- 343,210 Vanguard VIF Money Market Portfolio 779,981 1 779,982 779,982 -- 779,982 Vanguard VIF REIT Index Portfolio 303,195 -- 303,195 303,195 -- 303,195 Vanguard VIF Short-Term Investment- Grade Portfolio 267,733 -- 267,733 267,733 -- 267,733 Vanguard VIF Small Company Growth Portfolio 217,106 -- 217,106 217,106 -- 217,106 Vanguard VIF Total Bond Market Index Portfolio 851,468 (3) 851,465 851,465 -- 851,465 Vanguard VIF Total Stock Market Index Portfolio 2,207,465 -- 2,207,465 2,207,465 -- 2,207,465 Vanguard Wellington Fund 2,278 -- 2,278 2,278 -- 2,278 Vanguard Windsor Fund 1,766 (1) 1,765 1,765 -- 1,765
See accompanying notes. VA I - 3 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009
A B A+B=C D E F C+D+E+F Mortality and Net Net change in INCREASE Dividends expense risk NET realized Capital gain unrealized (DECREASE) IN from and INVESTMENT gain (loss) distributions appreciation NET ASSETS mutual administrative INCOME on from mutual (depreciation) RESULTING FROM SUB-ACCOUNTS funds charges (LOSS) investments funds of investments OPERATIONS ------------ ---------- -------------- ---------- ----------- ------------- -------------- -------------- AIM V.I. Capital Appreciation Fund - Series I $ 1,121 $ (2,635) $ (1,514) $ (46,846) $ -- $ 78,560 $ 30,200 AIM V.I. International Growth Fund - Series I 3,431 (3,311) 120 (13,791) -- 80,590 66,919 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 652,883 (855,703) (202,820) (1,950,336) -- 14,922,805 12,769,649 AllianceBernstein Global Thematic Growth Portfolio - Class A -- (268,587) (268,587) (5,105,651) -- 13,300,033 7,925,795 AllianceBernstein Global Thematic Growth Portfolio - Class B -- (119,630) (119,630) (20,610) -- 3,612,957 3,472,717 AllianceBernstein Growth and Income Portfolio - Class A 2,373,588 (807,078) 1,566,510 (7,002,707) -- 15,371,876 9,935,679 AllianceBernstein Growth and Income Portfolio - Class B 2,107,129 (845,131) 1,261,998 (5,149,968) -- 13,767,882 9,879,912 AllianceBernstein Growth Portfolio - Class A -- (321,678) (321,678) (3,411,517) -- 10,057,190 6,323,995 AllianceBernstein Growth Portfolio - Class B -- (232,561) (232,561) 435,284 -- 4,300,713 4,503,436 AllianceBernstein Intermediate Bond Portfolio - Class A 3,904,575 (1,504,500) 2,400,075 (1,059,615) -- 15,341,722 16,682,182 AllianceBernstein Intermediate Bond Portfolio - Class B 43,987 (18,022) 25,965 (10,103) -- 180,988 196,850 AllianceBernstein International Growth Portfolio - Class A 1,914,943 (565,055) 1,349,888 (9,426,805) -- 21,019,265 12,942,348 AllianceBernstein International Value Portfolio - Class A 232,072 (239,782) (7,710) (2,620,684) -- 7,244,043 4,615,649 AllianceBernstein Large Cap Growth Portfolio - Class A 67,003 (608,507) (541,504) (5,099,505) -- 19,040,699 13,399,690 AllianceBernstein Large Cap Growth Portfolio - Class B -- (387,494) (387,494) (537,660) -- 9,222,378 8,297,224 AllianceBernstein Money Market Portfolio - Class A 29,932 (247,553) (217,621) -- -- -- (217,621) AllianceBernstein Money Market Portfolio - Class B 19,490 (290,602) (271,112) -- -- -- (271,112) AllianceBernstein Real Estate Investment Portfolio - Class A 332,092 (157,686) 174,406 (5,570,663) 240,987 7,871,584 2,716,314 AllianceBernstein Small Cap Growth Portfolio - Class A -- (221,569) (221,569) (428,300) -- 6,030,952 5,381,083 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 233,087 (299,184) (66,097) (2,244,479) 909,607 8,661,485 7,260,516 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 13,407 (2,169) 11,238 (1,130,948) -- 1,058,379 (61,331) AllianceBernstein Utility Income Portfolio - Class A 978,491 (200,307) 778,184 (7,176,578) -- 7,751,514 1,353,120 AllianceBernstein Value Portfolio - Class B 699,618 (312,800) 386,818 (2,187,584) -- 5,592,738 3,791,972 BlackRock Basic Value V.I. Fund - Class I 58,179 (38,595) 19,584 (218,809) -- 909,917 710,692 BlackRock Global Allocation V.I. Fund - Class I 28,274 (20,225) 8,049 (312) -- 260,032 267,769 BlackRock Global Growth V.I. Fund - Class I 8,417 (4,542) 3,875 (13,389) -- 107,043 97,529 BlackRock High Income V.I. Fund - Class I 22,371 (3,340) 19,031 (12,547) -- 96,541 103,025 BlackRock International Value V.I. Fund - Class I 23,060 (14,573) 8,487 (59,613) -- 310,895 259,769 BlackRock Large Cap Core V.I. Fund - Class I 15,603 (15,793) (190) (13,449) -- 234,361 220,722 BlackRock Large Cap Growth V.I. Fund - Class I 2,606 (6,095) (3,489) (7,811) -- 109,688 98,388 BlackRock Money Market V.I. Fund - Class I 322 (2,887) (2,565) -- 21 -- (2,544) BlackRock Total Return V.I. Fund - Class I 10,797 (2,535) 8,262 (861) 872 18,865 27,138 BlackRock Utilities and Telecommunications V.I. Fund - Class I 10,277 (4,463) 5,814 (2,329) 2,370 35,609 41,464 BlackRock Value Opportunities V.I. Fund - Class I 5,742 (11,758) (6,016) (130,844) -- 344,742 207,882 Delaware VIP Balanced Series - Standard Class 14,473 (1,780) 12,693 (106,080) -- 100,465 7,078 Delaware VIP Cash Reserve Series - Standard Class 159 (743) (584) -- -- -- (584) Delaware VIP Growth Opportunities Series - Standard Class -- (2,028) (2,028) (222,841) -- 272,121 47,252 Delaware VIP High Yield Series - Standard Class 25,706 (4,129) 21,577 (24,814) -- 128,523 125,286 Delaware VIP Limited-Term Diversified Income Series - Standard Class 5,338 (1,840) 3,498 2,014 -- 11,779 17,291 Delaware VIP Value Series - Standard Class 41,827 (16,849) 24,978 (328,293) -- 429,902 126,587 Dreyfus Stock Index Fund, Inc. - Initial Shares 33,002 (22,691) 10,311 (275,141) 111,195 479,885 326,250 Fidelity VIP Asset Manager Portfolio - Initial Class 30,924 (19,350) 11,574 (144,218) 2,140 458,386 327,882 Fidelity VIP Contrafund Portfolio - Initial Class 10,070 (10,419) (349) (124,661) 199 344,869 220,058 Fidelity VIP Growth Portfolio - Initial Class 3,654 (12,599) (8,945) (74,625) 735 290,668 207,833 Fidelity VIP High Income Portfolio - Initial Class 19,620 (3,944) 15,676 (62,437) -- 147,570 100,809 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 99,622 (15,365) 84,257 (13,578) 4,315 69,087 144,081 Fidelity VIP Money Market Portfolio - Initial Class 11,655 (20,838) (9,183) -- -- -- (9,183) Fidelity VIP Overseas Portfolio - Initial Class 1,743 (1,144) 599 1,264 268 14,715 16,846
See accompanying notes. VA I - 4 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF OPERATIONS - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2009
A B A+B=C D E F C+D+E+F Mortality and Net Net change in INCREASE Dividends expense risk NET realized Capital gain unrealized (DECREASE) IN from and INVESTMENT gain (loss) distributions appreciation NET ASSETS mutual administrative INCOME on from mutual (depreciation) RESULTING FROM SUB-ACCOUNTS funds charges (LOSS) investments funds of investments OPERATIONS ------------ --------- -------------- ---------- ----------- ------------- -------------- -------------- LVIP Delaware Foundation Moderate Allocation Fund - Standard Class $ 4,145 $ (2,417) $ 1,728 $ 2,828 $ -- $ 49,212 $ 53,768 UBS U.S. Allocation Portfolio 187,791 (19,893) 167,898 (3,063,957) -- 2,531,011 (365,048) Van Eck Worldwide Emerging Markets Fund - Initial Class 331 (3,057) (2,726) (20,757) 13,402 166,491 156,410 Van Eck Worldwide Hard Assets Fund - Initial Class 530 (2,960) (2,430) (4,476) 1,051 98,577 92,722 Vanguard 500 Index Fund 383 (120) 263 (504) -- 4,038 3,797 Vanguard Dividend Growth Fund 3,032 (631) 2,401 (382) -- 22,085 24,104 Vanguard GNMA Fund 9,246 (1,643) 7,603 8,916 1,604 (9,944) 8,179 Vanguard Health Care Fund 612 (206) 406 (959) 253 7,756 7,456 Vanguard Inflation-Protected Securities Fund 4,907 (1,507) 3,400 (2,627) -- 27,228 28,001 Vanguard International Growth Fund 153 (58) 95 (472) -- 3,118 2,741 Vanguard LifeStrategy Conservative Growth Fund 5,757 (1,062) 4,695 (2,597) -- 27,802 29,900 Vanguard LifeStrategy Growth Fund 8,720 (1,934) 6,786 (10,301) -- 86,455 82,940 Vanguard LifeStrategy Income Fund 12,687 (2,195) 10,492 (3,847) -- 34,387 41,032 Vanguard LifeStrategy Moderate Growth Fund 10,780 (2,295) 8,485 35,330 -- 67,351 111,166 Vanguard Prime Money Market Fund 21 (29) (8) -- -- -- (8) Vanguard PRIMECAP Fund 18 (16) 2 3 -- 602 607 Vanguard Small-Cap Growth Index Fund 40 (87) (47) (213) -- 4,343 4,083 Vanguard Small-Cap Value Index Fund 332 (114) 218 (567) -- 4,488 4,139 Vanguard Total Bond Market Index Fund 4,733 (861) 3,872 4,869 -- (3,557) 5,184 Vanguard Total International Stock Index Fund 3,907 (786) 3,121 3,364 -- 40,955 47,440 Vanguard U.S. Growth Fund 16 (20) (4) (36) -- 863 823 Vanguard VIF Balanced Portfolio 203,961 (24,258) 179,703 (109,095) -- 902,628 973,236 Vanguard VIF Capital Growth Portfolio 4,370 (2,053) 2,317 (58,652) 32,096 141,159 116,920 Vanguard VIF Diversified Value Portfolio 20,361 (2,547) 17,814 (28,731) -- 131,801 120,884 Vanguard VIF Equity Income Portfolio 18,452 (1,884) 16,568 (54,000) 1,076 84,470 48,114 Vanguard VIF Equity Index Portfolio 9,122 (1,843) 7,279 (25,651) 6,385 96,762 84,775 Vanguard VIF Growth Portfolio 733 (495) 238 (2,248) -- 33,058 31,048 Vanguard VIF High Yield Bond Portfolio 27,149 (1,521) 25,628 (17,285) -- 79,816 88,159 Vanguard VIF International Portfolio 51,153 (6,841) 44,312 (100,220) -- 537,823 481,915 Vanguard VIF Mid-Cap Index Portfolio 6,036 (1,663) 4,373 (129,540) 15,090 216,842 106,765 Vanguard VIF Money Market Portfolio 4,689 (4,166) 523 -- -- -- 523 Vanguard VIF REIT Index Portfolio 12,000 (1,244) 10,756 (96,420) 16,022 133,142 63,500 Vanguard VIF Short-Term Investment- Grade Portfolio 12,488 (1,401) 11,087 (656) 1,515 21,581 33,527 Vanguard VIF Small Company Growth Portfolio 1,832 (890) 942 (29,081) -- 87,077 58,938 Vanguard VIF Total Bond Market Index Portfolio 38,973 (4,575) 34,398 2,700 -- 8,733 45,831 Vanguard VIF Total Stock Market Index Portfolio 36,249 (9,677) 26,572 (195,515) 72,785 568,499 472,341 Vanguard Wellington Fund 771 (63) 708 6,590 -- 990 8,288 Vanguard Windsor Fund 32 (11) 21 (85) -- 523 459
See accompanying notes. VA I - 5 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts -------------------------------------------------------------------- AllianceBernstein AIM V.I. Americas AIM V.I. Capital International Government AllianceBernstein Appreciation Growth Fund - Income Portfolio - Balanced Shares Fund - Series I Series I Class A Portfolio - Class A ---------------- ------------- ------------------ ------------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (1,514) $ 120 $ -- $ -- Net realized gain (loss) on investments (46,846) (13,791) -- -- Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 78,560 80,590 -- -- --------- --------- ------------ ------------- Increase (decrease) in net assets resulting from operations 30,200 66,919 -- -- --------- --------- ------------ ------------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- 240 -- -- Administrative charges (414) (471) -- -- Net transfers from (to) other Sub-accounts or fixed rate option (819) 10,589 -- -- Mortality reserve transfers -- -- -- -- Contract withdrawals (58,186) (63,031) -- -- Surrender charges (7) -- -- -- Death benefits (4,323) -- -- -- Annuity payments -- (768) -- -- --------- --------- ------------ ------------- Increase (decrease) in net assets resulting from principal transactions (63,749) (53,441) -- -- --------- --------- ------------ ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (33,549) 13,478 -- -- NET ASSETS: Beginning of year 228,170 245,935 -- -- --------- --------- ------------ ------------- End of year $ 194,621 $ 259,413 $ -- $ -- ========= ========= ============ ============= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (5,660) $ (4,388) $ 1,269,616 $ 4,161,913 Net realized gain (loss) on investments (69,074) 142,334 (1,465,073) (17,122,598) Capital gain distributions from mutual funds -- 4,603 512,458 10,289,581 Net change in unrealized appreciation (depreciation) of investments (140,143) (378,707) (64,692) (15,667,734) --------- --------- ------------ ------------- Increase (decrease) in net assets resulting from operations (214,877) (236,158) 252,309 (18,338,838) --------- --------- ------------ ------------- PRINCIPAL TRANSACTIONS: Contract purchase payments 1,570 1,870 8,093 162,555 Administrative charges (488) (612) (21,692) (158,624) Net transfers from (to) other Sub-accounts or fixed rate option 9,311 (191,968) (26,401,716) (87,161,309) Mortality reserve transfers (15,593) 14,026 243 3,873 Contract withdrawals (212,680) (220,619) (1,635,065) (13,376,938) Surrender charges (8) (23) (10,092) (49,789) Death benefits -- (700) (451,495) (2,083,466) Annuity payments -- (990) (1,991) (15,547) --------- --------- ------------ ------------- Increase (decrease) in net assets resulting from principal transactions (217,888) (399,016) (28,513,715) (102,679,245) --------- --------- ------------ ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (432,765) (635,174) (28,261,406) (121,018,083) NET ASSETS: Beginning of year 660,935 881,109 28,261,406 121,018,083 --------- --------- ------------ ------------- End of year $ 228,170 $ 245,935 $ -- $ -- ========= ========= ============ =============
See accompanying notes. VA I - 6 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ---------------------------------------------------------------------------- AllianceBernstein AllianceBernstein AllianceBernstein Balanced Wealth AllianceBernstein Global Dollar Global Thematic Strategy Portfolio - Global Bond Government Growth Portfolio - Class A Portfolio -Class A Portfolio -Class A Class A -------------------- ------------------ ------------------ ------------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (202,820) $ -- $ -- $ (268,587) Net realized gain (loss) on investments (1,950,336) -- -- (5,105,651) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 14,922,805 -- -- 13,300,033 ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations 12,769,649 -- -- 7,925,795 ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 17,972 -- -- 15,611 Administrative charges (141,308) -- -- (39,548) Net transfers from (to) other Sub-accounts or fixed rate option 2,157,263 -- -- (548,407) Mortality reserve transfers -- -- -- -- Contract withdrawals (6,889,940) -- -- (1,522,365) Surrender charges (6,333) -- -- (1,375) Death benefits (2,560,232) -- -- (351,160) Annuity payments (6,407) -- -- (5,913) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (7,428,985) -- -- (2,453,157) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 5,340,664 -- -- 5,472,638 NET ASSETS: Beginning of year 61,684,625 -- -- 16,852,684 ------------ ------------ ------------ ------------ End of year $ 67,025,289 $ -- $ -- $ 22,325,322 ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (236,378) $ 1,970,011 $ 1,192,350 $ (398,271) Net realized gain (loss) on investments (1,536,367) (929,470) (1,984,713) (7,058,091) Capital gain distributions from mutual funds -- -- 384,607 -- Net change in unrealized appreciation (depreciation) of investments (13,037,351) (257,785) 409,557 (10,238,976) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations (14,810,096) 782,756 1,801 (17,695,338) ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 18,430 240 1,720 33,131 Administrative charges (37,928) (11,917) (10,375) (50,538) Net transfers from (to) other Sub-accounts or fixed rate option 80,426,021 (14,816,745) (16,732,918) (1,879,005) Mortality reserve transfers -- 1,629 (2,537) (1,264) Contract withdrawals (3,595,829) (847,104) (920,963) (3,687,952) Surrender charges (17,277) (4,342) (2,602) (2,103) Death benefits (294,905) (175,212) (42,540) (422,754) Annuity payments (3,791) -- (152) (9,609) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions 76,494,721 (15,853,451) (17,710,367) (6,020,094) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 61,684,625 (15,070,695) (17,708,566) (23,715,432) NET ASSETS: Beginning of year -- 15,070,695 17,708,566 40,568,116 ------------ ------------ ------------ ------------ End of year $ 61,684,625 $ -- $ -- $ 16,852,684 ============ ============ ============ ============
See accompanying notes. VA I - 7 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts -------------------------------------------------------------------------- AllianceBernstein AllianceBernstein AllianceBernstein Global Thematic Growth and Growth and AllianceBernstein Growth Portfolio - Income Portfolio - Income Portfolio - Growth Portfolio - Class B Class A Class B Class A ------------------ ------------------ ------------------ ------------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (119,630) $ 1,566,510 $ 1,261,998 $ (321,678) Net realized gain (loss) on investments (20,610) (7,002,707) (5,149,968) (3,411,517) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 3,612,957 15,371,876 13,767,882 10,057,190 ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations 3,472,717 9,935,679 9,879,912 6,323,995 ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 3,669 24,948 21,599 10,222 Administrative charges (28,586) (99,709) (176,055) (39,100) Net transfers from (to) other Sub-accounts or fixed rate option 775,705 (1,078,148) (2,177,492) (975,430) Mortality reserve transfers -- -- -- -- Contract withdrawals (921,916) (5,158,064) (6,571,914) (1,679,579) Surrender charges (1,273) (1,608) (9,886) (517) Death benefits (398,333) (2,887,664) (4,343,937) (748,504) Annuity payments (1,148) (22,240) (14,978) (3,842) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (571,882) (9,222,485) (13,272,663) (3,436,750) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 2,900,835 713,194 (3,392,751) 2,887,245 NET ASSETS: Beginning of year 7,477,089 60,526,851 65,823,393 22,607,229 ------------ ------------ ------------ ------------ End of year $ 10,377,924 $ 61,240,045 $ 62,430,642 $ 25,494,474 ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (195,072) $ 735,875 $ 482,512 $ (512,283) Net realized gain (loss) on investments 1,727,606 (5,455,269) (7,161,278) (4,492,852) Capital gain distributions from mutual funds -- 17,805,155 20,997,379 -- Net change in unrealized appreciation (depreciation) of investments (9,948,463) (63,578,400) (71,937,919) (15,000,916) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations (8,415,929) (50,492,639) (57,619,306) (20,006,051) ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 8,520 75,080 109,396 23,249 Administrative charges (44,402) (141,493) (304,062) (53,563) Net transfers from (to) other Sub-accounts or fixed rate option (1,081,231) (6,935,566) (10,717,067) (2,000,936) Mortality reserve transfers -- (2,974) 2,718 (1,434) Contract withdrawals (2,653,429) (16,528,410) (21,562,568) (6,607,956) Surrender charges (11,539) (11,361) (105,242) (1,791) Death benefits (550,765) (2,791,796) (3,099,889) (766,563) Annuity payments (1,453) (33,027) (20,208) (5,067) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (4,334,299) (26,369,547) (35,696,922) (9,414,061) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (12,750,228) (76,862,186) (93,316,228) (29,420,112) NET ASSETS: Beginning of year 20,227,317 137,389,037 159,139,621 52,027,341 ------------ ------------ ------------ ------------ End of year $ 7,477,089 $ 60,526,851 $ 65,823,393 $ 22,607,229 ============ ============ ============ ============
See accompanying notes. VA I - 8 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ----------------------------------------------------------------------------- AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein Growth Portfolio - High Yield Intermediate Bond Intermediate Bond Class B Portfolio - Class A Portfolio - Class A Portfolio - Class B ------------------ ------------------- ------------------- ------------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (232,561) $ -- $ 2,400,075 $ 25,965 Net realized gain (loss) on investments 435,284 -- (1,059,615) (10,103) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 4,300,713 -- 15,341,722 180,988 ------------ ------------ ------------ ---------- Increase (decrease) in net assets resulting from operations 4,503,436 -- 16,682,182 196,850 ------------ ------------ ------------ ---------- PRINCIPAL TRANSACTIONS: Contract purchase payments 2,540 -- 17,769 -- Administrative charges (48,527) -- (242,574) (2,425) Net transfers from (to) other Sub-accounts or fixed rate option (768,017) -- 638,679 (18,924) Mortality reserve transfers -- -- -- -- Contract withdrawals (1,488,705) -- (16,257,895) (45,196) Surrender charges (1,610) -- (23,096) -- Death benefits (1,273,731) -- (2,556,420) -- Annuity payments (291) -- (30,079) -- ------------ ------------ ------------ ---------- Increase (decrease) in net assets resulting from principal transactions (3,578,341) -- (18,453,616) (66,545) ------------ ------------ ------------ ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS 925,095 -- (1,771,434) 130,305 NET ASSETS: Beginning of year 16,905,929 -- 108,861,652 1,231,791 ------------ ------------ ------------ ---------- End of year $ 17,831,024 $ -- $107,090,218 $1,362,096 ============ ============ ============ ========== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (398,108) $ 2,031,672 $ 1,262,189 $ 56,618 Net realized gain (loss) on investments 1,525,208 (3,662,415) (4,961,563) (51,607) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments (16,555,835) 1,430,508 (5,988,614) (123,713) ------------ ------------ ------------ ---------- Increase (decrease) in net assets resulting from operations (15,428,735) (200,235) (9,687,988) (118,702) ------------ ------------ ------------ ---------- PRINCIPAL TRANSACTIONS: Contract purchase payments 16,312 4,674 46,130 -- Administrative charges (80,797) (14,146) (225,639) (2,759) Net transfers from (to) other Sub-accounts or fixed rate option (2,277,045) (20,277,222) 90,136,538 20,792 Mortality reserve transfers (9) -- 7,427 -- Contract withdrawals (5,268,094) (1,011,068) (25,242,807) (231,204) Surrender charges (21,406) (2,806) (76,235) -- Death benefits (980,961) (163,341) (4,500,064) (106,476) Annuity payments (406) -- (26,899) -- ------------ ------------ ------------ ---------- Increase (decrease) in net assets resulting from principal transactions (8,612,406) (21,463,909) 60,118,451 (319,647) ------------ ------------ ------------ ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (24,041,141) (21,664,144) 50,430,463 (438,349) NET ASSETS: Beginning of year 40,947,070 21,664,144 58,431,189 1,670,140 ------------ ------------ ------------ ---------- End of year $ 16,905,929 $ -- $108,861,652 $1,231,791 ============ ============ ============ ==========
See accompanying notes. VA I - 9 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts --------------------------------------------------------------------------- AllianceBernstein AllianceBernstein International International AllianceBernstein AllianceBernstein Growth Portfolio - Value Portfolio - Large Cap Growth Large Cap Growth Class A Class A Portfolio - Class A Portfolio - Class B ------------------ ----------------- ------------------- ------------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 1,349,888 $ (7,710) $ (541,504) $ (387,494) Net realized gain (loss) on investments (9,426,805) (2,620,684) (5,099,505) (537,660) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 21,019,265 7,244,043 19,040,699 9,222,378 ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations 12,942,348 4,615,649 13,399,690 8,297,224 ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 15,098 3,535 60,614 10,417 Administrative charges (98,956) (48,873) (83,608) (86,833) Net transfers from (to) other Sub-accounts or fixed rate option (1,047,766) (716,579) (964,782) (960,233) Mortality reserve transfers -- -- -- -- Contract withdrawals (3,828,650) (2,304,322) (3,361,473) (3,670,693) Surrender charges (3,402) (2,776) (1,819) (4,906) Death benefits (877,815) (115,753) (2,087,627) (1,288,997) Annuity payments (10,242) (1,603) (23,519) (24,080) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (5,851,733) (3,186,371) (6,462,214) (6,025,325) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 7,090,615 1,429,278 6,937,476 2,271,899 NET ASSETS: Beginning of year 39,723,680 18,024,201 42,106,763 27,978,873 ------------ ------------ ------------ ------------ End of year $ 46,814,295 $ 19,453,479 $ 49,044,239 $ 30,250,772 ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (1,037,588) $ (69,387) $ (926,233) $ (629,034) Net realized gain (loss) on investments (6,496,913) 2,264,952 (6,435,260) (73,874) Capital gain distributions from mutual funds 1,532,951 2,405,078 -- -- Net change in unrealized appreciation (depreciation) of investments (38,907,175) (29,159,544) (25,424,172) (21,432,060) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations (44,908,725) (24,558,901) (32,785,665) (22,134,968) ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 102,473 10,784 172,324 89,693 Administrative charges (165,697) (93,032) (109,986) (134,298) Net transfers from (to) other Sub-accounts or fixed rate option (6,703,703) (2,475,278) (4,142,526) (2,685,216) Mortality reserve transfers 11,419 -- (9,296) 1,637 Contract withdrawals (10,499,027) (5,823,347) (10,916,908) (8,022,429) Surrender charges (24,246) (24,851) (8,721) (38,662) Death benefits (1,940,010) (606,533) (1,560,689) (939,769) Annuity payments (13,641) (1,385) (31,652) (27,862) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (19,232,432) (9,013,642) (16,607,454) (11,756,906) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (64,141,157) (33,572,543) (49,393,119) (33,891,874) NET ASSETS: Beginning of year 103,864,837 51,596,744 91,499,882 61,870,747 ------------ ------------ ------------ ------------ End of year $ 39,723,680 $ 18,024,201 $ 42,106,763 $ 27,978,873 ============ ============ ============ ============
See accompanying notes. VA I - 10 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------------------------ AllianceBernstein AllianceBernstein AllianceBernstein Real Estate AllianceBernstein Money Market Money Market Investment Small Cap Growth Portfolio - Class A Portfolio - Class B Portfolio - Class A Portfolio - Class A ------------------- ------------------- ------------------- ------------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (217,621) $ (271,112) $ 174,406 $ (221,569) Net realized gain (loss) on investments -- -- (5,570,663) (428,300) Capital gain distributions from mutual funds -- -- 240,987 -- Net change in unrealized appreciation (depreciation) of investments -- -- 7,871,584 6,030,952 ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations (217,621) (271,112) 2,716,314 5,381,083 ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 250 31,251 5,603 13,677 Administrative charges (21,897) (47,664) (28,808) (40,410) Net transfers from (to) other Sub-accounts or fixed rate option 8,126,277 12,282,288 (824,472) (142,728) Mortality reserve transfers 15,593 3,088 -- -- Contract withdrawals (7,060,162) (12,522,139) (1,245,661) (1,096,552) Surrender charges (1,177) (20,572) (1,527) (2,017) Death benefits (612,591) (735,716) (319,844) (622,724) Annuity payments (17,464) (3,575) (8,588) (4,675) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions 428,829 (1,013,039) (2,423,297) (1,895,429) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 211,208 (1,284,151) 293,017 3,485,654 NET ASSETS: Beginning of year 18,205,399 21,809,368 13,206,508 14,824,536 ------------ ------------ ------------ ------------ End of year $ 18,416,607 $ 20,525,217 $ 13,499,525 $ 18,310,190 ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 71,207 $ 26,531 $ 97,497 $ (339,987) Net realized gain (loss) on investments -- -- (6,006,927) 1,564,059 Capital gain distributions from mutual funds -- -- 6,476,193 -- Net change in unrealized appreciation (depreciation) of investments -- -- (9,205,362) (15,388,603) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations 71,207 26,531 (8,638,599) (14,164,531) ------------ ------------ ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 125,257 23,596 6,581 34,121 Administrative charges (18,366) (38,901) (55,361) (56,677) Net transfers from (to) other Sub-accounts or fixed rate option 15,273,174 27,499,126 (4,095,776) (1,299,162) Mortality reserve transfers 14,447 -- 4,324 70 Contract withdrawals (10,934,222) (18,345,183) (4,339,213) (3,150,948) Surrender charges (2,295) (73,925) (9,014) (12,715) Death benefits (1,158,791) (1,538,409) (231,512) (289,241) Annuity payments (18,841) (1,705) (12,691) (8,023) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from principal transactions 3,280,363 7,524,599 (8,732,662) (4,782,575) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 3,351,570 7,551,130 (17,371,261) (18,947,106) NET ASSETS: Beginning of year 14,853,829 14,258,238 30,577,769 33,771,642 ------------ ------------ ------------ ------------ End of year $ 18,205,399 $ 21,809,368 $ 13,206,508 $ 14,824,536 ============ ============ ============ ============
See accompanying notes. VA I - 11 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts -------------------------------------------------------------------------- AllianceBernstein AllianceBernstein Small/Mid Cap U.S. Large Cap AllianceBernstein AllianceBernstein Value Portfolio - Blended Style Utility Income Value Portfolio - Class A Portfolio - Class B Portfolio - Class A Class B ----------------- ------------------- ------------------- ----------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (66,097) $ 11,238 $ 778,184 $ 386,818 Net realized gain (loss) on investments (2,244,479) (1,130,948) (7,176,578) (2,187,584) Capital gain distributions from mutual funds 909,607 -- -- -- Net change in unrealized appreciation (depreciation) of investments 8,661,485 1,058,379 7,751,514 5,592,738 ------------ ----------- ------------ ------------ Increase (decrease) in net assets resulting from operations 7,260,516 (61,331) 1,353,120 3,791,972 ------------ ----------- ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 5,368 -- 5,360 13,052 Administrative charges (60,384) (264) (35,430) (63,546) Net transfers from (to) other Sub-accounts or fixed rate option (299,127) (1,323,084) (21,549,183) (379,573) Mortality reserve transfers -- -- (4,089) -- Contract withdrawals (2,419,445) (6,937) (1,497,694) (2,593,594) Surrender charges (3,900) -- (1,749) (2,554) Death benefits (575,097) (17,232) (472,192) (675,955) Annuity payments (30,795) (351) (2,590) (36,522) ------------ ----------- ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (3,383,380) (1,347,868) (23,557,567) (3,738,692) ------------ ----------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 3,877,136 (1,409,199) (22,204,447) 53,280 NET ASSETS: Beginning of year 21,397,491 1,409,199 22,204,447 23,928,763 ------------ ----------- ------------ ------------ End of year $ 25,274,627 $ -- $ -- $ 23,982,043 ============ =========== ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (222,708) $ (23,085) $ 597,217 $ 365,365 Net realized gain (loss) on investments 2,032,128 (274,054) 4,266,898 2,695,171 Capital gain distributions from mutual funds 3,797,312 244,328 4,557,957 2,415,775 Net change in unrealized appreciation (depreciation) of investments (19,587,113) (1,173,786) (25,803,271) (26,378,482) ------------ ----------- ------------ ------------ Increase (decrease) in net assets resulting from operations (13,980,381) (1,226,597) (16,381,199) (20,902,171) ------------ ----------- ------------ ------------ PRINCIPAL TRANSACTIONS: Contract purchase payments 24,329 -- 10,485 35,501 Administrative charges (91,591) (4,243) (83,814) (109,230) Net transfers from (to) other Sub-accounts or fixed rate option (4,310,323) (26,652) (2,130,297) (5,104,714) Mortality reserve transfers -- (85) 386 8,264 Contract withdrawals (5,471,387) (577,644) (7,441,818) (8,308,818) Surrender charges (25,644) (2,501) (27,863) (47,839) Death benefits (638,409) (6,899) (796,028) (1,279,316) Annuity payments (38,014) (2,316) (4,893) (49,607) ------------ ----------- ------------ ------------ Increase (decrease) in net assets resulting from principal transactions (10,551,039) (620,340) (10,473,842) (14,855,759) ------------ ----------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (24,531,420) (1,846,937) (26,855,041) (35,757,930) NET ASSETS: Beginning of year 45,928,911 3,256,136 49,059,488 59,686,693 ------------ ----------- ------------ ------------ End of year $ 21,397,491 $ 1,409,199 $ 22,204,447 $ 23,928,763 ============ =========== ============ ============
See accompanying notes. VA I - 12 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts --------------------------------------------------------------------------- BlackRock Basic BlackRock Global BlackRock Global BlackRock High Value V.I. Fund - Allocation V.I. Fund Growth V.I. Fund - Income V.I. Fund - Class I - Class I Class I Class I ----------------- -------------------- ------------------ ------------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 19,584 $ 8,049 $ 3,875 $ 19,031 Net realized gain (loss) on investments (218,809) (312) (13,389) (12,547) Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 909,917 260,032 107,043 96,541 ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations 710,692 267,769 97,529 103,025 ----------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments 480 480 -- -- Administrative charges (6,524) (3,223) (681) (548) Net transfers from (to) other Sub-accounts or fixed rate option (112,253) 115,161 (13) (32) Mortality reserve transfers -- -- -- -- Contract withdrawals (84,022) (52,423) (16,868) (23,673) Surrender charges -- -- -- -- Death benefits (77,949) 302 (34,485) -- Annuity payments (498) -- -- -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (280,766) 60,297 (52,047) (24,253) ----------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 429,926 328,066 45,482 78,772 NET ASSETS: Beginning of year 2,753,201 1,333,489 317,203 204,432 ----------- ---------- --------- --------- End of year $ 3,183,127 $1,661,555 $ 362,685 $ 283,204 =========== ========== ========= ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 31,128 $ 8,748 $ (5,525) $ 21,277 Net realized gain (loss) on investments (110,266) 100,897 (7,136) (9,503) Capital gain distributions from mutual funds 40,848 6,038 -- -- Net change in unrealized appreciation (depreciation) of investments (1,730,183) (499,813) (298,324) (99,845) ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations (1,768,473) (384,130) (310,985) (88,071) ----------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments 480 15,480 -- -- Administrative charges (8,854) (3,826) (1,004) (594) Net transfers from (to) other Sub-accounts or fixed rate option (107,352) 78,261 (8,790) 5,420 Mortality reserve transfers 182 -- -- -- Contract withdrawals (392,477) (246,523) (39,467) (60,778) Surrender charges (8) -- (33) -- Death benefits (76,849) (61,573) (20,592) -- Annuity payments (649) -- -- -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (585,527) (218,181) (69,886) (55,952) ----------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (2,354,000) (602,311) (380,871) (144,023) NET ASSETS: Beginning of year 5,107,201 1,935,800 698,074 348,455 ----------- ---------- --------- --------- End of year $ 2,753,201 $1,333,489 $ 317,203 $ 204,432 =========== ========== ========= =========
See accompanying notes. VA I - 13 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ---------------------------------------------------------------- BlackRock International BlackRock Large BlackRock Large BlackRock Money Value V.I. Fund - Cap Core V.I. Cap Growth V.I. Market V.I. Class I Fund - Class I Fund - Class I Fund - Class I ----------------- --------------- --------------- --------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 8,487 $ (190) $ (3,489) $ (2,565) Net realized gain (loss) on investments (59,613) (13,449) (7,811) -- Capital gain distributions from mutual funds -- -- -- 21 Net change in unrealized appreciation (depreciation) of investments 310,895 234,361 109,688 -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations 259,769 220,722 98,388 (2,544) ----------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- 480 -- -- Administrative charges (2,678) (2,859) (877) (328) Net transfers from (to) other Sub-accounts or fixed rate option (32,901) (31,129) (11,347) 7,354 Mortality reserve transfers -- -- -- -- Contract withdrawals (14,383) (18,845) (2,193) (97,014) Surrender charges -- -- -- -- Death benefits (44,863) (903) -- -- Annuity payments -- (471) -- -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (94,825) (53,727) (14,417) (89,988) ----------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 164,944 166,995 83,971 (92,532) NET ASSETS: Beginning of year 1,022,210 1,120,010 424,281 238,354 ----------- ---------- --------- --------- End of year $ 1,187,154 $1,287,005 $ 508,252 $ 145,822 =========== ========== ========= ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 27,169 $ (2,961) $ (6,430) $ 3,075 Net realized gain (loss) on investments 36,936 (22,372) 54,952 -- Capital gain distributions from mutual funds 94,064 32,270 -- -- Net change in unrealized appreciation (depreciation) of investments (995,048) (764,193) (380,909) -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations (836,879) (757,256) (332,387) 3,075 ----------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- 480 -- -- Administrative charges (3,672) (3,733) (1,254) (658) Net transfers from (to) other Sub-accounts or fixed rate option (139,324) (23,692) 22,741 302,784 Mortality reserve transfers -- 166 -- -- Contract withdrawals (122,900) (108,876) (109,087) (372,269) Surrender charges (10) -- -- -- Death benefits (28,304) -- (139,733) -- Annuity payments -- (631) -- -- ----------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (294,210) (136,286) (227,333) (70,143) ----------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,131,089) (893,542) (559,720) (67,068) NET ASSETS: Beginning of year 2,153,299 2,013,552 984,001 305,422 ----------- ---------- --------- --------- End of year $ 1,022,210 $1,120,010 $ 424,281 $ 238,354 =========== ========== ========= =========
See accompanying notes. VA I - 14 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts -------------------------------------------------------------------------- BlackRock Utilities BlackRock Total and BlackRock Value Delaware VIP Return V.I. Fund - Telecommunications Opportunities V.I. Balanced Series - Class I V.I. Fund - Class I Fund - Class I Standard Class ------------------ ------------------- ------------------ ----------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 8,262 $ 5,814 $ (6,016) $ 12,693 Net realized gain (loss) on investments (861) (2,329) (130,844) (106,080) Capital gain distributions from mutual funds 872 2,370 -- -- Net change in unrealized appreciation (depreciation) of investments 18,865 35,609 344,742 100,465 -------- --------- ---------- --------- Increase (decrease) in net assets resulting from operations 27,138 41,464 207,882 7,078 -------- --------- ---------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges (230) (699) (2,128) (220) Net transfers from (to) other Sub-accounts or fixed rate option 2,187 (1) (16,859) (332,603) Mortality reserve transfers -- -- -- -- Contract withdrawals (635) (9,848) (7,314) (3,956) Surrender charges -- -- -- -- Death benefits -- -- (65,440) (3,022) Annuity payments -- -- -- -- -------- --------- ---------- --------- Increase (decrease) in net assets resulting from principal transactions 1,322 (10,548) (91,741) (339,801) -------- --------- ---------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 28,460 30,916 116,141 (332,723) NET ASSETS: Beginning of year 168,925 322,931 845,990 332,723 -------- --------- ---------- --------- End of year $197,385 $ 353,847 $ 962,131 $ -- ======== ========= ========== ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 8,220 $ 3,960 $ (9,319) $ 15,790 Net realized gain (loss) on investments (3,918) 49,854 (120,930) (72,475) Capital gain distributions from mutual funds 397 18,539 36,943 -- Net change in unrealized appreciation (depreciation) of investments (33,927) (252,337) (510,835) (92,673) -------- --------- ---------- --------- Increase (decrease) in net assets resulting from operations (29,228) (179,984) (604,141) (149,358) -------- --------- ---------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges (265) (938) (3,114) (378) Net transfers from (to) other Sub-accounts or fixed rate option (7,978) (36,268) (63,312) 7 Mortality reserve transfers -- -- -- -- Contract withdrawals (54,047) (81,639) (102,437) (50,032) Surrender charges -- -- (72) -- Death benefits -- -- 333 (104,771) Annuity payments -- -- -- -- -------- --------- ---------- --------- Increase (decrease) in net assets resulting from principal transactions (62,290) (118,845) (168,602) (155,174) -------- --------- ---------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (91,518) (298,829) (772,743) (304,532) NET ASSETS: Beginning of year 260,443 621,760 1,618,733 637,255 -------- --------- ---------- --------- End of year $168,925 $ 322,931 $ 845,990 $ 332,723 ======== ========= ========== =========
See accompanying notes. VA I - 15 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------------ Delaware VIP Delaware VIP Delaware VIP Delaware VIP Growth High Yield Limited-Term Cash Reserve Opportunities Series Diversified Income Series - Standard Series - Standard - Standard Series - Standard Class Class Class Class ----------------- ----------------- ------------ ------------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (584) $ (2,028) $ 21,577 $ 3,498 Net realized gain (loss) on investments -- (222,841) (24,814) 2,014 Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments -- 272,121 128,523 11,779 --------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations (584) 47,252 125,286 17,291 --------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges (110) (109) (316) (104) Net transfers from (to) other Sub-accounts or fixed rate option -- (326,842) (20) (5) Mortality reserve transfers -- -- -- -- Contract withdrawals (39,207) (24,752) (96,346) (100,988) Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments -- -- -- -- --------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (39,317) (351,703) (96,682) (101,097) --------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (39,901) (304,451) 28,604 (83,806) NET ASSETS: Beginning of year 78,859 391,025 289,663 157,573 --------- ---------- --------- --------- End of year $ 38,958 $ 86,574 $ 318,267 $ 73,767 ========= ========== ========= ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 2,014 $ (10,204) $ 31,036 $ 5,490 Net realized gain (loss) on investments -- (200,921) (74,226) (69) Capital gain distributions from mutual funds -- 98,875 -- -- Net change in unrealized appreciation (depreciation) of investments -- (300,670) (79,300) (7,869) --------- ---------- --------- --------- Increase (decrease) in net assets resulting from operations 2,014 (412,920) (122,490) (2,448) --------- ---------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges (132) (255) (294) (70) Net transfers from (to) other Sub-accounts or fixed rate option (1,680) (37,329) 39,046 2 Mortality reserve transfers -- -- -- -- Contract withdrawals (157,672) (201,957) (88,335) -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments -- -- -- -- --------- ---------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (159,484) (239,541) (49,583) (68) --------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (157,470) (652,461) (172,073) (2,516) NET ASSETS: Beginning of year 236,329 1,043,486 461,736 160,089 --------- ---------- --------- --------- End of year $ 78,859 $ 391,025 $ 289,663 $ 157,573 ========= ========== ========= =========
See accompanying notes. VA I - 16 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ----------------------------------------------------------------------- Fidelity VIP Delaware VIP Dreyfus Stock Fidelity VIP Asset Contrafund Value Series - Index Fund, Inc. - Manager Portfolio Portfolio - Initial Standard Class Initial Shares - Initial Class Class -------------- ------------------ ------------------ ------------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 24,978 $ 10,311 $ 11,574 $ (349) Net realized gain (loss) on investments (328,293) (275,141) (144,218) (124,661) Capital gain distributions from mutual funds -- 111,195 2,140 199 Net change in unrealized appreciation (depreciation) of investments 429,902 479,885 458,386 344,869 ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations 126,587 326,250 327,882 220,058 ----------- ----------- ----------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- 2,100 25 720 Administrative charges (1,338) (2,821) (1,718) (1,185) Net transfers from (to) other Sub-accounts or fixed rate option (334,223) 5,688 82,811 21,241 Mortality reserve transfers -- -- -- -- Contract withdrawals (332,544) (389,272) (223,112) (144,882) Surrender charges -- (118) -- (45) Death benefits (3,717) (129,377) (262,306) (14,568) Annuity payments (3,188) (2,909) (1,922) (1,231) ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from principal transactions (675,010) (516,709) (406,222) (139,950) ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (548,423) (190,459) (78,340) 80,108 NET ASSETS: Beginning of year 2,002,368 1,905,426 1,499,698 749,411 ----------- ----------- ----------- ----------- End of year $ 1,453,945 $ 1,714,967 $ 1,421,358 $ 829,519 =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 50,024 $ 18,621 $ 18,538 $ (7,247) Net realized gain (loss) on investments (4,570) (41,286) 130,004 39,669 Capital gain distributions from mutual funds 244,036 -- 298,436 42,239 Net change in unrealized appreciation (depreciation) of investments (1,418,489) (1,311,118) (1,124,648) (780,321) ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations (1,128,999) (1,333,783) (677,670) (705,660) ----------- ----------- ----------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- 8,830 1,000 5,130 Administrative charges (1,552) (3,516) (2,095) (1,438) Net transfers from (to) other Sub-accounts or fixed rate option (15) (169,470) 230,444 (258,669) Mortality reserve transfers 184 (17,461) (275) (409) Contract withdrawals (446,068) (598,053) (1,044,493) (439,436) Surrender charges -- (182) (62) (123) Death benefits (45,394) (15,138) -- (21,433) Annuity payments (4,966) (3,926) (2,335) (1,652) ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from principal transactions (497,811) (798,916) (817,816) (718,030) ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,626,810) (2,132,699) (1,495,486) (1,423,690) NET ASSETS: Beginning of year 3,629,178 4,038,125 2,995,184 2,173,101 ----------- ----------- ----------- ----------- End of year $ 2,002,368 $ 1,905,426 $ 1,499,698 $ 749,411 =========== =========== =========== ===========
See accompanying notes. VA I - 17 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------------------ Fidelity VIP Fidelity VIP Fidelity VIP High Investment Grade Fidelity VIP Money Growth Portfolio - Income Portfolio - Bond Portfolio - Market Portfolio - Initial Class Initial Class Initial Class Initial Class ------------------ ------------------ ---------------- ------------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (8,945) $ 15,676 $ 84,257 $ (9,183) Net realized gain (loss) on investments (74,625) (62,437) (13,578) -- Capital gain distributions from mutual funds 735 -- 4,315 -- Net change in unrealized appreciation (depreciation) of investments 290,668 147,570 69,087 -- ----------- --------- ---------- ----------- Increase (decrease) in net assets resulting from operations 207,833 100,809 144,081 (9,183) ----------- --------- ---------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments 2,160 265 -- 8,230 Administrative charges (2,105) (339) (1,830) (2,019) Net transfers from (to) other Sub-accounts or fixed rate option 7,239 4,860 (15,895) (303,962) Mortality reserve transfers -- -- -- -- Contract withdrawals (238,385) (53,219) (137,674) (392,552) Surrender charges (65) -- -- (405) Death benefits (50,767) (97,429) (83,623) (6,322) Annuity payments (2,124) -- (5,059) (4,860) ----------- --------- ---------- ----------- Increase (decrease) in net assets resulting from principal transactions (284,047) (145,862) (244,081) (701,890) ----------- --------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (76,214) (45,053) (100,000) (711,073) NET ASSETS: Beginning of year 986,025 317,810 1,172,370 1,830,301 ----------- --------- ---------- ----------- End of year $ 909,811 $ 272,757 $1,072,370 $ 1,119,228 =========== ========= ========== =========== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (13,847) $ 29,509 $ 50,133 $ 28,898 Net realized gain (loss) on investments 81,630 (14,292) (30,989) -- Capital gain distributions from mutual funds -- -- 1,380 -- Net change in unrealized appreciation (depreciation) of investments (1,177,393) (131,420) (96,758) -- ----------- --------- ---------- ----------- Increase (decrease) in net assets resulting from operations (1,109,610) (116,203) (76,234) 28,898 ----------- --------- ---------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments 7,120 1,240 -- 15,480 Administrative charges (2,946) (367) (1,900) (1,998) Net transfers from (to) other Sub-accounts or fixed rate option (115,237) 7,570 405,167 669,047 Mortality reserve transfers (138) -- 3 6 Contract withdrawals (702,169) (141,893) (463,500) (1,273,396) Surrender charges (55) (3) (50) (45) Death benefits (10,215) (2,176) (51,313) 20,441 Annuity payments (3,200) -- (5,089) (5,079) ----------- --------- ---------- ----------- Increase (decrease) in net assets resulting from principal transactions (826,840) (135,629) (116,682) (575,544) ----------- --------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,936,450) (251,832) (192,916) (546,646) NET ASSETS: Beginning of year 2,922,475 569,642 1,365,286 2,376,947 ----------- --------- ---------- ----------- End of year $ 986,025 $ 317,810 $1,172,370 $ 1,830,301 =========== ========= ========== ===========
See accompanying notes. VA I - 18 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------------ LVIP Delaware Van Eck Fidelity VIP Foundation Worldwide Overseas Moderate UBS U.S. Emerging Markets Portfolio - Initial Allocation Fund - Allocation Fund - Initial Class Standard Class Portfolio Class ------------------- ----------------- ----------- ---------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 599 $ 1,728 $ 167,898 $ (2,726) Net realized gain (loss) on investments 1,264 2,828 (3,063,957) (20,757) Capital gain distributions from mutual funds 268 -- -- 13,402 Net change in unrealized appreciation (depreciation) of investments 14,715 49,212 2,531,011 166,491 --------- -------- ----------- --------- Increase (decrease) in net assets resulting from operations 16,846 53,768 (365,048) 156,410 --------- -------- ----------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments 360 -- 200 -- Administrative charges (119) (120) (3,567) (326) Net transfers from (to) other Sub-accounts or fixed rate option (4,828) 332,596 (4,712,501) 23,166 Mortality reserve transfers -- -- -- -- Contract withdrawals (12,087) (28,447) (369,622) (11,875) Surrender charges -- -- -- (88) Death benefits -- -- (380,733) -- Annuity payments -- -- -- -- --------- -------- ----------- --------- Increase (decrease) in net assets resulting from principal transactions (16,674) 304,029 (5,466,223) 10,877 --------- -------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 172 357,797 (5,831,271) 167,287 NET ASSETS: Beginning of year 91,837 -- 5,831,271 139,471 --------- -------- ----------- --------- End of year $ 92,009 $357,797 $ -- $ 306,758 ========= ======== =========== ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 1,573 $ -- $ 157,358 $ (5,131) Net realized gain (loss) on investments 13,711 -- (414,006) (126,158) Capital gain distributions from mutual funds 18,718 -- -- 226,187 Net change in unrealized appreciation (depreciation) of investments (111,677) -- (3,295,133) (412,411) --------- -------- ----------- --------- Increase (decrease) in net assets resulting from operations (77,675) -- (3,551,781) (317,513) --------- -------- ----------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments 360 -- 600 1,590 Administrative charges (152) -- (20,562) (399) Net transfers from (to) other Sub-accounts or fixed rate option 4,145 -- (125,428) (62,846) Mortality reserve transfers -- -- -- -- Contract withdrawals (28,392) -- (1,222,809) (129,412) Surrender charges -- -- (598) (47) Death benefits -- -- (617,224) (1,550) Annuity payments -- -- -- -- --------- -------- ----------- --------- Increase (decrease) in net assets resulting from principal transactions (24,039) -- (1,986,021) (192,664) --------- -------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (101,714) -- (5,537,802) (510,177) NET ASSETS: Beginning of year 193,551 -- 11,369,073 649,648 --------- -------- ----------- --------- End of year $ 91,837 $ -- $ 5,831,271 $ 139,471 ========= ======== =========== =========
See accompanying notes. VA I - 19 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts -------------------------------------------------------- Van Eck Worldwide Hard Vanguard Assets Fund - Vanguard 500 Dividend Growth Vanguard GNMA Initial Class Index Fund Fund Fund -------------- ------------ --------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ (2,430) $ 263 $ 2,401 $ 7,603 Net realized gain (loss) on investments (4,476) (504) (382) 8,916 Capital gain distributions from mutual funds 1,051 -- -- 1,604 Net change in unrealized appreciation (depreciation) of investments 98,577 4,038 22,085 (9,944) --------- -------- -------- -------- Increase (decrease) in net assets resulting from operations 92,722 3,797 24,104 8,179 --------- -------- -------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges (338) -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 175 (2) -- 3,365 Mortality reserve transfers -- -- -- -- Contract withdrawals (15,490) -- -- -- Surrender charges (67) -- -- -- Death benefits -- -- -- -- Annuity payments (1,107) (1,613) (8,071) (26,143) --------- -------- -------- -------- Increase (decrease) in net assets resulting from principal transactions (16,827) (1,615) (8,071) (22,778) --------- -------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 75,895 2,182 16,033 (14,599) NET ASSETS: Beginning of year 168,886 15,959 120,647 253,915 --------- -------- -------- -------- End of year $ 244,781 $ 18,141 $136,680 $239,316 ========= ======== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ (3,949) $ 324 $ 1,598 $ 3,630 Net realized gain (loss) on investments 43,408 248 432 129 Capital gain distributions from mutual funds 91,217 -- -- -- Net change in unrealized appreciation (depreciation) of investments (302,736) (10,569) (37,924) 8,823 --------- -------- -------- -------- Increase (decrease) in net assets resulting from operations (172,060) (9,997) (35,894) 12,582 --------- -------- -------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments 30 -- -- -- Administrative charges (443) -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option (158,888) 3 123,744 230,225 Mortality reserve transfers 16,331 -- -- -- Contract withdrawals (143,436) -- -- -- Surrender charges (23) -- -- -- Death benefits (2,566) -- -- -- Annuity payments (1,570) (2,112) (5,455) (9,784) --------- -------- -------- -------- Increase (decrease) in net assets resulting from principal transactions (290,565) (2,109) 118,289 220,441 --------- -------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (462,625) (12,106) 82,395 233,023 NET ASSETS: Beginning of year 631,511 28,065 38,252 20,892 --------- -------- -------- -------- End of year $ 168,886 $ 15,959 $120,647 $253,915 ========= ======== ======== ========
See accompanying notes. VA I - 20 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------- Vanguard Vanguard Inflation- Vanguard LifeStrategy Vanguard Health Protected International Conservative Care Fund Securities Fund Growth Fund Growth Fund --------------- ------------------- ------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 406 $ 3,400 $ 95 $ 4,695 Net realized gain (loss) on investments (959) (2,627) (472) (2,597) Capital gain distributions from mutual funds 253 -- -- -- Net change in unrealized appreciation (depreciation) of investments 7,756 27,228 3,118 27,802 -------- -------- ------- -------- Increase (decrease) in net assets resulting from operations 7,456 28,001 2,741 29,900 -------- -------- ------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option (18) (13,273) 2 (6) Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (6,169) (20,322) (635) (15,100) -------- -------- ------- -------- Increase (decrease) in net assets resulting from principal transactions (6,187) (33,595) (633) (15,106) -------- -------- ------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,269 (5,594) 2,108 14,794 NET ASSETS: Beginning of year 41,153 297,091 7,090 191,341 -------- -------- ------- -------- End of year $ 42,422 $291,497 $ 9,198 $206,135 ======== ======== ======= ======== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 464 $ 13,563 $ 212 $ 6,672 Net realized gain (loss) on investments (46) 5,602 (191) (1,322) Capital gain distributions from mutual funds 3,596 -- 472 -- Net change in unrealized appreciation (depreciation) of investments (14,428) (35,036) (6,590) (53,135) -------- -------- ------- -------- Increase (decrease) in net assets resulting from operations (10,414) (15,871) (6,097) (47,785) -------- -------- ------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 18 148,561 (1) 64,348 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (6,817) (20,529) (837) (17,002) -------- -------- ------- -------- Increase (decrease) in net assets resulting from principal transactions (6,799) 128,032 (838) 47,346 -------- -------- ------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (17,213) 112,161 (6,935) (439) NET ASSETS: Beginning of year 58,366 184,930 14,025 191,780 -------- -------- ------- -------- End of year $ 41,153 $297,091 $ 7,090 $191,341 ======== ======== ======= ========
See accompanying notes. VA I - 21 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------- Vanguard Vanguard Vanguard LifeStrategy Vanguard Prime LifeStrategy LifeStrategy Moderate Growth Money Market Growth Fund Income Fund Fund Fund ------------ ------------ --------------- -------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 6,786 $ 10,492 $ 8,485 $ (8) Net realized gain (loss) on investments (10,301) (3,847) 35,330 -- Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 86,455 34,387 67,351 -- --------- -------- ---------- ------ Increase (decrease) in net assets resulting from operations 82,940 41,032 111,166 (8) --------- -------- ---------- ------ PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 9,246 1,870 (36,249) -- Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (23,337) (29,758) (32,599) (372) --------- -------- ---------- ------ Increase (decrease) in net assets resulting from principal transactions (14,091) (27,888) (68,848) (372) --------- -------- ---------- ------ TOTAL INCREASE (DECREASE) IN NET ASSETS 68,849 13,144 42,318 (380) NET ASSETS: Beginning of year 347,946 399,832 401,572 3,966 --------- -------- ---------- ------ End of year $ 416,795 $412,976 $ 443,890 $3,586 ========= ======== ========== ====== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 8,438 $ 13,957 $ 14,871 $ 82 Net realized gain (loss) on investments (27,403) 142 (57,324) -- Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments (155,936) (53,068) (250,376) -- --------- -------- ---------- ------ Increase (decrease) in net assets resulting from operations (174,901) (38,969) (292,829) 82 --------- -------- ---------- ------ PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 211,392 271,449 (278,517) -- Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (29,429) (25,262) (70,065) (387) --------- -------- ---------- ------ Increase (decrease) in net assets resulting from principal transactions 181,963 246,187 (348,582) (387) --------- -------- ---------- ------ TOTAL INCREASE (DECREASE) IN NET ASSETS 7,062 207,218 (641,411) (305) NET ASSETS: Beginning of year 340,884 192,614 1,042,983 4,271 --------- -------- ---------- ------ End of year $ 347,946 $399,832 $ 401,572 $3,966 ========= ======== ========== ======
See accompanying notes. VA I - 22 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------- Vanguard Vanguard Small- Vanguard Small- Vanguard Total PRIMECAP Cap Growth Index Cap Value Index Bond Market Fund Fund Fund Index Fund -------- ---------------- --------------- -------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 2 $ (47) $ 218 $ 3,872 Net realized gain (loss) on investments 3 (213) (567) 4,869 Capital gain distributions from mutual funds -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 602 4,343 4,488 (3,557) ------- ------- ------- -------- Increase (decrease) in net assets resulting from operations 607 4,083 4,139 5,184 ------- ------- ------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 2 (3) (1) 1,138 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (203) (1,165) (1,445) (13,128) ------- ------- ------- -------- Increase (decrease) in net assets resulting from principal transactions (201) (1,168) (1,446) (11,990) ------- ------- ------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 406 2,915 2,693 (6,806) NET ASSETS: Beginning of year 1,942 10,627 15,147 128,746 ------- ------- ------- -------- End of year $ 2,348 $13,542 $17,840 $121,940 ======= ======= ======= ======== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ -- $ (28) $ 276 $ 884 Net realized gain (loss) on investments 65 52 (196) 63 Capital gain distributions from mutual funds 147 -- -- -- Net change in unrealized appreciation (depreciation) of investments (1,197) (7,541) (7,666) 6,541 ------- ------- ------- -------- Increase (decrease) in net assets resulting from operations (985) (7,517) (7,586) 7,488 ------- ------- ------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option (1) 1 1 124,437 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (252) (1,479) (1,843) (3,179) ------- ------- ------- -------- Increase (decrease) in net assets resulting from principal transactions (253) (1,478) (1,842) 121,258 ------- ------- ------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,238) (8,995) (9,428) 128,746 NET ASSETS: Beginning of year 3,180 19,622 24,575 -- ------- ------- ------- -------- End of year $ 1,942 $10,627 $15,147 $128,746 ======= ======= ======= ========
See accompanying notes. VA I - 23 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts --------------------------------------------------------- Vanguard Total Vanguard VIF Vanguard VIF International Vanguard U.S. Balanced Capital Growth Stock Index Fund Growth Fund Portfolio Portfolio ---------------- ------------- ------------ -------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 3,121 $ (4) $ 179,703 $ 2,317 Net realized gain (loss) on investments 3,364 (36) (109,095) (58,652) Capital gain distributions from mutual funds -- -- -- 32,096 Net change in unrealized appreciation (depreciation) of investments 40,955 863 902,628 141,159 --------- ------- ----------- --------- Increase (decrease) in net assets resulting from operations 47,440 823 973,236 116,920 --------- ------- ----------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option (7) 1 350,965 (16,643) Mortality reserve transfers -- -- (12,599) -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (26,313) (274) (365,885) (32,275) --------- ------- ----------- --------- Increase (decrease) in net assets resulting from principal transactions (26,320) (273) (27,519) (48,918) --------- ------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 21,120 550 945,717 68,002 NET ASSETS: Beginning of year 146,388 2,574 4,390,675 380,370 --------- ------- ----------- --------- End of year $ 167,508 $ 3,124 $ 5,336,392 $ 448,372 ========= ======= =========== ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 3,070 $ (3) $ 166,983 $ 1,520 Net realized gain (loss) on investments 10,920 20 (23,963) (3,448) Capital gain distributions from mutual funds -- -- 265,696 14,450 Net change in unrealized appreciation (depreciation) of investments (140,599) (1,685) (1,769,216) (192,233) --------- ------- ----------- --------- Increase (decrease) in net assets resulting from operations (126,609) (1,668) (1,360,500) (179,711) --------- ------- ----------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 24 -- 609,998 75,812 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (34,133) (339) (416,867) (38,753) --------- ------- ----------- --------- Increase (decrease) in net assets resulting from principal transactions (34,109) (339) 193,131 37,059 --------- ------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (160,718) (2,007) (1,167,369) (142,652) NET ASSETS: Beginning of year 307,106 4,581 5,558,044 523,022 --------- ------- ----------- --------- End of year $ 146,388 $ 2,574 $ 4,390,675 $ 380,370 ========= ======= =========== =========
See accompanying notes. VA I - 24 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------------------------ Vanguard VIF Vanguard VIF Vanguard VIF Diversified Value Equity Income Equity Index Vanguard VIF Portfolio Portfolio Portfolio Growth Portfolio ----------------- ------------- ------------ ---------------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 17,814 $ 16,568 $ 7,279 $ 238 Net realized gain (loss) on investments (28,731) (54,000) (25,651) (2,248) Capital gain distributions from mutual funds -- 1,076 6,385 -- Net change in unrealized appreciation (depreciation) of investments 131,801 84,470 96,762 33,058 --------- --------- --------- -------- Increase (decrease) in net assets resulting from operations 120,884 48,114 84,775 31,048 --------- --------- --------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 10,272 (45,319) 38,784 62,443 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (37,081) (25,626) (31,245) (8,022) --------- --------- --------- -------- Increase (decrease) in net assets resulting from principal transactions (26,809) (70,945) 7,539 54,421 --------- --------- --------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 94,075 (22,831) 92,314 85,469 NET ASSETS: Beginning of year 470,130 402,323 336,117 66,342 --------- --------- --------- -------- End of year $ 564,205 $ 379,492 $ 428,431 $151,811 ========= ========= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 15,283 $ 15,709 $ 8,784 $ 266 Net realized gain (loss) on investments (8,073) (12,933) (25,501) (801) Capital gain distributions from mutual funds 39,306 46,512 19,442 -- Net change in unrealized appreciation (depreciation) of investments (334,883) (243,115) (225,505) (40,602) --------- --------- --------- -------- Increase (decrease) in net assets resulting from operations (288,367) (193,827) (222,780) (41,137) --------- --------- --------- -------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 34,013 (9,890) (3,545) 11,581 Mortality reserve transfers -- -- (23,237) -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (47,458) (36,414) (48,134) (7,048) --------- --------- --------- -------- Increase (decrease) in net assets resulting from principal transactions (13,445) (46,304) (74,916) 4,533 --------- --------- --------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (301,812) (240,131) (297,696) (36,604) NET ASSETS: Beginning of year 771,942 642,454 633,813 102,946 --------- --------- --------- -------- End of year $ 470,130 $ 402,323 $ 336,117 $ 66,342 ========= ========= ========= ========
See accompanying notes. VA I - 25 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ----------------------------------------------------------- Vanguard VIF Vanguard VIF Vanguard VIF Mid- Vanguard VIF High Yield Bond International Cap Index Money Market Portfolio Portfolio Portfolio Portfolio --------------- ------------- ----------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 25,628 $ 44,312 $ 4,373 $ 523 Net realized gain (loss) on investments (17,285) (100,220) (129,540) -- Capital gain distributions from mutual funds -- -- 15,090 -- Net change in unrealized appreciation (depreciation) of investments 79,816 537,823 216,842 -- --------- ----------- --------- ----------- Increase (decrease) in net assets resulting from operations 88,159 481,915 106,765 523 --------- ----------- --------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- 787,010 Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 84,603 124,199 5,147 (718,515) Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- (1,693) -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (23,283) (95,231) (24,634) (48,906) --------- ----------- --------- ----------- Increase (decrease) in net assets resulting from principal transactions 61,320 28,968 (21,180) 19,589 --------- ----------- --------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 149,479 510,883 85,585 20,112 NET ASSETS: Beginning of year 196,307 1,108,521 257,625 759,870 --------- ----------- --------- ----------- End of year $ 345,786 $ 1,619,404 $ 343,210 $ 779,982 ========= =========== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 25,392 $ 37,540 $ 4,451 $ 13,289 Net realized gain (loss) on investments (48,081) (33,884) (17,221) -- Capital gain distributions from mutual funds -- 165,259 57,181 -- Net change in unrealized appreciation (depreciation) of investments (63,537) (1,187,444) (241,912) -- --------- ----------- --------- ----------- Increase (decrease) in net assets resulting from operations (86,226) (1,018,529) (197,501) 13,289 --------- ----------- --------- ----------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- 1,709,485 Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option (40,227) 58,136 8,175 (2,619,464) Mortality reserve transfers (18,274) -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (29,921) (128,317) (29,622) (27,899) --------- ----------- --------- ----------- Increase (decrease) in net assets resulting from principal transactions (88,422) (70,181) (21,447) (937,878) --------- ----------- --------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (174,648) (1,088,710) (218,948) (924,589) NET ASSETS: Beginning of year 370,955 2,197,231 476,573 1,684,459 --------- ----------- --------- ----------- End of year $ 196,307 $ 1,108,521 $ 257,625 $ 759,870 ========= =========== ========= ===========
See accompanying notes. VA I - 26 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ---------------------------------------------------------- Vanguard VIF Vanguard VIF Vanguard VIF Short-Term Vanguard VIF Total Bond REIT Index Investment-Grade Small Company Market Index Portfolio Portfolio Growth Portfolio Portfolio ------------ ---------------- ---------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 10,756 $ 11,087 $ 942 $ 34,398 Net realized gain (loss) on investments (96,420) (656) (29,081) 2,700 Capital gain distributions from mutual funds 16,022 1,515 -- -- Net change in unrealized appreciation (depreciation) of investments 133,142 21,581 87,077 8,733 --------- -------- --------- --------- Increase (decrease) in net assets resulting from operations 63,500 33,527 58,938 45,831 --------- -------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 16,402 (6,237) 43,585 (33,101) Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- (4,765) Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (16,961) (26,071) (13,908) (73,932) --------- -------- --------- --------- Increase (decrease) in net assets resulting from principal transactions (559) (32,308) 29,677 (111,798) --------- -------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 62,941 1,219 88,615 (65,967) NET ASSETS: Beginning of year 240,254 266,514 128,491 917,432 --------- -------- --------- --------- End of year $ 303,195 $267,733 $ 217,106 $ 851,465 ========= ======== ========= ========= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 10,168 $ 9,075 $ 357 $ 30,469 Net realized gain (loss) on investments (76,016) 19 (11,615) 5,275 Capital gain distributions from mutual funds 123,525 -- 20,515 -- Net change in unrealized appreciation (depreciation) of investments (208,924) (21,175) (98,084) 338 --------- -------- --------- --------- Increase (decrease) in net assets resulting from operations (151,247) (12,081) (88,827) 36,082 --------- -------- --------- --------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- -- Administrative charges -- -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 85,863 98,577 (1,900) 263,671 Mortality reserve transfers -- -- -- -- Contract withdrawals -- -- -- -- Surrender charges -- -- -- -- Death benefits -- -- -- -- Annuity payments (25,271) (24,477) (14,234) (71,025) --------- -------- --------- --------- Increase (decrease) in net assets resulting from principal transactions 60,592 74,100 (16,134) 192,646 --------- -------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (90,655) 62,019 (104,961) 228,728 NET ASSETS: Beginning of year 330,909 204,495 233,452 688,704 --------- -------- --------- --------- End of year $ 240,254 $266,514 $ 128,491 $ 917,432 ========= ======== ========= =========
See accompanying notes. VA I - 27 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I STATEMENT OF CHANGES IN NET ASSETS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sub-accounts ------------------------------------------ Vanguard VIF Total Vanguard Stock Market Index Vanguard Windsor Portfolio Wellington Fund Fund ------------------ --------------- -------- FOR THE YEAR ENDED DECEMBER 31, 2009 OPERATIONS: Net investment income (loss) $ 26,572 $ 708 $ 21 Net realized gain (loss) on investments (195,515) 6,590 (85) Capital gain distributions from mutual funds 72,785 -- -- Net change in unrealized appreciation (depreciation) of investments 568,499 990 523 ----------- --------- ------- Increase (decrease) in net assets resulting from operations 472,341 8,288 459 ----------- --------- ------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- Administrative charges -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 39,925 (7,875) 1 Mortality reserve transfers -- -- -- Contract withdrawals (3,467) -- -- Surrender charges -- -- -- Death benefits -- -- -- Annuity payments (165,313) (208) (152) ----------- --------- ------- Increase (decrease) in net assets resulting from principal transactions (128,855) (8,083) (151) ----------- --------- ------- TOTAL INCREASE (DECREASE) IN NET ASSETS 343,486 205 308 NET ASSETS: Beginning of year 1,863,979 2,073 1,457 ----------- --------- ------- End of year $ 2,207,465 $ 2,278 $ 1,765 =========== ========= ======= FOR THE YEAR ENDED DECEMBER 31, 2008 OPERATIONS: Net investment income (loss) $ 22,066 $ 2,110 $ 29 Net realized gain (loss) on investments (25,199) (26,886) (44) Capital gain distributions from mutual funds 128,327 -- -- Net change in unrealized appreciation (depreciation) of investments (1,208,152) (10,349) (1,070) ----------- --------- ------- Increase (decrease) in net assets resulting from operations (1,082,958) (35,125) (1,085) ----------- --------- ------- PRINCIPAL TRANSACTIONS: Contract purchase payments -- -- -- Administrative charges -- -- -- Net transfers from (to) other Sub-accounts or fixed rate option 591,995 (80,124) (1) Mortality reserve transfers -- -- -- Contract withdrawals -- -- -- Surrender charges -- -- -- Death benefits -- -- -- Annuity payments (199,089) (8,496) (195) ----------- --------- ------- Increase (decrease) in net assets resulting from principal transactions 392,906 (88,620) (196) ----------- --------- ------- TOTAL INCREASE (DECREASE) IN NET ASSETS (690,052) (123,745) (1,281) NET ASSETS: Beginning of year 2,554,031 125,818 2,738 ----------- --------- ------- End of year $ 1,863,979 $ 2,073 $ 1,457 =========== ========= =======
See accompanying notes. VA I - 28 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS NOTE A - ORGANIZATION Variable Account I (the "Account") was established by AIG Life Insurance Company (the "Company") on June 5, 1986, to fund individual single purchase payment deferred variable annuity contracts, individual flexible premium deferred variable annuity contracts and group flexible premium deferred variable annuity contracts (the "contracts") 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. This name change is subject to regulatory approval in all jurisdictions which is currently in process. New contracts for the following products are available for sale by the Account: Group and Individual Immediate Variable Annuity ("GIVA") and Vanguard Lifetime Income Program Group and Individual Immediate Variable Annuity ("Vanguard SPIA"). The following products are no longer available for sale by the Account: Ovation, Ovation Plus, Ovation Advisor, Gallery, Variable Annuity, 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 contract owners through the various Sub-accounts are as follows: AIM VARIABLE INSURANCE FUNDS ("AIM V.I."): AIM V.I. Capital Appreciation Fund - Series I AIM V.I. International Growth Fund - Series I ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ("ALLIANCEBERNSTEIN"): AllianceBernstein Americas Government Income Portfolio - Class A (3) AllianceBernstein Balanced Shares Portfolio - Class A (7) AllianceBernstein Balanced Wealth Strategy Portfolio - Class A (7) AllianceBernstein Global Bond Portfolio - Class A (3) AllianceBernstein Global Dollar Government Portfolio - Class A (3) AllianceBernstein Global Thematic Growth Portfolio - Class A (13) AllianceBernstein Global Thematic Growth Portfolio - Class B (13) AllianceBernstein Growth and Income Portfolio - Class A AllianceBernstein Growth and Income Portfolio - Class B AllianceBernstein Growth Portfolio - Class A AllianceBernstein Growth Portfolio - Class B AllianceBernstein High Yield Portfolio - Class A (3) AllianceBernstein Intermediate Bond Portfolio - Class A (3) (4) AllianceBernstein Intermediate Bond Portfolio - Class B (3) (4) AllianceBernstein International Growth Portfolio - Class A AllianceBernstein International Value Portfolio - Class A AllianceBernstein Large Cap Growth Portfolio - Class A AllianceBernstein Large Cap Growth Portfolio - Class B AllianceBernstein Money Market Portfolio - Class A AllianceBernstein Money Market Portfolio - Class B AllianceBernstein Real Estate Investment Portfolio - Class A AllianceBernstein Small Cap Growth Portfolio - Class A AllianceBernstein Small/Mid Cap Value Portfolio - Class A AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B (10) AllianceBernstein Utility Income Portfolio - Class A (15) AllianceBernstein Value Portfolio - Class B AMERICAN FUNDS(R): American Funds(R) AMCAP Fund(R) (1) American Funds(R) The Bond Fund of America/SM /(1) American Funds(R) Capital World Growth and Income Fund/SM/ (1) American Funds(R) EuroPacific Growth Fund(R) (1) American Funds(R) The Investment Company of America(R) (1) American Funds(R) The New Economy Fund(R) (1) VA I - 29 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE A - ORGANIZATION - CONTINUED AMERICAN FUNDS(R): - CONTINUED American Funds(R) SMALLCAP World Fund(R) (1) American Funds(R) Washington Mutual Investors Fund/SM/ (1) BLACKROCK VARIABLE SERIES FUNDS, INC. ("BLACKROCK"): BlackRock Basic Value V.I. Fund - Class I BlackRock Global Allocation V.I. Fund - Class I BlackRock Global Growth V.I. Fund - Class I BlackRock High Income V.I. Fund - Class I BlackRock International Value V.I. Fund - Class I BlackRock Large Cap Core V.I. Fund - Class I BlackRock Large Cap Growth V.I. Fund - Class I BlackRock Money Market V.I. Fund - Class I BlackRock Total Return V.I. Fund - Class I BlackRock Utilities and Telecommunications V.I. Fund - Class I BlackRock Value Opportunities V.I. Fund - Class I DELAWARE VIP TRUST ("DELAWARE VIP"): Delaware VIP Balanced Series - Standard Class (14) Delaware VIP Cash Reserve Series - Standard Class Delaware VIP Growth Opportunities Series - Standard Class Delaware VIP High Yield Series - Standard Class Delaware VIP Limited-Term Diversified Income Series - Standard Class (11) Delaware VIP Value Series - Standard Class DREYFUS STOCK INDEX FUND, INC. - INITIAL SHARES FIDELITY(R) VARIABLE INSURANCE PRODUCTS ("FIDELITY(R) VIP"): Fidelity(R) VIP Asset Manager/SM/ Portfolio - Initial Class 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 Investment Grade Bond Portfolio - Initial Class Fidelity(R) VIP Money Market Portfolio - Initial Class Fidelity(R) VIP Overseas Portfolio - Initial Class LINCOLN VARIABLE INSURANCE PRODUCTS TRUST ("LINCOLN VIP"): Lincoln VIP Delaware Foundation Moderate Allocation Fund - Standard Class (14) MFS(R) MUTUAL FUNDS ("MFS(R)"): MFS(R) Growth Fund - Class A (1) (5) MFS(R) New Discovery Fund - Class A (1) MFS(R) Research Fund - Class A (1) OPPENHEIMERFUNDS(R) ("OPPENHEIMER"): Oppenheimer International Bond Fund - Class A (1) Oppenheimer Strategic Income Fund - Class A (1) PUTNAM INVESTMENTS: Putnam Discovery Growth Fund - Class A (1) (8) Putnam Global Health Care Fund - Class A (1) (9) Putnam International Capital Opportunities Fund - Class A (1) Putnam Voyager Fund - Class A (1) The Putnam Fund for Growth and Income - Class A (1) VA I - 30 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE A - ORGANIZATION - CONTINUED UBS SERIES TRUST ("UBS"): UBS U.S. Allocation Portfolio (12) THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ("UIF"): UIF Capital Growth Portfolio - Class I Shares (1) (6) UIF Core Plus Fixed Income Portfolio - Class I Shares (1) UIF International Magnum Portfolio - Class I Shares (1) UIF Mid Cap Growth Portfolio - Class I Shares (1) UIF Value Portfolio - Class I Shares (1) VAN ECK WORLDWIDE INSURANCE TRUST ("VAN ECK"): Van Eck Worldwide Emerging Markets Fund - Initial Class Van Eck Worldwide Hard Assets Fund - Initial Class THE VANGUARD GROUP(R) ("VANGUARD(R)"): Vanguard(R) 500 Index Fund Vanguard(R) Dividend Growth Fund Vanguard(R) GNMA Fund Vanguard(R) Health Care Fund Vanguard(R) Inflation-Protected Securities Fund Vanguard(R) International Growth Fund (2) Vanguard(R) LifeStrategy(R) Conservative Growth Fund Vanguard(R) LifeStrategy(R) Growth Fund Vanguard(R) LifeStrategy(R) Income Fund Vanguard(R) LifeStrategy(R) Moderate Growth Fund Vanguard(R) Prime Money Market Fund Vanguard(R) PRIMECAP Fund Vanguard(R) Small-Cap Growth Index Fund Vanguard(R) Small-Cap Value Index Fund Vanguard(R) Total Bond Market Index Fund Vanguard(R) Total International Stock Index Fund Vanguard(R) U.S. Growth Fund Vanguard(R) Wellington(TM) Fund Vanguard(R) Windsor(TM) Fund VANGUARD(R) VARIABLE INSURANCE FUND ("VANGUARD(R) VIF"): Vanguard(R) VIF Balanced Portfolio Vanguard(R) VIF Capital Growth Portfolio Vanguard(R) VIF Diversified Value Portfolio Vanguard(R) VIF Equity Income Portfolio Vanguard(R) VIF Equity Index Portfolio Vanguard(R) VIF Growth Portfolio Vanguard(R) VIF High Yield Bond Portfolio Vanguard(R) VIF International Portfolio Vanguard(R) VIF Mid-Cap Index Portfolio Vanguard(R) VIF Money Market Portfolio Vanguard(R) VIF REIT Index Portfolio Vanguard(R) VIF Short-Term Investment-Grade Portfolio Vanguard(R) VIF Small Company Growth Portfolio Vanguard(R) VIF Total Bond Market Index Portfolio Vanguard(R) VIF Total Stock Market Index Portfolio (1)Sub-accounts had no activity in the current year. (2)Effective May 2, 2005, Vanguard International Growth Fund is no longer offered as an investment option. VA I - 31 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE A - ORGANIZATION - CONTINUED (3)Effective April 25, 2008, AllianceBernstein Americas Government Income Portfolio - Class A, AllianceBernstein Global Bond Portfolio - Class A, AllianceBernstein Global Dollar Government Portfolio - Class A, and AllianceBernstein High Yield Portfolio - Class A were acquired by AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A. (4)Effective April 25, 2008, AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A and AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B changed their names to AllianceBernstein Intermediate Bond Portfolio - Class A and AllianceBernstein Intermediate Bond Portfolio - Class B, respectively. (5)Effective May 1, 2008, MFS Emerging Growth Fund - Class A changed its name to MFS Growth Fund - Class A. (6)Effective May 1, 2008, UIF Equity Growth Portfolio - Class I Shares changed its name to UIF Capital Growth Portfolio - Class I Shares. (7)Effective September 26, 2008, AllianceBernstein Balanced Shares Portfolio - Class A was acquired by AllianceBernstein Balanced Wealth Strategy Portfolio - Class A. (8)Effective December 8, 2008, the Putnam Discovery Growth Fund - Class A is no longer offered as an investment option under the GIVA contract. (9)Effective January 2, 2009, Putnam Health Sciences Trust - Class A changed its name to Putnam Global Health Care Fund - Class A. (10)Effective February 13, 2009, AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B was closed and liquidated. (11)Effective April 15, 2009, Delaware VIP Capital Reserve Series - Standard Class changed its name to Delaware VIP Limited-Term Diversified Income Series - Standard Class. (12)Effective April 24, 2009, UBS U.S. Allocation Portfolio was closed and liquidated. (13)Effective May 1, 2009, AllianceBernstein Global Technology Portfolio - Class A and AllianceBernstein Global Technology - Class B changed their names to AllianceBernstein Global Thematic Growth Portfolio - Class A and AllianceBernstein Global Thematic Growth Portfolio - Class B, respectively. (14)Effective June 12, 2009, Delaware VIP Balanced Series - Standard Class was acquired by Lincoln VIP Delaware Foundation Moderate Allocation Fund - Standard Class. (15)Effective September 25, 2009, AllianceBernstein Utility Income Portfolio - Class A was closed and liquidated. In addition to the Sub-accounts above, contract owners may allocate contract funds to a fixed account that is part of the Company's general account. Contract owners should refer to the 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 purchases from the contracts are allocated to the Sub-accounts and invested in the Funds in accordance with contract owner instructions. The purchases are recorded as principal transactions in the Statement of Changes in Net Assets. NOTE B - 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 principles followed by the Account and the methods of applying those principles are presented below. RECENT ACCOUNTING PRONOUNCEMENTS - In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification). The Codification will become the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and will not have an affect on the Statement of Assets and Liabilities, Schedule of Portfolio Investments, Statement of Operations, and Statement of Changes in Net Assets. VA I - 32 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION - CONTINUED FAIR VALUE MEASUREMENTS - In September 2006, the FASB issued an accounting standard that defined fair value, established a framework for measuring fair value and expands disclosure requirements regarding fair value measurements but did not change existing guidance about whether an asset or liability is carried at fair value. The Company adopted the standard on January 1, 2008, its required effective date. Since that date, assets and liabilities recorded at fair value in the Separate 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. Level 1 - Fair value measurements determined by quoted prices in active markets for identical investments. The Account does not adjust the quoted price for such instruments. Level 1 assets and liabilities include government and agency securities, actively traded listed common stocks, most separate account assets and most mutual funds. Level 2 - Fair value measurements based on observable inputs other than quoted prices included in Level 1, inputs such as quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. Level 2 assets and liabilities typically 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, mutual fund 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. Level 3 assets and liabilities principally include fixed maturities. The Account assets measured at fair value as of December 31, 2009 consist of investments in mutual funds that trade daily and are measured at fair value using end of day net asset values per share as determined by the Funds. As all assets of the account are classified as Level 1, no reconciliation of Level 3 assets and change in unrealized gains (losses) is presented. See Note E - Investments for the table presenting information about assets measured at fair value at December 31, 2009. 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. ANNUITY RESERVES - For contract owners who select a variable payout option, reserves are initially established based on estimated mortality (where applicable) and other assumptions, including provisions for the risk of adverse deviation from assumptions. The assumed interest rate used to determine annuity payments is 3.5% or 5.0% for all contracts except "deferred load" contracts and contracts issued prior to January 1, 1982, which have an assumed interest rate of 3.0%. At each reporting period, the assumptions must be evaluated based on current experience, and the reserves must be adjusted accordingly. To the extent additional reserves are established due to mortality risk experience, the Company makes payments to the Account. If there are excess reserves remaining at the time annuity payments cease, the assets supporting those reserves are transferred from the Account to the Company. If there are transfers between the Company and the Account they will be disclosed as mortality reserve transfers in the Statement of Changes in Net Assets under principal transactions. Annuity reserves are calculated according to either the 1983(a) Individual Mortality Table or the Annuity 2000 Mortality Table, depending on the calendar year of annuitization. VA I - 33 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION - CONTINUED FEDERAL INCOME TAXES - The Company is taxed as a life insurance company under the Internal Revenue Code and includes the 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 contract 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. NOTE C - CONTRACT CHARGES PREMIUM TAXES - The Company will deduct premium taxes imposed by certain states from purchase payments when received; from the owner's account value at the time annuity payments begin; from the amount of any partial withdrawal; or from proceeds payable upon termination of the certificate for any other reason, including death of the owner or annuitant, or surrender of the certificate. The applicable rates currently range from 0% to 3.5%. The rates are subject to change. 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 contract follows: MORTALITY & EXPENSE RISK AND ADMINISTRATIVE CHARGES CONTRACTS MAXIMUM ANNUAL RATE --------- ---------------------------- Gallery 1.40% Ovation 1.40% Ovation Advisor 1.40% Ovation Plus 1.40% Paradigm 1.40% Profile 1.40% GIVA 1.25% Trilogy 1.40% Vanguard SPIA 0.52% Variable Annuity 1.40% ACCIDENTAL DEATH BENEFIT CHARGES - Daily charges for the Accidental Death Benefit (ADB) option are assessed through the daily unit value calculation on all contracts that have elected this option and are equivalent, on an annual basis, to 0.05% of the value of the contracts. These charges are included as part of the mortality and expense risk and administrative charges line of the Statement of Operations. ANNUAL ADMINISTRATIVE FEE - An annual administrative expense charge of $30 may be assessed against each contract on its anniversary date. The annual administrative expense is paid by redemption of units outstanding. Contracts under the Vanguard SPIA and GIVA products are not subject to the annual administrative expense charge. Annual fees are included with administrative charges in the Statement of Changes in Net Assets under principal transactions. DISTRIBUTION CHARGES - Daily charges for distribution expenses are assessed on all contracts issued under the Ovation Plus product and are equivalent, on an annual basis, to 0.20% of the value of the contracts. These charges are paid to the Company by redemption of units outstanding. These charges are included as part of the administrative charges line of the Statement of Changes in Net Assets under principal transactions. VA I - 34 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE C - CONTRACT CHARGES - CONTINUED DEATH BENEFIT RIDER CHARGES - The Annual Ratchet Plan is a death benefit rider. Daily charges for the Annual Ratchet Plan option are assessed on all contracts that have elected this option and are equivalent, on an annual basis, to 0.10% of the value of the contracts. These charges are paid to the Company by redemption of units outstanding. These charges are included as part of the administrative charges line of the Statement of Changes in Net Assets under principal transactions. The Equity Assurance Plan is a death benefit rider. Daily charges for the Equity Assurance Plan option are assessed on all contracts that have elected this option and are equivalent, on an annual basis, to a maximum 0.20% of the value of the contracts. These charges are paid to the Company by redemption of units outstanding. These charges are included as part of the administrative charges line of the Statement of Changes in Net Assets under principal transactions. The Estate Benefit Payment is a death benefit rider. Daily charges for the Estate Benefit Payment option are assessed on all contracts that have elected this option and are equivalent, on an annual basis, to 0.20% of the value of the contracts. These charges are paid to the Company by redemption of units outstanding. These charges are included as part of the administrative charges line of the Statement of Changes in Net Assets under principal transactions. TRANSFER CHARGES - A $10 transfer fee for each transfer in excess of 12 during the contract year may be assessed on all contracts issued under the Vanguard SPIA and GIVA products. Transfer requests are subject to the Company's published rules concerning market timing. A contract 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 transfers from (to) other sub-accounts or fixed rate option in the Statement of Changes in Net Assets under principal transactions. SURRENDER CHARGE - In the event that a contract owner withdraws all or a portion of the contract value within the surrender charge period, the contracts provide that they will be assessed a surrender charge. The surrender charge is based on a table of charges, of which the maximum charge is 6% of the contract value subject to a maximum of 8.5% of premiums paid for single premium contracts and a maximum charge of 6% of premiums paid for flexible premium contracts. Contracts under the Ovation Advisor, Vanguard SPIA and GIVA products are not subjected to surrender charges. For the Vanguard SPIA product, a partial withdrawal transaction charge may be assessed for each partial withdrawal. The partial withdrawal transaction charge is the lesser of 2% of the amount withdrawn or $25. The surrender charges and partial withdrawals are paid by redemption of units outstanding. The surrender charges and partial withdrawals are included with surrender charges in the Statement of Changes in Net Assets under principal transactions. VA I - 35 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SECURITY PURCHASES AND SALES For the year ended December 31, 2009, the aggregate cost of purchases and proceeds from the sales of investments were:
Cost of Proceeds Sub-accounts Purchases from Sales ------------ ----------- ----------- AIM V.I. Capital Appreciation Fund - Series I $ 1,121 $ 66,383 AIM V.I. International Growth Fund - Series I 10,354 63,676 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 4,471,480 12,103,284 AllianceBernstein Global Thematic Growth Portfolio - Class A 735,874 3,457,618 AllianceBernstein Global Thematic Growth Portfolio - Class B 1,818,858 2,510,370 AllianceBernstein Growth and Income Portfolio - Class A 3,201,387 10,857,360 AllianceBernstein Growth and Income Portfolio - Class B 3,314,929 15,325,593 AllianceBernstein Growth Portfolio - Class A 422,686 4,181,115 AllianceBernstein Growth Portfolio - Class B 526,780 4,337,682 AllianceBernstein Intermediate Bond Portfolio - Class A 8,344,006 24,397,547 AllianceBernstein Intermediate Bond Portfolio - Class B 43,987 84,568 AllianceBernstein International Growth Portfolio - Class A 4,183,306 8,685,152 AllianceBernstein International Value Portfolio - Class A 2,055,140 5,249,221 AllianceBernstein Large Cap Growth Portfolio - Class A 918,533 7,922,251 AllianceBernstein Large Cap Growth Portfolio - Class B 636,645 7,049,466 AllianceBernstein Money Market Portfolio - Class A 11,757,741 11,530,760 AllianceBernstein Money Market Portfolio - Class B 19,319,961 20,589,192 AllianceBernstein Real Estate Investment Portfolio - Class A 1,307,089 3,314,993 AllianceBernstein Small Cap Growth Portfolio - Class A 1,152,692 3,269,690 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 2,345,712 4,885,582 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 45,557 1,382,187 AllianceBernstein Utility Income Portfolio - Class A 1,462,711 24,242,094 AllianceBernstein Value Portfolio - Class B 1,912,002 5,263,876 BlackRock Basic Value V.I. Fund - Class I 60,789 321,972 BlackRock Global Allocation V.I. Fund - Class I 142,309 73,960 BlackRock Global Growth V.I. Fund - Class I 8,417 56,589 BlackRock High Income V.I. Fund - Class I 22,359 27,593 BlackRock International Value V.I. Fund - Class I 25,118 111,457 BlackRock Large Cap Core V.I. Fund - Class I 15,916 69,834 BlackRock Large Cap Growth V.I. Fund - Class I 8,822 26,729 BlackRock Money Market V.I. Fund - Class I 14,730 107,262 BlackRock Total Return V.I. Fund - Class I 15,431 5,010 BlackRock Utilities and Telecommunications V.I. Fund - Class I 12,647 15,010 BlackRock Value Opportunities V.I. Fund - Class I 7,763 105,519 Delaware VIP Balanced Series - Standard Class 14,473 341,582 Delaware VIP Cash Reserve Series - Standard Class 174 40,059 Delaware VIP Growth Opportunities Series - Standard Class -- 353,732 Delaware VIP High Yield Series - Standard Class 25,706 100,812 Delaware VIP Limited-Term Diversified Income Series - Standard Class 5,375 102,937 Delaware VIP Value Series - Standard Class 119,312 769,344 Dreyfus Stock Index Fund, Inc. - Initial Shares 164,590 559,792 Fidelity VIP Asset Manager Portfolio - Initial Class 129,343 521,849 Fidelity VIP Contrafund Portfolio - Initial Class 28,653 168,754 Fidelity VIP Growth Portfolio - Initial Class 11,301 303,559 Fidelity VIP High Income Portfolio - Initial Class 28,709 158,895 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 111,586 267,096 Fidelity VIP Money Market Portfolio - Initial Class 82,050 793,123 Fidelity VIP Overseas Portfolio - Initial Class 3,222 19,028 LVIP Delaware Foundation Moderate Allocation Fund - Standard Class 336,745 30,989 UBS U.S. Allocation Portfolio 187,791 5,486,116 Van Eck Worldwide Emerging Markets Fund - Initial Class 34,868 13,314 Van Eck Worldwide Hard Assets Fund - Initial Class 9,629 27,836
VA I - 36 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SECURITY PURCHASES AND SALES - CONTINUED For the year ended December 31, 2009, the aggregate cost of purchases and proceeds from the sales of investments were:
Cost of Proceeds Sub-accounts Purchases from Sales ------------ --------- ---------- Vanguard 500 Index Fund $ 386 $ 1,738 Vanguard Dividend Growth Fund 3,032 8,704 Vanguard GNMA Fund 245,332 258,901 Vanguard Health Care Fund 864 6,392 Vanguard Inflation-Protected Securities Fund 4,907 35,102 Vanguard International Growth Fund 153 691 Vanguard LifeStrategy Conservative Growth Fund 5,757 16,168 Vanguard LifeStrategy Growth Fund 17,908 25,211 Vanguard LifeStrategy Income Fund 62,002 79,399 Vanguard LifeStrategy Moderate Growth Fund 273,776 334,140 Vanguard Prime Money Market Fund 21 401 Vanguard PRIMECAP Fund 18 216 Vanguard Small-Cap Growth Index Fund 40 1,253 Vanguard Small-Cap Value Index Fund 332 1,560 Vanguard Total Bond Market Index Fund 130,321 138,438 Vanguard Total International Stock Index Fund 3,907 27,108 Vanguard U.S. Growth Fund 16 292 Vanguard VIF Balanced Portfolio 665,908 513,723 Vanguard VIF Capital Growth Portfolio 108,234 122,739 Vanguard VIF Diversified Value Portfolio 41,799 50,792 Vanguard VIF Equity Income Portfolio 28,114 81,416 Vanguard VIF Equity Index Portfolio 62,945 41,742 Vanguard VIF Growth Portfolio 62,784 8,123 Vanguard VIF High Yield Bond Portfolio 195,364 108,415 Vanguard VIF International Portfolio 323,089 249,808 Vanguard VIF Mid-Cap Index Portfolio 135,414 137,131 Vanguard VIF Money Market Portfolio 975,950 955,839 Vanguard VIF REIT Index Portfolio 73,254 47,035 Vanguard VIF Short-Term Investment-Grade Portfolio 26,022 45,730 Vanguard VIF Small Company Growth Portfolio 78,174 47,556 Vanguard VIF Total Bond Market Index Portfolio 73,277 150,674 Vanguard VIF Total Stock Market Index Portfolio 301,303 330,801 Vanguard Wellington Fund 72,771 80,146 Vanguard Windsor Fund 32 162
VA I - 37 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE E - INVESTMENTS The following is a summary of fund shares owned as of December 31, 2009.
Net Asset Value Value of Shares Cost of Shares Sub-accounts Shares Per Share at Fair Value Held Level (a) ------------ ---------- --------------- --------------- -------------- --------- AIM V.I. Capital Appreciation Fund - Series I 9,573 $ 20.33 $ 194,622 $ 206,304 1 AIM V.I. International Growth Fund - Series I 9,974 26.01 259,413 288,594 1 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 6,287,551 10.66 67,025,290 65,139,836 1 AllianceBernstein Global Thematic Growth Portfolio - Class A 1,334,448 16.73 22,325,322 32,305,164 1 AllianceBernstein Global Thematic Growth Portfolio - Class B 635,124 16.34 10,377,924 10,030,258 1 AllianceBernstein Growth and Income Portfolio - Class A 4,028,950 15.20 61,240,046 84,506,528 1 AllianceBernstein Growth and Income Portfolio - Class B 4,139,963 15.08 62,430,642 84,721,496 1 AllianceBernstein Growth Portfolio - Class A 1,451,849 17.56 25,494,474 31,554,675 1 AllianceBernstein Growth Portfolio - Class B 1,042,750 17.10 17,831,024 16,807,210 1 AllianceBernstein Intermediate Bond Portfolio - Class A 8,939,083 11.98 107,090,219 99,261,688 1 AllianceBernstein Intermediate Bond Portfolio - Class B 114,848 11.86 1,362,096 1,326,739 1 AllianceBernstein International Growth Portfolio - Class A 2,809,982 16.66 46,814,295 67,669,848 1 AllianceBernstein International Value Portfolio - Class A 1,323,366 14.70 19,453,479 28,359,944 1 AllianceBernstein Large Cap Growth Portfolio - Class A 1,933,921 25.36 49,044,240 58,909,097 1 AllianceBernstein Large Cap Growth Portfolio - Class B 1,223,737 24.72 30,250,772 25,633,642 1 AllianceBernstein Money Market Portfolio - Class A 18,416,453 1.00 18,416,453 18,416,453 1 AllianceBernstein Money Market Portfolio - Class B 20,525,043 1.00 20,525,043 20,525,043 1 AllianceBernstein Real Estate Investment Portfolio - Class A 1,400,366 9.64 13,499,525 20,782,738 1 AllianceBernstein Small Cap Growth Portfolio - Class A 1,532,233 11.95 18,310,189 18,418,632 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 1,884,760 13.41 25,274,627 30,249,647 1 AllianceBernstein Value Portfolio - Class B 2,694,612 8.90 23,982,043 32,376,842 1 BlackRock Basic Value V.I. Fund - Class I 296,105 10.75 3,183,127 4,062,108 1 BlackRock Global Allocation V.I. Fund - Class I 111,364 14.92 1,661,557 1,639,745 1 BlackRock Global Growth V.I. Fund - Class I 28,247 12.84 362,685 270,328 1 BlackRock High Income V.I. Fund - Class I 42,087 6.68 281,141 309,334 1 BlackRock International Value V.I. Fund - Class I 131,033 9.06 1,187,155 1,724,534 1 BlackRock Large Cap Core V.I. Fund - Class I 61,169 21.04 1,287,006 1,711,572 1 BlackRock Large Cap Growth V.I. Fund - Class I 53,783 9.45 508,253 530,332 1 BlackRock Money Market V.I. Fund - Class I 145,823 1.00 145,823 145,823 1 BlackRock Total Return V.I. Fund - Class I 18,147 10.82 196,346 212,561 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I 41,678 8.49 353,847 464,930 1 BlackRock Value Opportunities V.I. Fund - Class I 69,770 13.79 962,131 1,561,902 1 Delaware VIP Cash Reserve Series - Standard Class 38,958 1.00 38,958 38,958 1 Delaware VIP Growth Opportunities Series - Standard Class 5,311 16.30 86,574 84,290 1 Delaware VIP High Yield Series - Standard Class 56,132 5.67 318,267 290,823 1 Delaware VIP Limited-Term Diversified Income Series - Standard Class 7,362 10.01 73,693 72,174 1 Delaware VIP Value Series - Standard Class 99,585 14.60 1,453,945 1,577,198 1 Dreyfus Stock Index Fund, Inc. - Initial Shares 65,183 26.31 1,714,968 1,758,042 1 Fidelity VIP Asset Manager Portfolio - Initial Class 109,335 13.00 1,421,358 1,571,313 1 Fidelity VIP Contrafund Portfolio - Initial Class 40,229 20.62 829,519 1,147,232 1 Fidelity VIP Growth Portfolio - Initial Class 30,287 30.04 909,811 884,194 1 Fidelity VIP High Income Portfolio - Initial Class 51,561 5.29 272,757 292,341 1 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 85,927 12.48 1,072,370 1,076,272 1 Fidelity VIP Money Market Portfolio - Initial Class 1,119,228 1.00 1,119,228 1,119,228 1 Fidelity VIP Overseas Portfolio - Initial Class 6,114 15.05 92,010 96,222 1 LVIP Delaware Foundation Moderate Allocation Fund - Standard Class 28,367 12.61 357,797 308,584 1 Van Eck Worldwide Emerging Markets Fund - Initial Class 27,340 11.22 306,758 409,050 1 Van Eck Worldwide Hard Assets Fund - Initial Class 8,366 29.26 244,781 270,866 1 Vanguard 500 Index Fund 177 102.67 18,141 20,096 1 Vanguard Dividend Growth Fund 10,378 13.17 136,680 146,454 1 Vanguard GNMA Fund 22,492 10.64 239,317 240,102 1
VA I - 38 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE E - INVESTMENTS - CONTINUED The following is a summary of fund shares owned as of December 31, 2009.
NET ASSET VALUE VALUE OF SHARES COST OF SHARES SUB-ACCOUNTS SHARES PER SHARE AT FAIR VALUE HELD LEVEL (a) ------------ ------- --------------- --------------- -------------- --------- Vanguard Health Care Fund 353 $120.22 $ 42,422 $ 44,051 1 Vanguard Inflation-Protected Securities Fund 23,227 12.55 291,497 296,033 1 Vanguard International Growth Fund 541 16.99 9,198 12,080 1 Vanguard LifeStrategy Conservative Growth Fund 13,633 15.12 206,136 223,519 1 Vanguard LifeStrategy Growth Fund 21,309 19.56 416,797 483,924 1 Vanguard LifeStrategy Income Fund 31,121 13.27 412,976 423,063 1 Vanguard LifeStrategy Moderate Growth Fund 25,093 17.69 443,889 480,685 1 Vanguard Prime Money Market Fund 3,586 1.00 3,586 3,586 1 Vanguard PRIMECAP Fund 40 59.43 2,348 2,056 1 Vanguard Small-Cap Growth Index Fund 805 16.83 13,543 12,991 1 Vanguard Small-Cap Value Index Fund 1,366 13.06 17,840 20,768 1 Vanguard Total Bond Market Index Fund 11,782 10.35 121,940 118,956 1 Vanguard Total International Stock Index Fund 11,624 14.41 167,508 134,206 1 Vanguard U.S. Growth Fund 190 16.46 3,125 2,959 1 Vanguard VIF Balanced Portfolio 307,573 17.35 5,336,392 5,742,644 1 Vanguard VIF Capital Growth Portfolio 29,812 15.04 448,372 476,787 1 Vanguard VIF Diversified Value Portfolio 48,849 11.55 564,208 746,159 1 Vanguard VIF Equity Income Portfolio 28,619 13.26 379,491 518,435 1 Vanguard VIF Equity Index Portfolio 20,295 21.11 428,432 540,185 1 Vanguard VIF Growth Portfolio 12,790 11.87 151,812 152,086 1 Vanguard VIF High Yield Bond Portfolio 46,352 7.46 345,786 340,956 1 Vanguard VIF International Portfolio 100,835 16.06 1,619,404 2,004,990 1 Vanguard VIF Mid-Cap Index Portfolio 28,553 12.02 343,210 365,813 1 Vanguard VIF Money Market Portfolio 779,981 1.00 779,981 779,981 1 Vanguard VIF REIT Index Portfolio 36,530 8.30 303,195 434,904 1 Vanguard VIF Short-Term Investment-Grade Portfolio 24,929 10.74 267,733 261,444 1 Vanguard VIF Small Company Growth Portfolio 16,130 13.46 217,106 231,368 1 Vanguard VIF Total Bond Market Index Portfolio 72,342 11.77 851,468 821,970 1 Vanguard VIF Total Stock Market Index Portfolio 101,586 21.73 2,207,465 2,751,193 1 Vanguard Wellington Fund 79 28.85 2,278 1,739 1 Vanguard Windsor Fund 148 11.91 1,766 2,315 1
(a)Represents the level within the fair value hierarchy under which the portfolio is classified as described in Note B to the financial statements. VA I - 39 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS Summary of Changes in Units for the year ended December 31, 2009.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 2 AIM V.I. Capital Appreciation Fund - Series I -- (1,254) -- -- (1,254) 3 AIM V.I. Capital Appreciation Fund - Series I -- (7,365) -- -- (7,365) 2 AIM V.I. International Growth Fund - Series I -- (2) -- -- (2) 3 AIM V.I. International Growth Fund - Series I 890 (5,051) -- (57) (4,218) 1 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 218,948 (1,082,297) 71 (820) (864,098) 2 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A -- (18,246) -- -- (18,246) 3 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A -- (6,314) -- -- (6,314) 1 AllianceBernstein Global Thematic Growth Portfolio - Class A 1,187 (188,554) 33 (502) (187,836) 2 AllianceBernstein Global Thematic Growth Portfolio - Class A -- (11,132) -- -- (11,132) 3 AllianceBernstein Global Thematic Growth Portfolio - Class A 50 (2,063) -- -- (2,013) 4 AllianceBernstein Global Thematic Growth Portfolio - Class B 40,695 (96,149) -- (93) (55,547) 5 AllianceBernstein Global Thematic Growth Portfolio - Class B 10,789 (14,216) -- -- (3,427) 1 AllianceBernstein Growth and Income Portfolio - Class A 812 (299,463) 20 (679) (299,310) 2 AllianceBernstein Growth and Income Portfolio - Class A -- (4,119) -- -- (4,119) 3 AllianceBernstein Growth and Income Portfolio - Class A 60 (30,520) -- (162) (30,622) 4 AllianceBernstein Growth and Income Portfolio - Class B 585 (461,953) -- (522) (461,890) 5 AllianceBernstein Growth and Income Portfolio - Class B 194 (15,909) -- -- (15,715) 1 AllianceBernstein Growth Portfolio - Class A 547 (182,004) -- (206) (181,663) 2 AllianceBernstein Growth Portfolio - Class A -- (4,661) -- -- (4,661) 3 AllianceBernstein Growth Portfolio - Class A 23 (1,947) -- -- (1,924) 4 AllianceBernstein Growth Portfolio - Class B 143 (184,855) -- (16) (184,728) 5 AllianceBernstein Growth Portfolio - Class B -- (13,176) -- -- (13,176) 1 AllianceBernstein Intermediate Bond Portfolio - Class A 85,982 (1,113,400) -- (1,727) (1,029,145) 2 AllianceBernstein Intermediate Bond Portfolio - Class A -- (66,279) -- -- (66,279) 4 AllianceBernstein Intermediate Bond Portfolio - Class B -- (4,059) -- -- (4,059) 5 AllianceBernstein Intermediate Bond Portfolio - Class B -- (55) -- -- (55) 1 AllianceBernstein International Growth Portfolio - Class A 632 (272,773) -- (412) (272,553) 2 AllianceBernstein International Growth Portfolio - Class A 12,775 (7,741) -- -- 5,034 1 AllianceBernstein International Value Portfolio - Class A 245 (286,200) -- (99) (286,054) 2 AllianceBernstein International Value Portfolio - Class A 8,367 (5,759) -- -- 2,608 1 AllianceBernstein Large Cap Growth Portfolio - Class A 2,661 (288,050) 17 (1,022) (286,394) 2 AllianceBernstein Large Cap Growth Portfolio - Class A -- (13,383) -- -- (13,383) 3 AllianceBernstein Large Cap Growth Portfolio - Class A -- (1,688) -- (137) (1,825) 4 AllianceBernstein Large Cap Growth Portfolio - Class B 516 (280,204) -- (1,063) (280,751) 5 AllianceBernstein Large Cap Growth Portfolio - Class B -- (9,115) -- -- (9,115) 1 AllianceBernstein Money Market Portfolio - Class A 567,991 (563,452) 722 (656) 4,605 2 AllianceBernstein Money Market Portfolio - Class A 28,002 (223) -- -- 27,779 4 AllianceBernstein Money Market Portfolio - Class B 881,722 (972,472) 1,183 (271) (89,838) 5 AllianceBernstein Money Market Portfolio - Class B 50,509 (36,655) -- -- 13,854 1 AllianceBernstein Real Estate Investment Portfolio - Class A 304 (140,314) -- (482) (140,492) 2 AllianceBernstein Real Estate Investment Portfolio - Class A -- (4,984) -- -- (4,984) 1 AllianceBernstein Small Cap Growth Portfolio - Class A 1,371 (201,956) 51 (528) (201,062) 2 AllianceBernstein Small Cap Growth Portfolio - Class A 2,706 (11,409) -- -- (8,703) 3 AllianceBernstein Small Cap Growth Portfolio - Class A 344 (1,529) -- -- (1,185) 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 404 (269,097) -- (2,122) (270,815) 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 12,055 (12,811) -- -- (756) 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- (165,766) -- (1,658) (167,424) 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- (4,601) -- -- (4,601) 1 AllianceBernstein Utility Income Portfolio - Class A 258 (985,873) -- (291) (985,906) 2 AllianceBernstein Utility Income Portfolio - Class A -- (19,751) -- -- (19,751) 4 AllianceBernstein Value Portfolio - Class B 1,626 (431,436) -- (4,273) (434,083) 5 AllianceBernstein Value Portfolio - Class B -- (29,512) -- -- (29,512)
VA I - 40 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2009.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 1 BlackRock Basic Value V.I. Fund - Class I 35 (22,380) -- (36) (22,381) 2 BlackRock Basic Value V.I. Fund - Class I -- (150) -- -- (150) 1 BlackRock Global Allocation V.I. Fund - Class I 5,831 (3,404) -- -- 2,427 2 BlackRock Global Allocation V.I. Fund - Class I 1,123 (5) -- -- 1,118 1 BlackRock Global Growth V.I. Fund - Class I -- (5,254) -- -- (5,254) 2 BlackRock Global Growth V.I. Fund - Class I -- (69) -- -- (69) 1 BlackRock High Income V.I. Fund - Class I -- (2,113) -- -- (2,113) 2 BlackRock High Income V.I. Fund - Class I -- (57) -- -- (57) 1 BlackRock International Value V.I. Fund - Class I -- (7,363) -- -- (7,363) 2 BlackRock International Value V.I. Fund - Class I -- (602) -- -- (602) 1 BlackRock Large Cap Core V.I. Fund - Class I 39 (4,528) -- (38) (4,527) 2 BlackRock Large Cap Core V.I. Fund - Class I -- (4) -- -- (4) 1 BlackRock Large Cap Growth V.I. Fund - Class I -- (2,626) -- -- (2,626) 1 BlackRock Money Market V.I. Fund - Class I 602 (7,671) -- -- (7,069) 2 BlackRock Money Market V.I. Fund - Class I -- (204) -- -- (204) 1 BlackRock Total Return V.I. Fund - Class I 143 (64) -- -- 79 2 BlackRock Total Return V.I. Fund - Class I -- (2) -- -- (2) 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I -- (625) -- -- (625) 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I -- (10) -- -- (10) 1 BlackRock Value Opportunities V.I. Fund - Class I -- (6,051) -- -- (6,051) 2 BlackRock Value Opportunities V.I. Fund - Class I -- (44) -- -- (44) 7 Delaware VIP Balanced Series - Standard Class -- (12,993) -- -- (12,993) 7 Delaware VIP Cash Reserve Series - Standard Class -- (2,223) -- -- (2,223) 7 Delaware VIP Growth Opportunities Series - Standard Class -- (2,858) -- -- (2,858) 7 Delaware VIP Growth Opportunities Series - Standard Class -- (11,555) -- -- (11,555) 7 Delaware VIP High Yield Series - Standard Class -- (1,968) -- -- (1,968) 7 Delaware VIP High Yield Series - Standard Class -- (2,121) -- -- (2,121) 7 Delaware VIP Limited-Term Diversified Income Series - Standard Class -- (3,873) -- -- (3,873) 7 Delaware VIP Value Series - Standard Class -- (4,730) -- -- (4,730) 7 Delaware VIP Value Series - Standard Class -- (21,197) -- (112) (21,309) 2 Dreyfus Stock Index Fund, Inc. - Initial Shares -- (694) -- -- (694) 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 143 (36,150) -- (196) (36,203) 3 Fidelity VIP Asset Manager Portfolio - Initial Class 5,086 (32,447) -- (125) (27,486) 2 Fidelity VIP Contrafund Portfolio - Initial Class -- (1) -- -- (1) 3 Fidelity VIP Contrafund Portfolio - Initial Class 1,713 (11,098) -- (83) (9,468) 2 Fidelity VIP Growth Portfolio - Initial Class -- -- -- -- -- 3 Fidelity VIP Growth Portfolio - Initial Class 750 (23,454) -- (173) (22,877) 2 Fidelity VIP High Income Portfolio - Initial Class -- (1,223) -- -- (1,223) 3 Fidelity VIP High Income Portfolio - Initial Class 392 (12,056) -- -- (11,664) 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class -- (13,900) -- (288) (14,188) 3 Fidelity VIP Money Market Portfolio - Initial Class 600 (51,516) -- (355) (51,271) 3 Fidelity VIP Overseas Portfolio - Initial Class 28 (1,472) -- -- (1,444) 7 LVIP Delaware Foundation Moderate Allocation Fund - Standard Class 33,260 (2,603) -- -- 30,657 1 UBS U.S. Allocation Portfolio 19 (459,326) -- -- (459,307) 2 UBS U.S. Allocation Portfolio -- (53,744) -- -- (53,744) 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 1,479 (839) -- -- 640 2 Van Eck Worldwide Hard Assets Fund - Initial Class -- (3) -- -- (3) 3 Van Eck Worldwide Hard Assets Fund - Initial Class 143 (712) -- (49) (618) 1 Vanguard 500 Index Fund -- -- -- (176) (176) 6 Vanguard Dividend Growth Fund -- -- -- (656) (656) 1 Vanguard GNMA Fund -- -- -- (1,624) (1,624)
VA I - 41 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2009.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 6 Vanguard GNMA Fund -- -- 28 (405) (377) 6 Vanguard Health Care Fund -- -- -- (465) (465) 6 Vanguard Inflation-Protected Securities Fund -- -- -- (2,673) (2,673) 1 Vanguard International Growth Fund -- -- -- (48) (48) 1 Vanguard LifeStrategy Conservative Growth Fund -- -- -- (205) (205) 6 Vanguard LifeStrategy Conservative Growth Fund -- -- -- (1,087) (1,087) 1 Vanguard LifeStrategy Growth Fund -- -- -- (82) (82) 6 Vanguard LifeStrategy Growth Fund -- -- 865 (2,003) (1,138) 1 Vanguard LifeStrategy Income Fund -- -- -- (616) (616) 6 Vanguard LifeStrategy Income Fund -- -- -- (1,942) (1,942) 6 Vanguard LifeStrategy Moderate Growth Fund -- -- -- (2,820) (2,820) 1 Vanguard Prime Money Market Fund -- -- -- (32) (32) 1 Vanguard PRIMECAP Fund -- -- -- (17) (17) 1 Vanguard Small-Cap Growth Index Fund -- -- -- (100) (100) 1 Vanguard Small-Cap Value Index Fund -- -- -- (142) (142) 1 Vanguard Total Bond Market Index Fund -- -- -- (968) (968) 6 Vanguard Total International Stock Index Fund -- -- -- (1,817) (1,817) 1 Vanguard U.S. Growth Fund -- -- -- (34) (34) 6 Vanguard VIF Balanced Portfolio -- -- 28,242 (30,396) (2,154) 6 Vanguard VIF Capital Growth Portfolio -- -- -- (3,841) (3,841) 1 Vanguard VIF Diversified Value Portfolio -- -- -- (106) (106) 6 Vanguard VIF Diversified Value Portfolio -- -- 1,017 (3,003) (1,986) 1 Vanguard VIF Equity Income Portfolio -- -- -- (43) (43) 6 Vanguard VIF Equity Income Portfolio -- -- -- (6,699) (6,699) 1 Vanguard VIF Equity Index Portfolio -- -- -- (52) (52) 6 Vanguard VIF Equity Index Portfolio -- -- 3,528 (3,010) 518 6 Vanguard VIF Growth Portfolio -- -- 6,147 (793) 5,354 1 Vanguard VIF High Yield Bond Portfolio -- -- -- (72) (72) 6 Vanguard VIF High Yield Bond Portfolio -- -- 7,467 (1,890) 5,577 1 Vanguard VIF International Portfolio -- -- -- (54) (54) 6 Vanguard VIF International Portfolio -- -- 9,086 (6,508) 2,578 6 Vanguard VIF Mid-Cap Index Portfolio -- -- 1,087 (2,229) (1,142) 1 Vanguard VIF Money Market Portfolio -- -- 1 (1,059) (1,058) 6 Vanguard VIF Money Market Portfolio -- -- 67,796 (65,062) 2,734 1 Vanguard VIF REIT Index Portfolio -- -- -- (95) (95) 6 Vanguard VIF REIT Index Portfolio -- -- 1,196 (1,498) (302) 6 Vanguard VIF Short-Term Investment-Grade Portfolio -- -- -- (2,741) (2,741) 6 Vanguard VIF Small Company Growth Portfolio -- -- 4,563 (1,368) 3,195 1 Vanguard VIF Total Bond Market Index Portfolio -- -- -- (103) (103) 6 Vanguard VIF Total Bond Market Index Portfolio -- -- -- (8,744) (8,744) 6 Vanguard VIF Total Stock Market Index Portfolio -- -- 2,365 (16,195) (13,830) 1 Vanguard Wellington Fund -- -- -- (16) (16) 1 Vanguard Windsor Fund -- -- -- (17) (17)
VA I - 42 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2008.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 2 AIM V.I. Capital Appreciation Fund - Series I -- (2) -- -- (2) 3 AIM V.I. Capital Appreciation Fund - Series I 1,004 (19,137) 1,518 (2,759) (19,374) 2 AIM V.I. International Growth Fund - Series I -- (1) -- -- (1) 3 AIM V.I. International Growth Fund - Series I 114 (23,122) 718 (40) (22,330) 1 AllianceBernstein Americas Government Income Portfolio - Class A 358 (1,202,736) 10 (1,553) (1,203,921) 2 AllianceBernstein Americas Government Income Portfolio - Class A -- (12,335) -- -- (12,335) 1 AllianceBernstein Balanced Shares Portfolio - Class A 6,369 (4,291,694) 152 (3,277) (4,288,450) 2 AllianceBernstein Balanced Shares Portfolio - Class A -- (72,012) -- -- (72,012) 3 AllianceBernstein Balanced Shares Portfolio - Class A -- (25,679) -- -- (25,679) 1 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 7,870,517 (467,528) 6,184 (484) 7,408,689 2 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 134,498 (11,595) -- -- 122,903 3 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 24,068 (245) -- -- 23,823 1 AllianceBernstein Global Bond Portfolio - Class A 12 (763,448) 79 (714) (764,071) 2 AllianceBernstein Global Bond Portfolio - Class A -- (21,876) -- -- (21,876) 1 AllianceBernstein Global Dollar Government Portfolio - Class A 46 (464,082) -- (249) (464,285) 2 AllianceBernstein Global Dollar Government Portfolio - Class A -- (8,966) -- -- (8,966) 1 AllianceBernstein Global Technology Portfolio - Class A 1,898 (380,472) 796 (1,476) (379,254) 2 AllianceBernstein Global Technology Portfolio - Class A -- (18,873) -- -- (18,873) 3 AllianceBernstein Global Technology Portfolio - Class A 142 (3,633) -- -- (3,491) 4 AllianceBernstein Global Technology Portfolio - Class B 559 (273,522) -- (97) (273,060) 5 AllianceBernstein Global Technology Portfolio - Class B -- (19,683) -- -- (19,683) 1 AllianceBernstein Growth and Income Portfolio - Class A 1,752 (675,464) 572 (1,413) (674,553) 2 AllianceBernstein Growth and Income Portfolio - Class A -- (17,589) -- -- (17,589) 3 AllianceBernstein Growth and Income Portfolio - Class A 115 (19,844) 955 (1,090) (19,864) 4 AllianceBernstein Growth and Income Portfolio - Class B 2,642 (955,692) 65 (548) (953,533) 5 AllianceBernstein Growth and Income Portfolio - Class B 144 (30,943) -- -- (30,799) 1 AllianceBernstein Growth Portfolio - Class A 961 (392,720) 448 (706) (392,017) 2 AllianceBernstein Growth Portfolio - Class A -- (7,078) -- -- (7,078) 3 AllianceBernstein Growth Portfolio - Class A 19 (8,164) -- -- (8,145) 4 AllianceBernstein Growth Portfolio - Class B 683 (364,316) -- (17) (363,650) 5 AllianceBernstein Growth Portfolio - Class B -- (12,768) -- -- (12,768) 1 AllianceBernstein High Yield Portfolio - Class A 454 (1,786,835) -- (660) (1,787,041) 2 AllianceBernstein High Yield Portfolio - Class A -- (51,096) -- -- (51,096) 1 AllianceBernstein Intermediate Bond Portfolio - Class A 5,158,566 (1,810,527) 5,170 (2,685) 3,350,524 2 AllianceBernstein Intermediate Bond Portfolio - Class A 184,335 (42,938) -- -- 141,397 4 AllianceBernstein Intermediate Bond Portfolio - Class B 1,146 (21,063) -- -- (19,917) 5 AllianceBernstein Intermediate Bond Portfolio - Class B -- (50) -- -- (50) 1 AllianceBernstein International Growth Portfolio - Class A 2,809 (562,062) 1,338 (1,418) (559,333) 2 AllianceBernstein International Growth Portfolio - Class A -- (34,009) -- -- (34,009) 1 AllianceBernstein International Value Portfolio - Class A 492 (472,217) 57 (153) (471,821) 2 AllianceBernstein International Value Portfolio - Class A 7,606 (22,311) -- -- (14,705) 1 AllianceBernstein Large Cap Growth Portfolio - Class A 6,198 (604,121) 403 (1,823) (599,343) 2 AllianceBernstein Large Cap Growth Portfolio - Class A -- (23,926) -- -- (23,926) 3 AllianceBernstein Large Cap Growth Portfolio - Class A -- (1,864) -- (165) (2,029) 4 AllianceBernstein Large Cap Growth Portfolio - Class B 3,336 (443,711) 63 (1,122) (441,434) 5 AllianceBernstein Large Cap Growth Portfolio - Class B 1,509 (11,912) -- -- (10,403) 1 AllianceBernstein Money Market Portfolio - Class A 1,124,481 (863,737) 1,074 (1,191) 260,627 2 AllianceBernstein Money Market Portfolio - Class A 4,340 (24,586) -- -- (20,246) 4 AllianceBernstein Money Market Portfolio - Class B 2,080,580 (1,493,496) -- (128) 586,956 5 AllianceBernstein Money Market Portfolio - Class B -- (22,661) -- -- (22,661) 1 AllianceBernstein Real Estate Investment Portfolio - Class A 289 (318,128) 1,104 (1,433) (318,168)
VA I - 43 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2008.
ACCUMULATION ANNUITY ANNUITY ACCUMULATION UNITS UNITS UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ ------------ ------- -------- ------------ 2 AllianceBernstein Real Estate Investment Portfolio - Class A -- (23,819) -- -- (23,819) 1 AllianceBernstein Small Cap Growth Portfolio - Class A 2,638 (383,046) 1,179 (1,825) (381,054) 2 AllianceBernstein Small Cap Growth Portfolio - Class A 1,765 (24,846) -- -- (23,081) 3 AllianceBernstein Small Cap Growth Portfolio - Class A 178 (657) -- -- (479) 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 1,409 (598,753) 188 (2,400) (599,556) 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 2,420 (14,273) -- -- (11,853) 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- (57,756) 45 (248) (57,959) 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- (319) -- -- (319) 1 AllianceBernstein Utility Income Portfolio - Class A 333 (372,376) 12 (167) (372,198) 2 AllianceBernstein Utility Income Portfolio - Class A -- (11,497) -- -- (11,497) 4 AllianceBernstein Value Portfolio - Class B 3,017 (1,286,218) 1,252 (5,050) (1,286,999) 5 AllianceBernstein Value Portfolio - Class B -- (16,577) -- -- (16,577) 1 BlackRock Basic Value V.I. Fund - Class I 30 (26,616) 9 (38) (26,615) 2 BlackRock Basic Value V.I. Fund - Class I -- (6,729) -- -- (6,729) 1 BlackRock Global Allocation V.I. Fund - Class I 4,148 (15,314) -- -- (11,166) 2 BlackRock Global Allocation V.I. Fund - Class I -- (1,620) -- -- (1,620) 1 BlackRock Global Growth V.I. Fund - Class I -- (6,297) -- -- (6,297) 2 BlackRock Global Growth V.I. Fund - Class I 1 (58) -- -- (57) 1 BlackRock High Income V.I. Fund - Class I 523 (4,554) -- -- (4,031) 2 BlackRock High Income V.I. Fund - Class I -- (48) -- -- (48) 1 BlackRock International Value V.I. Fund - Class I -- (15,724) -- -- (15,724) 2 BlackRock International Value V.I. Fund - Class I 4 (793) -- -- (789) 1 BlackRock Large Cap Core V.I. Fund - Class I 31 (7,873) 9 (40) (7,873) 2 BlackRock Large Cap Core V.I. Fund - Class I -- (60) -- -- (60) 1 BlackRock Large Cap Growth V.I. Fund - Class I 2,165 (24,414) -- -- (22,249) 1 BlackRock Money Market V.I. Fund - Class I 20,553 (26,192) -- -- (5,639) 2 BlackRock Money Market V.I. Fund - Class I 3,836 (3,843) -- -- (7) 1 BlackRock Total Return V.I. Fund - Class I -- (2,758) -- -- (2,758) 2 BlackRock Total Return V.I. Fund - Class I -- (1,835) -- -- (1,835) 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I -- (4,975) -- -- (4,975) 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I -- (10) -- -- (10) 1 BlackRock Value Opportunities V.I. Fund - Class I -- (5,648) -- -- (5,648) 2 BlackRock Value Opportunities V.I. Fund - Class I -- (2,255) -- -- (2,255) 7 Delaware VIP Balanced Series - Standard Class -- (6,057) -- -- (6,057) 7 Delaware VIP Capital Reserves Series - Standard Class -- (3) -- -- (3) 7 Delaware VIP Cash Reserve Series - Standard Class 5,503 (5,503) -- -- -- 7 Delaware VIP Cash Reserve Series - Standard Class -- (8,968) -- -- (8,968) 7 Delaware VIP Growth Opportunities Series - Standard Class -- (3,532) -- -- (3,532) 7 Delaware VIP Growth Opportunities Series - Standard Class -- (6,305) -- -- (6,305) 7 Delaware VIP High Yield Series - Standard Class 1,944 (30) -- -- 1,914 7 Delaware VIP High Yield Series - Standard Class 58 (4,074) -- -- (4,016) 7 Delaware VIP Value Series - Standard Class -- -- -- -- -- 7 Delaware VIP Value Series - Standard Class -- (12,738) 4 (117) (12,851) 2 Dreyfus Stock Index Fund, Inc. - Initial Shares -- -- -- -- -- 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 455 (41,159) 883 (1,867) (41,688) 3 Fidelity VIP Asset Manager Portfolio - Initial Class 11,682 (54,961) -- (146) (43,425) 2 Fidelity VIP Contrafund Portfolio - Initial Class -- -- -- -- -- 3 Fidelity VIP Contrafund Portfolio - Initial Class 261 (35,463) 1,391 (1,447) (35,258) 2 Fidelity VIP Growth Portfolio - Initial Class -- (1) -- -- (1) 3 Fidelity VIP Growth Portfolio - Initial Class 401 (46,208) -- (188) (45,995) 2 Fidelity VIP High Income Portfolio - Initial Class -- -- -- -- -- 3 Fidelity VIP High Income Portfolio - Initial Class 712 (11,326) -- -- (10,614)
VA I - 44 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2008.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 22,968 (30,608) 1,220 (1,520) (7,940) 3 Fidelity VIP Money Market Portfolio - Initial Class 50,071 (92,295) -- (373) (42,597) 3 Fidelity VIP Overseas Portfolio - Initial Class 291 (1,521) -- -- (1,230) 1 UBS U.S. Allocation Portfolio 39 (115,271) -- -- (115,232) 2 UBS U.S. Allocation Portfolio -- (11,474) -- -- (11,474) 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 64 (8,616) -- -- (8,552) 2 Van Eck Worldwide Hard Assets Fund - Initial Class -- (1) -- -- (1) 3 Van Eck Worldwide Hard Assets Fund - Initial Class 1 (9,541) 427 (34) (9,147) 1 Vanguard 500 Index Fund -- -- -- (184) (184) 6 Vanguard Dividend Growth Fund -- -- 8,167 (400) 7,767 1 Vanguard GNMA Fund -- -- 16,743 (418) 16,325 6 Vanguard GNMA Fund -- -- 2,576 (386) 2,190 6 Vanguard Health Care Fund -- -- -- (487) (487) 6 Vanguard Inflation-Protected Securities Fund -- -- 11,295 (1,600) 9,695 1 Vanguard International Growth Fund -- -- -- (50) (50) 1 Vanguard LifeStrategy Conservative Growth Fund -- -- -- (215) (215) 6 Vanguard LifeStrategy Conservative Growth Fund -- -- 4,787 (1,134) 3,653 1 Vanguard LifeStrategy Growth Fund -- -- -- (86) (86) 6 Vanguard LifeStrategy Growth Fund -- -- 14,158 (2,082) 12,076 1 Vanguard LifeStrategy Income Fund -- -- 4,387 (240) 4,147 6 Vanguard LifeStrategy Income Fund -- -- 17,658 (1,846) 15,812 1 Vanguard LifeStrategy Moderate Growth Fund -- -- -- (30,250) (30,250) 6 Vanguard LifeStrategy Moderate Growth Fund -- -- 60 (3,014) (2,954) 1 Vanguard Prime Money Market Fund -- -- -- (34) (34) 1 Vanguard PRIMECAP Fund -- -- -- (18) (18) 1 Vanguard Small-Cap Growth Index Fund -- -- -- (105) (105) 1 Vanguard Small-Cap Value Index Fund -- -- -- (148) (148) 1 Vanguard Total Bond Market Index Fund -- -- 9,990 (250) 9,740 6 Vanguard Total International Stock Index Fund -- -- -- (1,906) (1,906) 1 Vanguard U.S. Growth Fund -- -- -- (35) (35) 6 Vanguard VIF Balanced Portfolio -- -- 38,477 (29,419) 9,058 6 Vanguard VIF Capital Growth Portfolio -- -- 4,125 (2,576) 1,549 1 Vanguard VIF Diversified Value Portfolio -- -- -- (110) (110) 6 Vanguard VIF Diversified Value Portfolio -- -- 1,519 (3,228) (1,709) 1 Vanguard VIF Equity Income Portfolio -- -- -- (45) (45) 6 Vanguard VIF Equity Income Portfolio -- -- -- (3,452) (3,452) 1 Vanguard VIF Equity Index Portfolio -- -- -- (55) (55) 6 Vanguard VIF Equity Index Portfolio -- -- -- (6,435) (6,435) 6 Vanguard VIF Growth Portfolio -- -- 901 (607) 294 1 Vanguard VIF High Yield Bond Portfolio -- -- -- (10,424) (10,424) 6 Vanguard VIF High Yield Bond Portfolio -- -- 3,980 (3,579) 401 1 Vanguard VIF International Portfolio -- -- -- (6,800) (6,800) 6 Vanguard VIF International Portfolio -- -- 4,488 (6,489) (2,001) 6 Vanguard VIF Mid-Cap Index Portfolio -- -- 251 (2,008) (1,757) 1 Vanguard VIF Money Market Portfolio -- -- 10,913 (273) 10,640 6 Vanguard VIF Money Market Portfolio -- -- 149,623 (243,231) (93,608) 1 Vanguard VIF REIT Index Portfolio -- -- -- (100) (100) 6 Vanguard VIF REIT Index Portfolio -- -- 4,611 (1,483) 3,128 6 Vanguard VIF Short-Term Investment-Grade Portfolio -- -- 8,525 (2,150) 6,375 6 Vanguard VIF Small Company Growth Portfolio -- -- -- (1,375) (1,375) 1 Vanguard VIF Total Bond Market Index Portfolio -- -- -- (107) (107) 6 Vanguard VIF Total Bond Market Index Portfolio -- -- 21,807 (5,834) 15,973
VA I - 45 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - SUMMARY OF CHANGES IN UNITS - CONTINUED Summary of Changes in Units for the year ended December 31, 2008.
ACCUMULATION ACCUMULATION ANNUITY UNITS ANNUITY UNITS NET INCREASE SUB-ACCOUNTS UNITS ISSUED UNITS REDEEMED ISSUED REDEEMED (DECREASE) ------------ ------------ -------------- ------------- ------------- ------------ 6 Vanguard VIF Total Stock Market Index Portfolio -- -- 43,437 (15,493) 27,944 1 Vanguard Wellington Fund -- -- -- (7,989) (7,989) 1 Vanguard Windsor Fund -- -- -- (18) (18)
FOOTNOTES 1 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm, Gallery and GIVA products. 2 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm and Profile products that have elected the Accidental Death Benefit option. 3 Profile product. 4 Ovation Plus, Ovation Advisor, Trilogy, Paradigm and Profile products that are subject to 12B-1 fees. 5 Ovation Plus, Ovation Advisor, Trilogy, Paragdim, and Profile products that have elected the Accidental Death Benefit option and are subject to 12B-1 fees. 6 Vanguard SPIA product. 7 Variable Annuity product. VA I - 46 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2009 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ------------ ---------------- --------- ---------- 2 AIM V.I. Capital Appreciation Fund - Series I 930 $ 8.98 $ 8,348 0.53% 1.45% 19.34% 3 AIM V.I. Capital Appreciation Fund - Series I 20,618 9.03 186,273 0.53% 1.40% 19.40% 2 AIM V.I. International Growth Fund - Series I 886 16.15 14,310 1.36% 1.45% 33.30% 3 AIM V.I. International Growth Fund - Series I 15,086 16.25 245,103 1.36% 1.40% 33.36% 1 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 6,544,591 10.05 65,797,736 1.01% 1.40% 23.14% 2 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 104,657 10.05 1,051,521 1.07% 1.45% 23.08% 3 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 17,509 10.05 176,032 0.90% 1.40% 23.14% 1 AllianceBernstein Global Thematic Growth Portfolio - Class A * 1,340,133 15.84 21,226,369 0.00% 1.40% 51.35% 2 AllianceBernstein Global Thematic Growth Portfolio - Class A * 61,905 15.74 974,439 0.00% 1.45% 51.28% 3 AllianceBernstein Global Thematic Growth Portfolio - Class A * 8,123 15.33 124,514 0.00% 1.40% 51.35% 4 AllianceBernstein Global Thematic Growth Portfolio - Class B * 618,351 15.49 9,575,585 0.00% 1.40% 51.01% 5 AllianceBernstein Global Thematic Growth Portfolio - Class B * 52,135 15.39 802,339 0.00% 1.45% 50.94% 1 AllianceBernstein Growth and Income Portfolio - Class A 1,748,066 33.73 58,954,811 3.91% 1.40% 19.14% 2 AllianceBernstein Growth and Income Portfolio - Class A 47,912 33.52 1,605,862 4.03% 1.45% 19.08% 3 AllianceBernstein Growth and Income Portfolio - Class A 32,476 20.92 679,372 2.87% 1.40% 19.14% 4 AllianceBernstein Growth and Income Portfolio - Class B 1,865,073 32.85 61,263,038 3.29% 1.40% 18.68% 5 AllianceBernstein Growth and Income Portfolio - Class B 35,768 32.64 1,167,604 3.21% 1.45% 18.62% 1 AllianceBernstein Growth Portfolio - Class A 1,075,344 22.42 24,109,078 0.00% 1.40% 31.38% 2 AllianceBernstein Growth Portfolio - Class A 42,399 22.28 944,688 0.00% 1.45% 31.32% 3 AllianceBernstein Growth Portfolio - Class A 28,434 15.50 440,708 0.00% 1.40% 31.38% 4 AllianceBernstein Growth Portfolio - Class B 792,462 21.83 17,301,117 0.00% 1.40% 31.02% 5 AllianceBernstein Growth Portfolio - Class B 24,423 21.70 529,907 0.00% 1.45% 30.96% 1 AllianceBernstein Intermediate Bond Portfolio - Class A 5,680,702 18.38 104,434,310 3.61% 1.40% 16.87% 2 AllianceBernstein Intermediate Bond Portfolio - Class A 145,368 18.27 2,655,908 3.89% 1.45% 16.81% 4 AllianceBernstein Intermediate Bond Portfolio - Class B 73,471 17.90 1,315,087 3.39% 1.40% 16.56% 5 AllianceBernstein Intermediate Bond Portfolio - Class B 2,643 17.79 47,009 3.41% 1.45% 16.50% 1 AllianceBernstein International Growth Portfolio - Class A 1,534,503 29.38 45,090,537 4.44% 1.40% 37.64% 2 AllianceBernstein International Growth Portfolio - Class A 59,028 29.20 1,723,758 4.00% 1.45% 37.57% 1 AllianceBernstein International Value Portfolio - Class A 1,181,685 15.82 18,691,830 1.24% 1.40% 32.81% 2 AllianceBernstein International Value Portfolio - Class A 48,360 15.75 761,649 1.18% 1.45% 32.74% 1 AllianceBernstein Large Cap Growth Portfolio - Class A 1,763,299 26.80 47,256,428 0.15% 1.40% 35.61% 2 AllianceBernstein Large Cap Growth Portfolio - Class A 64,961 26.63 1,730,167 0.15% 1.45% 35.54% 3 AllianceBernstein Large Cap Growth Portfolio - Class A 4,768 12.09 57,644 0.13% 1.40% 35.61% 4 AllianceBernstein Large Cap Growth Portfolio - Class B 1,132,351 26.14 29,601,737 0.00% 1.40% 35.20% 5 AllianceBernstein Large Cap Growth Portfolio - Class B 24,982 25.98 649,035 0.00% 1.45% 35.13% 1 AllianceBernstein Money Market Portfolio - Class A 1,325,161 13.47 17,854,504 0.16% 1.40% -1.22% 2 AllianceBernstein Money Market Portfolio - Class A 41,979 13.39 562,103 0.10% 1.45% -1.27% 4 AllianceBernstein Money Market Portfolio - Class B 1,524,228 13.15 20,039,696 0.09% 1.40% -1.30% 5 AllianceBernstein Money Market Portfolio - Class B 37,159 13.07 485,521 0.07% 1.45% -1.35% 1 AllianceBernstein Real Estate Investment Portfolio - Class A 566,462 23.10 13,083,609 2.49% 1.40% 27.66% 2 AllianceBernstein Real Estate Investment Portfolio - Class A 18,120 22.95 415,916 2.54% 1.45% 27.59% 1 AllianceBernstein Small Cap Growth Portfolio - Class A 1,537,739 11.44 17,589,014 0.00% 1.40% 39.78% 2 AllianceBernstein Small Cap Growth Portfolio - Class A 57,864 11.37 657,764 0.00% 1.45% 39.72% 3 AllianceBernstein Small Cap Growth Portfolio - Class A 5,704 11.12 63,412 0.00% 1.40% 39.78% 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 1,359,898 17.92 24,375,299 1.00% 1.40% 40.87% 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 50,391 17.85 899,328 0.98% 1.45% 40.80% 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- -- -- 1.90% 1.40% -4.23% 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B -- -- -- 2.05% 1.45% -4.23% 1 AllianceBernstein Utility Income Portfolio - Class A -- -- -- 8.84% 1.40% 8.41% 2 AllianceBernstein Utility Income Portfolio - Class A -- -- -- 7.49% 1.45% 8.37% 4 AllianceBernstein Value Portfolio - Class B 2,384,617 9.88 23,552,621 2.92% 1.40% 19.35%
VA I - 47 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2009 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 5 AllianceBernstein Value Portfolio - Class B 43,666 $ 9.83 $ 429,422 3.09% 1.45% 19.29% 1 BlackRock Basic Value V.I. Fund - Class I 177,736 16.74 2,974,601 1.95% 1.40% 29.31% 2 BlackRock Basic Value V.I. Fund - Class I 12,536 16.63 208,526 2.05% 1.45% 29.25% 1 BlackRock Global Allocation V.I. Fund - Class I 83,936 19.15 1,606,975 1.89% 1.40% 19.52% 2 BlackRock Global Allocation V.I. Fund - Class I 2,868 19.03 54,580 1.98% 1.45% 19.46% 1 BlackRock Global Growth V.I. Fund - Class I 30,831 11.58 356,949 2.48% 1.40% 33.76% 2 BlackRock Global Growth V.I. Fund - Class I 498 11.52 5,736 2.54% 1.45% 33.70% 1 BlackRock High Income V.I. Fund - Class I 18,753 14.78 277,114 9.17% 1.40% 54.21% 2 BlackRock High Income V.I. Fund - Class I 415 14.69 6,090 9.36% 1.45% 54.14% 1 BlackRock International Value V.I. Fund - Class I 72,600 15.43 1,120,286 2.09% 1.40% 28.16% 2 BlackRock International Value V.I. Fund - Class I 4,357 15.35 66,868 2.08% 1.45% 28.10% 1 BlackRock Large Cap Core V.I. Fund - Class I 85,998 14.63 1,258,288 1.30% 1.40% 20.83% 2 BlackRock Large Cap Core V.I. Fund - Class I 1,975 14.54 28,717 1.33% 1.45% 20.77% 1 BlackRock Large Cap Growth V.I. Fund - Class I 59,834 8.49 508,252 0.56% 1.40% 25.05% 1 BlackRock Money Market V.I. Fund - Class I 8,466 12.32 104,257 0.17% 1.40% -1.23% 2 BlackRock Money Market V.I. Fund - Class I 3,396 12.24 41,565 0.15% 1.45% -1.28% 1 BlackRock Total Return V.I. Fund - Class I 12,282 14.38 176,551 5.89% 1.40% 16.20% 2 BlackRock Total Return V.I. Fund - Class I 1,458 14.29 20,834 5.95% 1.45% 16.14% 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I 16,532 18.78 310,465 3.03% 1.40% 13.28% 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I 2,324 18.67 43,382 3.06% 1.45% 13.22% 1 BlackRock Value Opportunities V.I. Fund - Class I 47,343 17.80 842,655 0.63% 1.40% 26.56% 2 BlackRock Value Opportunities V.I. Fund - Class I 6,753 17.69 119,476 0.66% 1.45% 26.49% 7 Delaware VIP Balanced Series - Standard Class -- -- -- 8.70% 1.25% 2.43% 7 Delaware VIP Cash Reserve Series - Standard Class 2,213 17.60 38,958 0.27% 1.25% -0.98% 7 Delaware VIP Growth Opportunities Series - Standard Class -- 29.76 -- 0.00% 1.40% 43.39% 7 Delaware VIP Growth Opportunities Series - Standard Class 2,567 33.73 86,574 0.00% 1.25% 43.60% 7 Delaware VIP High Yield Series - Standard Class 587 21.56 12,664 13.26% 1.40% 46.90% 7 Delaware VIP High Yield Series - Standard Class 9,910 30.84 305,603 8.03% 1.25% 47.12% 7 Delaware VIP Limited-Term Diversified Income Series - Standard Class * 2,807 26.28 73,767 4.61% 1.25% 11.39% 7 Delaware VIP Value Series - Standard Class 19 29.11 551 0.03% 1.40% 16.32% 7 Delaware VIP Value Series - Standard Class 41,800 34.77 1,453,394 2.51% 1.25% 16.50% 2 Dreyfus Stock Index Fund, Inc. - Initial Shares -- 17.75 -- 0.00% 1.45% 24.52% 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 96,044 17.86 1,714,967 1.83% 1.40% 24.58% 3 Fidelity VIP Asset Manager Portfolio - Initial Class 80,050 17.76 1,421,358 2.12% 1.40% 27.32% 2 Fidelity VIP Contrafund Portfolio - Initial Class 120 18.20 2,184 1.28% 1.45% 33.76% 3 Fidelity VIP Contrafund Portfolio - Initial Class 45,186 18.31 827,335 1.28% 1.40% 33.82% 2 Fidelity VIP Growth Portfolio - Initial Class 76 14.66 1,110 0.39% 1.45% 26.44% 3 Fidelity VIP Growth Portfolio - Initial Class 61,587 14.75 908,701 0.39% 1.40% 26.50% 2 Fidelity VIP High Income Portfolio - Initial Class -- 13.77 -- 6.64% 1.45% 41.89% 3 Fidelity VIP High Income Portfolio - Initial Class 19,692 13.85 272,757 6.64% 1.40% 41.96% 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 57,313 18.71 1,072,370 8.88% 1.40% 14.11% 3 Fidelity VIP Money Market Portfolio - Initial Class 82,137 13.63 1,119,228 0.79% 1.40% -0.68% 3 Fidelity VIP Overseas Portfolio - Initial Class 5,884 15.64 92,009 1.90% 1.40% 24.77% 7 LVIP Delaware Foundation Moderate Allocation Fund - Standard Class 30,657 11.67 357,797 2.32% 1.25% 16.71% 1 UBS U.S. Allocation Portfolio -- -- -- 6.24% 1.40% -2.37% 2 UBS U.S. Allocation Portfolio -- -- -- 8.18% 1.45% -2.38% 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 14,487 21.17 306,758 0.15% 1.40% 110.22% 2 Van Eck Worldwide Hard Assets Fund - Initial Class 246 28.12 6,922 0.25% 1.45% 55.27% 3 Van Eck Worldwide Hard Assets Fund - Initial Class 8,408 28.29 237,859 0.26% 1.40% 55.34%
VA I - 48 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2009 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 1 Vanguard 500 Index Fund 1,679 $10.80 $ 18,141 2.25% 0.75% 25.54% 6 Vanguard Dividend Growth Fund 9,493 14.40 136,680 2.36% 0.52% 21.11% 1 Vanguard GNMA Fund 14,701 13.05 191,816 3.61% 0.75% 4.52% 6 Vanguard GNMA Fund 3,565 13.32 47,500 4.33% 0.52% 4.77% 6 Vanguard Health Care Fund 2,775 15.29 42,422 1.46% 0.52% 20.34% 6 Vanguard Inflation-Protected Securities Fund 21,663 13.46 291,497 1.67% 0.52% 10.23% 1 Vanguard International Growth Fund 572 16.07 9,198 1.88% 0.75% 40.57% 1 Vanguard LifeStrategy Conservative Growth Fund 1,830 13.02 23,834 2.89% 0.75% 16.18% 6 Vanguard LifeStrategy Conservative Growth Fund 14,204 12.83 182,301 2.90% 0.52% 16.45% 1 Vanguard LifeStrategy Growth Fund 737 12.53 9,230 2.23% 0.75% 24.06% 6 Vanguard LifeStrategy Growth Fund 31,323 13.01 407,565 2.28% 0.52% 24.35% 1 Vanguard LifeStrategy Income Fund 4,661 13.14 61,262 2.61% 0.75% 11.24% 6 Vanguard LifeStrategy Income Fund 27,801 12.65 351,714 3.21% 0.52% 11.50% 6 Vanguard LifeStrategy Moderate Growth Fund 33,999 13.06 443,890 2.55% 0.52% 19.71% 1 Vanguard Prime Money Market Fund 314 11.43 3,586 0.55% 0.75% -0.22% 1 Vanguard PRIMECAP Fund 163 14.38 2,348 0.82% 0.75% 33.42% 1 Vanguard Small-Cap Growth Index Fund 953 14.21 13,542 0.33% 0.75% 40.79% 1 Vanguard Small-Cap Value Index Fund 1,440 12.39 17,840 2.02% 0.75% 29.36% 1 Vanguard Total Bond Market Index Fund 8,772 13.90 121,940 3.78% 0.75% 5.18% 6 Vanguard Total International Stock Index Fund 9,626 17.40 167,508 2.49% 0.52% 36.02% 1 Vanguard U.S. Growth Fund 327 9.55 3,124 0.58% 0.75% 33.95% 6 Vanguard VIF Balanced Portfolio 360,886 14.79 5,336,392 4.19% 0.52% 22.26% 6 Vanguard VIF Capital Growth Portfolio 28,803 15.57 448,372 1.05% 0.52% 33.60% 1 Vanguard VIF Diversified Value Portfolio 1,258 11.67 14,687 4.00% 0.75% 25.98% 6 Vanguard VIF Diversified Value Portfolio 38,773 14.17 549,518 3.94% 0.52% 26.27% 1 Vanguard VIF Equity Income Portfolio 1,408 11.07 15,584 4.65% 0.75% 15.90% 6 Vanguard VIF Equity Income Portfolio 27,906 13.04 363,908 4.72% 0.52% 16.17% 1 Vanguard VIF Equity Index Portfolio 485 10.37 5,032 2.61% 0.75% 25.50% 6 Vanguard VIF Equity Index Portfolio 35,478 11.93 423,399 2.38% 0.52% 25.79% 6 Vanguard VIF Growth Portfolio 12,968 11.71 151,811 0.67% 0.52% 34.35% 1 Vanguard VIF High Yield Bond Portfolio 853 12.61 10,766 79.09% 0.75% 37.81% 6 Vanguard VIF High Yield Bond Portfolio 24,730 13.55 335,020 7.48% 0.52% 38.13% 1 Vanguard VIF International Portfolio 639 14.67 9,381 51.58% 0.75% 41.72% 6 Vanguard VIF International Portfolio 91,003 17.69 1,610,023 3.46% 0.52% 42.04% 6 Vanguard VIF Mid-Cap Index Portfolio 23,684 14.49 343,210 2.01% 0.52% 39.64% 1 Vanguard VIF Money Market Portfolio 9,582 11.43 109,482 0.56% 0.75% -0.13% 6 Vanguard VIF Money Market Portfolio 57,804 11.60 670,500 0.62% 0.52% 0.10% 1 Vanguard VIF REIT Index Portfolio 1,205 11.88 14,322 4.36% 0.75% 28.18% 6 Vanguard VIF REIT Index Portfolio 20,304 14.23 288,873 4.42% 0.52% 28.47% 6 Vanguard VIF Short-Term Investment-Grade Portfolio 21,494 12.46 267,733 4.68% 0.52% 13.27% 6 Vanguard VIF Small Company Growth Portfolio 17,809 12.19 217,106 1.06% 0.52% 38.65% 1 Vanguard VIF Total Bond Market Index Portfolio 1,225 12.48 15,293 4.39% 0.75% 5.15% 6 Vanguard VIF Total Bond Market Index Portfolio 64,072 13.05 836,172 4.41% 0.52% 5.39% 6 Vanguard VIF Total Stock Market Index Portfolio 178,758 12.35 2,207,465 1.78% 0.52% 27.59% 1 Vanguard Wellington Fund 158 14.42 2,278 35.46% 0.75% 21.28% 1 Vanguard Windsor Fund 162 10.88 1,765 2.01% 0.75% 33.68%
VA I - 49 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2008 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ------------ ---------------- --------- ---------- 2 AIM V.I. Capital Appreciation Fund - Series I 2,184 $ 7.52 $ 16,431 0.00% 1.45% -43.32% 3 AIM V.I. Capital Appreciation Fund - Series I 27,983 7.57 211,739 0.00% 1.40% -43.29% 2 AIM V.I. International Growth Fund - Series I 888 12.12 10,758 0.34% 1.45% -41.24% 3 AIM V.I. International Growth Fund - Series I 19,304 12.18 235,177 0.34% 1.40% -41.21% 1 AllianceBernstein Americas Government Income Portfolio - Class A -- -- -- 9.81% 1.40% 0.90% 2 AllianceBernstein Americas Government Income Portfolio - Class A -- -- -- 21.98% 1.45% 0.89% 1 AllianceBernstein Balanced Shares Portfolio - Class A -- -- -- 8.61% 1.40% -16.29% 2 AllianceBernstein Balanced Shares Portfolio - Class A -- -- -- 8.66% 1.45% -16.32% 3 AllianceBernstein Balanced Shares Portfolio - Class A -- -- -- 8.79% 1.40% -16.29% 1 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 7,408,689 8.16 60,486,851 0.00% 1.40% -17.80% 2 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 122,903 8.16 1,003,277 0.00% 1.45% -17.81% 3 AllianceBernstein Balanced Wealth Strategy Portfolio - Class A 23,823 8.16 194,497 0.00% 1.40% -17.80% 1 AllianceBernstein Global Bond Portfolio - Class A -- -- -- 27.25% 1.40% 4.94% 2 AllianceBernstein Global Bond Portfolio - Class A -- -- -- 26.26% 1.45% 4.92% 1 AllianceBernstein Global Dollar Government Portfolio - Class A -- -- -- 14.33% 1.40% 0.04% 2 AllianceBernstein Global Dollar Government Portfolio - Class A -- -- -- 14.08% 1.45% 0.03% 1 AllianceBernstein Global Technology Portfolio - Class A 1,527,969 10.46 15,990,067 0.00% 1.40% -48.10% 2 AllianceBernstein Global Technology Portfolio - Class A 73,037 10.41 759,966 0.00% 1.45% -48.13% 3 AllianceBernstein Global Technology Portfolio - Class A 10,136 10.13 102,651 0.00% 1.40% -48.10% 4 AllianceBernstein Global Technology Portfolio - Class B 673,898 10.25 6,910,565 0.00% 1.40% -48.20% 5 AllianceBernstein Global Technology Portfolio - Class B 55,562 10.20 566,524 0.00% 1.45% -48.22% 1 AllianceBernstein Growth and Income Portfolio - Class A 2,047,376 28.31 57,954,519 2.12% 1.40% -41.43% 2 AllianceBernstein Growth and Income Portfolio - Class A 52,031 28.15 1,464,440 2.04% 1.45% -41.46% 3 AllianceBernstein Growth and Income Portfolio - Class A 63,098 17.56 1,107,892 2.01% 1.40% -41.43% 4 AllianceBernstein Growth and Income Portfolio - Class B 2,326,963 27.68 64,406,548 1.81% 1.40% -41.52% 5 AllianceBernstein Growth and Income Portfolio - Class B 51,483 27.52 1,416,845 1.88% 1.45% -41.55% 1 AllianceBernstein Growth Portfolio - Class A 1,257,007 17.06 21,450,588 0.00% 1.40% -43.27% 2 AllianceBernstein Growth Portfolio - Class A 47,060 16.97 798,500 0.00% 1.45% -43.30% 3 AllianceBernstein Growth Portfolio - Class A 30,358 11.80 358,141 0.00% 1.40% -43.27% 4 AllianceBernstein Growth Portfolio - Class B 977,190 16.66 16,282,989 0.00% 1.40% -43.40% 5 AllianceBernstein Growth Portfolio - Class B 37,599 16.57 622,940 0.00% 1.45% -43.43% 1 AllianceBernstein High Yield Portfolio - Class A -- -- -- 19.71% 1.40% -0.94% 2 AllianceBernstein High Yield Portfolio - Class A -- -- -- 15.95% 1.45% -0.96% 1 AllianceBernstein Intermediate Bond Portfolio - Class A * 6,709,847 15.73 105,551,242 3.27% 1.40% -7.68% 2 AllianceBernstein Intermediate Bond Portfolio - Class A * 211,647 15.64 3,310,410 2.52% 1.45% -7.73% 4 AllianceBernstein Intermediate Bond Portfolio - Class B * 77,530 15.36 1,190,599 5.36% 1.40% -7.89% 5 AllianceBernstein Intermediate Bond Portfolio - Class B * 2,698 15.27 41,192 4.79% 1.45% -7.93% 1 AllianceBernstein International Growth Portfolio - Class A 1,807,056 21.35 38,577,558 0.00% 1.40% -49.56% 2 AllianceBernstein International Growth Portfolio - Class A 53,994 21.23 1,146,122 0.00% 1.45% -49.59% 1 AllianceBernstein International Value Portfolio - Class A 1,467,739 11.91 17,481,359 1.25% 1.40% -53.84% 2 AllianceBernstein International Value Portfolio - Class A 45,752 11.86 542,842 1.38% 1.45% -53.86% 1 AllianceBernstein Large Cap Growth Portfolio - Class A 2,049,693 19.76 40,508,475 0.00% 1.40% -40.50% 2 AllianceBernstein Large Cap Growth Portfolio - Class A 78,344 19.65 1,539,510 0.00% 1.45% -40.53% 3 AllianceBernstein Large Cap Growth Portfolio - Class A 6,593 8.91 58,778 0.00% 1.40% -40.50% 4 AllianceBernstein Large Cap Growth Portfolio - Class B 1,413,102 19.34 27,323,347 0.00% 1.40% -40.66% 5 AllianceBernstein Large Cap Growth Portfolio - Class B 34,097 19.23 655,526 0.00% 1.45% -40.69% 1 AllianceBernstein Money Market Portfolio - Class A 1,320,556 13.64 18,012,804 1.76% 1.40% 0.48% 2 AllianceBernstein Money Market Portfolio - Class A 14,200 13.56 192,595 2.24% 1.45% 0.43% 4 AllianceBernstein Money Market Portfolio - Class B 1,614,066 13.32 21,500,689 1.48% 1.40% 0.23%
VA I - 50 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2008 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ----------- ---------------- --------- ---------- 5 AllianceBernstein Money Market Portfolio - Class B 23,305 $13.24 $ 308,679 1.38% 1.45% 0.18% 1 AllianceBernstein Real Estate Investment Portfolio - Class A 706,954 18.09 12,790,871 1.96% 1.40% -36.58% 2 AllianceBernstein Real Estate Investment Portfolio - Class A 23,104 17.99 415,637 1.56% 1.45% -36.61% 1 AllianceBernstein Small Cap Growth Portfolio - Class A 1,738,801 8.18 14,228,153 0.00% 1.40% -46.30% 2 AllianceBernstein Small Cap Growth Portfolio - Class A 66,567 8.14 541,594 0.00% 1.45% -46.33% 3 AllianceBernstein Small Cap Growth Portfolio - Class A 6,889 7.95 54,789 0.00% 1.40% -46.30% 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 1,630,713 12.72 20,749,184 0.79% 1.40% -36.47% 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 51,147 12.68 648,307 0.79% 1.45% -36.51% 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 167,424 8.19 1,371,606 0.45% 1.40% -42.06% 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 4,601 8.17 37,593 0.40% 1.45% -42.09% 1 AllianceBernstein Utility Income Portfolio - Class A 985,906 22.08 21,770,785 3.14% 1.40% -37.47% 2 AllianceBernstein Utility Income Portfolio - Class A 19,751 21.96 433,662 2.81% 1.45% -37.50% 4 AllianceBernstein Value Portfolio - Class B 2,818,700 8.28 23,325,515 2.27% 1.40% -41.84% 5 AllianceBernstein Value Portfolio - Class B 73,178 8.24 603,248 2.02% 1.45% -41.87% 1 BlackRock Basic Value V.I. Fund - Class I 200,117 12.94 2,589,934 2.25% 1.40% -37.65% 2 BlackRock Basic Value V.I. Fund - Class I 12,686 12.87 163,267 1.84% 1.45% -37.68% 1 BlackRock Global Allocation V.I. Fund - Class I 81,509 16.02 1,305,621 2.08% 1.40% -20.54% 2 BlackRock Global Allocation V.I. Fund - Class I 1,750 15.93 27,868 1.48% 1.45% -20.58% 1 BlackRock Global Growth V.I. Fund - Class I 36,085 8.66 312,323 0.34% 1.40% -46.68% 2 BlackRock Global Growth V.I. Fund - Class I 567 8.61 4,880 0.36% 1.45% -46.71% 1 BlackRock High Income V.I. Fund - Class I 20,866 9.58 199,939 9.12% 1.40% -30.11% 2 BlackRock High Income V.I. Fund - Class I 472 9.53 4,493 9.67% 1.45% -30.15% 1 BlackRock International Value V.I. Fund - Class I 79,963 12.04 962,784 3.05% 1.40% -43.30% 2 BlackRock International Value V.I. Fund - Class I 4,959 11.98 59,426 3.12% 1.45% -43.32% 1 BlackRock Large Cap Core V.I. Fund - Class I 90,525 12.11 1,096,179 1.20% 1.40% -39.61% 2 BlackRock Large Cap Core V.I. Fund - Class I 1,979 12.04 23,831 1.24% 1.45% -39.64% 1 BlackRock Large Cap Growth V.I. Fund - Class I 62,460 6.79 424,281 0.37% 1.40% -41.52% 1 BlackRock Money Market V.I. Fund - Class I 15,535 12.47 193,710 2.50% 1.40% 1.09% 2 BlackRock Money Market V.I. Fund - Class I 3,600 12.40 44,644 2.76% 1.45% 1.04% 1 BlackRock Total Return V.I. Fund - Class I 12,203 12.37 150,968 5.18% 1.40% -13.36% 2 BlackRock Total Return V.I. Fund - Class I 1,460 12.30 17,957 5.90% 1.45% -13.40% 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I 17,157 16.58 284,447 2.10% 1.40% -34.77% 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I 2,334 16.49 38,484 2.48% 1.45% -34.80% 1 BlackRock Value Opportunities V.I. Fund - Class I 53,394 14.06 750,934 0.72% 1.40% -40.88% 2 BlackRock Value Opportunities V.I. Fund - Class I 6,797 13.99 95,056 0.64% 1.45% -40.91% 7 Delaware VIP Balanced Series - Standard Class 12,993 25.61 332,723 4.60% 1.25% -23.45% 7 Delaware VIP Capital Reserves Series - Standard Class 6,680 23.59 157,573 4.71% 1.25% -1.53% 7 Delaware VIP Cash Reserve Series - Standard Class -- 14.32 -- 0.00% 1.40% 0.68% 7 Delaware VIP Cash Reserve Series - Standard Class 4,436 17.78 78,859 2.72% 1.25% 0.83% 7 Delaware VIP Growth Opportunities Series - Standard Class 2,858 20.76 59,312 0.00% 1.40% -41.38% 7 Delaware VIP Growth Opportunities Series - Standard Class 14,122 23.49 331,713 0.00% 1.25% -41.29% 7 Delaware VIP High Yield Series - Standard Class 2,555 14.67 37,498 3.99% 1.40% -25.23% 7 Delaware VIP High Yield Series - Standard Class 12,031 20.96 252,165 10.14% 1.25% -25.12% 7 Delaware VIP Value Series - Standard Class 4,749 25.02 118,821 2.88% 1.40% -34.35% 7 Delaware VIP Value Series - Standard Class 63,109 29.85 1,883,547 3.03% 1.25% -34.25% 2 Dreyfus Stock Index Fund, Inc. - Initial Shares 694 14.25 9,885 2.19% 1.45% -38.05% 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 132,247 14.33 1,895,541 2.02% 1.40% -38.02% 3 Fidelity VIP Asset Manager Portfolio - Initial Class 107,536 13.95 1,499,698 2.31% 1.40% -29.71% 2 Fidelity VIP Contrafund Portfolio - Initial Class 121 13.61 1,644 0.75% 1.45% -43.34% 3 Fidelity VIP Contrafund Portfolio - Initial Class 54,654 13.68 747,767 0.75% 1.40% -43.31% 2 Fidelity VIP Growth Portfolio - Initial Class 76 11.60 884 0.65% 1.45% -47.93%
VA I - 51 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2008 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 3 Fidelity VIP Growth Portfolio - Initial Class 84,464 $11.66 $ 985,141 0.65% 1.40% -47.90% 2 Fidelity VIP High Income Portfolio - Initial Class 1,223 9.70 11,865 8.07% 1.45% -26.07% 3 Fidelity VIP High Income Portfolio - Initial Class 31,356 9.76 305,945 8.07% 1.40% -26.03% 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 71,501 16.40 1,172,370 5.60% 1.40% -4.59% 3 Fidelity VIP Money Market Portfolio - Initial Class 133,408 13.72 1,830,301 2.55% 1.40% 1.59% 3 Fidelity VIP Overseas Portfolio - Initial Class 7,328 12.53 91,837 2.49% 1.40% -44.59% 1 UBS U.S. Allocation Portfolio 459,307 11.37 5,223,247 3.26% 1.40% -36.04% 2 UBS U.S. Allocation Portfolio 53,744 11.31 608,024 3.27% 1.45% -36.07% 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 13,847 10.07 139,471 0.00% 1.40% -65.27% 2 Van Eck Worldwide Hard Assets Fund - Initial Class 249 18.11 4,504 0.34% 1.45% -46.90% 3 Van Eck Worldwide Hard Assets Fund - Initial Class 9,026 18.21 164,382 0.42% 1.40% -46.88% 1 Vanguard 500 Index Fund 1,855 8.61 15,959 2.24% 0.75% -37.49% 6 Vanguard Dividend Growth Fund 10,149 11.89 120,647 2.60% 0.52% -25.96% 1 Vanguard GNMA Fund 16,325 12.48 203,784 1.68% 0.75% 4.98% 6 Vanguard GNMA Fund 3,942 12.72 50,131 6.88% 0.52% 6.65% 6 Vanguard Health Care Fund 3,240 12.70 41,153 1.44% 0.52% -18.88% 6 Vanguard Inflation-Protected Securities Fund 24,336 12.21 297,091 6.28% 0.52% -3.35% 1 Vanguard International Growth Fund 620 11.43 7,090 2.78% 0.75% -45.35% 1 Vanguard LifeStrategy Conservative Growth Fund 2,035 11.21 22,808 3.50% 0.75% -20.12% 6 Vanguard LifeStrategy Conservative Growth Fund 15,291 11.02 168,533 4.23% 0.52% -19.94% 1 Vanguard LifeStrategy Growth Fund 819 10.10 8,271 2.35% 0.75% -34.88% 6 Vanguard LifeStrategy Growth Fund 32,461 10.46 339,675 3.19% 0.52% -34.73% 1 Vanguard LifeStrategy Income Fund 5,277 11.81 62,348 3.04% 0.75% -11.19% 6 Vanguard LifeStrategy Income Fund 29,743 11.35 337,484 5.74% 0.52% -10.99% 1 Vanguard LifeStrategy Moderate Growth Fund -- 10.85 -- 2.32% 0.75% -27.05% 6 Vanguard LifeStrategy Moderate Growth Fund 36,819 10.91 401,572 2.98% 0.52% -26.88% 1 Vanguard Prime Money Market Fund 346 11.46 3,966 2.75% 0.75% 1.99% 1 Vanguard PRIMECAP Fund 180 10.78 1,942 0.80% 0.75% -32.91% 1 Vanguard Small-Cap Growth Index Fund 1,053 10.09 10,627 0.60% 0.75% -40.45% 1 Vanguard Small-Cap Value Index Fund 1,582 9.58 15,147 2.17% 0.75% -32.56% 1 Vanguard Total Bond Market Index Fund 9,740 13.22 128,746 1.63% 0.75% 4.25% 6 Vanguard Total International Stock Index Fund 11,443 12.79 146,388 1.89% 0.52% -44.39% 1 Vanguard U.S. Growth Fund 361 7.13 2,574 0.68% 0.75% -38.28% 6 Vanguard VIF Balanced Portfolio 363,040 12.09 4,390,675 3.93% 0.52% -22.97% 6 Vanguard VIF Capital Growth Portfolio 32,644 11.65 380,370 0.92% 0.52% -30.73% 1 Vanguard VIF Diversified Value Portfolio 1,364 9.27 12,634 2.97% 0.75% -36.62% 6 Vanguard VIF Diversified Value Portfolio 40,759 11.22 457,496 3.01% 0.52% -36.48% 1 Vanguard VIF Equity Income Portfolio 1,451 9.55 13,856 3.62% 0.75% -31.43% 6 Vanguard VIF Equity Income Portfolio 34,605 11.23 388,467 3.54% 0.52% -31.27% 1 Vanguard VIF Equity Index Portfolio 537 8.26 4,439 2.29% 0.75% -37.41% 6 Vanguard VIF Equity Index Portfolio 34,960 9.49 331,678 2.35% 0.52% -37.26% 6 Vanguard VIF Growth Portfolio 7,614 8.71 66,342 0.86% 0.52% -38.04% 1 Vanguard VIF High Yield Bond Portfolio 925 9.15 8,465 13.69% 0.75% -22.53% 6 Vanguard VIF High Yield Bond Portfolio 19,153 9.81 187,842 8.28% 0.52% -22.36% 1 Vanguard VIF International Portfolio 693 10.35 7,173 3.83% 0.75% -45.33% 6 Vanguard VIF International Portfolio 88,425 12.46 1,101,348 2.80% 0.52% -45.20% 6 Vanguard VIF Mid-Cap Index Portfolio 24,826 10.38 257,625 1.77% 0.52% -42.12% 1 Vanguard VIF Money Market Portfolio 10,640 11.44 121,725 0.94% 0.75% 2.04% 6 Vanguard VIF Money Market Portfolio 55,070 11.59 638,145 1.35% 0.52% 2.28% 1 Vanguard VIF REIT Index Portfolio 1,300 9.27 12,057 3.90% 0.75% -37.72% 6 Vanguard VIF REIT Index Portfolio 20,606 11.07 228,197 4.25% 0.52% -37.57%
VA I - 52 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2008 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 6 Vanguard VIF Short-Term Investment-Grade Portfolio 24,235 $11.00 $ 266,514 4.45% 0.52% -3.96% 6 Vanguard VIF Small Company Growth Portfolio 14,614 8.79 128,491 0.73% 0.52% -39.79% 1 Vanguard VIF Total Bond Market Index Portfolio 1,328 11.87 15,759 4.35% 0.75% 4.44% 6 Vanguard VIF Total Bond Market Index Portfolio 72,816 12.38 901,673 4.35% 0.52% 4.68% 6 Vanguard VIF Total Stock Market Index Portfolio 192,588 9.68 1,863,979 1.54% 0.52% -37.61% 1 Vanguard Wellington Fund 174 11.89 2,073 4.39% 0.75% -22.88% 1 Vanguard Windsor Fund 179 8.14 1,457 2.12% 0.75% -41.55%
VA I - 53 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2007 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ------------ ---------------- --------- ---------- 2 AIM V.I. Capital Appreciation Fund - Series I 2,186 $13.28 $ 29,016 0.00% 1.45% 10.39% 3 AIM V.I. Capital Appreciation Fund - Series I 47,357 13.34 631,919 0.00% 1.40% 10.45% 2 AIM V.I. International Growth Fund - Series I 889 20.62 18,330 0.38% 1.45% 13.06% 3 AIM V.I. International Growth Fund - Series I 41,634 20.72 862,779 0.38% 1.40% 13.12% 1 AllianceBernstein Americas Government Income Portfolio - Class A 1,203,921 23.24 27,976,251 5.90% 1.40% 6.86% 2 AllianceBernstein Americas Government Income Portfolio - Class A 12,335 23.12 285,155 6.45% 1.45% 6.81% 1 AllianceBernstein Balanced Shares Portfolio - Class A 4,288,450 27.67 118,680,116 2.80% 1.40% 1.61% 2 AllianceBernstein Balanced Shares Portfolio - Class A 72,012 27.53 1,982,538 3.42% 1.45% 1.56% 3 AllianceBernstein Balanced Shares Portfolio - Class A 25,679 13.84 355,429 2.69% 1.40% 1.61% 1 AllianceBernstein Global Bond Portfolio - Class A 764,071 19.18 14,653,344 3.06% 1.40% 8.81% 2 AllianceBernstein Global Bond Portfolio - Class A 21,876 19.08 417,351 2.60% 1.45% 8.75% 3 AllianceBernstein Global Bond Portfolio - Class A -- 14.39 -- 6.09% 1.40% 8.81% 1 AllianceBernstein Global Dollar Government Portfolio - Class A 464,285 37.42 17,374,779 6.18% 1.40% 3.07% 2 AllianceBernstein Global Dollar Government Portfolio - Class A 8,966 37.23 333,787 6.19% 1.45% 3.02% 1 AllianceBernstein Global Technology Portfolio - Class A 1,907,223 20.16 38,458,522 0.00% 1.40% 18.52% 2 AllianceBernstein Global Technology Portfolio - Class A 91,910 20.06 1,843,688 0.00% 1.45% 18.46% 3 AllianceBernstein Global Technology Portfolio - Class A 13,627 19.51 265,906 0.00% 1.40% 18.52% 4 AllianceBernstein Global Technology Portfolio - Class B 946,958 19.80 18,745,540 0.00% 1.40% 18.22% 5 AllianceBernstein Global Technology Portfolio - Class B 75,245 19.69 1,481,777 0.00% 1.45% 18.16% 1 AllianceBernstein Growth and Income Portfolio - Class A 2,721,929 48.33 131,554,552 1.46% 1.40% 3.65% 2 AllianceBernstein Growth and Income Portfolio - Class A 69,620 48.08 3,347,352 1.43% 1.45% 3.60% 3 AllianceBernstein Growth and Income Portfolio - Class A 82,962 29.98 2,487,133 1.37% 1.40% 3.65% 4 AllianceBernstein Growth and Income Portfolio - Class B 3,280,496 47.33 155,265,465 1.23% 1.40% 3.39% 5 AllianceBernstein Growth and Income Portfolio - Class B 82,282 47.08 3,874,156 1.22% 1.45% 3.34% 1 AllianceBernstein Growth Portfolio - Class A 1,649,024 30.08 49,606,492 0.00% 1.40% 11.44% 2 AllianceBernstein Growth Portfolio - Class A 54,138 29.93 1,620,119 0.00% 1.45% 11.39% 3 AllianceBernstein Growth Portfolio - Class A 38,503 20.80 800,730 0.00% 1.40% 11.44% 4 AllianceBernstein Growth Portfolio - Class B 1,340,840 29.44 39,472,052 0.00% 1.40% 11.09% 5 AllianceBernstein Growth Portfolio - Class B 50,367 29.29 1,475,018 0.00% 1.45% 11.03% 1 AllianceBernstein High Yield Portfolio - Class A 1,787,041 11.79 21,064,916 8.06% 1.40% -0.52% 2 AllianceBernstein High Yield Portfolio - Class A 51,096 11.73 599,228 7.37% 1.45% -0.57% 1 AllianceBernstein International Growth Portfolio - Class A 2,366,389 42.33 100,159,419 1.11% 1.40% 16.48% 2 AllianceBernstein International Growth Portfolio - Class A 88,003 42.11 3,705,418 1.19% 1.45% 16.42% 1 AllianceBernstein International Research Growth Portfolio - Class A -- -- -- 2.87% 1.40% 24.41% 2 AllianceBernstein International Research Growth Portfolio - Class A -- -- -- 2.42% 1.45% 24.35% 1 AllianceBernstein International Value Portfolio - Class A 1,939,560 25.80 50,042,096 1.22% 1.40% 4.36% 2 AllianceBernstein International Value Portfolio - Class A 60,457 25.71 1,554,648 1.17% 1.45% 4.31% 1 AllianceBernstein Large Cap Growth Portfolio - Class A 2,649,036 33.22 87,991,317 0.00% 1.40% 12.33% 2 AllianceBernstein Large Cap Growth Portfolio - Class A 102,270 33.04 3,379,379 0.00% 1.45% 12.27% 3 AllianceBernstein Large Cap Growth Portfolio - Class A 8,622 14.98 129,186 0.00% 1.40% 12.33% 4 AllianceBernstein Large Cap Growth Portfolio - Class B 1,854,536 32.58 60,428,287 0.00% 1.40% 12.03% 5 AllianceBernstein Large Cap Growth Portfolio - Class B 44,500 32.41 1,442,460 0.00% 1.45% 11.97% 1 AllianceBernstein Money Market Portfolio - Class A 1,059,929 13.58 14,388,649 4.67% 1.40% 2.89% 2 AllianceBernstein Money Market Portfolio - Class A 34,446 13.50 465,180 5.00% 1.45% 2.83% 4 AllianceBernstein Money Market Portfolio - Class B 1,027,110 13.29 13,650,521 4.10% 1.40% 2.63% 5 AllianceBernstein Money Market Portfolio - Class B 45,966 13.22 607,717 4.29% 1.45% 2.58% 1 AllianceBernstein Real Estate Investment Portfolio - Class A 1,025,122 28.53 29,246,048 1.44% 1.40% -15.72% 2 AllianceBernstein Real Estate Investment Portfolio - Class A 46,923 28.38 1,331,721 1.23% 1.45% -15.77% 1 AllianceBernstein Small Cap Growth Portfolio - Class A 2,119,855 15.24 32,303,525 0.00% 1.40% 12.48%
VA I - 54 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2007 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ----------- ---------------- --------- ---------- 2 AllianceBernstein Small Cap Growth Portfolio - Class A 89,648 $15.16 $ 1,358,997 0.00% 1.45% 12.42% 3 AllianceBernstein Small Cap Growth Portfolio - Class A 7,368 14.81 109,120 0.00% 1.40% 12.48% 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 2,230,269 20.03 44,671,243 0.96% 1.40% 0.28% 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 63,000 19.96 1,257,668 1.02% 1.45% 0.23% 1 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 3,359,323 17.04 57,240,408 4.71% 1.40% 3.39% 2 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 70,250 16.95 1,190,781 3.98% 1.45% 3.33% 4 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 97,447 16.67 1,624,565 4.55% 1.40% 3.13% 5 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 2,748 16.58 45,575 4.59% 1.45% 3.08% 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 225,383 14.14 3,186,725 0.19% 1.40% 2.77% 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 4,920 14.11 69,411 0.21% 1.45% 2.72% 1 AllianceBernstein Utility Income Portfolio - Class A 1,358,104 35.32 47,961,692 2.24% 1.40% 20.64% 2 AllianceBernstein Utility Income Portfolio - Class A 31,248 35.13 1,097,796 2.24% 1.45% 20.58% 4 AllianceBernstein Value Portfolio - Class B 4,105,699 14.23 58,413,949 1.28% 1.40% -5.50% 5 AllianceBernstein Value Portfolio - Class B 89,755 14.18 1,272,744 1.32% 1.45% -5.55% 1 BlackRock Basic Value V.I. Fund - Class I 226,732 20.76 4,706,248 1.39% 1.40% 0.40% 2 BlackRock Basic Value V.I. Fund - Class I 19,415 20.65 400,953 1.45% 1.45% 0.35% 1 BlackRock Global Allocation V.I. Fund - Class I 92,675 20.16 1,868,216 2.72% 1.40% 15.37% 2 BlackRock Global Allocation V.I. Fund - Class I 3,370 20.06 67,584 1.67% 1.45% 15.32% 1 BlackRock Global Growth V.I. Fund - Class I 42,382 16.23 687,985 0.98% 1.40% 34.97% 2 BlackRock Global Growth V.I. Fund - Class I 624 16.16 10,089 1.06% 1.45% 34.90% 1 BlackRock High Income V.I. Fund - Class I 24,897 13.71 341,367 8.70% 1.40% 0.96% 2 BlackRock High Income V.I. Fund - Class I 520 13.64 7,088 7.97% 1.45% 0.91% 1 BlackRock International Value V.I. Fund - Class I 95,687 21.23 2,031,785 2.53% 1.40% 8.79% 2 BlackRock International Value V.I. Fund - Class I 5,748 21.14 121,514 2.15% 1.45% 8.74% 1 BlackRock Large Cap Core V.I. Fund - Class I 98,398 20.05 1,972,886 1.00% 1.40% 6.83% 2 BlackRock Large Cap Core V.I. Fund - Class I 2,039 19.95 40,666 0.88% 1.45% 6.77% 1 BlackRock Large Cap Growth V.I. Fund - Class I 84,709 11.62 984,001 0.29% 1.40% 6.87% 1 BlackRock Money Market V.I. Fund - Class I 21,174 12.33 261,160 3.83% 1.40% 3.38% 2 BlackRock Money Market V.I. Fund - Class I 3,607 12.27 44,262 4.74% 1.45% 3.33% 1 BlackRock Total Return V.I. Fund - Class I * 14,961 14.28 213,629 5.19% 1.40% 2.19% 2 BlackRock Total Return V.I. Fund - Class I * 3,295 14.21 46,814 4.74% 1.45% 2.14% 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I 22,132 25.42 562,498 1.78% 1.40% 24.62% 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I 2,344 25.29 59,262 1.78% 1.45% 24.56% 1 BlackRock Value Opportunities V.I. Fund - Class I 59,042 23.79 1,404,490 0.27% 1.40% -2.28% 2 BlackRock Value Opportunities V.I. Fund - Class I 9,052 23.67 214,243 0.26% 1.45% -2.33% 7 Delaware VIP Balanced Series - Standard Class 19,050 33.45 637,255 3.75% 1.25% -0.92% 7 Delaware VIP Capital Reserves Series - Standard Class 6,683 23.96 160,089 4.78% 1.25% 3.16% 7 Delaware VIP Cash Reserve Series - Standard Class -- 14.22 -- 0.00% 1.40% 3.31% 7 Delaware VIP Cash Reserve Series - Standard Class 13,404 17.63 236,329 4.71% 1.25% 3.46% 7 Delaware VIP Growth Opportunities Series - Standard Class 6,390 35.41 226,245 0.00% 1.40% 11.38% 7 Delaware VIP Growth Opportunities Series - Standard Class 20,427 40.01 817,241 0.00% 1.25% 11.55% 7 Delaware VIP High Yield Series - Standard Class 641 19.63 12,581 6.92% 1.40% 1.36% 7 Delaware VIP High Yield Series - Standard Class 16,047 27.99 449,155 6.88% 1.25% 1.51% 7 Delaware VIP Value Series - Standard Class 4,749 38.11 181,015 1.64% 1.40% -4.08% 7 Delaware VIP Value Series - Standard Class 75,960 45.39 3,448,163 1.80% 1.25% -3.94% 2 Dreyfus Stock Index Fund, Inc. - Initial Shares 694 23.00 15,956 1.69% 1.45% 3.73% 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 173,935 23.12 4,022,169 1.64% 1.40% 3.78%
VA I - 55 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2007 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ----------- ---------------- --------- ---------- 2 Dreyfus VIF Small Company Stock Portfolio - Initial Shares -- $ -- $ -- 0.00% 1.45% 8.42% 3 Dreyfus VIF Small Company Stock Portfolio - Initial Shares -- -- -- 0.00% 1.40% 8.44% 3 Fidelity VIP Asset Manager Portfolio - Initial Class 150,961 19.84 2,995,184 5.92% 1.40% 13.89% 2 Fidelity VIP Contrafund Portfolio - Initial Class 121 24.01 2,914 0.79% 1.45% 15.89% 3 Fidelity VIP Contrafund Portfolio - Initial Class 89,912 24.14 2,170,187 0.79% 1.40% 15.95% 2 Fidelity VIP Growth Portfolio - Initial Class 77 22.27 1,706 0.85% 1.45% 25.13% 3 Fidelity VIP Growth Portfolio - Initial Class 130,459 22.39 2,920,769 0.85% 1.40% 25.19% 2 Fidelity VIP High Income Portfolio - Initial Class 1,223 13.12 16,048 7.35% 1.45% 1.30% 3 Fidelity VIP High Income Portfolio - Initial Class 41,970 13.19 553,594 7.35% 1.40% 1.35% 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 79,441 17.19 1,365,286 4.39% 1.40% 2.89% 3 Fidelity VIP Money Market Portfolio - Initial Class 176,005 13.51 2,376,947 4.95% 1.40% 3.74% 3 Fidelity VIP Overseas Portfolio - Initial Class 8,558 22.62 193,551 3.34% 1.40% 15.67% 1 UBS U.S. Allocation Portfolio 574,539 17.78 10,214,943 2.60% 1.40% 0.76% 2 UBS U.S. Allocation Portfolio 65,218 17.70 1,154,130 2.55% 1.45% 0.71% 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 22,399 29.00 649,648 0.53% 1.40% 35.69% 2 Van Eck Worldwide Hard Assets Fund - Initial Class 250 34.10 8,536 0.11% 1.45% 43.25% 3 Van Eck Worldwide Hard Assets Fund - Initial Class 18,173 34.28 622,975 0.13% 1.40% 43.33% 1 Vanguard 500 Index Fund 2,039 13.77 28,065 1.86% 0.75% 4.59% 6 Vanguard Dividend Growth Fund 2,382 16.06 38,252 1.84% 0.52% 6.44% 6 Vanguard GNMA Fund 1,752 11.93 20,892 5.75% 0.52% 6.46% 6 Vanguard Health Care Fund 3,727 15.66 58,366 1.78% 0.52% 3.88% 6 Vanguard Inflation-Protected Securities Fund 14,641 12.63 184,930 5.60% 0.52% 11.01% 1 Vanguard International Growth Fund 670 20.92 14,025 1.98% 0.75% 15.11% 1 Vanguard LifeStrategy Conservative Growth Fund 2,250 14.03 31,568 3.43% 0.75% 6.19% 6 Vanguard LifeStrategy Conservative Growth Fund 11,638 13.77 160,212 4.06% 0.52% 1.96% 1 Vanguard LifeStrategy Growth Fund 905 15.51 14,044 2.29% 0.75% 6.65% 6 Vanguard LifeStrategy Growth Fund 20,385 16.03 326,840 3.39% 0.52% 6.90% 1 Vanguard LifeStrategy Income Fund 1,130 13.30 15,034 4.04% 0.75% 5.90% 6 Vanguard LifeStrategy Income Fund 13,931 12.75 177,580 3.71% 0.52% 6.15% 1 Vanguard LifeStrategy Moderate Growth Fund 30,250 14.87 449,750 2.88% 0.75% 6.55% 6 Vanguard LifeStrategy Moderate Growth Fund 39,773 14.92 593,233 3.00% 0.52% 6.80% 1 Vanguard Prime Money Market Fund 380 11.23 4,271 5.05% 0.75% 4.37% 1 Vanguard PRIMECAP Fund 198 16.06 3,180 0.63% 0.75% 10.64% 1 Vanguard Small-Cap Growth Index Fund 1,158 16.95 19,622 0.47% 0.75% 8.80% 1 Vanguard Small-Cap Value Index Fund 1,730 14.20 24,575 2.07% 0.75% -7.77% 1 Vanguard Total Bond Market Index Fund -- 12.68 -- 3.44% 0.75% 6.13% 6 Vanguard Total International Stock Index Fund 13,349 23.01 307,106 2.56% 0.52% 14.92% 1 Vanguard U.S. Growth Fund 396 11.56 4,581 0.58% 0.75% 9.32% 6 Vanguard VIF Balanced Portfolio 353,982 15.70 5,558,044 2.65% 0.52% 7.79% 6 Vanguard VIF Capital Growth Portfolio 31,095 16.82 523,022 0.38% 0.52% 11.89% 1 Vanguard VIF Diversified Value Portfolio 1,474 14.62 21,548 1.88% 0.75% 3.15% 6 Vanguard VIF Diversified Value Portfolio 42,468 17.67 750,394 2.14% 0.52% 3.39% 1 Vanguard VIF Equity Income Portfolio 1,496 13.92 20,835 2.48% 0.75% 3.75% 6 Vanguard VIF Equity Income Portfolio 38,057 16.33 621,619 2.64% 0.52% 3.99% 1 Vanguard VIF Equity Index Portfolio 592 13.20 7,813 0.00% 0.75% -0.98% 6 Vanguard VIF Equity Index Portfolio 41,395 15.12 626,000 1.45% 0.52% 4.83% 6 Vanguard VIF Growth Portfolio 7,320 14.06 102,946 0.60% 0.52% 9.64% 1 Vanguard VIF High Yield Bond Portfolio 11,349 11.82 134,094 6.76% 0.75% 1.19% 6 Vanguard VIF High Yield Bond Portfolio 18,752 12.63 236,861 7.17% 0.52% 1.42% 1 Vanguard VIF International Portfolio 7,493 18.93 141,877 1.78% 0.75% 16.53% 6 Vanguard VIF International Portfolio 90,426 22.73 2,055,354 1.62% 0.52% 16.80%
VA I - 56 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2007 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 6 Vanguard VIF Mid-Cap Index Portfolio 26,583 $17.93 $ 476,573 1.23% 0.52% 5.59% 6 Vanguard VIF Money Market Portfolio 148,678 11.33 1,684,459 2.35% 0.52% 4.71% 1 Vanguard VIF REIT Index Portfolio 1,400 14.89 20,847 2.04% 0.75% -17.23% 6 Vanguard VIF REIT Index Portfolio 17,478 17.74 310,062 2.62% 0.52% -17.04% 6 Vanguard VIF Short-Term Investment-Grade Portfolio 17,860 11.45 204,495 3.74% 0.52% 5.47% 6 Vanguard VIF Small Company Growth Portfolio 15,989 14.60 233,452 0.48% 0.52% 3.22% 1 Vanguard VIF Total Bond Market Index Portfolio 1,435 11.36 16,311 3.87% 0.75% 6.18% 6 Vanguard VIF Total Bond Market Index Portfolio 56,843 11.83 672,393 4.27% 0.52% 6.43% 6 Vanguard VIF Total Stock Market Index Portfolio 164,644 15.51 2,554,031 1.05% 0.52% 4.62% 1 Vanguard Wellington Fund 8,163 15.41 125,818 3.22% 0.75% 7.56% 1 Vanguard Windsor Fund 197 13.92 2,738 1.56% 0.75% -4.02%
VA I - 57 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2006 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ------------ ---------------- --------- ---------- 2 AIM V.I. Capital Appreciation Fund - Series I 988 $12.03 $ 11,883 0.05% 1.45% 4.77% 3 AIM V.I. Capital Appreciation Fund - Series I 67,530 12.08 815,867 0.05% 1.40% 4.83% 2 AIM V.I. International Growth Fund - Series I 979 18.24 17,848 0.84% 1.45% 26.39% 3 AIM V.I. International Growth Fund - Series I 57,277 18.32 1,049,315 0.84% 1.40% 26.46% 1 AllianceBernstein Americas Government Income Portfolio - Class A 1,454,005 21.75 31,617,925 6.83% 1.40% 1.88% 2 AllianceBernstein Americas Government Income Portfolio - Class A 16,837 21.64 364,415 7.07% 1.45% 1.82% 1 AllianceBernstein Balanced Shares Portfolio - Class A * 5,279,504 27.24 143,792,108 2.45% 1.40% 10.24% 2 AllianceBernstein Balanced Shares Portfolio - Class A * 137,405 27.11 3,724,756 2.55% 1.45% 10.18% 3 AllianceBernstein Balanced Shares Portfolio - Class A * 27,880 13.62 379,776 2.38% 1.40% 10.24% 1 AllianceBernstein Global Bond Portfolio - Class A 802,706 17.63 14,148,021 1.52% 1.40% 3.51% 2 AllianceBernstein Global Bond Portfolio - Class A 22,623 17.54 396,871 1.75% 1.45% 3.46% 3 AllianceBernstein Global Bond Portfolio - Class A 62 13.23 825 1.60% 1.40% 3.51% 1 AllianceBernstein Global Dollar Government Portfolio - Class A 566,140 36.31 20,555,661 5.76% 1.40% 8.48% 2 AllianceBernstein Global Dollar Government Portfolio - Class A 14,343 36.14 518,325 5.66% 1.45% 8.43% 1 AllianceBernstein Global Technology Portfolio - Class A 2,493,296 17.01 42,420,930 0.00% 1.40% 7.13% 2 AllianceBernstein Global Technology Portfolio - Class A 110,169 16.93 1,865,609 0.00% 1.45% 7.08% 3 AllianceBernstein Global Technology Portfolio - Class A 26,498 16.46 436,288 0.00% 1.40% 7.13% 4 AllianceBernstein Global Technology Portfolio - Class B 1,144,861 16.74 19,170,499 0.00% 1.40% 6.88% 5 AllianceBernstein Global Technology Portfolio - Class B 77,409 16.67 1,290,106 0.00% 1.45% 6.83% 1 AllianceBernstein Growth and Income Portfolio - Class A 3,763,378 46.63 175,485,398 1.40% 1.40% 15.66% 2 AllianceBernstein Growth and Income Portfolio - Class A 135,669 46.41 6,296,484 1.38% 1.45% 15.60% 3 AllianceBernstein Growth and Income Portfolio - Class A 114,368 28.92 3,307,922 1.44% 1.40% 15.66% 4 AllianceBernstein Growth and Income Portfolio - Class B 3,889,884 45.78 178,063,243 1.13% 1.40% 15.36% 5 AllianceBernstein Growth and Income Portfolio - Class B 100,315 45.56 4,570,443 1.12% 1.45% 15.30% 1 AllianceBernstein Growth Portfolio - Class A 2,306,064 26.99 62,247,748 0.00% 1.40% -2.45% 2 AllianceBernstein Growth Portfolio - Class A 73,789 26.87 1,982,439 0.00% 1.45% -2.49% 3 AllianceBernstein Growth Portfolio - Class A 66,554 18.66 1,241,944 0.00% 1.40% -2.45% 4 AllianceBernstein Growth Portfolio - Class B 1,626,265 26.50 43,095,678 0.00% 1.40% -2.61% 5 AllianceBernstein Growth Portfolio - Class B 57,799 26.38 1,524,471 0.00% 1.45% -2.66% 1 AllianceBernstein High Yield Portfolio - Class A 2,324,942 11.85 27,549,052 8.66% 1.40% 7.54% 2 AllianceBernstein High Yield Portfolio - Class A 92,272 11.79 1,088,343 7.88% 1.45% 7.49% 1 AllianceBernstein International Growth Portfolio - Class A * 1,194,280 36.34 43,397,843 0.90% 1.40% 25.28% 2 AllianceBernstein International Growth Portfolio - Class A * 51,987 36.17 1,880,216 0.89% 1.45% 25.22% 1 AllianceBernstein International Research Growth Portfolio - Class A * 2,501,502 21.47 53,710,897 0.41% 1.40% 24.70% 2 AllianceBernstein International Research Growth Portfolio - Class A * 105,524 21.37 2,255,107 0.42% 1.45% 24.64% 1 AllianceBernstein International Value Portfolio - Class A 2,320,037 24.72 57,357,239 1.34% 1.40% 33.56% 2 AllianceBernstein International Value Portfolio - Class A 80,632 24.65 1,987,789 1.37% 1.45% 33.49% 1 AllianceBernstein Large Cap Growth Portfolio - Class A 3,610,245 29.57 106,759,154 0.00% 1.40% -1.83% 2 AllianceBernstein Large Cap Growth Portfolio - Class A 159,595 29.43 4,697,244 0.00% 1.45% -1.87% 3 AllianceBernstein Large Cap Growth Portfolio - Class A 16,085 13.34 214,551 0.00% 1.40% -1.83% 4 AllianceBernstein Large Cap Growth Portfolio - Class B 2,178,294 29.09 63,358,074 0.00% 1.40% -2.02% 5 AllianceBernstein Large Cap Growth Portfolio - Class B 66,179 28.95 1,915,832 0.00% 1.45% -2.07% 1 AllianceBernstein Money Market Portfolio - Class A 1,343,591 13.19 17,727,719 4.89% 1.40% 2.77% 2 AllianceBernstein Money Market Portfolio - Class A 33,045 13.13 433,953 5.02% 1.45% 2.72% 4 AllianceBernstein Money Market Portfolio - Class B 1,041,839 12.95 13,491,667 4.05% 1.40% 2.52% 5 AllianceBernstein Money Market Portfolio - Class B 52,337 12.89 674,571 3.03% 1.45% 2.47% 1 AllianceBernstein Real Estate Investment Portfolio - Class A 1,420,880 33.85 48,100,426 1.99% 1.40% 33.35% 2 AllianceBernstein Real Estate Investment Portfolio - Class A 62,269 33.69 2,098,075 1.93% 1.45% 33.29% 1 AllianceBernstein Small Cap Growth Portfolio - Class A 2,932,427 13.55 39,727,655 0.00% 1.40% 9.15%
VA I - 58 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2006 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ----------- ---------------- --------- ---------- 2 AllianceBernstein Small Cap Growth Portfolio - Class A 110,178 $13.48 $ 1,485,647 0.00% 1.45% 9.10% 3 AllianceBernstein Small Cap Growth Portfolio - Class A 6,321 13.17 83,227 0.00% 1.40% 9.15% 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 2,692,681 19.97 53,781,113 0.42% 1.40% 12.83% 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A 82,449 19.92 1,642,108 0.42% 1.45% 12.78% 1 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 3,688,591 16.48 60,792,990 3.97% 1.40% 2.49% 2 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 84,144 16.40 1,380,285 4.07% 1.45% 2.44% 4 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 169,719 16.16 2,743,447 3.86% 1.40% 2.15% 5 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 4,723 16.09 75,984 3.94% 1.45% 2.10% 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 217,778 13.76 2,996,290 0.00% 1.40% 8.33% 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 7,098 13.73 97,489 0.00% 1.45% 8.28% 1 AllianceBernstein Utility Income Portfolio - Class A 1,629,794 29.27 47,707,964 2.46% 1.40% 22.05% 2 AllianceBernstein Utility Income Portfolio - Class A 51,069 29.13 1,487,884 2.35% 1.45% 21.99% 4 AllianceBernstein Value Portfolio - Class B 4,968,785 15.06 74,811,220 0.92% 1.40% 19.35% 5 AllianceBernstein Value Portfolio - Class B 129,544 15.01 1,944,938 0.97% 1.45% 19.29% 1 BlackRock Basic Value V.I. Fund - Class I * 285,829 20.68 5,909,515 1.53% 1.40% 20.18% 2 BlackRock Basic Value V.I. Fund - Class I * 22,598 20.58 465,091 1.52% 1.45% 20.12% 1 BlackRock Bond V.I. Fund - Class I * 18,147 13.97 253,563 4.59% 1.40% 2.95% 2 BlackRock Bond V.I. Fund - Class I * 3,299 13.91 45,879 4.59% 1.45% 2.89% 1 BlackRock Global Allocation V.I. Fund - Class I * 109,130 17.47 1,906,769 2.99% 1.40% 14.92% 2 BlackRock Global Allocation V.I. Fund - Class I * 8,881 17.39 154,465 3.04% 1.45% 14.86% 1 BlackRock Global Growth V.I. Fund - Class I * 53,350 12.03 641,644 0.90% 1.40% 20.32% 2 BlackRock Global Growth V.I. Fund - Class I * 673 11.98 8,060 0.94% 1.45% 20.26% 1 BlackRock High Income V.I. Fund - Class I * 30,485 13.58 413,990 7.23% 1.40% 7.93% 2 BlackRock High Income V.I. Fund - Class I * 560 13.52 7,570 7.46% 1.45% 7.88% 1 BlackRock International Value V.I. Fund - Class I * 118,648 19.52 2,315,708 3.27% 1.40% 26.14% 2 BlackRock International Value V.I. Fund - Class I * 9,490 19.44 184,513 3.79% 1.45% 26.07% 1 BlackRock Large Cap Core V.I. Fund - Class I * 101,424 18.77 1,903,644 0.93% 1.40% 13.15% 2 BlackRock Large Cap Core V.I. Fund - Class I * 2,692 18.68 50,301 0.83% 1.45% 13.10% 1 BlackRock Large Cap Growth V.I. Fund - Class I * 86,564 10.87 940,900 0.29% 1.40% 5.72% 1 BlackRock Money Market V.I. Fund - Class I * 33,362 11.93 398,024 3.83% 1.40% 3.08% 2 BlackRock Money Market V.I. Fund - Class I * 3,613 11.88 42,912 4.43% 1.45% 3.03% 1 BlackRock Utilities and Telecommunications V.I. Fund - Class I * 26,889 20.39 548,372 2.95% 1.40% 23.50% 2 BlackRock Utilities and Telecommunications V.I. Fund - Class I * 2,353 20.30 47,768 2.88% 1.45% 23.44% 1 BlackRock Value Opportunities V.I. Fund - Class I * 80,347 24.34 1,955,910 0.26% 1.40% 11.25% 2 BlackRock Value Opportunities V.I. Fund - Class I * 12,733 24.23 308,558 0.27% 1.45% 11.20% 7 Delaware VIP Balanced Series - Standard Class 27,077 33.76 914,165 2.90% 1.25% 14.76% 7 Delaware VIP Capital Reserves Series - Standard Class 6,685 23.22 155,253 4.81% 1.25% 3.27% 7 Delaware VIP Cash Reserve Series - Standard Class -- 13.77 -- 0.00% 1.40% 3.04% 7 Delaware VIP Cash Reserve Series - Standard Class 14,676 17.04 250,090 4.09% 1.25% 3.19% 7 Delaware VIP Growth Opportunities Series - Standard Class 6,557 31.79 208,440 0.00% 1.40% 4.88% 7 Delaware VIP Growth Opportunities Series - Standard Class 21,524 35.87 771,976 0.00% 1.25% 5.04% 7 Delaware VIP High Yield Series - Standard Class 668 19.36 12,932 6.56% 1.40% 10.89% 7 Delaware VIP High Yield Series - Standard Class 17,069 27.57 470,674 6.56% 1.25% 11.06% 7 Delaware VIP Value Series - Standard Class 4,750 39.74 188,739 1.53% 1.40% 22.38% 7 Delaware VIP Value Series - Standard Class 95,378 47.26 4,507,090 1.56% 1.25% 22.56% 2 Dreyfus Stock Index Fund, Inc. - Initial Shares 814 22.18 18,045 1.64% 1.45% 13.84% 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 236,115 22.28 5,260,980 1.59% 1.40% 13.90%
VA I - 59 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2006 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ----------- ---------------- --------- ---------- 2 Dreyfus VIF Small Company Stock Portfolio - Initial Shares 1,040 $15.68 $ 16,300 0.00% 1.45% 9.37% 3 Dreyfus VIF Small Company Stock Portfolio - Initial Shares 51,843 15.75 816,500 0.00% 1.40% 9.43% 3 Fidelity VIP Asset Manager Portfolio - Initial Class 244,885 17.42 4,266,167 3.01% 1.40% 5.83% 2 Fidelity VIP Contrafund Portfolio - Initial Class 122 20.72 2,525 1.26% 1.45% 10.11% 3 Fidelity VIP Contrafund Portfolio - Initial Class 136,208 20.82 2,835,385 1.26% 1.40% 10.17% 2 Fidelity VIP Growth Portfolio - Initial Class 77 17.80 1,369 0.43% 1.45% 5.32% 3 Fidelity VIP Growth Portfolio - Initial Class 182,120 17.88 3,256,932 0.43% 1.40% 5.37% 2 Fidelity VIP High Income Portfolio - Initial Class 1,168 12.95 15,136 6.68% 1.45% 9.64% 3 Fidelity VIP High Income Portfolio - Initial Class 54,868 13.01 714,094 6.68% 1.40% 9.69% 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 97,913 16.70 1,635,503 4.58% 1.40% 2.90% 3 Fidelity VIP Money Market Portfolio - Initial Class 165,231 13.02 2,151,019 4.70% 1.40% 3.42% 3 Fidelity VIP Overseas Portfolio - Initial Class 9,596 19.55 187,622 0.97% 1.40% 16.44% 1 UBS U.S. Allocation Portfolio 747,396 17.64 13,187,756 2.74% 1.40% 9.75% 2 UBS U.S. Allocation Portfolio 84,240 17.57 1,480,229 3.09% 1.45% 9.69% 1 UIF Core Plus Fixed Income Portfolio - Class I Shares -- 12.08 -- 0.00% 0.75% 2.96% 1 UIF Equity Growth Portfolio - Class I Shares -- 11.83 -- 0.00% 0.75% 3.33% 1 UIF Technology Portfolio - Class I Shares -- -- -- 0.00% 0.75% 4.77% 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 33,797 21.37 722,390 0.67% 1.40% 37.56% 2 Van Eck Worldwide Hard Assets Fund - Initial Class 252 23.81 6,007 0.00% 1.45% -2.11% 3 Van Eck Worldwide Hard Assets Fund - Initial Class 28,179 23.92 674,000 0.07% 1.40% 22.77% 1 Vanguard 500 Index Fund 2,232 13.16 29,376 1.73% 0.75% 14.78% 6 Vanguard Dividend Growth Fund 1,909 15.08 28,795 1.89% 0.52% 18.96% 6 Vanguard GNMA Fund 1,170 11.20 13,105 5.65% 0.52% 3.78% 6 Vanguard Health Care Fund 4,234 15.07 63,831 1.41% 0.52% 10.29% 6 Vanguard Inflation-Protected Securities Fund 13,802 11.38 157,045 2.94% 0.52% -0.09% 1 Vanguard International Growth Fund 723 18.18 13,143 4.03% 0.75% 10.63% 1 Vanguard LifeStrategy Conservative Growth Fund 2,476 13.21 32,710 3.19% 0.75% 9.80% 1 Vanguard LifeStrategy Growth Fund 996 14.54 14,489 2.12% 0.75% 15.26% 6 Vanguard LifeStrategy Growth Fund 10,239 15.00 153,576 2.16% 0.52% 15.53% 1 Vanguard LifeStrategy Income Fund 1,333 12.56 16,748 3.87% 0.75% 7.13% 6 Vanguard LifeStrategy Income Fund 17,095 12.01 205,299 3.91% 0.52% 7.37% 1 Vanguard LifeStrategy Moderate Growth Fund 33,191 13.95 463,121 2.71% 0.75% 12.46% 6 Vanguard LifeStrategy Moderate Growth Fund 31,779 13.97 443,832 3.04% 0.52% 12.72% 1 Vanguard Prime Money Market Fund 416 10.76 4,477 4.78% 0.75% 4.10% 1 Vanguard PRIMECAP Fund 217 14.52 3,144 0.61% 0.75% 11.48% 1 Vanguard Small-Cap Growth Index Fund 1,268 15.58 19,750 0.29% 0.75% 11.11% 1 Vanguard Small-Cap Value Index Fund 1,887 15.40 29,051 2.16% 0.75% 18.36% 1 Vanguard Total Bond Market Index Fund 705 11.95 8,427 4.84% 0.75% 3.49% 6 Vanguard Total International Stock Index Fund 15,348 20.02 307,249 2.34% 0.52% 25.98% 1 Vanguard U.S. Growth Fund 434 10.57 4,584 0.46% 0.75% 1.01% 6 Vanguard VIF Balanced Portfolio 313,608 14.57 4,568,050 2.15% 0.52% 14.37% 6 Vanguard VIF Capital Growth Portfolio 11,822 15.03 177,719 0.56% 0.52% 11.05% 1 Vanguard VIF Diversified Value Portfolio 1,590 14.17 22,533 0.00% 0.75% 13.80% 6 Vanguard VIF Diversified Value Portfolio 24,806 17.09 423,933 1.61% 0.52% 18.26% 1 Vanguard VIF Equity Income Portfolio 1,544 13.42 20,718 2.67% 0.75% 19.80% 6 Vanguard VIF Equity Income Portfolio 38,422 15.71 603,508 1.87% 0.52% 20.07% 6 Vanguard VIF Equity Index Portfolio 29,863 14.43 430,794 1.65% 0.52% 15.11% 6 Vanguard VIF Growth Portfolio 4,700 12.83 60,284 0.42% 0.52% 1.39% 1 Vanguard VIF High Yield Bond Portfolio 11,668 11.68 136,242 6.95% 0.75% 7.46% 6 Vanguard VIF High Yield Bond Portfolio 19,323 12.45 240,659 4.94% 0.52% 7.71% 1 Vanguard VIF International Portfolio 8,788 16.25 142,797 1.07% 0.75% 25.80%
VA I - 60 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2006 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ---------- ---------------- --------- ---------- 6 Vanguard VIF International Portfolio 68,625 $19.46 $1,335,452 0.45% 0.52% 26.09% 6 Vanguard VIF Mid-Cap Index Portfolio 19,094 16.98 324,199 0.97% 0.52% 13.16% 6 Vanguard VIF Money Market Portfolio 397 10.82 4,299 55.16% 0.52% 4.49% 1 Vanguard VIF REIT Index Portfolio 1,505 17.98 27,073 2.07% 0.75% 33.92% 6 Vanguard VIF REIT Index Portfolio 19,538 21.38 417,775 1.83% 0.52% 34.23% 6 Vanguard VIF Short-Term Investment-Grade Portfolio 13,435 10.86 145,842 2.57% 0.52% 4.38% 6 Vanguard VIF Small Company Growth Portfolio 12,166 14.15 172,093 0.22% 0.52% 9.64% 1 Vanguard VIF Total Bond Market Index Portfolio 1,548 10.70 16,571 0.00% 0.75% 4.61% 6 Vanguard VIF Total Bond Market Index Portfolio 38,527 11.11 428,209 3.87% 0.52% 3.77% 6 Vanguard VIF Total Stock Market Index Portfolio 148,502 14.83 2,202,013 0.76% 0.52% 14.93% 1 Vanguard Wellington Fund 8,984 14.33 128,741 3.05% 0.75% 14.08% 1 Vanguard Windsor Fund 215 14.51 3,121 1.48% 0.75% 18.46%
VA I - 61 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2005 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ------------ ---------------- --------- ---------- 2 AIM V.I. Capital Appreciation Fund - Series I 990 $11.48 $ 11,364 0.05% 1.45% 7.27% 3 AIM V.I. Capital Appreciation Fund - Series I 94,212 11.53 1,085,821 0.05% 1.40% 7.33% 2 AIM V.I. International Growth Fund - Series I 980 14.43 14,139 0.60% 1.45% 16.24% 3 AIM V.I. International Growth Fund - Series I 92,099 14.49 1,334,262 0.60% 1.40% 16.29% 1 AllianceBernstein Americas Government Income Portfolio - Class A 1,853,190 21.35 39,556,609 6.86% 1.40% 7.16% 2 AllianceBernstein Americas Government Income Portfolio - Class A 16,466 21.26 349,998 6.40% 1.45% 7.11% 1 AllianceBernstein Global Bond Portfolio - Class A 909,967 17.03 15,494,005 9.39% 1.40% -8.94% 2 AllianceBernstein Global Bond Portfolio - Class A 31,182 16.96 528,704 7.55% 1.45% -8.98% 3 AllianceBernstein Global Bond Portfolio - Class A 63 12.78 801 9.06% 1.40% -8.94% 1 AllianceBernstein Global Dollar Government Portfolio - Class A 593,367 33.47 19,859,233 5.90% 1.40% 8.10% 2 AllianceBernstein Global Dollar Government Portfolio - Class A 16,673 33.33 555,672 6.02% 1.45% 8.05% 1 AllianceBernstein Global Technology Portfolio - Class A * 3,430,602 15.88 54,482,738 0.00% 1.40% 2.42% 2 AllianceBernstein Global Technology Portfolio - Class A * 160,427 15.81 2,537,089 0.00% 1.45% 2.37% 3 AllianceBernstein Global Technology Portfolio - Class A * 43,634 15.37 670,610 0.00% 1.40% 2.42% 4 AllianceBernstein Global Technology Portfolio - Class B * 1,432,336 15.67 22,440,649 0.00% 1.40% 2.21% 5 AllianceBernstein Global Technology Portfolio - Class B * 96,636 15.60 1,507,640 0.00% 1.45% 2.16% 1 AllianceBernstein Growth and Income Portfolio - Class A 5,150,075 40.32 207,630,186 1.47% 1.40% 3.41% 2 AllianceBernstein Growth and Income Portfolio - Class A 176,457 40.15 7,084,149 1.54% 1.45% 3.36% 3 AllianceBernstein Growth and Income Portfolio - Class A 150,268 25.01 3,757,785 1.21% 1.40% 3.41% 4 AllianceBernstein Growth and Income Portfolio - Class B 4,526,504 39.68 179,612,690 1.25% 1.40% 3.15% 5 AllianceBernstein Growth and Income Portfolio - Class B 121,205 39.51 4,789,237 1.17% 1.45% 3.09% 1 AllianceBernstein Growth Portfolio - Class A 3,103,702 27.67 85,879,047 0.00% 1.40% 10.42% 2 AllianceBernstein Growth Portfolio - Class A 106,451 27.55 2,933,097 0.00% 1.45% 10.36% 3 AllianceBernstein Growth Portfolio - Class A 82,954 19.13 1,586,802 0.00% 1.40% 10.42% 4 AllianceBernstein Growth Portfolio - Class B 1,973,252 27.21 53,692,489 0.00% 1.40% 10.09% 5 AllianceBernstein Growth Portfolio - Class B 58,380 27.10 1,581,843 0.00% 1.45% 10.03% 1 AllianceBernstein High Yield Portfolio - Class A 2,778,502 11.02 30,615,117 8.24% 1.40% 0.37% 2 AllianceBernstein High Yield Portfolio - Class A 98,709 10.97 1,083,174 8.63% 1.45% 0.32% 1 AllianceBernstein International Portfolio - Class A 3,003,328 17.22 51,711,655 0.47% 1.40% 17.51% 2 AllianceBernstein International Portfolio - Class A 108,724 17.15 1,864,157 0.49% 1.45% 17.45% 1 AllianceBernstein International Value Portfolio - Class A 2,217,641 18.51 41,050,514 0.58% 1.40% 15.17% 2 AllianceBernstein International Value Portfolio - Class A 79,189 18.47 1,462,443 0.65% 1.45% 15.11% 1 AllianceBernstein Large Cap Growth Portfolio - Class A * 4,752,800 30.12 143,159,333 0.00% 1.40% 13.55% 2 AllianceBernstein Large Cap Growth Portfolio - Class A * 219,121 29.99 6,572,420 0.00% 1.45% 13.49% 3 AllianceBernstein Large Cap Growth Portfolio - Class A * 23,778 13.59 323,059 0.00% 1.40% 13.55% 4 AllianceBernstein Large Cap Growth Portfolio - Class B * 2,474,671 29.69 73,461,562 0.00% 1.40% 13.25% 5 AllianceBernstein Large Cap Growth Portfolio - Class B * 82,045 29.56 2,425,298 0.00% 1.45% 13.19% 1 AllianceBernstein Money Market Portfolio - Class A 1,443,518 12.84 18,532,109 2.61% 1.40% 0.94% 2 AllianceBernstein Money Market Portfolio - Class A 57,677 12.78 737,354 3.00% 1.45% 0.88% 4 AllianceBernstein Money Market Portfolio - Class B 1,249,080 12.63 15,778,165 2.07% 1.40% 0.68% 5 AllianceBernstein Money Market Portfolio - Class B 21,657 12.58 272,422 1.82% 1.45% 0.63% 1 AllianceBernstein Real Estate Investment Portfolio - Class A 1,713,918 25.39 43,508,901 3.15% 1.40% 10.12% 2 AllianceBernstein Real Estate Investment Portfolio - Class A 75,964 25.28 1,920,292 3.08% 1.45% 10.07% 1 AllianceBernstein Small Cap Growth Portfolio - Class A 3,250,316 12.41 40,342,954 0.00% 1.40% 3.78% 2 AllianceBernstein Small Cap Growth Portfolio - Class A 170,998 12.36 2,113,508 0.00% 1.45% 3.73% 3 AllianceBernstein Small Cap Growth Portfolio - Class A 16,380 12.06 197,594 0.00% 1.40% 3.78% 1 AllianceBernstein Small/Mid Cap Value Portfolio - Class A * 3,232,495 17.70 57,219,329 0.73% 1.40% 5.43% 2 AllianceBernstein Small/Mid Cap Value Portfolio - Class A * 96,342 17.66 1,701,403 0.77% 1.45% 5.38% 1 AllianceBernstein Total Return Portfolio - Class A 6,219,857 24.71 153,669,013 2.56% 1.40% 2.47%
VA I - 62 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2005 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ --------- ------ ----------- ---------------- --------- ---------- 2 AllianceBernstein Total Return Portfolio - Class A 162,454 $24.60 $ 3,996,746 2.59% 1.45% 2.41% 3 AllianceBernstein Total Return Portfolio - Class A 33,917 12.36 419,099 2.66% 1.40% 2.47% 1 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 4,360,176 16.08 70,114,479 2.97% 1.40% 0.56% 2 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A 115,065 16.01 1,842,538 2.83% 1.45% 0.51% 4 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 190,291 15.82 3,011,226 2.66% 1.40% 0.34% 5 AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B 5,173 15.76 81,519 3.44% 1.45% 0.29% 4 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 212,143 12.70 2,694,338 0.28% 1.40% 8.13% 5 AllianceBernstein U.S. Large Cap Blended Style Portfolio - Class B 7,475 12.68 94,821 0.25% 1.45% 8.08% 1 AllianceBernstein Utility Income Portfolio - Class A 1,806,112 23.98 43,318,452 2.17% 1.40% 14.45% 2 AllianceBernstein Utility Income Portfolio - Class A 60,567 23.88 1,446,570 2.47% 1.45% 14.39% 4 AllianceBernstein Value Portfolio - Class B 5,697,258 12.62 71,870,996 1.23% 1.40% 4.02% 5 AllianceBernstein Value Portfolio - Class B 148,703 12.59 1,871,516 1.14% 1.45% 3.97% 1 AllianceBernstein Worldwide Privatization Portfolio - Class A 1,306,320 29.01 37,890,962 0.43% 1.40% 19.16% 2 AllianceBernstein Worldwide Privatization Portfolio - Class A 68,361 28.88 1,974,541 0.46% 1.45% 19.10% 7 Delaware VIP Balanced Series - Standard Class 28,930 29.42 851,121 2.13% 1.25% 2.40% 7 Delaware VIP Capital Reserves Series - Standard Class 8,624 22.49 193,940 4.12% 1.25% 0.54% 7 Delaware VIP Capital Reserves Series - Standard Class -- 16.80 -- 6.68% 1.40% 0.39% 7 Delaware VIP Cash Reserve Series - Standard Class -- 13.36 -- 0.00% 1.40% 1.29% 7 Delaware VIP Cash Reserve Series - Standard Class 17,880 16.51 295,264 2.30% 1.25% 1.44% 7 Delaware VIP Growth Opportunities Series - Standard Class 6,627 30.31 200,850 0.00% 1.40% 9.86% 7 Delaware VIP Growth Opportunities Series - Standard Class 23,737 34.15 810,526 0.00% 1.25% 10.02% 7 Delaware VIP High Yield Series - Standard Class 669 17.46 11,690 6.58% 1.40% 2.15% 7 Delaware VIP High Yield Series - Standard Class 18,271 24.83 453,661 6.69% 1.25% 2.30% 7 Delaware VIP Value Series - Standard Class 4,750 32.47 154,241 1.87% 1.40% 4.56% 7 Delaware VIP Value Series - Standard Class 106,740 38.56 4,115,427 1.74% 1.25% 4.71% 2 Dreyfus Stock Index Fund, Inc. - Initial Shares 814 19.48 15,851 1.60% 1.45% 3.19% 3 Dreyfus Stock Index Fund, Inc. - Initial Shares 346,198 19.56 6,772,627 1.54% 1.40% 3.24% 2 Dreyfus VIF Small Company Stock Portfolio - Initial Shares 1,040 14.33 14,903 0.00% 1.45% -0.54% 3 Dreyfus VIF Small Company Stock Portfolio - Initial Shares 105,839 14.39 1,523,276 0.00% 1.40% -0.49% 3 Fidelity VIP Asset Manager Portfolio - Initial Class 343,752 16.46 5,658,685 2.84% 1.40% 2.60% 2 Fidelity VIP Contrafund Portfolio - Initial Class 427 18.82 8,039 0.29% 1.45% 15.26% 3 Fidelity VIP Contrafund Portfolio - Initial Class 196,314 18.90 3,709,418 0.29% 1.40% 15.32% 2 Fidelity VIP Growth Portfolio - Initial Class 77 16.90 1,306 0.53% 1.45% 4.28% 3 Fidelity VIP Growth Portfolio - Initial Class 250,705 16.97 4,255,031 0.53% 1.40% 4.33% 2 Fidelity VIP High Income Portfolio - Initial Class 1,168 11.81 13,805 14.91% 1.45% 1.23% 3 Fidelity VIP High Income Portfolio - Initial Class 98,552 11.86 1,169,260 14.91% 1.40% 1.28% 3 Fidelity VIP Investment Grade Bond Portfolio - Initial Class 154,340 16.23 2,505,319 3.94% 1.40% 0.77% 3 Fidelity VIP Money Market Portfolio - Initial Class 165,921 12.59 2,088,573 2.78% 1.40% 1.60% 3 Fidelity VIP Overseas Portfolio - Initial Class 13,573 16.79 227,914 0.71% 1.40% 17.40% 1 Mercury Basic Value V.I. Fund - Class I * 344,465 17.20 5,926,198 1.20% 1.40% 1.51% 2 Mercury Basic Value V.I. Fund - Class I * 27,874 17.13 477,597 1.00% 1.45% 1.46% 1 Mercury Core Bond V.I. Fund - Class I * 18,369 13.57 249,321 5.12% 1.40% 0.60% 2 Mercury Core Bond V.I. Fund - Class I * 3,302 13.52 44,633 4.95% 1.45% 0.55% 1 Mercury Domestic Money Market V.I. Fund - Class I * 26,678 11.57 308,767 2.69% 1.40% 1.27% 2 Mercury Domestic Money Market V.I. Fund - Class I * 3,620 11.53 41,725 2.00% 1.45% 1.22% 1 Mercury Global Allocation V.I. Fund - Class I * 91,040 15.20 1,384,223 2.55% 1.40% 8.98% 2 Mercury Global Allocation V.I. Fund - Class I * 7,075 15.14 107,135 2.27% 1.45% 8.93%
VA I - 63 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2005 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------- ------ ----------- ---------------- --------- ---------- 1 Mercury Global Growth V.I. Fund - Class I * 62,562 $10.00 $ 625,364 0.99% 1.40% 13.47% 2 Mercury Global Growth V.I. Fund - Class I * 727 9.96 7,245 1.16% 1.45% 13.42% 1 Mercury High Current Income V.I. Fund - Class I * 37,243 12.58 468,597 8.83% 1.40% 0.13% 2 Mercury High Current Income V.I. Fund - Class I * 605 12.53 7,585 16.58% 1.45% 0.08% 1 Mercury International Value V.I. Fund - Class I * 140,781 15.47 2,178,364 2.74% 1.40% 10.13% 2 Mercury International Value V.I. Fund - Class I * 7,508 15.42 115,795 2.61% 1.45% 10.08% 1 Mercury Large Cap Core V.I. Fund - Class I * 106,450 16.59 1,765,715 0.61% 1.40% 11.63% 2 Mercury Large Cap Core V.I. Fund - Class I * 3,534 16.52 58,376 0.66% 1.45% 11.57% 1 Mercury Large Cap Growth V.I. Fund - Class I * 83,509 10.28 858,545 0.17% 1.40% 9.11% 1 Mercury Utilities and Telecommunications V.I. Fund - Class I * 30,504 16.51 503,728 2.65% 1.40% 12.55% 2 Mercury Utilities and Telecommunications V.I. Fund - Class I * 2,363 16.45 38,861 4.19% 1.45% 12.50% 1 Mercury Value Opportunities V.I. Fund - Class I * 102,905 21.88 2,251,650 0.25% 1.40% 8.85% 2 Mercury Value Opportunities V.I. Fund - Class I * 15,009 21.79 327,083 0.24% 1.45% 8.80% 1 UBS U.S. Allocation Portfolio 906,556 16.08 14,575,620 1.60% 1.40% 5.31% 2 UBS U.S. Allocation Portfolio 118,516 16.02 1,898,519 1.59% 1.45% 5.26% 1 UIF Core Plus Fixed Income Portfolio - Class I Shares 3,047 11.73 35,744 3.58% 0.75% 3.44% 1 UIF Equity Growth Portfolio - Class I Shares 3,066 11.44 35,091 0.47% 0.75% 14.85% 1 UIF Technology Portfolio - Class I Shares 1,520 8.03 12,209 0.00% 0.75% -1.02% 1 UIF Value Portfolio - Class I Shares -- 13.40 -- 0.00% 0.75% 3.78% 3 Van Eck Worldwide Emerging Markets Fund - Initial Class 46,816 15.54 727,449 0.72% 1.40% 30.17% 3 Van Eck Worldwide Hard Assets Fund - Initial Class 34,998 19.48 681,860 0.27% 1.40% 49.57% 1 Vanguard 500 Index Fund 2,435 11.47 27,921 1.87% 0.75% 3.99% 6 Vanguard Dividend Growth Fund 2,014 12.68 25,533 1.91% 0.52% 3.70% 6 Vanguard GNMA Fund 1,358 10.79 14,654 5.11% 0.52% 2.80% 6 Vanguard Health Care Fund 4,777 13.67 65,294 1.07% 0.52% 14.81% 6 Vanguard Inflation-Protected Securities Fund 12,379 11.39 140,980 9.38% 0.52% 2.06% 1 Vanguard LifeStrategy Conservative Growth Fund 2,712 12.03 32,643 2.81% 0.75% 3.68% 1 Vanguard LifeStrategy Growth Fund 1,092 12.62 13,773 1.94% 0.75% 6.09% 6 Vanguard LifeStrategy Growth Fund 9,068 12.98 117,725 2.30% 0.52% 6.33% 1 Vanguard LifeStrategy Income Fund 1,546 11.73 18,135 3.42% 0.75% 2.46% 6 Vanguard LifeStrategy Income Fund 14,069 11.18 157,357 3.50% 0.52% 2.70% 1 Vanguard LifeStrategy Moderate Growth Fund 35,678 12.41 442,657 4.88% 0.75% 4.90% 6 Vanguard LifeStrategy Moderate Growth Fund 23,059 12.39 285,701 2.41% 0.52% 5.14% 1 Vanguard Prime Money Market Fund 454 10.34 4,689 2.96% 0.75% 2.24% 1 Vanguard PRIMECAP Fund 236 13.02 3,075 0.57% 0.75% 7.69% 1 Vanguard Small-Cap Growth Index Fund 1,383 14.02 19,396 0.49% 0.75% 7.83% 1 Vanguard Small-Cap Value Index Fund 1,459 13.01 18,989 3.54% 0.75% 5.28% 1 Vanguard Total Bond Market Index Fund 771 11.54 8,898 4.43% 0.75% 1.63% 6 Vanguard Total International Stock Index Fund 17,451 15.89 277,301 2.04% 0.52% 14.97% 1 Vanguard U.S. Growth Fund 473 10.47 4,948 0.20% 0.75% 10.33% 6 Vanguard VIF Balanced Portfolio 268,437 12.74 3,418,895 1.90% 0.52% 6.28% 6 Vanguard VIF Capital Growth Portfolio 8,428 13.54 114,085 0.45% 0.52% 7.12% 6 Vanguard VIF Diversified Value Portfolio 25,311 14.45 365,768 1.26% 0.52% 7.06% 1 Vanguard VIF Equity Income Portfolio 1,593 11.20 17,851 2.45% 0.75% 3.36% 6 Vanguard VIF Equity Income Portfolio 22,489 13.08 294,186 1.89% 0.52% 3.60% 6 Vanguard VIF Equity Index Portfolio 15,968 12.53 200,108 1.18% 0.52% 4.25% 6 Vanguard VIF Growth Portfolio 4,943 12.65 62,536 0.17% 0.52% 10.92% 1 Vanguard VIF High Yield Bond Portfolio 10,939 10.87 118,854 0.00% 0.75% 1.99% 6 Vanguard VIF High Yield Bond Portfolio 4,896 11.56 56,615 3.33% 0.52% 2.22% 1 Vanguard VIF International Portfolio 9,871 12.92 127,493 0.00% 0.75% 15.44% 6 Vanguard VIF International Portfolio 20,403 15.43 314,875 0.77% 0.52% 15.71%
VA I - 64 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED A summary of units outstanding, unit values, and net assets for the variable annuity contracts and the investment income ratios, expense ratios (excluding expenses of the underlying Sub-accounts) and total returns for the year ended December 31, 2005 are as follows:
Unit Investment Expense Total Sub-accounts Units Value Net Assets Income Ratio (a) Ratio (b) Return (c) ------------ ------ ------ ---------- ---------------- --------- ---------- 6 Vanguard VIF Mid-Cap Index Portfolio 17,020 $15.00 $ 255,367 0.38% 0.52% 13.39% 1 Vanguard VIF Money Market Portfolio -- 10.29 -- 0.00% 0.75% 2.40% 6 Vanguard VIF Money Market Portfolio 3,266 10.35 33,823 25.89% 0.52% 2.64% 1 Vanguard VIF REIT Index Portfolio 1,616 13.43 21,696 2.80% 0.75% 11.00% 6 Vanguard VIF REIT Index Portfolio 12,188 15.93 194,149 1.39% 0.52% 11.26% 6 Vanguard VIF Short-Term Investment-Grade Portfolio 6,221 10.40 64,706 2.70% 0.52% 1.72% 6 Vanguard VIF Small Company Growth Portfolio 5,544 12.90 71,527 0.00% 0.52% 5.71% 6 Vanguard VIF Total Bond Market Index Portfolio 33,465 10.71 358,440 4.01% 0.52% 1.87% 6 Vanguard VIF Total Stock Market Index Portfolio 85,167 12.90 1,098,862 0.93% 0.52% 5.58% 1 Vanguard Wellington Fund 9,809 12.56 123,215 4.45% 0.75% 6.03% 1 Vanguard Windsor Fund 235 12.25 2,872 1.42% 0.75% 4.21%
FOOTNOTES 1 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm, Gallery and GIVA products. 2 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm and Profile products that have elected the Accidental Death Benefit option. 3 Profile product. 4 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm and Profile products that are subject to 12B-1 fees. 5 Ovation, Ovation Plus, Ovation Advisor, Trilogy, Paradigm, and Profile products that have elected the Accidental Death Benefit option and are subject to 12B-1 fees. 6 Vanguard SPIA product. 7 Variable Annuity product. (a)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-account invests. (b)These amounts represent the annualized contract 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 contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded. (c)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 contract charges deducted directly from account values. For the years ended December 31, 2009, 2008, 2007, 2006 and 2005, 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. * Fund Name Changes 2005 - Effective May 1, 2005, Merrill Lynch funds were rebranded as Mercury funds. - Effective May 2, 2005, AllianceBernstein Premier Growth Portfolio - Class A and AllianceBernstein Premier Growth Portfolio - Class B changed their name to AllianceBernstein Large Cap Growth Portfolio - Class A and AllianceBernstein Large Cap Growth Portfolio - Class B, respectively. - Effective May 2, 2005, AllianceBernstein Small Cap Value Portfolio - Class A changed its name to AllianceBernstein Small/Mid Cap Value Portfolio - Class A. - Effective May 2, 2005, AllianceBernstein Technology Portfolio - Class A and AllianceBernstein Technology Portfolio - Class B changed their name to AllianceBernstein Global Technology Portfolio - Class A and AllianceBernstein Global Technology Portfolio - Class B, respectively. 2006 - Effective February 1, 2006, AllianceBernstein International Portfolio - Class A changed its name to AllianceBernstein International Research Growth Portfolio - Class A. - Effective February 1, 2006, AllianceBernstein Total Return Portfolio - Class A changed its name to AllianceBernstein Balanced Shares Portfolio - Class A. VA I - 65 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - FINANCIAL HIGHLIGHTS - CONTINUED * Fund Name Changes - Continued 2006 - Continued - Effective February 1, 2006, AllianceBernstein Worldwide Privatization Portfolio - Class A changed its name to AllianceBernstein International Growth Portfolio - Class A. - Effective October 2, 2006, Mercury funds changed their names to BlackRock funds. - Effective October 2, 2006, Mercury Core Bond V.I. Fund - Class I changed its name to BlackRock Bond V.I. Fund - Class I. - Effective October 2, 2006, Mercury Domestic Money Market V.I. Fund - Class I changed its name to BlackRock Money Market V.I. Fund - Class I. - Effective October 2, 2006, Mercury High Current Income V.I. Fund - Class I changed its name to BlackRock High Income V.I. Fund - Class I. 2007 - Effective December 10, 2007, BlackRock Bond V.I. Fund - Class I changed its name to BlackRock Total Return V.I. Fund - Class I. 2008 - Effective April 25, 2008, AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A and AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class B changed their name to AllianceBernstein Intermediate Bond Portfolio - Class A and AllianceBernstein Intermediate Bond Portfolio - Class B, respectively. 2009 - Effective April 15, 2009, Delaware VIP Capital Reserves Series - Standard Class changed its name to Delaware VIP Limited-Term Diversified Income Series - Standard Class. - Effective May 1, 2009, AllianceBernstein Global Technology Portfolio - Class A and AllianceBernstein Global Technology - Class B changed their names to AllianceBernstein Global Thematic Growth Portfolio - Class A and AllianceBernstein Global Thematic Growth Portfolio - Class B, respectively. VA I - 66 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE H - EVENTS RELATED TO AIG In September 2008, AIG entered into an $85 billion revolving credit facility (the "Fed Facility") and a guarantee and pledge agreement with the Federal Reserve Bank of New York ("New York Fed"). Pursuant to the Fed Facility, on March 4, 2009, AIG issued 100,000 shares of Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share and at an initial liquidation preference of $5.00 per share (the "Series C Preferred Stock") to the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury. The Series C Preferred Stock is entitled to (i) participate in any dividends paid on the common stock, with the payments attributable to the Series C Preferred Stock being approximately 79.8 percent of the aggregate dividends paid on AIG's common stock, treating the Series C Preferred Stock as converted and (ii) to the extent permitted by law, vote with AIG's common stock on all matters submitted to AIG shareholders and hold approximately 79.8 percent of the aggregate voting power of the common stock, treating the Series C Preferred Stock as converted. The Series C Preferred Stock will remain outstanding even if the Fed Facility is repaid in full or otherwise terminates. The Fed Facility obligations are guaranteed by certain AIG subsidiaries and the obligations are secured by a pledge of certain assets of AIG and its subsidiaries. The Company is not a guarantor of the Fed Facility obligations and it has not pledged any assets to secure those obligations. On March 2, 2009, AIG and the New York Fed announced their intent to enter into a transaction pursuant to which AIG will transfer to the New York Fed preferred equity interests in newly-formed special purpose vehicles ("SPVs"), in settlement of a portion of the outstanding balance of the Fed Facility. Each SPV will have (directly or indirectly) as its only asset 100 percent of the common stock of an operating subsidiary of AIG (American International Assurance Company, Limited, together with American International Assurance Company (Bermuda) Limited ("AIA") in one case and American Life Insurance Company ("ALICO") in the other). AIG expects to own the common interests of each SPV. In exchange for the preferred equity interests received by the New York Fed, there would be a concurrent substantial reduction in the outstanding balance and maximum available amount to be borrowed on the Fed Facility. On June 25, 2009, AIG and the New York Fed entered into definitive agreements with respect to these transactions. These transactions closed on December 1, 2009. In exchange for the preferred interests received by the New York Fed, there was a $25 billion reduction in the outstanding balance and maximum amount available to be borrowed under the Fed Facility. On March 2, 2009, AIG and the New York Fed also announced their intent to enter into a securitization transaction pursuant to which AIG will issue to the New York Fed senior certificates in one or more newly-formed SPVs backed by inforce blocks of life insurance policies in settlement of a portion of the outstanding balance of the Fed Facility. This transaction is no longer being pursued by AIG. On April 17, 2009, AIG entered into an exchange agreement with the U.S. Department of the Treasury pursuant to which, among other things, the U.S. Department of the Treasury exchanged 4,000,000 shares of the Series D Fixed Rate Cumulative Perpetual Preferred Stock, par value $5.00 per share, (the "Series D Preferred Stock") for 400,000 shares of AIG's Series E Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the "Series E Preferred Stock"). The exchange agreement permits the U.S. Department of the Treasury in certain circumstances to exchange a 10-year warrant to purchase 2,689,938.3 shares of common stock (the "Warrant") for 2,689,938.3 shares of Series C Preferred Stock. The Series D Preferred Stock and the Warrant were issued and sold by AIG pursuant to an agreement entered into on November 25, 2008, with the U.S. Department of the Treasury. VA I - 67 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE H - EVENTS RELATED TO AIG - CONTINUED On April 17, 2009, AIG and the New York Fed amended the terms of the Fed Facility to, among other things, remove the minimum 3.5 percent LIBOR rate. AIG also entered into a purchase agreement with the U.S. Department of the Treasury pursuant to which, among other things, AIG issued and sold to the U.S. Department of the Treasury 300,000 shares of Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the "Series F Preferred Stock"), each share with a zero initial liquidation preference, and a warrant to purchase up to 150 shares of common stock, par value $2.50 per share. Pursuant to the purchase agreement, the U.S. Department of the Treasury has committed for five years to provide immediately available funds in an amount up to $29.835 billion so long as (i) AIG is not a debtor in a pending case under Title 11 of the United States Code and (ii) the AIG Credit Facility Trust and the U.S. Department of the Treasury in the aggregate own more than 50 percent of the aggregate voting power of AIG's voting securities. The liquidation preference of AIG's Series F Preferred Stock will increase, on a pro rata basis, by the amount of any draw down on the commitment. The amount of funds available under the commitment will be decreased by the aggregate amount of financial assistance that the U.S. Department of the Treasury provides to AIG, its subsidiaries or any special purpose vehicle established by or for the benefit of AIG or any of its subsidiaries after April 17, 2009, unless otherwise specified by the U.S. Department of the Treasury, in its sole discretion, under the terms of such financial assistance. Since September 2008, AIG has been working to protect and enhance the value of its key businesses, execute an orderly asset disposition plan and position itself for the future. AIG continually reassesses this plan to maximize value while maintaining flexibility in its liquidity and capital, and expects to accomplish these objectives over a longer time frame than originally contemplated. AIG has decided to retain the companies included in its Life Insurance & Retirement Services operations (including the Company and its subsidiaries) and will continue to own these companies for the foreseeable future. In connection with the preparation of its annual report on Form 10-K for the fiscal year ended December 31, 2009, management of AIG assessed whether AIG has the ability to continue as a going concern for the next twelve months. Based on the U.S. government's continuing commitment, the already completed transactions and the other expected transactions with the New York Fed, plans of AIG's management to stabilize AIG's businesses and dispose of certain assets, and after consideration of the risks and uncertainties of such plans, management of AIG believes that it will have adequate liquidity to finance and operate AIG's businesses, execute its asset disposition plan and repay its obligations during this period. It is possible that the actual outcome of one or more of the plans of AIG's management could be materially different, or that one or more of the significant judgments or estimates of AIG's management about the potential effects of these risks and uncertainties could prove to be materially incorrect, or that the transactions with the New York Fed previously discussed fail to achieve the desired objectives. If one or more of these possible outcomes is realized and financing is not available, AIG may need additional U.S. government support to meet its obligations as they come due. Without additional support from the U.S. government, in the future there could be substantial doubt about AIG's ability to continue as a going concern. If AIG were not able to continue as a going concern, management believes this could have a material effect upon the Company and its operations. On March 1, 2010, AIG announced a definitive agreement for the sale of the AIA Group, Limited, one of the world's largest pan-Asian life insurance companies, to Prudential plc for approximately $35.5 billion, including approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential plc, subject to closing adjustments. The cash portion of the proceeds from the sale will be used to redeem the preferred interests of the special purpose vehicle held by the New York Fed with a liquidation preference of approximately $16 billion and to repay approximately $9 billion under the Fed Facility. On March 8, 2010, AIG announced a definitive agreement for the sale of American Life Insurance Company, one of the world's largest and most diversified international life insurance companies, to MetLife, Inc. (MetLife) for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. The cash portion of the proceeds from this sale will be used to reduce the liquidation preference of the preferred interests of the special purpose vehicle held by the New York Fed. VA I - 68 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE VARIABLE ACCOUNT I NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE H - EVENTS RELATED TO AIG - CONTINUED American International Group closed the sale of a portion of its asset management business to Pacific Century Group at the end of March 2010, and the divested portion of the asset management business has been branded as PineBridge Investments. In connection with the closing of the sale, the Company's investment advisory agreement previously entered into with AIG Global Investment Corp. was assigned to AIG Asset Management (U.S.), LLC ("AMG"), an American International Group affiliate, and the majority of the Company's invested assets are currently managed by AMG. Additional information on AIG is publicly available in its regulatory filings with the U.S. Securities and Exchange Commission ("SEC"). Information regarding AIG as described above is qualified by regulatory filings AIG files from time to time with the SEC. VA I - 69 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE INDEX TO FINANCIAL STATEMENTS
Page Numbers ------- Report of Independent Registered Public Accounting Firm................................... 1 Balance Sheets - December 31, 2009 and 2008............................................... 2 to 3 Statements of Income (Loss) - Years Ended December 31, 2009, 2008 and 2007................ 4 Statements of Comprehensive Income (Loss) - Years Ended December 31, 2009, 2008 and 2007.. 5 Statements of Shareholder's Equity - Years Ended December 31, 2009, 2008 and 2007......... 6 Statements of Cash Flows - Years Ended December 31, 2009, 2008 and 2007................... 7 to 8 Notes to Financial Statements............................................................. 9 to 50
[LOGO] PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP 1201 LOUISIANA SUITE 2900 HOUSTON TX 77002-5678 TELEPHONE (713) 356 4000 FACSIMILE (713) 356 4717 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of American General Life Insurance Company of Delaware In our opinion, the accompanying balance sheets and the related statements of income (loss), of comprehensive income (loss), of shareholder's equity and of cash flows present fairly, in all material respects, the financial position of American General Life Insurance Company of Delaware (the "Company"), an indirect, wholly owned subsidiary of American International Group, Inc., at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. 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 of these 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 provide a reasonable basis for our opinion. As discussed in Note 2 to the financial statements, the Company changed the manner in which it accounts for other-than-temporary impairments of fixed maturity securities as of April 1, 2009. PRICEWATERHOUSECOOPERS LLP April 30, 2010 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE BALANCE SHEETS
December 31, --------------------- 2009 2008 ---------- ---------- (In Thousands) ASSETS Investments: Fixed maturity securities, available for sale, at fair value (cost: 2009 - $5,597,476; 2008 - $5,589,266).................................................................................. $5,705,261 $5,304,351 Fixed maturity securities, trading, at fair value.............................................. 29,672 30,665 Equity securities, available for sale, at fair value (cost: 2009 - $12,741; 2008 - $14,999).... 16,629 12,887 Mortgage and other loans receivable, (net of allowance: 2009 - $579; 2008 - $0)................ 512,594 530,636 Policy loans................................................................................... 257,080 239,467 Investment real estate......................................................................... 19,854 20,388 Partnerships and other invested assets......................................................... 162,970 165,103 Short-term investments......................................................................... 379,409 163,663 Derivative assets, at fair value............................................................... 2,043 12,467 ---------- ---------- Total investments................................................................................. 7,085,512 6,479,627 Cash and cash equivalents......................................................................... 5,664 6,322 Accrued investment income......................................................................... 78,899 84,997 Amounts due from related parties.................................................................. 18,653 8,042 Reinsurance receivables........................................................................... 99,451 104,088 Deferred policy acquisition costs................................................................. 120,702 132,682 Income taxes receivable........................................................................... 29,812 125,093 Other assets...................................................................................... 19,876 34,893 Variable account assets, at fair value............................................................ 2,073,841 2,120,042 ---------- ---------- TOTAL ASSETS...................................................................................... $9,532,410 $9,095,786 ========== ==========
See accompanying notes to financial statements 2 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE BALANCE SHEETS (Continued)
December 31, -------------------------------- 2009 2008 ---------- ---------- (In Thousands, except share data) LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Future policy benefits.................................... $2,700,046 $2,719,214 Policyholder contract deposits............................ 3,669,229 3,757,654 Policy claims and benefits payable........................ 114,356 104,617 Other policyholders' funds................................ 35,210 37,704 Reserve for unearned premiums............................. 10,757 14,142 Amounts due to related parties............................ 19,642 85,940 Derivative liabilities.................................... 14,830 15,313 Other liabilities......................................... 57,314 64,921 Variable account liabilities.............................. 2,073,841 2,120,042 ---------- ---------- TOTAL LIABILITIES............................................ 8,695,225 8,919,547 ---------- ---------- Commitments and contingent liabilities (see Note 11) SHAREHOLDER'S EQUITY: Common stock, $5 par value, 1,000,000 shares authorized, 976,703 issued and outstanding.......................... 4,884 4,884 Additional paid-in capital................................ 1,273,642 1,223,140 Accumulated deficit....................................... (523,732) (864,873) Accumulated other comprehensive income (loss)............. 82,391 (186,912) ---------- ---------- TOTAL SHAREHOLDER'S EQUITY................................... 837,185 176,239 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................... $9,532,410 $9,095,786 ========== ==========
See accompanying notes to financial statements 3 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE STATEMENTS OF INCOME (LOSS)
Years ended December 31, ------------------------------- 2009 2008 2007 -------- ----------- -------- (In Thousands) REVENUES: Premiums and other considerations............................................................ $108,643 $ 220,347 $272,379 Net investment income........................................................................ 483,194 483,483 560,899 Net realized investment losses: Total other-than-temporary impairments on available for sale securities.................. (60,580) (438,394) (65,528) Portion of other-than-temporary impairments on available for sale fixed maturity securities recognized in accumulated other comprehensive income (loss)................. (1,979) -- -- -------- ----------- -------- Net other-than-temporary impairments on available for sale securities recognized in net income (loss)...................................................................... (62,559) (438,394) (65,528) Other realized investment gains (losses)................................................. 31,373 (970,823) (32,052) -------- ----------- -------- Total net realized investment losses.................................................. (31,186) (1,409,217) (97,580) Insurance charges............................................................................ 112,072 121,759 134,865 Other........................................................................................ 13,898 12,251 13,344 -------- ----------- -------- TOTAL REVENUES.................................................................................. 686,621 (571,377) 883,907 -------- ----------- -------- BENEFITS AND EXPENSES: Policyholder benefits........................................................................ 347,169 454,848 531,970 Interest credited on policyholder contract deposits.......................................... 160,049 179,040 192,553 Amortization of deferred policy acquisition costs............................................ 15,108 35,379 48,530 Other operating expenses..................................................................... 95,082 86,745 82,772 -------- ----------- -------- TOTAL BENEFITS AND EXPENSES..................................................................... 617,408 756,012 855,825 -------- ----------- -------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)............................................... 69,213 (1,327,389) 28,082 INCOME TAX EXPENSE (BENEFIT): Current...................................................................................... 56,746 (319,589) 23,694 Deferred..................................................................................... (78,801) 336,597 (19,967) -------- ----------- -------- TOTAL INCOME TAX EXPENSE (BENEFIT).............................................................. (22,055) 17,008 3,727 -------- ----------- -------- NET INCOME (LOSS)............................................................................... $ 91,268 $(1,344,397) $ 24,355 ======== =========== ========
See accompanying notes to financial statements 4 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31, --------------------------------- 2009 2008 2007 --------- ----------- --------- (In Thousands) NET INCOME (LOSS)..................................................... $ 91,268 $(1,344,397) $ 24,355 OTHER COMPREHENSIVE INCOME (LOSS): Net unrealized gains of fixed maturity investments on which other-than-temporary credit impairments were taken - net of reclassification adjustments..................................... 35,775 -- -- Deferred income tax expense on above changes....................... (5,596) -- -- Net unrealized gains (losses) on all other invested assets arising during the current period - net of reclassification adjustments.. 646,659 (298,969) (272,723) Deferred income tax (expense) benefit on above changes............. (226,331) 104,639 95,435 Adjustment to deferred policy acquisition costs.................... -- -- 4,218 Deferred income tax expense on above changes....................... -- -- (1,459) --------- ----------- --------- OTHER COMPREHENSIVE INCOME (LOSS).................................. 450,507 (194,330) (174,529) --------- ----------- --------- COMPREHENSIVE INCOME (LOSS)........................................... $ 541,775 $(1,538,727) $(150,174) ========= =========== =========
See accompanying notes to financial statements 5 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended December 31, ---------------------------------- 2009 2008 2007 ---------- ----------- --------- (In Thousands) COMMON STOCK: Balance at beginning and end of year....................... $ 4,884 $ 4,884 $ 4,884 ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year............................... 1,223,140 308,585 302,283 Capital contributions from Parent (see Note 12)........ 50,502 914,555 6,302 ---------- ----------- --------- Balance at end of year..................................... 1,273,642 1,223,140 308,585 ---------- ----------- --------- RETAINED EARNINGS (ACCUMULATED DEFICIT): Balance at beginning of year............................... (864,873) 479,524 607,703 Cumulative effect of accounting change, net of tax..... 249,873 -- (2,534) Net income (loss)...................................... 91,268 (1,344,397) 24,355 Dividends.............................................. -- -- (150,000) ---------- ----------- --------- Balance at end of year..................................... (523,732) (864,873) 479,524 ---------- ----------- --------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Balance at beginning of year............................... (186,912) 7,418 181,947 Cumulative effect of accounting change, net of tax..... (181,204) -- -- Other comprehensive income (loss)...................... 450,507 (194,330) (174,529) ---------- ----------- --------- Balance at end of year..................................... 82,391 (186,912) 7,418 ---------- ----------- --------- TOTAL SHAREHOLDER'S EQUITY.................................... $ 837,185 $ 176,239 $ 800,411 ========== =========== =========
See accompanying notes to financial statements 6 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE STATEMENTS OF CASH FLOWS
Years ended December 31, ------------------------------------- 2009 2008 2007 ----------- ----------- ----------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)............................................................ $ 91,268 $(1,344,397) $ 24,355 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Interest credited on policyholder contract deposits.......................... 160,049 179,040 192,553 Fees charged for policyholder contract deposits.............................. (40,593) (46,650) (42,855) Amortization of deferred policy acquisition costs............................ 15,108 35,379 49,511 Net realized investment losses............................................... 31,186 1,409,217 97,580 Equity in income of partnerships and other invested assets................... (11,999) 12,339 (25,807) Depreciation and amortization................................................ 1,114 1,516 420 Amortization (accretion) of net premium/discount on investments.............. (58,830) (17,005) (17,941) Provision for deferred income taxes.......................................... (163,258) 104,639 95,435 CHANGE IN: Trading Securities, at fair value......................................... 993 8,435 -- Accrued investment income................................................. 6,098 8,907 5,261 Amounts due to/from related parties....................................... (76,909) 26,852 (29,141) Reinsurance receivables................................................... 4,637 (1) 22,287 Deferral of deferred policy acquisition costs............................. (3,128) (2,004) (5,721) Income taxes currently receivable/payable................................. 95,281 (101,598) (83,083) Other assets.............................................................. 15,030 204 4,933 Future policy benefits.................................................... (12,814) 62,712 180,521 Other policyholders' funds................................................ (2,494) (5,450) 117,018 Other liabilities......................................................... (11,391) 59,513 20,529 Other, net................................................................... 504 (33,874) (10,031) ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................. $ 39,852 $ 357,774 $ 595,824 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of: Fixed maturity securities................................................. $(3,130,132) $(2,089,028) $(2,394,540) Equity securities......................................................... (5,838) (30,586) (75,373) Mortgage and other loans.................................................. (1,480) (51,614) (76,891) Other investments, excluding short-term investments....................... (107,260) (145,100) (65,726) Sales of: Fixed maturity securities................................................. 3,070,876 2,380,301 2,055,727 Equity securities......................................................... 10,296 27,426 64,762 Other investments, excluding short-term investments....................... 48,957 9,211 45,081 Redemptions and maturities of: Fixed maturity securities................................................. 377,624 289,125 671,479 Mortgage and other loans.................................................. 18,787 42,341 67,115 Other investments, excluding short-term investments....................... 47,506 23,449 36,549 Change in short-term investments............................................. (215,746) (96,861) (12,486) Change in securities lending invested collateral............................. -- 1,677,253 (837,104) Other, net................................................................... -- -- 189 ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................... $ 113,590 $ 2,035,917 $ (521,218) ----------- ----------- -----------
See accompanying notes to financial statements 7 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, --------------------------------- 2009 2008 2007 --------- ----------- --------- (In Thousands) CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account deposits.................................... $ 127,935 $ 98,538 $ 206,492 Policyholder account withdrawals................................. (314,966) (615,319) (936,035) Net exchanges to/(from) variable accounts........................ (19,145) (9,105) (13,188) Claims and annuity payments...................................... (1,706) (15,692) 6,060 Change in securities lending payable............................. -- (2,594,426) 830,802 Cash overdrafts.................................................. 3,782 (3,308) (8,958) Cash capital contribution from Parent............................ 50,000 735,686 6,302 Dividend paid to shareholder..................................... -- -- (150,000) --------- ----------- --------- NET CASH USED IN FINANCING ACTIVITIES......................... $(154,100) $(2,403,626) $ (58,525) --------- ----------- --------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................. $ (658) $ (9,935) $ 16,081 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 6,322 16,257 176 --------- ----------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 5,664 $ 6,322 $ 16,257 ========= =========== ========= SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid (received)..................................... $ 47,824 $ 13,268 $ (10,041) Interest received................................................ $ (1,141) $ -- $ -- Non-cash activity: Capital contribution in the form of securities................... $ -- $ 178,870 $ -- Capital contribution for equity compensation..................... $ 502 $ -- $ --
See accompanying notes to financial statements 8 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS American General Life Insurance Company of Delaware (the "Company"), is a wholly owned subsidiary of AGC Life Insurance Company (the "Parent"), and its ultimate parent is American International Group, Inc. ("AIG"). 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. This name change is subject to regulatory approval in all jurisdictions which is currently in process. The Company, domiciled in Delaware, has been doing business since 1962 as a provider of individual and group life insurance, fixed and variable annuities, terminal funding annuities, immediate annuities, variable universal life insurance policies, and structured settlement contracts. The Company is currently licensed to write and reinsure life, annuity and accident and health business in the District of Columbia, Puerto Rico and all states except New York. Prior to December 18, 2007, 79 percent of the outstanding stock of the Company was held by AIG. The remaining 21 percent of the Company's outstanding common stock was held by another AIG subsidiary, Commerce and Industry Insurance Company ("Commerce and Industry"), which is domiciled in New York. On December 18, 2007, the shares of the Company owned by Commerce and Industry were sold to AIG and on December 31, 2007, 100 percent of the shares owned by AIG were contributed by AIG to AIG Life Holdings and upon receipt of these shares, AIG Life Holdings contributed the same to the Parent, which is domiciled in Missouri. As a result of these transactions, 100 percent of the Company's outstanding common stock is owned by the Parent as of December 31, 2007. 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 financial condition of AIG and rating downgrades that occurred late in the third quarter of 2008 and AIG's restructuring plan and related events described in Note 14 below (collectively, the "AIG Events") have also impacted the Company's operations. 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 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 large percentage of its portfolio in liquid securities; engaging in a disciplined process of underwriting; and reviewing and monitoring credit risk. The Company also is exposed to market risk, as market volatility may result in reduced fee income on variable product assets held in variable accounts. 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 and/or statutory capital and surplus. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PREPARATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain prior period items have been reclassified to conform to the current period's presentation. Use of Estimates The preparation of financial statements in conformity with GAAP requires the application of accounting policies that often involve a significant degree of judgment. The Company considers that its accounting policies that are most dependent on the application of estimates and assumptions, and therefore viewed as critical accounting estimates, are those relating to items considered by management in the determination of: . future policy benefits for life and accident and health contracts; . recoverability of deferred policy acquisition costs ("DAC"); 9 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) . estimated gross profits ("EGPs") for investment-oriented products; . other-than-temporary impairments; . estimates with respect to income taxes, including recoverability of deferred tax assets; and . fair value measurements of certain financial assets and liabilities, including the Company's economic interest in Maiden Lane II LLC ("ML II"), a Delaware limited liability company whose sole member is the Federal Reserve Bank of New York ("New York Fed"). See Note 3 herein. 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 financial condition, results of operations and cash flows could be materially affected. Out of Period Adjustments The Company recorded the net effect of certain out of period adjustments which increased pretax income for 2009 by $8.4 million. The Company evaluated these errors taking into account both qualitative and quantitative factors and considered the impact of these errors to 2009, as well as the materiality to the periods in which they originated. The pretax impact on prior periods relating to the 2009 out of period adjustments is as follows (in millions):
Total 2008 2007 Pre-2007 ------ ----- ----- -------- Increase to pretax income......................... $8.4 $2.5 $1.2 $4.7
Management believes these errors are immaterial to the financial statements. INSURANCE CONTRACTS The insurance contracts accounted for in these financial statements include primarily long-duration contracts. Long-duration contracts include limited payment, endowment, guaranteed renewable term life, universal life, variable products and investment contracts. Long-duration contracts generally require the performance of various functions and services over a period of more than one year. The contract provisions generally cannot be changed or canceled by the insurer during the contract period; however, most contracts issued in the future by the Company allow the insurer to revise certain elements used in determining premium rates or policy benefits, subject to guarantees stated in the contracts. INVESTMENTS Fixed Maturity and Equity Securities Fixed maturity and equity securities classified as available-for-sale are carried at fair value. Unrealized gains and losses, net of deferred taxes, are recorded as a separate component of accumulated other comprehensive income (loss), within shareholder's equity. Realized gains and losses on the sale of investments are recognized in income at the date of sale and are determined by using the specific cost identification method. Interest on fixed maturity securities is recorded as income when earned and is adjusted for any amortization of premium or accretion of discount. Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their estimated lives, until maturity, or call date, if applicable. Dividend income on equity securities is generally recognized as income on the ex-dividend date. Fixed maturity and equity securities classified as trading securities are carried at fair value. Trading securities include the Company's economic interest in ML II, which is carried at fair value. For discussion on ML II, see Notes 6 and 7. Realized and unrealized gains and losses on trading securities are reported in net investment income. 10 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Evaluating Investments for Other-Than-Temporary Impairments On April 1, 2009, the Company adopted prospectively a new accounting standard addressing the evaluation of fixed maturity securities for other-than-temporary impairments. These requirements have significantly altered the Company's policies and procedures for determining impairment charges recognized through earnings. The new standard requires a company to recognize the credit component (a credit impairment) of an other-than-temporary impairment of a fixed maturity security in earnings and the non-credit component in accumulated other comprehensive income (loss) when the company does not intend to sell the security or it is more likely than not that the company will not be required to sell the security prior to recovery. The new standard also changes the threshold for determining when an other-than-temporary impairment has occurred on a fixed maturity security with respect to intent and ability to hold the security until recovery and requires additional disclosures. A credit impairment, which is recognized in earnings when it occurs, is the difference between the amortized cost of the fixed maturity security and the estimated present value of cash flows expected to be collected (recovery value), as determined by management. The difference between fair value and amortized cost that is not related to a credit impairment is recognized as a separate component of accumulated other comprehensive income (loss). The Company refers to both credit impairments and impairments recognized as a result of intent to sell as "impairment charges." The impairment model for equity securities was not affected by the new standard. Impairment Policy -- Effective April 1, 2009 and Thereafter Fixed Maturity Securities If the Company intends to sell a fixed maturity security or it is more likely than not that the Company will be required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to earnings. For all other fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated recovery value with a corresponding charge to earnings. Changes in fair value compared to recovery value, if any, is charged to unrealized appreciation (depreciation) of fixed maturity investments on which other-than-temporary credit impairments were taken (a component of accumulated other comprehensive income (loss)). When assessing the Company's intent to sell a fixed maturity security, or if it is more likely than not that the Company will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition the Company's investment portfolio, sales of securities to meet cash flow needs and sales of securities to capitalize on favorable pricing. The Company considers severe price declines and the duration of such price declines in its assessment of potential credit impairments. The Company also modifies its modeled outputs for certain securities when it determines that price declines are indicative of factors not comprehended by the cash flow models. In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities that is not foreign exchange related, the Company generally prospectively accretes into income the difference between the new amortized cost and the expected undiscounted recovery value over the remaining expected holding period of the security. In assessing whether a credit impairment has occurred for a structured fixed maturity security, 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 for a structured fixed maturity security (e.g. Residential mortgage-backed securities ("RMBS"), Commercial mortgage-backed securities ("CMBS"), Collateralized debt obligations ("CDO"), Asset backed securities ("ABS")) 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 11 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) 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. For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair value as the recovery value when available information does not indicate that another value is more relevant or reliable. When management identifies information that supports a recovery value other than the fair value, the determination of a recovery value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes of corporate restructurings, political and macro economic factors, stability and financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets. Equity Securities The impairment model for equity securities and other cost and equity method investments was not affected by the adoption of the new accounting standard related to the other-than-temporary impairments in the second quarter of 2009. The Company continues to evaluate its available for sale equity securities, equity method and cost method investments for impairment by considering such securities as candidates for other-than-temporary impairment if they meet any of the following criteria: . The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive months or longer); . A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or . The Company has concluded that it may not realize a full recovery on its investment, regardless of the occurrence of one of the foregoing events. The determination that an equity security is other-than-temporarily impaired requires the judgment of management and consideration of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and circumstances. The above criteria also consider circumstances of a rapid and severe market valuation decline in which the Company could not reasonably assert that the impairment period would be temporary (severity losses). Fixed Maturity Securities Impairment Policy -- Prior to April 1, 2009 In all periods prior to April 1, 2009, the Company assessed its ability to hold any fixed maturity available for sale security in an unrealized loss position to its recovery at each balance sheet date. The decision to sell any such fixed maturity security classified as available for sale reflected the judgment of the Company's management that the security sold was unlikely to provide, on a relative value basis, as attractive a return in the future as alternative securities entailing comparable risks. With respect to distressed securities, the sale decision reflected management's judgment that the risk-adjusted ultimate recovery was less than the value achievable on sale. 12 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) In those periods, the Company evaluated its fixed maturity securities for other-than-temporary impairments with respect to valuation as well as credit. After a fixed maturity security had been identified as other-than-temporarily impaired, the amount of such impairment was determined as the difference between fair value and amortized cost and the entire amount was recorded as a charge to earnings. Mortgage and Other Loans Receivable Mortgage and other loans receivable includes mortgage loans on real estate, collateral, commercial and guaranteed loans. Mortgage loans are classified as loans held for investment. Mortgage Loans Held for Investment Loans classified as "held for investment" are those that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff. Mortgage loans held for investment are carried at unpaid principal balances less valuation allowances and deferred fees or expenses and plus or minus adjustments for the accretion or amortization of discount or premium. Interest income on such loans is accrued as earned. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income in the statements of income (loss). Non-refundable loan origination fees and certain incremental direct origination costs are offset and the resulting net amount is deferred and amortized in net investment income (or expense) over the life of the related loan as an adjustment of the loan's yield. Loan commitment fees are generally deferred and recognized in net investment income (expense) as an adjustment of yield over the related life of the loan or upon expiration of the commitment if the commitment expires unexercised. Valuation Allowance An allowance for mortgage and other loans receivable is based on certain risk factors and recognized when collection of all amounts due under the contractual terms is not probable. There are two components of allowance for loan loss: (i) individual loans that are specifically reserved ("specific loan loss allowance") and (ii) groups of loans that have specific characteristics indicating a probable loss although the loss cannot be determined for any individual loan in the group ("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 profile from the mortgage loan portfolio to determine a segment loan loss allowance, using factors such as vintage, maturity date, debt service coverage ratio ("DSCR"), loan to value ("LTV") 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 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 appraised value of the collateral with higher risk profile is lower than its book value, an allowance is recorded. Loans with specific loan loss allowance are excluded from the segment loan loss allowance. Additions or reductions to the allowance for loan losses are made through charges or credits to realized investment gains (losses) in the statements of income (loss). Policy Loans Policy loans are carried at unpaid principal amount. There is no allowance for policy loans because these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy. 13 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Investment Real Estate Real estate is classified as held for investment or available for sale, based on management's intent. Real estate held for investment is carried at cost, less accumulated depreciation and impairment write-downs. The Company does not currently hold any available for sale investment real estate. Partnerships and Other Invested Assets Partnerships in which the Company holds less than a five percent interest are carried at fair value and the change in fair value is recognized as a component of accumulated other comprehensive income (loss). With respect to partnerships in which AIG holds in the aggregate a five percent or greater interest, or less than five percent interest but AIG has more than a minor influence over the operations of the investee, the Company's carrying value is its share of the net asset value. The changes in such net asset values accounted for under the equity method are recorded in earnings through net investment income. In applying the equity method of accounting, the Company consistently uses financial information provided by the general partners or manager of each of these investments, which is generally one to three months prior to the end of the Company's reporting period. The financial statements of these investees are generally audited on an annual basis. Short-Term Investments Short-term investments consist of interest-bearing money market funds, investment pools, and other investments with original maturities within one year from the date of purchase. Derivative Financial Instruments The Company takes positions from time to time 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 interest rate swaps and foreign currency swaps. The Company does not engage in the use of derivative instruments for speculative purposes and is neither a dealer nor trader in derivative instruments. The Company believes its hedging activities have been and remain economically effective, but do not currently qualify for hedge accounting. The Company carries all derivatives at fair value in the balance sheets. Changes in the fair value of derivatives are reported as part of net realized investment gains and losses in the statements of income (loss). See Note 5 for related disclosures. CASH AND CASH EQUIVALENTS Cash represents cash on hand and non-interest bearing demand deposits. DEFERRED POLICY ACQUISITION COSTS Policy acquisition costs represent those costs, including commissions, underwriting and certain marketing expenses, that vary with and are primarily related to the acquisition of new business. Policy acquisition costs for traditional life and accident and health insurance products are generally deferred and amortized, with interest, over the premium paying period. Policy acquisition costs and policy issuance costs related to universal life, and investment-type products (investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of EGPs to be realized over the estimated lives of the contracts. EGPs are composed of net interest income, net realized investment gains and losses, fees, surrender charges, expenses, and mortality gains and losses. If EGPs change significantly, DAC is recalculated using the new assumptions. Any resulting adjustment is included in income as an adjustment to DAC. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts. 14 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) With respect to the Company's variable universal life policies, the assumption for the long-term growth of the variable account assets used by the Company in the determination of DAC amortization is approximately 8.3 percent. For the Company's variable annuity policies, because of the limited size of the block of business, a simplified approach was used which combines experience for lapses, death, and market growth. VARIABLE ACCOUNT ASSETS AND LIABILITIES Variable account assets and liabilities represent funds that are separately administered for variable annuities and variable universal life contracts, for which the investment risk lies solely with the contract holder, except to the extent of minimum guarantees made by the Company with respect to certain policies. Therefore, the Company's liability for these variable accounts equals the value of the variable account assets. Variable account assets are primarily shares in mutual funds, which are carried at fair value based on the quoted net asset value per share and are insulated from creditors. Investment income, realized investment gains (losses), and policyholder account deposits and withdrawals related to variable accounts are excluded from the statements of income (loss), comprehensive income (loss), and cash flows. The Company receives administrative fees and other fees for assuming mortality and certain expense risks. Such fees are included in other revenue in the statements of income (loss). FUTURE POLICY BENEFITS The liability for future policy benefits is established using assumptions described in Note 9 herein. Future policy benefits include liabilities for annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in exchange for fixed payments over a fixed determinable period of time with a life contingency feature. Structured settlement liabilities are presented on a discounted basis as the settled claims are fixed and determinable. Also included in future policy benefits is the liability for guaranteed minimum death benefit ("the GMDB"). A majority of the Company's variable annuity products are issued with a death benefit feature which provides that, upon the death of a contract holder, the contract holder's beneficiary will receive the greater of (i) the contract holder's account value, or (ii) a GMDB that varies by product. Depending on the product, the GMDB may equal the principal invested, adjusted for withdrawals. The GMDB has issue age and other restrictions to reduce mortality risk exposure. The Company bears the risk that death claims following a decline in the financial markets may exceed contract holder account balances, and that the fees collected under the contract are insufficient to cover the costs of the benefit to be provided. The Company provides reserves for future GMDB-related benefits. The GMDB liability is determined each period end by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. Changes in liabilities for minimum guarantees are included in policyholder benefits in the statements of income (loss). The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to policyholder benefits, if actual experience or other evidence suggests that earlier assumptions should be revised. POLICYHOLDER CONTRACT DEPOSITS Policyholder contract deposits are recorded at accumulated value (deposits received, plus accrued interest, less withdrawals and assessed fees). Deposits collected on non-traditional life and annuity insurance products, such as those sold by the Company, are not reflected as revenues in the Company's statements of income (loss), as they are recorded directly to policyholder contract deposits upon receipt. POLICY CLAIMS AND BENEFITS PAYABLE Policy claims and benefits payable include amounts representing: (i) the actual in-force amounts for reported life claims and an estimate of incurred but unreported claims; and (ii) an estimate, based upon prior experience, for accident and health reported and incurred but unreported losses. The methods of making such estimates and 15 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) establishing the resulting reserves are continually reviewed and updated and any adjustments are reflected in current period income. OTHER POLICYHOLDERS' FUNDS Included in policyholders' funds are primarily unearned revenue reserves ("URR"), reserves for experience rated group products and liabilities for premiums received in advance. URR consists of front end loads on interest sensitive contracts, representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. Front end loads for interest sensitive life insurance policies are generally deferred and amortized, with interest, in relation to the incidence of gross profit margins to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the assumptions underlying gross profit margins as DAC. Provisions for experience rating refunds arise from contractual obligations between the Company and the group being insured. Periodic assessments of the experience of the insured group are undertaken and the group participates in the profits of the business, either through adjustments to premiums or through refunds from the liability for the refund. Premium deposit funds represent a liability for premiums received in advance of their due dates. Such premiums are allowed to accumulate with interest until they are due, at which time the premiums are applied to the underlying policies. PREMIUM RECOGNITION Premiums for traditional life insurance products are recognized when due. For limited-payment contracts, net premiums are recorded as revenue. The difference between the gross received and the net premium is deferred and recognized as a change in future policy benefits in the statements of income (loss). Most receipts for annuities and interest-sensitive life insurance policies are classified as deposits instead of revenue. Revenues for these contracts consist of mortality, expense, and surrender charges and are included in other revenue in the statements of income (loss). Policy charges that compensate the Company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DAC. Variable annuity and variable universal life fees, asset management fees and surrender charges are recorded as income in insurance charges when earned. Premiums on accident and health policies are reported as earned over the contract term. The portion of accident and health premiums which is not earned at the end of a reporting period is recorded as reserves for unearned premiums. NET INVESTMENT INCOME Net investment income represents income primarily from the following sources in the Company's operations: . Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds with changes in the timing and the amount of expected principal and interest cash flows reflected in the yield, as applicable. . Dividend income and distributions from common and preferred stock and other investments when receivable. . Realized and unrealized gains and losses from investments in trading securities accounted for at fair value. . Earnings from hedge funds and limited partnership investments accounted for under the equity method. 16 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) NET REALIZED INVESTMENT GAINS AND LOSSES Net realized investment gains and losses are determined by specific identification. The net realized investment gains and losses are generated primarily from the following sources: . Sales of fixed maturity and equity securities (except trading securities accounted for at fair value), real estate, investments in joint ventures and limited partnerships, securities lending invested collateral and other types of investments. . Reductions to the cost basis of fixed maturity and equity securities (except trading securities accounted for at fair value), and other invested assets for other-than-temporary impairments. . Changes in fair value of derivatives. . Exchange gains and losses resulting from foreign currency transactions. INCOME TAXES Deferred taxes and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, at the enacted tax rates expected to be in effect when the temporary differences reverse. The effect of a tax rate change is recognized in income in the period of enactment. State income taxes are included in income tax expense. A valuation allowance for deferred tax assets is provided if it is more likely than not that some portion of the deferred tax asset will not be realized. An increase or decrease in a valuation allowance that results from a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset is included in income. SECURITIES LENDING INVESTED COLLATERAL AND SECURITIES LENDING PAYABLE On December 12, 2008, the Company terminated its securities lending activities (see Note 7 for additional information). Securities lending collateral was invested in interest-bearing cash equivalents and fixed maturity securities, primarily floating-rate bonds. Securities lending collateral investments in fixed maturity securities were carried at fair value and accounted for in a manner consistent with other available-for-sale fixed maturity securities, and were evaluated for other-than-temporary impairment by applying the same criteria used for other fixed maturity securities. The Company's allocated portion of income earned on the invested collateral, net of interest repaid to the borrowers under the securities lending agreements and the related management fees paid to administer the program, was recorded as investment income in the statements of income (loss). The Company's allocated portion of any realized investment losses on the invested collateral was recorded in the statements of income (loss). The Company generally obtained and maintained cash collateral from securities borrowers at current market levels for the securities lent. During the fourth quarter of 2008, in connection with certain securities lending transactions, the Company met the requirements for sale accounting because collateral received from the counterparties was insufficient to fund substantially all of the cost of purchasing replacement assets. Accordingly, the Company accounted for such lending transactions as sales combined with forward purchase commitments, rather than as secured borrowings. Changes in forward purchase commitments were recorded as net realized investment gains (losses) in the statements of income (loss). Since the Company terminated its securities lending activities on December 12, 2008, there were no securities subject to securities lending agreements on the consolidated balance sheets at December 31, 2009 or 2008. 17 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) ACCOUNTING CHANGES THE COMPANY ADOPTED THE FOLLOWING ACCOUNTING STANDARDS DURING 2007: Deferred Acquisition Costs In September 2005, the American Institute of Certified Public Accountants ("AICPA") issued an accounting standard that provides guidance on accounting for internal replacements of insurance and investment contracts other than those specifically described in the accounting standard for certain long-duration contracts issued by insurance enterprises. The standard defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Internal replacements that result in a substantially changed contract are accounted for as a termination and a replacement contract. The effective date of the implementation guidance was January 1, 2007. The adoption of this guidance did not have a material effect on the Company's financial condition or results of operations. Uncertainty in Income Taxes In July 2006, the Financial Accounting Standards Board ("FASB") issued an accounting standard which clarifies the accounting for uncertainty in income tax positions. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and additional disclosures. The Company adopted the interpretation on January 1, 2007. No increase in the liability for unrecognized tax benefits was required upon adoption. See Note 13 for additional disclosures on this standard. THE COMPANY ADOPTED THE FOLLOWING ACCOUNTING STANDARDS DURING 2008: Fair Value Measurements In September 2006, the FASB issued an accounting standard that 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. The standard also clarifies that an issuer's credit standing should be considered when measuring liabilities at fair value. The Company adopted the standard on January 1, 2008, its required effective date. The standard must be applied prospectively, except for certain stand-alone derivatives and hybrid instruments, which must be applied as a cumulative effect of change in accounting principle to retained earnings at January 1, 2008. The adoption of the standard did not have a material effect on the Company's financial condition or results of operations. Fair Value Option In February 2007, the FASB issued an accounting standard that permits entities to choose to measure at fair value many financial instruments and certain other items that are not required to be measured at fair value. Subsequent changes in fair value for designated items are required to be reported in earnings. The standard also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. The standard permits the fair value option election on an instrument-by-instrument basis for eligible items existing at the adoption date and at initial recognition of an asset or liability, or upon most events that gives rise to a new basis of accounting for that instrument. The Company adopted the new standard on January 1, 2008, its required effective date. The Company did not make any fair value measurement elections upon initial adoption of the standard. Fair Value of Financial Assets in Inactive Markets In October 2008, the FASB issued an accounting standard that provides guidance clarifying certain aspects with respect to the fair value measurements of a security when the market for that security is inactive. The Company adopted this guidance in the third quarter of 2008. The effects of adopting the new standard on the Company's financial condition and results of operations were not material. 18 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Amendment to Other-Than-Temporary Impairment Guidance In January 2009, the FASB issued an accounting standard that amends the impairment guidance on recognition of interest income and impairment on purchased beneficial interests and beneficial interests that continue to be held by a transferor in securitized financial assets to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The standard also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements related to the accounting for certain investments in debt and equity securities and other related guidance. The Company adopted this guidance in the fourth quarter of 2008. The effects of adopting the standard on the Company's financial condition and results of operations were not material. THE COMPANY ADOPTED THE FOLLOWING ACCOUNTING STANDARDS DURING 2009: Disclosures about Derivative Instruments and Hedging Activities In March 2008, the FASB issued an accounting standard that requires enhanced disclosures about (i) how and why the Company uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect the Company's financial condition, results of operations, and cash flows. The Company adopted the new standard on January 1, 2009. See Note 5 for related disclosures. Subsequent Events In May 2009, the FASB issued an accounting standard that requires disclosure of the date through which a company evaluated the need to disclose events that occurred subsequent to the balance sheet date and whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the new standard for the period ended June 30, 2009. Recognition and Presentation of Other-Than-Temporary Impairments In April 2009, the FASB issued an accounting standard that requires a company to recognize the credit component of an other-than-temporary impairment of a fixed maturity security in earnings and the non-credit component in accumulated other comprehensive income (loss) when the company does not intend to sell the security or it is more likely than not that the company will not be required to sell the security prior to recovery. The standard also changed the threshold for determining when an other-than-temporary impairment has occurred on a fixed maturity security with respect to intent and ability to hold until recovery. The standard does not change the recognition of other-than-temporary impairment for equity securities. The standard requires additional disclosures in interim and annual reporting periods for fixed maturity and equity securities. The Company adopted the new standard on April 1, 2009 and recorded an after-tax cumulative effect adjustment to increase the Company's shareholder's equity by $68.7 million as of April 1, 2009, consisting of a decrease in accumulated deficit of $249.9 million and an increase to accumulated other comprehensive loss of $181.2 million, net of tax. The net increase in the Company's shareholder's equity was due to a reversal of a portion of the deferred tax asset valuation allowance for certain previous non-credit impairment charges directly attributable to the change in accounting principle (see Note 13 herein). The cumulative effect adjustment resulted in an increase of approximately $278.8 million in the amortized cost of fixed maturity securities, which has the effect of significantly reducing the accretion of investment income over the remaining life of the underlying securities, beginning in the second quarter of 2009. The effect of the reduced investment income will be offset, in part, by a decrease in the amortization of DAC. 19 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The new standard is expected to reduce the level of other-than-temporary impairment charges recorded in earnings for fixed maturity securities due to the following required changes in the Company's accounting policy for other-than-temporary impairments: . Impairment charges for non-credit (e.g., severity) losses are no longer recognized in earnings; . The amortized cost basis of credit impaired securities will be written down through a charge to earnings to the present value of expected cash flows, rather than to fair value; and . For fixed maturity securities that are not deemed to be credit-impaired, the Company is no longer required to assert that it has the intent and ability to hold such securities to recovery to avoid an other-than-temporary impairment charge. Instead, an impairment charge through earnings is required only in situations where the Company has the intent to sell the fixed maturity security or it is more likely than not that the Company will be required to sell the security prior to recovery. The following table presents the components of the change in the Company's shareholder's equity at April 1, 2009 due to the adoption of the new accounting standard for other-than-temporary impairments:
(Increase) Decrease to Net Increase (Increase) Accumulated in the Decrease to Other Company's Accumulated Comprehensive Shareholder's Deficit Loss Equity ----------- -------------- ------------- (In Thousands) Net effect of the increase in amortized cost of available for sale fixed maturity securities................................. $278,777 $(278,777) $ -- Net effect on deferred income tax assets......................... (28,904) 97,573 68,669 -------- --------- ------- Net increase in the Company's shareholder's equity............... $249,873 $(181,204) $68,669 ======== ========= =======
Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly In April 2009, the FASB issued an accounting standard that provides guidance for estimating fair value of assets and liabilities when the volume and level of activity for an asset or liability have significantly decreased and for identifying circumstances that indicate a transaction is not orderly. The new standard also requires extensive additional fair value disclosures. The adoption of the new standard on April 1, 2009, did not have a material effect on the Company's financial condition, results of operations or cash flows. Measuring Liabilities at Fair Value In August 2009, the FASB issued an accounting standards update to clarify how the fair value measurement principles should be applied to measuring liabilities carried at fair value. The update explains how to prioritize market inputs in measuring liabilities at fair value and what adjustments to market inputs are appropriate for debt obligations that are restricted from being transferred to another obligor. The update was effective beginning October 1, 2009 for the Company. The adoption of the new standard update did not have a material effect on the Company's financial condition, results of operations or cash flows. Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) In September 2009, the FASB issued an accounting standard update that permits, as a practical expedient, a company to measure the fair value of an investment that is within the scope of the update on the basis of the net asset value per share of the investment (or its equivalent) if that value is calculated in accordance with fair value as defined by the FASB. The standard also requires enhanced disclosures. The new standard applies to investment 20 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) companies that do not have readily determinable fair values such as certain hedge funds and private equity funds. The new standard was effective for interim and annual periods ending after December 15, 2009. The new standard does not apply to the Company and therefore did not have a material effect on the Company's financial condition, results of operations or cash flows. FUTURE APPLICATION OF ACCOUNTING STANDARDS Consolidation of Variable Interest Entities ("VIE") In June 2009, the FASB issued an accounting standard that amends the rules addressing consolidation of variable interest entities with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly affect the entity's economic performance and has (i) the obligation to absorb losses of the entity or (ii) the right to receive benefits from the entity. The new standard also requires enhanced financial reporting by enterprises involved with variable interest entities. The new standard is effective for interim and annual periods beginning on January 1, 2010 for the Company. Earlier application is prohibited. The Company has assessed and has determined that the standard did not have a material effect on its financial condition, results of operations and cash flows. 3. FAIR VALUE MEASUREMENTS Amounts related to the Company's financial instruments are as follows:
2009 2008 --------------------- ----------------------- Carrying Carrying Amount Fair Value Amount Fair Value ---------- ---------- ----------- ---------- (In Thousands) ASSETS Fixed maturity securities, available for sale. $5,705,261 $5,705,261 $5,304,351 $5,304,351 Fixed maturity securities, trading............ 29,672 29,672 30,665 30,665 Equity securities, available for sale......... 16,629 16,629 12,887 12,887 Mortgage and other loans receivable........... 512,594 485,098 530,636 530,661 Policy loans.................................. 257,080 257,080 239,467 239,467 Partnerships and other invested assets........ 162,970 162,970 165,103 165,103 Short-term investments........................ 379,409 379,409 163,663 163,663 Derivative assets............................. 2,043 2,043 12,467 12,467 Accrued investment income..................... 78,899 78,899 84,997 84,997 Variable account assets....................... 2,073,841 2,073,841 2,120,042 2,120,042 LIABILITIES Policyholder contract deposits................ 1,198,465 1,259,643 1,496,153 1,591,971 Derivative liabilities........................ 14,830 14,830 15,313 15,313
Fixed Maturity Securities, Equity Securities and Trading Securities 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 fixed maturity and equity securities in its available for sale and trading portfolios. Market price data generally is obtained from third party pricing vendors. The Company estimates the fair value of fixed maturity 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 21 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) curves, prepayment rates and other relevant factors. For certain fixed maturity securities 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. The fixed maturity securities, trading portfolio consists of an interest in ML II. At inception, the Company's economic interest in ML II was valued at the transaction price of $39.1 million. Subsequently, the ML II interest is valued using a discounted cash flow methodology that uses the estimated future cash flows of the assets to which the ML II interest is entitled. The Company applies model-determined market discount rates to its interests. These discount rates are calibrated to the changes in the estimated asset values of 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 valuations are validated, to the extent possible, using market observable information for securities with similar asset pools, structure and terms. The fair value methodology used assumes the underlying collateral in the interest in ML II will continue to be held and generate cash flows into the foreseeable future and does not assume a current liquidation of the assets underlying the interest in ML II. Other methodologies employed or assumptions made in determining fair value for these investments could result in amounts that differ significantly for the amounts reported. Mortgage and Other Loans Receivable Fair value for mortgage loans is primarily determined by using discounted cash flow calculations based upon the Company's current incremental lending rates for similar type loans. Fair value for collateral, commercial and guaranteed loans is based principally on independent pricing services, broker quotes and other independent information. Policy Loans The fair values of the policy loans were not calculated as the Company believes it would have to expend excessive costs for the benefits derived. Partnerships and Other Invested Assets The Company initially estimates the fair value of investments in certain private limited partnerships and certain hedge funds by reference to the transaction price. Subsequently, the Company obtains the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which generally are audited annually. The Company considers observable market data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair value measurement. Short-Term Investments The carrying value of these assets approximates fair value because of the relatively short period of time between origination and expected realization. Derivative Assets and Liabilities Derivative assets and liabilities can be exchange-traded or traded over the counter ("OTC"). The Company generally values exchange-traded derivatives using quoted prices in active markets for identical derivatives at the balance sheet date. OTC derivatives are valued using market transactions and other observable market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. The Company generally 22 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) uses similar models to value similar instruments. Valuation models 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 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. Fair value measurements for freestanding derivatives incorporate counterparty credit risk by determining the explicit cost for the Company to protect against its net credit exposure to each counterparty at the balance sheet date by reference to observable counterparty credit default swap spreads. The Company's net credit exposure to a counterparty is determined based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as cash collateral posted by the counterparty at the balance sheet date. Accrued Investment Income The carrying value of these assets approximates fair value because of the relatively short period of time between origination and expected realization. Variable Account Assets Variable account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in active markets. 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. ASSETS AND LIABILITIES MEASURED AT FAIR VALUE Recurring 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 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 23 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) transactions for the asset or liability being valued occur with sufficient frequency and volume to provide pricing information on an ongoing basis. An other-than-active market is one in which 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. Beginning January 1, 2008, assets and liabilities recorded at fair value in the balance sheets 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: . 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 via third party pricing vendors. The Company does not adjust the quoted price for such instruments. . Level 2 - Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, 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 asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's 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 asset or liability. 24 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The following tables present information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the levels of the inputs used:
At December 31, 2009 Level 1 Level 2 Level 3 Total Fair Value -------------------- ---------- ---------- -------- ---------------- (In Thousands) ASSETS: Fixed maturity securities, available for sale: U.S. government obligations...................................... $ 9,452 $ 60,305 $ -- $ 69,757 Foreign government............................................... -- 25,098 -- 25,098 States, territories & political subdivisions..................... -- 29,905 -- 29,905 Corporate securities............................................. -- 4,382,030 189,488 4,571,518 Mortgage-backed, asset-backed and collateralized: Residential mortgage-backed securities....................... -- 330,066 328,581 658,647 Commercial mortgage-backed securities........................ -- 129,575 125,551 255,126 Collateralized debt obligation / Asset backed securities..... -- 49,764 45,446 95,210 ---------- ---------- -------- ---------- Total fixed maturity securities, available for sale................. 9,452 5,006,743 689,066 5,705,261 ---------- ---------- -------- ---------- Fixed maturity securities, trading: Mortgage-backed, asset-backed and collateralized: Collateralized debt obligation / Asset backed securities..... -- -- 29,672 29,672 ---------- ---------- -------- ---------- Total fixed maturity securities, trading............................ -- -- 29,672 29,672 ---------- ---------- -------- ---------- Equity securities, available for sale: Common stocks.................................................... 9,095 -- 697 9,792 Preferred stocks................................................. -- 6,837 -- 6,837 ---------- ---------- -------- ---------- Total equity securities, available for sale......................... 9,095 6,837 697 16,629 ---------- ---------- -------- ---------- Partnerships and other invested assets.............................. -- 4,118 67,559 71,677 Short-term investments.............................................. 28,392 230,600 -- 258,992 Derivative assets................................................... -- 2,043 -- 2,043 Variable account assets............................................. 1,533,913 539,928 -- 2,073,841 ---------- ---------- -------- ---------- Total........................................................ $1,580,852 $5,790,269 $786,994 $8,158,115 ---------- ---------- -------- ---------- LIABILITIES: Derivative liabilities.............................................. $ -- $ 14,830 $ -- $ 14,830 At December 31, 2008 Level 1 Level 2 Level 3 Total Fair Value -------------------- ---------- ---------- -------- ---------------- (In Thousands) ASSETS: Fixed maturity securities, available for sale....................... $ 6,951 $4,570,467 $726,933 $5,304,351 Fixed maturity securities, trading.................................. -- -- 30,665 30,665 Equity securities, available for sale............................... 4,609 7,675 603 12,887 Partnerships and other invested assets.............................. -- 8,749 67,832 76,581 Derivative assets................................................... -- 12,467 -- 12,467 Variable account assets............................................. 1,580,371 539,671 -- 2,120,042 ---------- ---------- -------- ---------- Total............................................................ $1,591,931 $5,139,029 $826,033 $7,556,993 ---------- ---------- -------- ---------- LIABILITIES: Derivative liabilities.............................................. $ -- $ 15,313 $ -- $ 15,313
At December 31, 2009 and 2008, Level 3 assets were 8.3 percent and 9.1 percent of total assets, respectively. There were no Level 3 liabilities in either period. 25 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The following tables present changes during the years ended December 31, 2009 and 2008 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) recorded in the statements of income (loss) during the years ended December 31, 2009 and 2008 related to the Level 3 assets and liabilities that remained in the balance sheets at December 31, 2009 and 2008:
Changes in Net Realized Unrealized and Gains Unrealized Purchases, (Losses) on Gains Accumulated Sales, Instruments Balance at (Losses) Other Issuances Balance at Held at Beginning of included in Comprehensive and Transfers End of End of Twelve Months Ended December 31, 2009 Period Income (a) Income (Loss) Settlements In (Out) Period Period ------------------------------------- ------------ ------------ ------------- ----------- --------- ---------- ----------- (In Thousands) ASSETS: Fixed maturity securities, available for sale: Corporate securities.................. $ 259,175 $ (359) $ 55,778 $ (83,339) $(41,767) $189,488 $ -- Mortgage-backed, asset-backed and collateralized: Residential mortgage-backed securities...................... 319,461 (6,747) 3,926 14,511 (2,570) 328,581 -- Commercial mortgage-backed securities...................... 87,646 2,135 16,534 (8,797) 28,033 125,551 -- Collateralized debt obligation / Asset backed securities...................... 60,651 (14,680) 28,927 (33,917) 4,465 45,446 -- ---------- --------- -------- --------- -------- -------- ------- Total fixed maturity securities, available for sale..................... 726,933 (19,651) 105,165 (111,542) (11,839) 689,066 -- ---------- --------- -------- --------- -------- -------- ------- Fixed maturity securities, trading: Mortgage-backed, asset-backed and collateralized: Collateralized debt obligation / Asset backed securities...................... 30,665 (2,421) -- 1,428 -- 29,672 (2,421) ---------- --------- -------- --------- -------- -------- ------- Total fixed maturity securities, trading................................ 30,665 (2,421) -- 1,428 -- 29,672 (2,421) ---------- --------- -------- --------- -------- -------- ------- Equity securities, available for sale: Common stocks......................... 603 (21) 14 101 -- 697 -- ---------- --------- -------- --------- -------- -------- ------- Total equity securities, available for sale............................... 603 (21) 14 101 -- 697 -- ---------- --------- -------- --------- -------- -------- ------- Partnerships and other invested assets................................. 67,832 (9,737) 4,959 4,505 -- 67,559 -- ---------- --------- -------- --------- -------- -------- ------- Total............................. $ 826,033 $ (31,830) $110,138 $(105,508) $(11,839) $786,994 $(2,421) ---------- --------- -------- --------- -------- -------- ------- Changes in Net Realized Unrealized and Gains Unrealized Purchases, (Losses) on Gains Accumulated Sales, Instruments Balance at (Losses) Other Issuances Balance at Held at Beginning of included in Comprehensive and Transfers End of End of Twelve Months Ended December 31, 2008 Period Income (a) Income (Loss) Settlements In (Out) Period Period ------------------------------------- ------------ ------------ ------------- ----------- --------- ---------- ----------- (In Thousands) ASSETS: Fixed maturity securities, available for sale............................... $ 652,450 $ (66,056) $ (4,873) $ (34,722) $180,134 $726,933 $ -- Fixed maturity securities, trading....... -- (8,435) -- 39,100 -- 30,665 (8,435) Equity securities, available for sale.... 160 (723) (7,842) (6,788) 15,796 603 -- Partnerships and other invested assets................................. 41,392 (4,449) (1,218) 32,107 -- 67,832 -- Securities lending invested collateral............................. 408,834 (252,086) 67,457 (474,886) 250,681 -- -- ---------- --------- -------- --------- -------- -------- ------- Total............................. $1,102,836 $(331,749) $ 53,524 $(445,189) $446,611 $826,033 $(8,435) ---------- --------- -------- --------- -------- -------- -------
-------- (a)Net realized gains and losses related to Level 3 items shown above are reported in the statements of income (loss) as net realized investment gains (losses). Net realized and unrealized gains and losses on trading securities are reported in net investment income. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at December 31, 2009 and 2008 may include changes in fair value that were attributable to both observable and unobservable inputs. Changes in the fair value of variable account assets are completely offset in the statements of income (loss) and comprehensive income (loss) by changes in variable account liabilities, which are not carried at fair value and therefore not included in the tables above. 26 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Fair Value Option - Fixed Maturity Securities, Trading The Company may choose to measure at fair value many financial instruments and certain other assets and liabilities that are not required to be measured at fair value. Subsequent changes in fair value for designated items are required to be reported in earnings. The Company has elected fair value accounting, in accordance with the Fair Value Option accounting standard adopted on January 1, 2008, for its economic interest in ML II. The Company recorded losses of $2.4 million and $8.4 million in the years ended December 31, 2009 and 2008, respectively, to reflect the change in the fair value of ML II, which were reported as a component of net investment income in the statements of income (loss). Fair Value Measurements on a Non-Recurring Basis The Company also measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method investments and mortgage and other loans. The Company uses a variety of techniques to measure the fair value of these assets when appropriate, as described below: Cost and equity-method investment: When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in income. In such cases, the Company measures the fair value of these assets using the techniques discussed above for fixed maturities and equity securities. Mortgage and other loans: When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in earnings. In such cases, the Company measures the fair value of these assets using the techniques discussed above for mortgage and other loans. 4. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES Available for Sale Securities The cost or amortized cost, gross unrealized gains and losses, and fair value of fixed maturity and equity securities available for sale by major category were as follows: 27 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued)
Other-Than- Cost or Gross Gross Temporary Amortized Unrealized Unrealized Impairments Cost Gains Losses Fair Value in AOCI (a) ---------- ---------- ---------- ---------- ----------- (In Thousands) December 31, 2009 Fixed maturities U.S. government obligations...................................... $ 60,790 $ 9,175 $ (208) $ 69,757 $ -- Foreign government............................................... 25,666 1,438 (2,006) 25,098 -- States, territories & political subdivisions..................... 31,046 28 (1,169) 29,905 -- Corporate securities............................................. 4,310,906 340,004 (79,392) 4,571,518 7,855 Mortgage-backed, asset-backed and collateralized:................ Residential mortgage-backed securities....................... 687,784 31,229 (60,366) 658,647 (3,710) Commercial mortgage-backed securities........................ 364,480 2,939 (112,293) 255,126 (22,704) Collateralized debt obligation / Asset backed securities..... 116,804 5,108 (26,702) 95,210 5,108 ---------- -------- --------- ---------- -------- Total fixed maturities.............................................. 5,597,476 389,921 (282,136) 5,705,261 (13,451) Equity securities: Common stocks.................................................... 7,755 2,208 (171) 9,792 -- Preferred stocks................................................. 4,986 1,860 (9) 6,837 -- ---------- -------- --------- ---------- -------- Total equity securities............................................. 12,741 4,068 (180) 16,629 -- ---------- -------- --------- ---------- -------- Total............................................................... $5,610,217 $393,989 $(282,316) $5,721,890 $(13,451) ========== ======== ========= ========== ========
-------- (a)Represents the amount of other-than-temporary impairment losses recognized in accumulated other comprehensive income (loss), which, starting on April 1, 2009, were not included in earnings. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
Cost or Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- (In Thousands) December 31, 2008 Fixed maturities U.S. government obligations...................................... $ 58,457 $ 13,105 $ (40) $ 71,522 Foreign government............................................... 22,962 2,745 (24) 25,683 States, territories & political subdivisions..................... 11,049 1 (248) 10,802 Corporate securities............................................. 4,362,333 134,874 (330,878) 4,166,329 Mortgage-backed, asset-backed and collateralized:................ Residential mortgage-backed securities....................... 689,875 26,675 (51,480) 665,070 Commercial mortgage-backed securities........................ 321,775 1,648 (45,806) 277,617 Collateralized debt obligation / Asset backed securities..... 92,925 1,323 (24,774) 69,474 Affiliated securities............................................ 29,890 -- (12,036) 17,854 ---------- -------- --------- ---------- Total fixed maturities.............................................. 5,589,266 180,371 (465,286) 5,304,351 Equity securities: Common stocks.................................................... 8,727 -- (3,514) 5,213 Preferred stocks................................................. 6,272 1,402 -- 7,674 ---------- -------- --------- ---------- Total equity securities............................................. 14,999 1,402 (3,514) 12,887 ---------- -------- --------- ---------- Total............................................................... $5,604,265 $181,773 $(468,800) $5,317,238 ========== ======== ========= ==========
28 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The following table summarizes the Company's gross unrealized losses and fair values on fixed maturity and equity securities available for sale, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2009 and 2008:
Less than 12 Months 12 Months or More Total -------------------- -------------------- -------------------- Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses ---------- ---------- ---------- ---------- ---------- ---------- (In Thousands) December 31, 2009 Fixed maturities U.S. government obligations............................ $ 25,913 $ (208) $ -- $ -- $ 25,913 $ (208) Foreign government..................................... 17,523 (2,006) -- -- 17,523 (2,006) States, territories & political subdivisions........... 19,404 (889) 4,720 (280) 24,124 (1,169) Corporate securities................................... 707,554 (29,970) 479,148 (49,422) 1,186,702 (79,392) Mortgage-backed, asset-backed and collateralized:...................................... Residential mortgage-backed securities............. 78,513 (12,526) 198,766 (47,840) 277,279 (60,366) Commercial mortgage-backed securities.............. 88,661 (99,960) 68,696 (12,333) 157,357 (112,293) Collateralized debt obligation / Asset backed securities....................................... 29,248 (12,992) 59,275 (13,710) 88,523 (26,702) ---------- --------- -------- --------- ---------- --------- Total fixed maturities.................................... 966,816 (158,551) 810,605 (123,585) 1,777,421 (282,136) Equity securities: Common stocks...................................... 457 (171) -- -- 457 (171) Preferred stocks................................... 3,753 (9) -- -- 3,753 (9) ---------- --------- -------- --------- ---------- --------- Total equity securities................................... 4,210 (180) -- -- 4,210 (180) ---------- --------- -------- --------- ---------- --------- Total..................................................... $ 971,026 $(158,731) $810,605 $(123,585) $1,781,631 $(282,316) ========== ========= ======== ========= ========== ========= Less than 12 Months 12 Months or More Total -------------------- -------------------- -------------------- Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses ---------- ---------- ---------- ---------- ---------- ---------- (In Thousands) December 31, 2008 Fixed maturities U.S. government obligations............................ $ 1,221 $ (40) $ -- $ -- $ 1,221 $ (40) Foreign government..................................... 1,633 (24) -- -- 1,633 $ (24) States, territories & political subdivisions........... 5,801 (248) -- -- 5,801 (248) Corporate securities................................... 1,702,902 (210,970) 602,787 (119,908) 2,305,689 (330,878) Mortgage-backed, asset-backed and collateralized:...................................... Residential mortgage-backed securities............. 158,121 (22,108) 105,937 (29,372) 264,058 (51,480) Commercial mortgage-backed securities.............. 89,313 122 76,507 (45,928) 165,820 (45,806) Collateralized debt obligation / Asset backed securities....................................... 38,453 (21,405) 17,089 (3,369) 55,542 (24,774) Affiliated securities.................................. -- -- 17,854 (12,036) 17,854 (12,036) ---------- --------- -------- --------- ---------- --------- Total fixed maturities.................................... 1,997,444 (254,673) 820,174 (210,613) 2,817,618 (465,286) Equity securities: Common stocks...................................... 5,212 (3,514) -- -- 5,212 (3,514) ---------- --------- -------- --------- ---------- --------- Total equity securities................................... 5,212 (3,514) -- -- 5,212 (3,514) ---------- --------- -------- --------- ---------- --------- Total..................................................... $2,002,656 $(258,187) $820,174 $(210,613) $2,822,830 $(468,800) ========== ========= ======== ========= ========== =========
As of December 31, 2009, the Company held 429 individual fixed maturity and equity securities that were in an unrealized loss position, of which 158 individual securities were in a continuous unrealized loss position for 12 months or more. The Company did not recognize in earnings the unrealized losses on these fixed maturity securities at December 31, 2009, because management neither intends to sell the securities nor does it believe that it is more likely than not that it will be required to sell these securities before recovery of their amortized cost basis. Furthermore, management 29 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) expects to recover the entire amortized cost basis of these securities. In performing this evaluation, management considered the recovery periods for securities in previous periods of broad market declines. For fixed maturity securities with significant declines, management performed fundamental credit analysis on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other market available data. The following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale by contractual maturity as of December 31, 2009:
Total Fixed Maturity Available for Sale Securities ---------------------------------- Amortized Cost Fair Value -------------- ------------ (In Thousands) Due in one year or less................................ $ 59,503 $ 61,120 Due after one year through five years.................. 914,594 960,574 Due after five years through ten years................. 1,195,987 1,253,620 Due after ten years.................................... 2,258,324 2,420,964 Mortgage-backed securities............................. 1,169,068 1,008,983 ------------ ------------ Total fixed maturity securities available for sale..... $ 5,597,476 $ 5,705,261 ============ ============
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. At December 31, 2009, the Company's investments included one investment with a single issuer that each exceeded 10 percent of the Company's shareholder's equity. The investment was in a short-term money market investment of $373.1 million. In 2008, there were two investments exceeding 10 percent. These investments were in short-term investments and highly rated corporate bonds. At December 31, 2009, $3.2 million of bonds, at amortized cost, were on deposit with regulatory authorities in accordance with statutory requirements. Trading Securities On December 12, 2008, the Company and certain other wholly owned U.S. life insurance company subsidiaries of AIG sold to ML II all of their undivided interests in a pool of $39.3 billion face amount of the RMBS. In exchange for the RMBS, the life insurance companies received an initial purchase price of $19.8 billion plus the right to receive deferred contingent portions of the total purchase price of $1 billion plus a participation in the residual, each of which is subordinated to the repayment of a loan from the New York Fed to ML II. Neither AIG nor the Company have any control rights over ML II. The Company has determined that ML II is a VIE and the Company is not the primary beneficiary. The transfer of RMBS to ML II has been accounted for as a sale. The Company has elected to account for its economic interest in ML II (including the rights to the deferred contingent purchase price) at fair value. This interest is reported in fixed maturity securities, trading, with changes in fair value reported as a component of net investment income. See Note 3 herein for further discussion of the Company's fair value methodology and the valuation of ML II. Net unrealized losses included in the statements of income (loss) from fixed maturity securities classified as trading securities in 2009 and 2008 were $2.4 million and $8.4 million, respectively. The Company did not have any trading securities in 2007. See Note 7 herein for additional information regarding AIG's U.S. Securities Lending Program ("the Securities Lending Program") and the sale of the RMBS to ML II. 30 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) MORTGAGE LOANS ON REAL ESTATE At December 31, 2009, the Company had direct commercial mortgage loan exposure of $487.5 million representing U.S. loan exposure. At that date, substantially all of the U.S. loans were current. The Company does not currently have any foreign commercial mortgage loans. The U.S. commercial loan exposure by state and type of loan, at December 31, 2009, were as follows:
State # of Loans Amount * Apartments Offices Retails Industrials Hotels Others % of Total ----- ---------- -------- ---------- -------- ------- ----------- ------- ------- ---------- ($ in Thousands) California... 14 $107,120 $13,787 $ 35,352 $ -- $23,640 $ -- $34,341 22.0% New York..... 6 89,330 18,196 64,827 6,307 -- -- -- 18.3% New Jersey... 4 44,276 29,770 -- 14,506 -- -- -- 9.1% Tennessee.... 3 31,629 -- 6,858 24,771 -- -- -- 6.5% Florida...... 3 30,619 -- 14,857 15,762 -- -- -- 6.3% Other states. 25 184,558 22,762 75,090 10,985 23,978 47,217 4,526 37.8% -- -------- ------- -------- ------- ------- ------- ------- ----- Total..... 55 $487,532 $84,515 $196,984 $72,331 $47,618 $47,217 $38,867 100.0% == ======== ======= ======== ======= ======= ======= ======= =====
-------- * Excludes portfolio valuation allowance The Company's mortgage and other loan valuation allowance activity are as follows:
2009 2008 2007 ---- ---- ---- (In Thousands) Allowance, beginning of year................. $ -- $-- $-- Additions to allowance for losses......... 579 -- -- Charge-offs, net of recoveries............ -- -- -- ---- --- --- Allowance, end of year....................... $579 $-- $-- ==== === ===
The Company did not have any impaired mortgage loans as of December 31, 2009 and 2008, respectively. INVESTMENT INCOME Investment income by type of investment was as follows for the years ended December 31:
2009 2008 2007 -------- -------- -------- (In Thousands) Investment income: Fixed maturities....................... $414,412 $432,622 $476,371 Equity securities...................... 810 1,141 1,323 Mortgage and other loans............... 40,962 34,257 37,067 Policy loans........................... 18,965 12,238 14,554 Investment real estate................. 4,282 (3,558) 6,483 Partnerships and other invested assets. 11,373 (14,153) 31,562 Securities lending..................... 382 16,247 2,102 Other investment income................ 1,825 5,582 4,440 -------- -------- -------- Gross investment income................... 493,011 484,376 573,902 Investment expenses....................... (9,817) (893) (13,003) -------- -------- -------- Net investment income..................... $483,194 $483,483 $560,899 ======== ======== ========
31 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The carrying value of investments that produced no investment income during 2009 was $63.2 million, which is less than 0.9 percent of total invested assets. The ultimate disposition of these investments is not expected to have a material effect on the Company's results of operations and financial position. NET REALIZED INVESTMENT GAINS (LOSSES) Realized gains (losses) by type of investment were as follows for the years ended December 31:
2009 2008 2007 -------- ----------- -------- (In Thousands) Sales of fixed maturity securities, available for sale: Gross gains......................................... $102,616 $ 100,513 $ 26,289 Gross losses........................................ (37,892) (165,036) (30,347) Sales of equity securities, available for sale: Gross gains......................................... 1,555 1,212 1,162 Gross losses........................................ (844) (57) -- Partnerships and other invested assets: Gross gains......................................... 2,503 -- 7,517 Gross losses........................................ (11,625) (6,795) (1,313) Derivatives: Gross gains......................................... -- 45,872 8,177 Gross losses........................................ (15,054) (75,715) (4,386) Securities lending collateral, including other-than-temporary impairments..................... (835) (870,817) (39,151) Other-than-temporary impairments: Total other-than-temporary impairments on available for sale securities............................... (60,580) (438,394) (65,528) Portion of other-than-temporary impairments on available for sale fixed maturity securities recognized in accumulated other comprehensive income (loss)..................................... (1,979) -- -- -------- ----------- -------- Net other-than-temporary impairments on available for sale securities recognized in net income (loss)...... (62,559) (438,394) (65,528) Other-than-temporary impairments on all other investments.......................................... (9,051) -- -- -------- ----------- -------- Net realized investment losses before taxes............ $(31,186) $(1,409,217) $(97,580) ======== =========== ========
32 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) CREDIT IMPAIRMENTS The following table presents a rollforward of the credit impairments recognized in earnings for available for sale fixed maturity securities held by the Company at December 31, 2009:
(In Thousands) -------------- NINE MONTHS ENDED DECEMBER 31, 2009 Balance, March 31, 2009................................................................................. $ -- Increases due to: Credit losses remaining in accumulated deficit related to adoption of new other-than-temporary impairement standard............................................................................... 90,041 Credit impairments on new securities subject to impairment losses.................................... 6,143 Additional credit impairments on previously impaired securities...................................... 16,744 Reductions due to: Credit impaired securities fully disposed for which there was no prior intent or requirement to sell. (14,037) Accretion on securities previously impaired due to credit............................................ (5,137) -------- Balance, December 31, 2009.............................................................................. $ 93,754 ========
5. DERIVATIVE FINANCIAL INSTRUMENTS The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk and credit risk. See Notes 2 and 3 for further discussion on derivative financial instruments. The following table presents the notional amount and gross fair value of derivative financial instruments, by their underlying risk exposure, excluding embedded derivatives, held at:
Derivative Assets Derivative Liabilities -------------------- ---------------------- Notional Fair Notional Fair Amount (a) Value (b) Amount (a) Value (b) ---------- --------- ---------- --------- (In Thousands) December 31, 2009 Derivatives not designated as hedging instruments: Interest rate contracts......................... $ -- $ -- $204,535 $ 8,781 Foreign exchange contracts...................... 16,891 2,043 38,083 6,049 ------- ------- -------- ------- Total derivatives.................................. $16,891 $ 2,043 $242,618 $14,830 ======= ======= ======== ======= Derivative Assets Derivative Liabilities -------------------- ---------------------- Notional Fair Notional Fair Amount (a) Value (b) Amount (a) Value (b) ---------- --------- ---------- --------- (In Thousands) December 31, 2008 Derivatives not designated as hedging instruments: Interest rate contracts......................... $ -- $ -- $204,535 $11,724 Foreign exchange contracts...................... 55,000 12,467 23,083 3,589 ------- ------- -------- ------- Total derivatives.................................. $55,000 $12,467 $227,618 $15,313 ======= ======= ======== =======
-------- (a)Notional amount represents a standard of measurement of the volume of derivatives. Notional amount is generally not a quantification of market risk or credit risk and is not recorded on the balance sheets. Notional amounts generally represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received, except for certain contracts such as currency swaps. 33 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) (b)Fair value amounts are shown before the effects of counterparty adjustments. See Note 3 for additional information regarding the Company's fair value measurement of derivative instruments. The Company's interest rate contracts include interest rate swaps. The interest rate swap agreements convert specific investment securities from a floating to a fixed-rate basis and are used to mitigate the impact of changes in interest rates on certain investment securities. Foreign exchange contracts used by the Company include cross-currency interest rate 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. Derivative instruments are reported as assets or liabilities based on the Company's net position with each counterparty, in accordance with the Company's signed master netting agreements. The derivative instruments reported in the preceding table are recorded in the balance sheets at fair value as follows:
2009 2008 -------- -------- (In Thousands) Derivative assets....................... $ 2,043 $ 12,467 Derivative liabilities.................. (14,830) (15,313) -------- -------- Total net derivative liability.......... $(12,787) $ (2,846) ======== ========
The Company recorded the following change in value of its derivative financial instruments, including periodic net coupon settlements, in net realized investment gains (losses) in the statements of income (loss):
2009 2008 2007 -------- -------- ------- (In Thousands) Derivatives not designated as hedging instruments Interest rate contracts........................ $ (3,529) $ 13,321 $ 6,622 Foreign exchange contracts..................... (11,525) 24,832 (2,831) Other contracts................................ -- (67,996) -- -------- -------- ------- Total............................................. $(15,054) $(29,843) $ 3,791 ======== ======== =======
The Company is exposed to potential credit-related losses in the event of nonperformance by counterparties to financial instruments. At December 31, 2009 and 2008, the Company had $14.5 million and $14.0 million, respectively, of net derivative liabilities outstanding with AIG Financial Products Corp., an affiliated company. The credit exposure of the Company's derivative financial instruments is limited to the fair value of contracts that are favorable to the Company at the reporting date. 6. VARIABLE INTEREST ENTITIES The accounting standard related to the consolidation of variable interest entities provides guidance for determining when to consolidate certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity that is at risk to allow the entity to finance its activities without additional subordinated financial support. This standard recognizes that consolidation based on majority voting interest should not apply to these variable interest entities. A VIE is consolidated by its primary beneficiary, which is the party or group of related parties that absorbs a majority of the expected losses of the VIE, receives the majority of the expected residual returns of the VIE, or both. The Company enters into various arrangements with VIEs in the normal course of business. The Company is involved with VIEs primarily as passive investors in debt securities (rated and unrated) and equity interests issued by VIEs. 34 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The Company generally determines whether it is the primary beneficiary or a significant interest holder based on a qualitative assessment of the VIE. This includes a review of the VIE's capital structure, contractual relationships and terms, nature of the VIE's operations and purpose, nature of the VIE's interests issued, and the Company's interests in the entity which either create or absorb variability. The Company evaluates the design of the VIE and the related risks the entity was designed to expose the variable interest holders to in evaluating consolidation. In limited cases, when it may be unclear from a qualitative standpoint if the Company is the primary beneficiary, the Company uses a quantitative analysis to calculate the probability weighted expected losses and probability weighted expected residual returns using cash flow modeling. The Company had no off balance sheet exposure associated with VIEs at December 31, 2009 and 2008. The Company defines a variable interest as significant relative to the materiality of its interest in the VIE. The Company calculates its maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where the Company has also provided credit protection to the VIE with the VIE as the referenced obligation, or (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by the Company generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to the Company, except in limited circumstances when the Company has provided a guarantee to the VIE's interest holders. The following table presents total assets of unconsolidated VIEs in which the Company holds a significant variable interest and the Company's maximum exposure to loss associated with these VIEs:
Maximum Exposure to Loss ------------------- Total VIE Purchased and Assets Retained Interests ----------- ------------------- (In Thousands) December 31, 2009 CDOs.............. $ 236,769 $40,149 Maiden Lane II.... 15,911,177 29,672 ----------- ------- Total............. $16,147,946 $69,821 =========== ======= December 31, 2008 CDOs.............. $ 305,900 $35,794 Maiden Lane II.... 19,190,000 30,665 ----------- ------- Total............. $19,495,900 $66,459 =========== =======
Balance Sheet Classification The Company's interest in the assets of unconsolidated VIEs were classified on the Company's balance sheets as follows:
At December 31, --------------- 2009 2008 ------- ------- (In Thousands) Assets: Available for sale securities. $40,149 $35,794 Trading securities............ 29,672 30,665 ------- ------- Total assets..................... $69,821 $66,459 ======= =======
35 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) CDOs The Company invests in CDOs. In CDO transactions, a special purpose entity purchases a portfolio of assets such as bank loans, corporate debt, or non-performing credits and issues trust certificates or debt securities that represent interests in the portfolio of assets. These transactions can be cash-based or synthetic and are actively or passively managed. Maiden Lane II On December 12, 2008, the Company and certain other domestic insurance subsidiaries sold all of their undivided interests in a pool of $39.3 billion face amount of RMBS to ML II. The Company has a significant variable economic interest in ML II, which is a VIE. See Note 7 herein for further discussion. 7. SECURITIES LENDING PROGRAM The Company and certain other wholly owned U.S. insurance company subsidiaries of AIG historically participated in the Securities Lending Program, which was managed by an affiliated agent, AIG Securities Lending Corp. (the "Agent") and an affiliated investment advisor for the benefit of the insurance company participants (collectively, "the Participants"). During the fourth quarter of 2008, in connection with certain securities lending transactions, the Company met the requirements for sale accounting because collateral received from the counterparties was insufficient to fund substantially all of the cost of purchasing replacement assets. Accordingly, the Company accounted for such lending transactions as sales combined with forward purchase commitments, rather than as secured borrowings. On December 12, 2008, the Securities Lending Program was terminated following the sale of long-term investments held by the Agent in the Securities Lending Program's collateral account and the settlement of all outstanding securities lending transactions. Prior to the termination of the Securities Lending Program, the Participants recognized realized capital losses on other-than-temporary impairments and sales of the long-term investments. AIG made capital contributions to the Participants, which were funded directly to the Securities Lending Program's collateral account, and which largely offset the obligations of the Participants to contribute to the collateral account their pro rata share of any investment losses incurred. The Company recorded the following amounts in 2008 related to the Securities Lending Program:
(In Thousands) For the year ended December 31, 2008: Realized losses on securities lending collateral: Net realized losses on RMBS sold to ML II................................. $ (85,358) Net realized losses on all other asset sales.............................. (86,097) Realized losses due to other-than-temporary declines in value............. (699,363) --------- Total................................................................. $(870,818) ========= Net realized losses related to lent securities with insufficient collateral: Deemed sales of lent securities........................................... $ (12,556) Forward purchase commitments.............................................. (67,996) --------- Total................................................................. $ (80,552) =========
36 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) At December 31, 2008, the Company's assets included undistributed funds held in the Securities Lending Program collateral account and a receivable from affiliate for amounts due to the Company from the Agent. The Company received settlement of the following amounts during 2009, and terminated its securities lending agency agreement with the Agent effective as of December 31, 2009:
December 31, -------------- 2009 2008 ---- ------ (In Thousands) Undistributed Securities Lending Program assets, in short term investments. $-- $8,554 Receivable from affiliated Agent, in amounts due from related parties...... $-- $7,480
On September 19, 2008, a proceeding was commenced pursuant to the provisions of the Securities Investor Protection Act of 1970 ("SIPA") with respect to Lehman Brothers Inc. ("Lehman") and a trustee was appointed to administer the Lehman estate. On that date, securities owned by the Company and certain other Participants (collectively, the "Affected Participants") were on loan to Lehman under a master securities lending agreement (the "MSLA"). The commencement of this SIPA proceeding constituted an event of default under the MSLA, and the lent securities were not returned by Lehman. The Affected Participants reported the lent securities that were not returned by Lehman as sales. As a result of the default, the Affected Participants exercised their remedies under the MSLA to apply collateral held against the amounts owed by Lehman. On November 17, 2008, the Participants instructed the Agent to distribute assets from the Securities Lending Program collateral account having an aggregate fair value equal to the aggregate fair value of the unreturned lent securities on that date. The assets distributed included corporate credit and other asset-backed securities, which were recorded by the Affected Participants in fixed maturity securities, available for sale. The remaining collateral held with respect to securities loaned to Lehman was distributed in cash to the Affected Participants on December 30, 2008 and is reflected in other liabilities at December 31, 2009 and 2008. Maiden Lane II On December 12, 2008, in conjunction with the termination of the Securities Lending Program, AIG, the Participants and the Agent entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with ML II. Pursuant to the Asset Purchase Agreement, the Participants sold to ML II all of their undivided interests in a pool of $39.3 billion par amount of RMBS held in the Securities Lending Program's collateral account. In exchange for the RMBS, the Participants received an initial purchase price of $19.8 billion plus the right to receive deferred contingent portions of the total purchase price, as described below. The total purchase price was based on the fair value of the RMBS as of October 31, 2008, and the Participants recognized a realized loss of $2.2 billion on the transaction. The amount of the initial payment and the deferred contingent portions of the total purchase price were allocated among the Participants based on their respective ownership interests in the pool of RMBS as of September 30, 2008. Pursuant to a credit agreement, the New York Fed, as senior lender, made a loan to ML II (the "ML II Senior Loan") in the aggregate amount of $19.5 billion (such amount being the cash purchase price of the RMBS payable by ML II on the closing date after certain adjustments, including payments on RMBS for the period between the transaction settlement date of October 31, 2008 and the closing date of December 12, 2008). The ML II Senior Loan is secured by a first priority security interest in the RMBS and all property of ML II, bears interest at a rate per annum equal to one-month London Interbank Offered Rate ("LIBOR") plus 1.0 percent and has a stated six-year term, subject to extension by the New York Fed at its sole discretion. After the ML II Senior Loan has been repaid in full, to the extent there are sufficient net cash proceeds from the RMBS, the Participants will be entitled to receive from ML II a portion of the deferred contingent purchase price in the amount of up to $1.0 billion plus interest that accrues from the closing date and is capitalized monthly at the rate of one-month LIBOR plus 3.0 percent. Upon payment in full of the ML II Senior Loan and the accrued distributions on the Participants' fixed portion of the deferred contingent purchase price, all remaining amounts received by ML II will be paid five-sixths to the New York Fed as contingent interest and one-sixth to the Participants as remaining deferred contingent purchase price. The New York Fed will 37 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) have sole control over ML II and the sales of the RMBS by ML II so long as the New York Fed has any interest in the ML II Senior Loan. 8. DEFERRED POLICY ACQUISITIONS COSTS The following table summarizes the activity in DAC:
2009 2008 2007 -------- -------- -------- (In Thousands) Balance at January 1....................................................... $132,682 $166,057 $205,679 Deferrals............................................................... 3,128 2,004 5,671 Accretion of interest/amortization...................................... (15,108) (31,885) (46,696) Effect of unlocking assumptions used in estimating future gross profits. -- (3,494) (1,834) Effect of realized gains on securities.................................. -- -- (981) Effect of unrealized losses on securities............................... -- -- 4,218 -------- -------- -------- Balance at December 31..................................................... $120,702 $132,682 $166,057 ======== ======== ========
In accordance with GAAP, the Company periodically unlocks assumptions as necessary. Depending on the product, DAC, URR and other required reserves may be affected. In 2009, there were no prospective unlockings implemented. In 2008 and 2007, DAC amortization increased due to unlocking of lapse assumptions on certain deferred annuity products. During 2009, the Company continued to migrate certain blocks of reserves and deferred acquisition costs from various legacy valuation systems to a new valuation system. There were no conversions implemented during 2009. During 2008, conversions represented approximately $1.6 billion of reserves and $9.1 million of DAC. 9. FUTURE POLICY BENEFITS AND POLICYHOLDER CONTRACT DEPOSITS Future policy benefits and policyholder contract deposit liabilities were as follows at December 31:
2009 2008 ---------- ---------- (In Thousands) Future policy benefits: Ordinary life................... $ 50,193 $ 45,769 Group life...................... 20,836 20,180 Life contingent annuities....... 1,441,443 1,428,480 Terminal funding................ 1,013,505 1,062,307 Accident and health............. 174,069 162,478 ---------- ---------- Total.............................. $2,700,046 $2,719,214 ========== ========== Policyholder contract deposits: Annuities....................... $1,062,110 $1,239,536 Guaranteed investment contracts. 210,217 212,207 Corporate-owned life insurance.. 1,791,235 1,768,866 Universal life.................. 586,250 515,922 Other contract deposits......... 19,417 21,123 ---------- ---------- Total.............................. $3,669,229 $3,757,654 ========== ==========
38 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) For interest-sensitive life insurance and investment contracts, reserves equal the sum of the policy account balance and deferred revenue charges, and as applicable, other required reserves. Reserves for other contracts are based on estimates of the cost of future policy benefits. Interest, mortality, and surrender assumptions vary by product and are generally based upon actual experience at the time of issue. Interest assumptions used to compute individual life reserves ranged from 3.0 percent to 9.0 percent. The liability for future policy benefits has been established based upon the following assumptions: . Interest rates (exclusive of immediate/terminal funding annuities), which vary by year of issuance and products, range from 3.0 percent to 9.0 percent. Interest rates on immediate/terminal funding annuities are at a maximum of 9.6 percent and grade to not less than 1.3 percent. . Mortality and withdrawal rates are based upon actual experience modified to allow for variations in policy form. The weighted average lapse rate, including surrenders, for individual and group life approximated 18.0 percent. The liability for policyholder contract deposits has been established based on the following assumptions: . Interest rates credited for deferred annuities vary by year of issuance and range from 3.0 percent to 4.5 percent. This range is applicable to deferred annuity contracts where the crediting rates are not directly based on equity market returns. Current declared interest rates are generally guaranteed to remain in effect for a period of one year. Withdrawal charges generally range from 0.0 percent to 6.0 percent, grading to zero over a period of 0 to 7 years. . Guaranteed investment contracts ("GICs") have market value withdrawal provisions for any funds withdrawn other than benefit responsive payments. Interest rates credited generally range from 1.2 percent to 6.2 percent and maturities range from 1 to 8 years. The average maturity of these GICs is 1 year. . Interest rates on corporate-owned life insurance are guaranteed at 4.0 percent, and the weighted average rate credited in 2009 was 4.9 percent. . The universal life policies, exclusive of corporate-owned life insurance business, have credited interest rates of 4.0 percent to 6.5 percent and guarantees ranging from 3.0 percent to 5.5 percent depending on the year of issue. Additionally, universal life policies are subject to surrender charges that amount to 1.9 percent of the fund balance and grade to zero over a period not longer than 20 years. GMDB Details concerning the Company's GMDB exposure (net of reinsurance) including a return of net deposits plus a minimum return as of December 31 were as follows:
2009 2008 ------------- ------------- ($ In Thousands) Account value................................ $ 752,017 $ 753,072 Net amount at risk (a)....................... 75,319 105,059 Average attained age of contract holders..... 72 74 Range of guaranteed minimum return rates..... 0.00%-10.00% 0.00%-10.00%
-------- (a)Net amount at risk represents the guaranteed benefit exposure in excess of the current account value if all contract holders died at the same balance sheet date. 39 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) The following summarizes the reserve for guaranteed benefits (net of reinsurance) on variable contracts. The gross reserve is reflected in the general account and reported in future policy benefits on the balance sheets:
2009 2008 -------- ------- (In Thousands) Balance at January 1......... $ 400 $ 400 Guaranteed benefits incurred. 23,978 1,649 Guaranteed benefits paid..... (22,172) (1,649) -------- ------- Balance at December 31....... $ 2,206 $ 400 ======== =======
The following assumptions and methodology were used to determine the reserve for guaranteed benefits at December 31, 2009 and 2008: . Data used was 1,000 stochastically generated investment performance scenarios. . Mean investment performance assumption was 10 percent. . Volatility assumption was 16 percent. . Mortality was assumed to be 87.5 percent of the 1975-80 SOA Ultimate table. . Lapse rates vary by contract type and duration and range from 5 percent to 25 percent with an average of 15 percent. . The discount rate was 8 percent. 10. REINSURANCE The Company generally limits its exposure to loss on any single insured to $10.0 million by ceding additional risks through reinsurance contracts with other insurers. On an exception basis, the Company can increase its exposure to loss on any single insured up to $15.0 million. The Company diversifies its risk of reinsurance loss by using a number of reinsurers that have strong claims-paying ability ratings. If the reinsurer could not meet its obligations, the Company would reassume the liability, as the Company remains primarily liable to the policyholder. A receivable is recorded for reinsured benefits, both paid and pending, which are recoverable from the reinsurer. Reinsurance premiums are recognized over the life of the reinsured policies using assumptions consistent with those used to account for the underlying policies. 40 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Reinsurance transactions for the years ended December 31, 2009, 2008 and 2007 were as follows:
Percentage Assumed From of Amount Ceded to Other Other Assumed Gross Amount Companies Companies Net Amount to Net ------------ -------------- ------------ ----------- ---------- (In Thousands) December 31, 2009 Life insurance in force............ $40,701,817 $16,971,611 $112,085 $23,842,291 0.47% =========== =========== ======== =========== Premiums: Life insurance and annuities.... 95,994 67,078 (1,000) 27,916 -3.58% Accident and health insurance... 198,399 117,672 -- 80,727 0.00% ----------- ----------- -------- ----------- Total premiums..................... $ 294,393 $ 184,750 $ (1,000) $ 108,643 -0.92% =========== =========== ======== =========== December 31, 2008 Life insurance in force............ $45,342,380 $17,166,796 $ -- $28,175,584 0.00% =========== =========== ======== =========== Premiums: Life insurance and annuities.... 205,351 62,192 -- 143,159 0.00% Accident and health insurance... 281,182 203,994 -- 77,188 0.00% ----------- ----------- -------- ----------- Total premiums..................... $ 486,533 $ 266,186 $ -- $ 220,347 0.00% =========== =========== ======== =========== December 31, 2007 Life insurance in force............ $46,585,927 $ 9,389,673 $ -- $37,196,254 0.00% =========== =========== ======== =========== Premiums: Life insurance and annuities.... 265,561 57,473 -- 208,088 0.00% Accident and health insurance... 331,267 266,976 -- 64,291 0.00% ----------- ----------- -------- ----------- Total premiums..................... $ 596,828 $ 324,449 $ -- $ 272,379 0.00% =========== =========== ======== ===========
The Company's reinsurance agreements do not relieve it from its direct obligations to its insureds. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial strength of its reinsurers and monitors concentration of credit risk arising from similar characteristics among the reinsurers. Total reinsurance recoverables are included in reinsurance receivables on the balance sheets. Reinsurance recoverable on paid losses was approximately $12.9 million at December 31, 2009 and 2008. Reinsurance recoverable on unpaid losses was approximately $22.9 million, and $21.8 million at December 31, 2009 and 2008, respectively. Ceded claim and surrender recoveries under reinsurance agreements were $152.9 million, $208.2 million and $210.6 million for the years ended 2009, 2008 and 2007 respectively. In 2003, the Company entered into a coinsurance/modified coinsurance agreement with AIG Life of Bermuda, Ltd. ("AIGB"), an affiliate. The agreement has an effective date of January 1, 2003. Under the agreement, AIGB reinsures a 100 percent quota share of the Company's liability on selective level term products and universal life products issued by the Company. The agreement is unlimited in duration but either party may terminate the agreement as to new business with thirty days written notice to the other party. The agreement also provides for an experience refund of all profits, less a reinsurance risk charge. This agreement does not meet the criteria for reinsurance accounting under GAAP, therefore, deposit accounting is applied. Effective July 1, 2009, the Company entered into an inter-company reinsurance agreement with Delaware American Life Insurance Company ("DelAm"), an affiliate, to assume, on a 100 percent coinsurance basis, all ordinary life and annuity business. As part of this treaty, the net benefits and claims settlement payments payable by the Company 41 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) were assumed and the reinsured contracts will be administered by the Company in accordance with the Administrative Service Agreement dated July 1, 2009. During 2009, the Company fully terminated and recaptured its reinsurance contract with American International Assurance Company, an affiliate of the company. The recapture resulted in a loss of $0.1 million. 11. COMMITMENTS AND CONTINGENT LIABILITIES COMMITMENTS Commitments to Fund Partnership Investments The Company had unfunded commitments for its limited partnership investments totaling $122.0 million at December 31, 2009. 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 commitments but may elect to do so. CONTINGENT LIABILITIES Legal and Regulatory Matters 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 economic damages alleged to have been incurred. Based upon information presently available, the Company believes that the total amounts 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 economic damages incurred by plaintiffs in some jurisdictions continues to create the potential for an unpredictable judgment in any given suit. All fifty states have laws requiring solvent life insurance companies to pay assessments to protect the interests of policyholders of insolvent life insurance and annuity companies. The Company recognizes a liability for insurance-related assessments when all of the following three conditions have been met: (i) an assessment has been imposed or information available prior to the issuance of financial statements indicates it is probable that an assessment will be imposed, (ii) the event obligating the Company to pay an imposed or probable assessment occurred on or before the date of the financial statements, and (iii) the amount of the assessment can be reasonably estimated. The December 31, 2009 liability was estimated by the Company using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. While it is not possible to exactly estimate the portion of the industry assessments for which the Company will be responsible, it is expected that any difference between the estimated assessments and the actual assessments will not be material to the Company's results of operations and financial position. 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 adverse effect on the financial position, results of operations or cash flows of the Company. In February 2006, AIG reached a resolution of claims and matters under investigation with the United States Department of Justice ("DOJ"), the U.S. Securities and Exchange Commission ("SEC"), the Office of the New York Attorney General ("NYAG") and the New York State Department of Insurance ("DOI"). The settlements resolved outstanding investigations conducted by the SEC, NYAG and DOI in connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments. As a result of the 42 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) settlements, the Company obtained temporary permission from the SEC to continue to serve as a depositor for separate accounts. The Company received permanent permission from the SEC in September 2007. 12. SHAREHOLDER'S EQUITY Capital contributions received by the Company for the years ended December 31 were as follows:
2009 2008 2007 --------- --------- --------- (In Thousands) Cash from Parent.............................................. $ 50,000 $ 50,000 $ -- Contributions related to Securities Lending Program........... -- 685,685 6,302 --------- --------- --------- Total cash contributions........................... 50,000 735,685 6,302 Contributions of securities at fair value..................... -- 178,870 -- All other non cash contributions.............................. 502 -- -- --------- --------- --------- Total capital contributions........................ $ 50,502 $ 914,555 $ 6,302 ========= ========= ========= The components of accumulated other comprehensive income (loss) at December 31 were as follows: 2009 2008 2007 --------- --------- --------- (In Thousands) Fixed maturity and equity securities, available for sale: Gross unrealized gains..................................... $ 393,989 $ 181,773 $ 295,894 Gross unrealized losses.................................... (282,316) (468,800) (285,170) Net unrealized gains (losses) on other invested assets........ 4,427 (531) 688 Deferred federal and state income tax benefit (expense)....... (33,709) 100,646 (3,994) --------- --------- --------- Accumulated other comprehensive income (loss) (a).......... $ 82,391 $(186,912) $ 7,418 ========= ========= =========
-------- (a)Includes a decrease of $181.2 million related to the cumulative effect of adopting a new other-than-temporary impairment accounting standard. Dividends that the Company may pay to the Parent in any year without prior approval of the Delaware Department of Insurance are limited by statute. The maximum amount of dividends which can be paid to shareholders of insurance companies domiciled in the state of Delaware without obtaining the prior approval of the Insurance Commissioner is limited to the greater of either 10 percent of the preceding year's statutory surplus or the preceding year's statutory net gain from operations. No dividends can be paid in 2010 without prior approval of the Insurance Commissioner as the Company has negative unassigned surplus as of December 31, 2009. The Company is required to file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by state insurance regulatory authorities. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, excluding certain assets from statutory admitted assets and valuing investments and establishing deferred taxes on a different basis. There were no permitted practices used by the Company at December 31, 2009. Statutory net income (loss) and capital and surplus of the Company at December 31 were as follows:
2009 2008 2007 -------- --------- -------- (In Thousands) Statutory net income (loss)... $(23,177) $(879,252) $ 37,687 Statutory capital and surplus. $454,784 $ 360,687 $444,806
43 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) 13. FEDERAL INCOME TAXES The components of the provision for income taxes on pretax income for the years ended December 31 were as follows:
2009 2008 2007 -------- --------- -------- (In Thousands) Current...................................... $ 56,746 $(319,589) $ 23,694 Deferred..................................... (78,801) 336,597 (19,967) -------- --------- -------- Total income tax expense (benefit)........... $(22,055) $ 17,008 $ 3,727 ======== ========= ========
The US statutory income tax rate is 35 percent for 2009, 2008 and 2007. Actual tax expense on income differs from the statutory amount computed by applying the federal income tax rate for the years ended December 31 due to the following:
2009 2008 2007 -------- --------- ------- (In Thousands) US federal income tax (benefit) at statutory rate....................................... $ 24,224 $(464,587) $ 9,829 Adjustments: Valuation allowance....................... (45,757) 486,481 -- State income tax.......................... 1,294 (73) (981) Dividends received deduction.............. (1,895) (2,453) (2,750) IRS audit settlements..................... 513 (1,882) (2,379) Prior year corrections.................... (374) (529) 8 Other credits, taxes and settlements...... (60) 51 -- -------- --------- ------- Total income tax expense (benefit)........... $(22,055) $ 17,008 $ 3,727 ======== ========= =======
44 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. The significant components of deferred tax assets and liabilities at December 31 are as follows:
2009 2008 --------- --------- (In Thousands) Deferred tax assets: Excess capital losses and other tax carryovers......................... $ 335,119 $ 319,656 Basis differential of investments...................................... 63,834 215,427 Net unrealized losses on debt and equity securities available for sale. -- 100,662 State deferred tax benefits............................................ -- 619 Policy reserves........................................................ 49,928 -- Other.................................................................. 7,609 -- --------- --------- Total deferred tax assets before valuation allowance................... 456,490 636,364 Valuation allowance.................................................... (365,130) (486,481) --------- --------- Total deferred tax assets.............................................. 91,360 149,883 --------- --------- Deferred tax liabilities applicable to: Deferred policy acquisition costs...................................... (42,247) (46,439) Net unrealized gains on debt and equity securities available for sale.. (40,635) -- State deferred tax liabilities......................................... (410) -- Policy reserves........................................................ -- (21,088) Other.................................................................. -- (5,294) --------- --------- Total deferred tax liabilities......................................... (83,292) (72,821) --------- --------- Net deferred tax asset.................................................... $ 8,068 $ 77,062 ========= =========
At December 31, 2009, the Company had capital loss carryforwards expiring through the year 2014 of $901 million. 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 will recognize tax benefits based upon the amount of the deduction and credits utilized in the consolidated federal income tax return. In general, realization of deferred tax assets depends on a company's ability to generate sufficient taxable income of the appropriate character within the carryforward periods in the jurisdictions in which the net operating losses and deductible temporary differences were incurred. The Company assessed its ability to realize the deferred tax asset of $456.5 million and concluded a $365.1 million valuation allowance was required to reduce the deferred tax asset at December 31, 2009 to an amount the Company believes is more likely than not to be realized. When making its assessment, the Company considered all available evidence, including the impact of being included in the consolidated federal tax return of AIG, future reversals of existing taxable temporary differences, estimated future GAAP taxable income, and tax planning strategies the Company would implement, if necessary, to realize the net deferred tax asset. In assessing future GAAP taxable income, the Company considered its strong earnings history exclusive of the recent losses on securities lending program, because the Company and AIG entered into transactions with the New York Fed to limit exposure to future losses. The Company also considered the taxable income from sales of businesses under the asset disposition plan of AIG, the continuing earnings strength of the businesses AIG intends to retain and AIG recently announced debt and preferred stock transactions with the New York Fed and the United States Department of the Treasury (the "Department of the Treasury"), respectively, together with other actions AIG is taking, when assessing the ability to generate sufficient future taxable income during the relevant carryforward periods to realize the deferred tax asset. 45 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Estimates of future taxable income generated from specific transactions and tax planning strategies discussed above could change in the near term, perhaps materially, which may require the Company to adjust its valuation allowance. Such adjustment, either positive or negative, could be material to the Company's financial condition or it results of operations for an individual period. In evaluating the realizability of the loss carryforwards, the Company considered the relief provided by Internal Revenue Service ("IRS") Notice 2008-84 which provides that the limitation on loss carryforwards that can arise as a result of one or more acquisitions of stock of a loss company will not apply to such stock acquisitions for any period during which the United States becomes a direct or indirect owner of more than 50 percent interest in the loss company. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
2009 2008 ------- ---- (In Thousands) Gross unrecognized tax benefits at beginning of period. $ -- $-- Increases in tax positions for prior years.......... 11,645 -- ------- --- Gross unrecognized tax benefits at end of period....... $11,645 $-- ======= ===
The Company continually evaluates proposed adjustments by taxing authorities. At December 31, 2009, such proposed adjustments would not result in a material change to the Company's financial condition. Although it is reasonably possible that a significant change in the balance of unrecognized tax benefits may occur within the next twelve months, at this time it is not possible to estimate the range of the change due to the uncertainty of the potential outcomes. At December 31, 2009 and 2008, the Company's unrecognized tax benefits, excluding interest and penalties, were $11.6 million and $0 million respectively. As of December 31, 2009 and 2008, there were no amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate. Interest and penalties related to unrecognized tax benefits are recognized in income tax expenses. At December 31 2009 and 2008, the Company had not accrued for the payment of interest (net of federal benefit) and penalties. For the year ended December 31, 2008, the Company did not recognize an expense of interest (net of federal benefit) or penalties in the statements of income (loss). The IRS is currently examining the Company's tax returns for the taxable years 2003 to 2005. 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 2001-2009 remain subject to examination by major tax jurisdictions. 14. RELATED-PARTY TRANSACTIONS Events Related to AIG In September 2008, AIG entered into an $85 billion revolving credit facility (the "Fed Facility") and a guarantee and pledge agreement with the New York Fed. Pursuant to the Fed Facility, on March 4, 2009, AIG issued 100,000 shares of Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share and at an initial liquidation preference of $5.00 per share (the "Series C Preferred Stock") to the AIG Credit Facility Trust, a trust established for the sole benefit of the Department of the Treasury. The Series C Preferred Stock is entitled to (i) participate in any dividends paid on the common stock, with the payments attributable to the Series C Preferred Stock being approximately 79.8 percent of the aggregate dividends paid on AIG's common stock, treating the Series C Preferred Stock as converted and (ii) to the extent permitted by law, vote with AIG's common stock on all matters submitted to AIG shareholders and hold approximately 79.8 percent of the aggregate voting power of the common 46 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) stock, treating the Series C Preferred Stock as converted. The Series C Preferred Stock will remain outstanding even if the Fed Facility is repaid in full or otherwise terminates. The Fed Facility obligations are guaranteed by certain AIG subsidiaries and the obligations are secured by a pledge of certain assets of AIG and its subsidiaries. The Company is not a guarantor of the Fed Facility obligations and it has not pledged any assets to secure those obligations. On March 2, 2009, AIG and the New York Fed announced their intent to enter into a transaction pursuant to which AIG will transfer to the New York Fed preferred equity interests in newly-formed special purpose vehicles ("SPVs"), in settlement of a portion of the outstanding balance of the Fed Facility. Each SPV will have (directly or indirectly) as its only asset 100 percent of the common stock of an operating subsidiary of AIG (American International Assurance Company, Limited, together with American International Assurance Company (Bermuda) Limited ("AIA") in one case and American Life Insurance Company ("ALICO") in the other). AIG expects to own the common interests of each SPV. In exchange for the preferred equity interests received by the New York Fed, there would be a concurrent substantial reduction in the outstanding balance and maximum available amount to be borrowed on the Fed Facility. On June 25, 2009, AIG and the New York Fed entered into definitive agreements with respect to these transactions. These transactions closed on December 1, 2009. In exchange for the preferred interests received by the New York Fed, there was a $25 billion reduction in the outstanding balance and maximum amount available to be borrowed under the Fed Facility. On March 2, 2009, AIG and the New York Fed also announced their intent to enter into a securitization transaction pursuant to which AIG will issue to the New York Fed senior certificates in one or more newly-formed SPVs backed by inforce blocks of life insurance policies in settlement of a portion of the outstanding balance of the Fed Facility. This transaction is no longer being pursued by AIG. On April 17, 2009, AIG entered into an exchange agreement with the Department of the Treasury pursuant to which, among other things, the Department of the Treasury exchanged 4,000,000 shares of the Series D Fixed Rate Cumulative Perpetual Preferred Stock, par value $5.00 per share, (the "Series D Preferred Stock") for 400,000 shares of AIG's Series E Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the "Series E Preferred Stock"). The exchange agreement permits the Department of the Treasury in certain circumstances to exchange a 10-year warrant to purchase 2,689,938.3 shares of common stock (the "Warrant") for 2,689,938.3 shares of Series C Preferred Stock. The Series D Preferred Stock and the Warrant were issued and sold by AIG pursuant to an agreement entered into on November 25, 2008, with the Department of the Treasury. On April 17, 2009, AIG and the New York Fed amended the terms of the Fed Facility to, among other things, remove the minimum 3.5 percent LIBOR. AIG also entered into a purchase agreement with the Department of the Treasury pursuant to which, among other things, AIG issued and sold to the Department of the Treasury 300,000 shares of Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the "Series F Preferred Stock"), each share with a zero initial liquidation preference, and a warrant to purchase up to 150 shares of common stock, par value $2.50 per share. Pursuant to the purchase agreement, the Department of the Treasury has committed for five years to provide immediately available funds in an amount up to $29.835 billion so long as (i) AIG is not a debtor in a pending case under Title 11 of the United States Code and (ii) the AIG Credit Facility Trust and the Department of the Treasury in the aggregate own more than 50 percent of the aggregate voting power of AIG's voting securities. The liquidation preference of AIG's Series F Preferred Stock will increase, on a pro rata basis, by the amount of any draw down on the commitment. The amount of funds available under the commitment will be decreased by the aggregate amount of financial assistance that the Department of the Treasury provides to AIG, its subsidiaries or any special purpose vehicle established by or for the benefit of AIG or any of its subsidiaries after April 17, 2009, unless otherwise specified by the Department of the Treasury, in its sole discretion, under the terms of such financial assistance. Since September 2008, AIG has been working to protect and enhance the value of its key businesses, execute an orderly asset disposition plan and position itself for the future. AIG continually reassesses this plan to maximize value while maintaining flexibility in its liquidity and capital, and expects to accomplish these objectives over a longer time frame than originally contemplated. AIG has decided to retain the companies included in its Life Insurance & Retirement Services operations (including the Company) and will continue to own these companies for the foreseeable future. 47 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Additional information on AIG is publicly available in its regulatory filings with the SEC. Information regarding AIG as described above is qualified by regulatory filings AIG files from time to time with the SEC. Operating Agreements The Company is party to several reinsurance agreements with its affiliates covering certain life and accident and health insurance risks. Premium income ceded to affiliates was $117.7 million, $202.1 million and $263.7 million for the years ended December 31, 2009, 2008 and 2007, respectively. Commission ceded to affiliates was $8.9 million, $18.1 million and $17.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. Please see Note 10 for information related to the Company's coinsurance/modified coinsurance agreement with AIGB and the coinsurance agreement with DelAm. 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, 2009, 2008 and 2007, the Company was charged $57.1 million, $45.6 million and $45.1 million, respectively, for expenses attributed to the Company. Accounts payable for such services at December 31, 2009 and 2008 were not material. Notes of Affiliates On December 7, 2005, the Company acquired 5.75 percent Senior Notes due December 14, 2015, issued by Transatlantic Holdings, Inc., an affiliate of the Company, at a cost of $29.9 million. Other affiliates of the Company are holders of the same class of securities. On June 10, 2009, AIG closed a public offering of 29.9 million shares of Transatlantic Holdings, Inc. common stock owned by AIG. At the close of the public offering, AIG retained 13.9 percent of Transatlantic Holdings, Inc. outstanding common stock. As a result, AIG deconsolidated Transatlantic and the Company's investment in Transatlantic Holdings, Inc. was no longer considered affiliated. The Company recognized interest income of $0.7 million, $1.7 million and $1.7 million on the Notes while they were still considered an affiliate during 2009, 2008 and 2007, respectively. Agreements with Affiliates National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), an indirect wholly owned subsidiary of AIG, has terminated the General Guarantee Agreement dated July 13, 1998 (the "Guarantee") with respect to prospectively issued policies and contracts issued by the Company. The Guarantee terminated on December 29, 2006 at 4:00 p.m. Eastern Time ("Point of Termination"). Pursuant to its terms, the Guarantee does not apply to any group or individual policy, contract or certificate issued after the Point of Termination. The Guarantee will continue to cover the policies, contracts and certificates with a date of issuance earlier than the Point of Termination until all insurance obligations under such policies, contracts and certificates are satisfied in full. National Union's audited statutory financial statements are filed with the SEC as part of the Company's registration statements for its variable products that were issued prior to the Point of Termination. The Company has a support agreement in effect between the Company and AIG (the "Support Agreement"), pursuant to which AIG will cause the Company to maintain a contract holders' surplus of not less than $1,000,000 or such greater amount as shall be sufficient to enable the Company to perform its obligations under any policy issued by it. The Support Agreement also provides that if the Company needs funds not otherwise available to it to make timely payment of its obligations under policies issued by it, AIG will provide such funds as the request of the Company. The Support Agreement is not a direct or indirect guarantee by AIG to any person of any obligation of the Company. AIG may terminate the Support Agreement with respect to outstanding obligations of the Company only under certain circumstances, including where the Company attains, without the benefit of the Support Agreement, a financial strength rating equivalent to that held by the Company with the benefit of the Support Agreement. Contract holders have the right to cause the Company to enforce it rights against AIG and, if the Company fails or refuses to take timely action to enforce the Support Agreement or if the Company defaults in any claim or payment owed to such contract holder when due, have the right to enforce the Support Agreement directly against AIG. 48 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) Other The Company engages in structured settlement transactions, certain of which transactions involve affiliated property and casualty insurance company members of the Chartis group of AIG. In a structured settlement arrangement, a property and casualty insurance policy claimant has agreed to settle a casualty insurance claim in exchange for fixed payments over either a fixed determinable period of time or a life contingent period. In such claim settlement arrangements, a casualty insurance claim payment provides the funding for the purchase of a single premium immediate annuity ("SPIA") issued by the Company for the ultimate benefit of the claimant. The portion of the Company's liabilities related to structured settlements involving life contingencies are reported in future policy benefits, while the portion not involving life contingencies are reported in policyholder contract deposits. In certain structured settlement arrangements the property and casualty insurance company remains contingently liable for the payments to the claimant. The Company carried liabilities of $876.5 million and $894.6 million at December 31, 2009 and 2008, respectively, related to SPIAs issued by the Company in conjunction with structured settlement transactions involving Chartis members where those Chartis members remained contingently liable for the payments to the claimant. In addition, the Company carried liabilities for the structured settlement transactions where the Chartis members were no longer contingently liable for the payments to the claimant. 15. BENEFIT PLANS The Company's employees participate in various benefit plans sponsored by AIG, including a noncontributory qualified defined benefit retirement plan, various stock option and purchase plans, a 401(k) plan and a post retirement benefit program for medical care and life insurance. AIG's U.S. plans do not separately identify projected benefit obligations and plan assets attributable to employees of participating affiliates. 16. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the financial statements were issued. On March 1, 2010, AIG announced a definitive agreement for the sale of the AIA, one of the world's largest pan-Asian life insurance companies, to Prudential plc for approximately $35.5 billion, including approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential plc, subject to closing adjustments. The cash portion of the proceeds from the sale will be used to redeem the preferred interests of the special purpose vehicle held by the New York Fed with a liquidation preference of approximately $16 billion and to repay approximately $9 billion under the Fed Facility. On March 8, 2010, AIG announced a definitive agreement for the sale of ALICO, one of the world's largest and most diversified international life insurance companies, to MetLife, Inc. ("MetLife") for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. The cash portion of the proceeds from this sale will be used to reduce the liquidation preference of the preferred interests of the special purpose vehicle held by the New York Fed. In connection with the preparation of its annual report on Form 10-K for the fiscal year ended December 31, 2009, management of AIG assessed whether AIG has the ability to continue as a going concern for the next twelve months. Based on the U.S. government's continuing commitment, the already completed transactions and the other expected transactions with the New York Fed, plans of AIG's management to stabilize AIG's businesses and dispose of certain assets, and after consideration of the risks and uncertainties of such plans, management of AIG believes that it will have adequate liquidity to finance and operate AIG's businesses, execute its asset disposition plan and repay its obligations during this period. It is possible that the actual outcome of one or more of the plans of AIG's management could be materially different, or that one or more of the significant judgments or estimates of AIG's management about the potential effects of these risks and uncertainties could prove to be materially incorrect, or that the transactions with the New York Fed previously discussed fail to achieve the desired objectives. If one or more of these possible outcomes is realized and financing is not available, AIG may need additional U.S. government support to meet its obligations as they come due. Without additional support from the U.S. government, in the future there could be substantial doubt about AIG's ability to continue as a going concern. If AIG were not able to continue as a going concern, management believes this could have a material effect upon the Company and its operations. 49 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE NOTES TO FINANCIAL STATEMENTS (Continued) AIG closed the sale of a portion of its asset management business to Pacific Century Group at the end of March 2010, and the divested portion of the asset management business has been branded as PineBridge Investments. In connection with the closing of the sale, the Company's investment advisory agreement previously entered into with AIG Global Investment Corp. was assigned to AIG Asset Management (U.S.), LLC ("AMG"), an AIG affiliate, and the majority of the Company's invested assets are currently managed by AMG. 50 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NAIC CODE: 19445 STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009 2008 AND 2007 TABLE OF CONTENTS ----------------- Report of Independent Auditors............................................... 2 Statements of Admitted Assets................................................ 3 Statements of Liabilities, Capital and Surplus............................... 4 Statements of Income and Changes in Capital and Surplus...................... 5 Statements of Cash Flow...................................................... 6 Notes to Statutory Basis Financial Statements................................ 7 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholder of National Union Fire Insurance Company of Pittsburgh, Pa.: We have audited the accompanying statutory statements of admitted assets and liabilities, capital and surplus of National Union Fire Insurance Company of Pittsburgh, Pa. (the Company) as of December 31, 2009 and 2008 and the related statutory statements of income and changes in capital and surplus, and of cash flow for each of the three years in the period ended December 31, 2009. 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 1 to the financial statements, the Company prepared these financial statements using accounting practices prescribed or permitted by the Insurance Department of the Commonwealth of Pennsylvania, 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, although not reasonably determinable, are presumed to be material. 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, 2009 and 2008, or the results of its operations or its cash flows for each of the three years then ended December 31, 2009. In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, capital and surplus of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years then ended December 31, 2009, on the basis of accounting described in Note 1. As described in Note 2 to the financial statements, during 2009 the Company adopted SSAP No. 10R, Income Taxes - Revised, A Temporary Replacement to SSAP No. 10 and SSAP No. 43 - Revised Loan-backed and Structured Securities. The Company has reflected the effects of these adoptions within Changes in accounting principles on the Statements of Changes in Capital and Surplus. /s/ PricewaterhouseCoopers LLP New York, NY May 3, 2010 2 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. STATEMENTS OF ADMITTED ASSETS STATUTORY BASIS AS OF DECEMBER 31, 2009 AND 2008 (000'S OMITTED)
AS OF DECEMBER 31, 2009 2008 ------------------------------------------------------------------------ ----------- ----------- Cash and invested assets: Bonds, at amortized cost (market value: 2009 - $12,919,764; 2008 - $12,050,220) $12,579,023 $12,882,016 Stocks: Common stocks, at market value adjusted for non admitted assets (cost: 2009 - $2,047,239; 2008 - $3,311,013) 6,984,703 8,904,447 Preferred stocks, primarily at carrying value (cost: 2009 - $939; 2008 - $2,027,448) 868 2,022,748 Other invested assets, primarily at equity (cost: 2009 - $2,520,966; 2008 - $2,353,985) 2,982,542 2,745,371 Short-term investments, at amortized cost (approximates market value) 2,107,181 1,060,462 Receivable for securities 479 6,702 Overdraft (210,789) (121,154) ----------- ----------- TOTAL CASH AND INVESTED ASSETS 24,444,007 27,500,592 ----------- ----------- Investment income due and accrued 203,895 185,779 Agents' balances or uncollected premiums: Premiums in course of collection 443,245 733,603 Premiums and installments booked but deferred and not yet due 407,860 431,375 Accrued retrospective premiums 1,589,026 1,643,235 Amounts billed and receivable from high deductible policies 13,004 24,378 Reinsurance recoverable on loss payments 498,748 679,579 Funds held by or deposited with reinsurers 25,712 27,005 Deposit accounting assets 1,684 559,534 Deposit accounting assets - funds held 93,433 93,433 Federal and foreign income taxes recoverable from affiliate 261,158 -- Net deferred tax assets 687,298 363,447 Receivable from parent, subsidiaries and affiliates 2,440,086 434,803 Equities in underwriting pools and associations 613,296 718,937 Other admitted assets 286,425 165,238 ----------- ----------- TOTAL ADMITTED ASSETS $32,008,877 $33,560,936 =========== ===========
See Notes to Statutory Basis Financial Statements 3 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. STATEMENTS OF LIABILITIES, CAPITAL AND SURPLUS STATUTORY BASIS AS OF DECEMBER 31, 2009 AND 2008 (000'S OMITTED EXCEPT SHARE INFORMATION)
AS OF DECEMBER 31, 2009 2008 ------------------------------------------------------------------- ----------- ----------- Liabilities ----------- Reserves for losses and loss adjustment expenses $13,570,308 $13,354,448 Unearned premium reserves 3,532,266 3,827,773 Commissions, premium taxes, and other expenses payable 224,027 320,011 Reinsurance payable on paid loss and loss adjustment expenses 221,875 508,685 Funds held by company under reinsurance treaties 157,702 179,991 Provision for reinsurance 93,549 100,847 Ceded reinsurance premiums payable, net of ceding commissions 302,391 469,110 Retroactive reinsurance reserves - assumed 7,357 7,372 Retroactive reinsurance reserves - ceded (2,140) (5,179) Deposit accounting liabilities 188,394 198,765 Deposit accounting liabilities - funds held -- 510,960 Collateral deposit liability 445,678 575,926 Payable to parent, subsidiaries and affiliates 328,754 1,304,782 Current federal and foreign income taxes payable to affiliates -- 167,471 Other liabilities 280,356 214,551 ----------- ----------- TOTAL LIABILITIES 19,350,517 21,735,513 ----------- ----------- Capital and Surplus ------------------- Common capital stock, $5.00 par value, 1,000,000 shares authorized; 895,750 shares issued and outstanding 4,479 4,479 Capital in excess of par value 5,290,047 4,119,285 Unassigned surplus 7,120,540 7,699,214 Special surplus tax - SSAP 10R 242,874 -- Special surplus funds from retroactive reinsurance 420 2,445 ----------- ----------- TOTAL CAPITAL AND SURPLUS 12,658,360 11,825,423 ----------- ----------- TOTAL LIABILITIES, CAPITAL, AND SURPLUS $32,008,877 $33,560,936 =========== ===========
See Notes to Statutory Basis Financial Statements 4 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. STATEMENTS OF INCOME AND CHANGES IN CAPITAL AND SURPLUS STATUTORY BASIS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
FOR THE YEARS ENDED DECEMBER 31, 2009 2008 2007 ---------------------------------------------------------------------------------- ----------- ----------- ----------- Statements of Income -------------------- Underwriting income: Premiums earned $ 6,071,466 $ 7,265,084 $ 7,666,749 ----------- ----------- ----------- Underwriting deductions: Losses incurred 4,753,215 4,907,821 4,470,750 Loss adjustment expenses incurred 774,866 766,180 861,826 Other underwriting expenses incurred 1,439,581 1,657,034 1,685,858 ----------- ----------- ----------- Total underwriting deductions 6,967,662 7,331,034 7,018,434 ----------- ----------- ----------- NET UNDERWRITING (LOSS) INCOME (896,196) (65,951) 648,315 ----------- ----------- ----------- Investment income: Net investment income earned 1,032,274 1,340,829 1,182,291 Net realized capital gains (loss) (net of capital gains taxes: 2009 - $930,452; 2008 - ($13,526); 2007 - $3,076) 352,053 133,771 (40,847) ----------- ----------- ----------- NET INVESTMENT GAIN 1,384,327 1,474,600 1,141,444 ----------- ----------- ----------- Net loss from agents' or premium balances charged-off (37,084) (50,530) (94,880) Finance and service charges not included in premiums 4,851 15,842 17,362 Other gain, net of dividends to policyholders 7,950 35,560 83,284 ----------- ----------- ----------- NET INCOME AFTER CAPITAL GAINS TAXES AND BEFORE FEDERAL INCOME TAXES 463,848 1,409,521 1,795,525 Federal income tax (benefit) expense (377,136) 39,777 510,618 ----------- ----------- ----------- NET INCOME $ 840,984 $ 1,369,744 $ 1,284,907 =========== =========== =========== Changes in Capital and Surplus ------------------------------ Capital and surplus, as of December 31, previous year: $11,825,423 $12,156,993 $10,420,212 Adjustment to beginning surplus (126,308) (9,665) (87,263) ----------- ----------- ----------- CAPITAL AND SURPLUS, AS OF JANUARY 1, 11,699,115 12,147,328 10,332,949 ----------- ----------- ----------- Changes in accounting principles (refer to Note 2) Adoption of SSAP 10R 242,874 -- -- Adoption of SSAP 43R (91,387) -- -- Other changes in capital and surplus: Net income 840,984 1,369,744 1,284,907 Change in net unrealized capital (loss) gains (net of capital gains taxes: 2009 - $(20,011); 2008 - $(221,853); 2007 - $81,239) (434,565) (766,210) 1,299,705 Change in net deferred income taxes 38,269 (172,349) 92,036 Change in non-admitted assets (201,784) (205,044) (3,270) Change in provision for reinsurance 7,298 20,867 13,267 Paid in capital and surplus 1,087,401 1,255,961 231,132 Dividends to stockholder (537,000) (1,737,225) (1,120,000) Foreign exchange translation and other surplus adjustments 7,155 (87,649) 26,267 ----------- ----------- ----------- TOTAL OTHER CHANGES IN CAPITAL AND SURPLUS 807,758 (321,905) 1,824,044 ----------- ----------- ----------- CAPITAL AND SURPLUS, AS OF DECEMBER 31, $12,658,360 $11,825,423 $12,156,993 =========== =========== ===========
See Notes to Statutory Basis Financial Statements 5 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. STATEMENTS OF CASH FLOW STATUTORY BASIS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
FOR THE YEARS ENDED DECEMBER 31, 2009 2008 2007 -------------------------------------------------------------------------- ----------- ---------- ----------- Cash From Operations -------------------- Premiums collected, net of reinsurance $ 6,012,704 $6,547,710 $ 7,891,160 Net investment income 879,604 1,388,127 1,227,721 Miscellaneous (expense) income (22,990) 54 8,924 ----------- ---------- ----------- SUB-TOTAL 6,869,318 7,935,891 9,127,805 ----------- ---------- ----------- Benefit and loss related payments 4,612,122 5,078,216 3,878,095 Commission and other expense paid 2,300,255 2,342,596 2,302,839 Dividends paid to policyholders 246 114 130 Federal income taxes (recovered) paid (43,319) 53,271 330,776 ----------- ---------- ----------- NET CASH PROVIDED FROM OPERATIONS 14 461,694 2,615,965 ----------- ---------- ----------- Cash From Investments --------------------- Proceeds from investments sold, matured, or repaid Bonds 2,778,983 3,141,468 5,184,469 Stocks 5,332,526 657,471 773,650 Other 613,320 671,313 621,387 ----------- ---------- ----------- TOTAL PROCEEDS FROM INVESTMENTS SOLD, MATURED, OR REPAID 8,724,829 4,470,252 6,579,506 ----------- ---------- ----------- Cost of investments acquired Bonds 2,830,766 2,006,885 5,997,221 Stocks 335,841 1,074,344 837,600 Other 963,564 1,197,475 1,350,766 ----------- ---------- ----------- TOTAL COST OF INVESTMENTS ACQUIRED 4,130,171 4,278,704 8,185,587 ----------- ---------- ----------- NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES 4,594,658 191,548 (1,606,081) ----------- ---------- ----------- Cash From Financing and Miscellaneous Sources --------------------------------------------- Capital and surplus paid-in -- 299,000 -- Dividends to stockholder (537,000) (878,465) (1,120,000) Net deposit on deposit-type contracts and other insurance 78,549 38,529 75,242 Equities in underwriting pools and associations 113,428 535,633 (380,888) Collateral deposit liability (130,248) (38,833) (272,467) Intercompany receivable and payable, net (2,961,854) 646,904 589,241 Borrowed funds -- (12,741) 2,980 Other (200,463) (243,164) 74,496 ----------- ---------- ----------- NET CASH (USED IN) PROVIDED FROM FINANCING AND MISCELLANEOUS ACTIVITIES (3,637,588) 346,863 (1,031,396) ----------- ---------- ----------- NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS 957,084 1,000,105 (21,512) Overdraft and short-term investments: Beginning of year 939,308 (60,797) (39,285) ----------- ---------- ----------- END OF YEAR $ 1,896,392 $ 939,308 $ (60,797) =========== ========== ===========
See Notes to Statutory Basis Financial Statements 6 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT STATUTORY BASIS ACCOUNTING --------------------------------------------------------------------------- POLICIES -------- A. ORGANIZATION ------------ National Union Fire Insurance Company of Pittsburgh, Pa. (the Company or National Union) is a direct wholly-owned subsidiary of Chartis U.S. Inc., a Delaware corporation (formerly known as AIG Commercial Insurance Group, Inc.), which is in turn owned by Chartis Inc., a Delaware corporation, (formerly known as AIU Holdings, Inc.). The Company's ultimate parent is American International Group, Inc. (the Ultimate Parent or AIG). See Notes 13 and 14 for information about recent developments regarding AIG and Chartis Inc. In July 2009, AIG rebranded its General Insurance Operations as Chartis. Chartis consists of Commercial Insurance (operating as Chartis U.S. Inc.), and Foreign General Insurance (operating as Chartis International). The Company writes substantially all lines of property and casualty insurance with an emphasis on U.S. commercial business. In addition to writing substantially all classes of business insurance, including large commercial or industrial property insurance, excess liability, inland marine, environmental, workers' compensation and excess and umbrella coverages, the Company offers many specialized forms of insurance such as aviation, accident and health, warranty, equipment breakdown, directors and officers liability, difference in conditions, kidnap-ransom, export credit and political risk, and various types of errors and omissions coverages. Through AIG's risk management operation, the Company provides insurance and risk management programs to large corporate customers. In addition, through AIG's risk finance operation, the Company provides its customized structured products and through the Private Client Group the Company provides personal lines insurance to high-net-worth individuals. The Company is a member of the Chartis U.S. Inc. Commercial Pool (the Commercial Pool). The names, the National Association of Insurance Commissioners (NAIC) company codes and inter-company pooling percentages of the Commercial Pool participants are as follows:
Pool NAIC Participation Company Co Code Percentage ------- ------- ------------- (1) National Union Fire Insurance Company of Pittsburgh, Pa. * 19445 38% (2) American Home Assurance Company (American Home) 19380 36% (3) Commerce and Industry Insurance Company (C&I) 19410 11% (4) Chartis Property Casualty Company (Chartis PC) (formerly AIG Casualty Company) 19402 5% (5) New Hampshire Insurance Company (New Hampshire) 23841 5% (6) The Insurance Company of the State of Pennsylvania (ISOP) 19429 5% (7) Chartis Casualty Company (formerly American International South Insurance Company) 40258 0% (8) Granite State Insurance Company 23809 0% (9) Illinois National Insurance Co. 23817 0%
* Lead Company The Company accepts business mainly from insurance brokers, enabling selection of specialized markets and retention of underwriting control. Any licensed insurance broker is able to submit business to the Company, but such broker has no authority to commit the Company to accept risk. In addition, the Company utilizes certain 7 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) managing general agents and third party administrators for policy issuance and administration, underwriting, and claims adjustment services. The Company has significant transactions with AIG and affiliates and participates in the Chartis U.S. Commercial Pool (formerly known as the National Union Commercial Pool). Refer to Note 5 for additional information. B. SUMMARY OF SIGNIFICANT STATUTORY BASIS ACCOUNTING POLICIES ---------------------------------------------------------- PRESCRIBED OR PERMITTED STATUTORY ACCOUNTING PRACTICES: ------------------------------------------------------- The accompanying financial statements of the Company have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Department of the Commonwealth of Pennsylvania (PA SAP). PA SAP recognizes only statutory accounting practices prescribed or permitted by the Commonwealth of Pennsylvania for determining and reporting the financial position and results of operations of an insurance company and for the purpose of determining its solvency under the Pennsylvania Insurance Law. The National Association of Insurance Commissioners Accounting Practices and Procedures Manual (NAIC SAP) has been adopted as a component of prescribed or permitted practices by the Commonwealth of Pennsylvania. The Commissioner of the Insurance Department of the Commonwealth of Pennsylvania (the Commissioner) has the right to permit other specific practices that deviate from prescribed practices. PA SAP has adopted certain accounting practices that differ from those found in NAIC SAP, specifically, the prescribed practice of allowing the discounting of workers' compensation known case loss reserves on a non-tabular basis (under NAIC SAP, non-tabular discounting reserves is not permitted). In 2007, the Commissioner permitted the Company to utilize audited financial statements prepared on a basis of accounting other than U.S. GAAP to value investments in limited partnerships and joint ventures; as of December 31, 2007, the aggregate value of limited partnerships and joint ventures to which this permitted practice applies is $71,600. 8 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) A reconciliation of the Company's net income and capital and surplus between NAIC SAP and practices prescribed or permitted by PA SAP is shown below:
DECEMBER 31, 2009 2008 2007 --------------------------------------------------- ----------- ----------- ----------- Net income, PA SAP $ 840,984 $ 1,369,744 $ 1,284,907 State prescribed practices - (deduction): Non-tabular discounting (48,951) (109,227) (89,223) ----------- ----------- ----------- NET INCOME, NAIC SAP $ 792,033 $ 1,260,517 $ 1,195,684 =========== =========== =========== Statutory surplus, PA SAP $12,658,360 $11,825,423 $12,156,993 State prescribed or permitted practices - (charge): Non-tabular discounting (940,266) (891,315) (782,088) Credits for reinsurance (200,449) (67,899) (112,389) SSAP 48/SSAP 97 -- -- (71,600) ----------- ----------- ----------- STATUTORY SURPLUS, NAIC SAP $11,517,645 $10,866,209 $11,190,916 =========== =========== ===========
The use of the aforementioned prescribed and permitted practices has not adversely affected the Company's ability to comply with the NAIC's risk based capital and surplus requirements for the 2009, 2008 and 2007 reporting periods. STATUTORY ACCOUNTING PRACTICES AND GENERALLY ACCEPTED ACCOUNTING ---------------------------------------------------------------- PRINCIPLES: ----------- NAIC SAP is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (GAAP). NAIC SAP and PA SAP vary in certain respects from GAAP. A description of certain of these accounting differences is set forth below: Under GAAP: ----------- a. Costs incidental to acquiring business related to premiums written and costs allowed by assuming reinsurers related to premiums ceded are deferred and amortized over the periods covered by the underlying policies or reinsurance agreements; b. Statutory basis reserves, such as non-admitted assets and unauthorized reinsurance, are restored to surplus; c. The equity in earnings of affiliates with ownership between 20.0% and 50.0% is included in net income, and investments in subsidiaries with greater than 50.0% ownership are consolidated; d. Estimated undeclared dividends to policyholders are accrued; e. The reserves for losses and loss adjustment expenses (LAE) and unearned premium reserves are presented gross of ceded reinsurance by establishing a reinsurance asset; 9 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) f. Debt and equity securities deemed to be available-for-sale and trading securities are reported at fair value. The difference between cost and fair value of securities available-for-sale is reflected net of related deferred income tax, as a separate component of accumulated other comprehensive income in shareholder's equity. For trading securities, the difference between cost and fair value is included in income, while securities held to maturity are valued at amortized cost; g. Direct written premium contracts that do not have sufficient risk transfer are treated as deposit accounting liabilities; h. Insurance and reinsurance contracts recorded as retroactive retain insurance accounting treatment if they pass the risk transfer test. If risk transfer is not met, no insurance accounting treatment is permitted. All income is then recognized based upon either the interest or recovery method; and i. Deferred federal income taxes are provided for temporary differences for the expected future tax consequences of events that have been recognized in the Company's financial statements. The provision for deferred income taxes is reported in the Statements of Income. j. Statutory accounting and GAAP are consistent for the accounting of structured settlement annuities where the reporting entity is the owner and payee, and where the claimant is the owner and payee and the reporting entity has been released from its obligation. GAAP distinguishes structured settlement annuities where the owner is the claimant and a legally enforceable release from the reporting entity's liability is obtained from those where the claimant is the owner and payee but the reporting entity has not been released from its obligation. GAAP requires the deferral of any gain resulting from the purchase of a structured settlement annuity where the claimant is the owner and payee yet the reporting entity has not been released from its obligation. Under NAIC SAP: --------------- a. Costs incidental to acquiring business related to premiums written and costs allowed by assuming reinsurers related to premiums ceded are immediately expensed; b. Statutory basis reserves, such as non-admitted assets and unauthorized reinsurance are charged directly to surplus; c. Subsidiaries are not consolidated. The equity in earnings of affiliates is included in unrealized appreciation/(depreciation) of investments, which is reported directly in surplus. Dividends are reported as investment income; d. Declared dividends to policyholders are accrued; e. The reserve for losses and LAE and unearned premium reserves are presented net of ceded reinsurance; f. NAIC investment grade debt securities are reported at amortized cost, while NAIC non-investment grade debt securities (NAIC rated 3 to 6) are reported at lower of cost or market; 10 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) g. Direct written premium contracts are reported as insurance as long as policies are issued in accordance with insurance requirements; h. Insurance and reinsurance contracts deemed to be retroactive receive special accounting treatment. Gains or losses are recognized in the Statements of Income and Surplus is segregated by the ceding entity to the extent of gains realized; and i. Deferred federal income taxes are provided for temporary differences for the expected future tax consequences of events that have been recognized in the Company's financial statements. Changes in deferred income taxes are charged directly to surplus and have no impact on statutory earnings. The admissibility of deferred tax assets is limited by statutory guidance; and j. For structured settlement annuities where the claimant is the payee, statutory accounting treats these settlements as completed transactions and considers the earnings process complete (thereby allowing for immediate gain recognition), regardless of whether or not the reporting entity is the owner of the annuity. 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, although not reasonably determinable, are presumed to be material. SIGNIFICANT STATUTORY ACCOUNTING PRACTICES: ------------------------------------------- A summary of the Company's significant statutory accounting practices are as follows: Use of Estimates: The preparation of financial statements in conformity ---------------- with PA SAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. On an ongoing basis, the Company evaluates all of its estimates and assumptions. PA SAP also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from management's estimates. The significant estimates were used for loss and LAE, certain reinsurance balances, admissibility of deferred taxes, allowance for doubtful accounts and the carrying value of certain investments. Invested Assets: The Company's invested assets are accounted for as --------------- follows: . Cash and Short-term Investments: The Company considers all highly ------------------------------- liquid debt securities with maturities of greater than three months but less than twelve months from the date of purchase to be short-term investments. Short-term investments are carried at amortized cost which approximates market value (as designated by the NAIC Securities Valuation Office). The Company maximizes its investment return by investing in a significant amount of cash in hand in short-term investments. Short-term investments are recorded separately from cash in the accompanying financial statements. The Company funds cash accounts daily using funds from short-term investments. Cash is in a negative position when outstanding checks exceed cash-in-hand in operating bank accounts. As described in Note 5, the Company is party to an inter-company reinsurance pooling agreement. As the Company is the lead participant in the pool, the Company makes disbursements on behalf of the pool which is also a cause for the Company's negative cash position. . Bonds: Bonds with an NAIC designation of 1 and 2 are carried at ----- amortized cost using the scientific method. 11 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Bonds with an NAIC designation of 3 to 6 are carried at the lower of amortized cost or the market value. If a bond is determined to have an other-than-temporary impairment (OTTI) in value the cost basis is written-down to fair value as a new cost basis, with the corresponding charge to Net Realized Capital Gains/(Loss) as a realized loss. In periods subsequent to the recognition of an OTTI loss for bonds, 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. Loan-backed and structured securities are carried at amortized cost and generally are more likely to be prepaid than other fixed maturities. As of December 31, 2009 and 2008, the market value of the Company's loan-backed and structured securities approximated $410,544 and $327,600, respectively. Loan-backed and structured securities include prepayment assumptions used at the purchase date and valuation changes caused by changes in estimated cash flow, and are valued using the retrospective method. Prepayment assumptions for loan-backed and structured securities were obtained from independent third party services or internal estimates. These assumptions are consistent with the current interest rate and economic environment. . Common and Preferred Stocks: Unaffiliated common stocks are carried --------------------------- principally at market value. Perpetual preferred stocks with an NAIC rating of P1 or P2 are carried at market value. Redeemable preferred stocks with an NAIC rating of RP1 or RP2 that are subject to a 100.0% mandatory sinking fund or paid-in-kind are carried at amortized cost. All below investment grade, NAIC 3 to 6 preferred stocks, are carried at the lower of amortized cost or market values. Investments in affiliates are recorded based on the underlying audited equity of the respective entity's financial statements. The reporting entity's share of undistributed earnings and losses of the affiliates are reported in the Unassigned Surplus as unrealized gains and losses. . Other Invested Assets: Other invested assets include primarily --------------------- partnerships and joint ventures. Fair values are based on the net asset value of the respective entity's financial statements. Joint ventures and partnership investments are accounted for under the equity method, based on the most recent financial statements of the entity. Changes in carrying value are recorded as unrealized gains or losses. For investments in joint ventures and partnerships that are determined to have an OTTI in value, the costs are written-down to fair value as the new cost basis, with the corresponding charge to Net Realized Capital Gains/(Losses) as a realized loss. o Net Investment Gains: Net investment gains consist of net investment -------------------- income earned and realized gains or losses from the disposition or impairment of investments. Net investment income earned includes accrued interest, accrued dividends and distributions from partnerships and joint ventures. Investment income is recorded as earned. Realized gains or losses on the disposition of investments are determined on the basis of specific identification. Investment income due and accrued is assessed for collectability. The Company writes off investment income due and accrued when it is probable that the amount is uncollectible by recording a charge against investment income in the period such determination is made. Any amounts over 90 days past due which have not been written-off are non-admitted by the Company. As of December 31, 2009 and 2008, no investment income due and accrued was determined to be uncollectible or non-admitted. 12 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) . Unrealized Gains (Losses): Unrealized gains (losses) on all stocks, ------------------------- bonds carried at market values, joint ventures, partnerships and foreign currency translation are credited or charged to Unassigned Surplus. Other Than Temporary Impairment: -------------------------------- 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 investment portfolio. The Company's policy for determining OTTI has been established in accordance with prescribed SAP guidance, including SSAP Nos. 43R, 99, and INT 06-07. For bonds, other than loan-backed and structured securities, an OTTI shall be considered to have occurred if it is probable that the Company will not be able to collect all amounts due under the contractual terms in effect at the acquisition date of the debt security. For loan-backed and structured securities, when a credit-related OTTI is present, the amount of OTTI recognized as a realized loss is equal to the difference between the investment's amortized cost basis and the present value of cash flows expected to be collected. In general, a security is considered a candidate for OTTI if it meets any of the following criteria: . Trading at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive months or longer); or . The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding obligation, (ii) the issuer seeking protection from creditors under the bankruptcy law as or any similar laws intended for court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or . The Company may not realize a full recovery on its investment, irrespective of the occurrence of one of the foregoing events. Common and preferred stock investments whose market value is less than its book value for a period greater than twelve months is considered a candidate for OTTI. Once a candidate for impairment has been identified, the investment must be analyzed to determine if any impairment would be considered other than temporary. Factors include: . The Company may not realize a full recovery on its investment; . Fundamental credit issues of the issuer; . An intent to sell the investment prior to the recovery of cost of the investment; or . Any other qualitative/quantitative factors that would indicate that an OTTI has occurred. Limited partnership investments whose market value is less than its book value for a period greater than twelve months is considered a candidate for OTTI. Once a candidate for impairment has been identified, the investment 13 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) must be analyzed to determine if any impairment would be considered other than temporary. Factors to consider include: . An order of liquidation or other fundamental credit issues with the partnership; . Evaluation of the cash flow activity between the Company and the partnership or fund during the year; . Evaluation of the current stage of the life cycle of the investment; . An intent to sell the investment prior to the recovery of cost of the investment; or . Any other qualitative/quantitative factors that would indicate that an OTTI has occurred. If the analysis indicates that an OTTI has taken place, the investment is written down to fair value, which would become the new cost basis. The amount of the write down is to be accounted for as a realized loss. As described in Note 2 - Accounting Changes, the Company adopted a change in its OTTI accounting principle pertaining to loan-backed and structured securities in the third quarter of 2009 when it adopted SSAP No. 43R (Revised) - Loan-backed and Structured Securities (SSAP 43R). Under SSAP 43R, credit-related OTTI for loan-backed and structured securities is based on projected discounted cash flows, whereas, credit-related OTTI for loan-backed and structured securities was previously based on projected undiscounted cash flows under SSAP 43. Revenue Recognition: Direct written premiums are primarily earned on a ------------------- pro-rata basis over the terms of the policies to which they relate. For policies with exposure periods greater than thirteen months, premiums are earned in accordance with the methods prescribed in NAIC Statement of Statutory Accounting Principles SSAP No. 65, Property and Casualty Contracts (SSAP 65). Accordingly, unearned premiums represent the portion of premiums written which are applicable to the unexpired terms of policies in force. Ceded premiums are amortized into income over the contract period in proportion to the protection received. Premium estimates for retrospectively rated policies are recognized within the periods in which the related losses are incurred. In accordance with SSAP No. 66, Retrospectively Rated Contracts (SSAP 66), the Company estimates accrued retrospectively rated premium adjustments using the application of historical ratios of retrospectively rated premium development. The Company records accrued retrospectively rated premiums as an adjustment to earned premiums. The Company establishes non-admitted assets for 100% of amounts recoverable where any agent's balance or uncollected premiums have been classified as non-admitted, and thereafter for 10% of any amounts recoverable not offset by retrospective rated premiums or collateral. At December 31, 2009 and 2008, accrued premiums related to the Company's retrospectively rated contracts amounted to $1,589,026 and $1,643,235, respectively, net of non-admitted premium balances of $63,578 and $76,630, respectively. 14 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Net written premiums that were subject to retrospective rating features were as follows:
For the years ended December 31, 2009 2008 2007 ----------------------------------------------------------------- -------- -------- -------- Net written premiums subject to retrospectively rated premiums $555,691 $684,709 $856,074 Percentage of total net written premiums 9.2% 10.4% 11.0%
Adjustments to premiums for changes in the level of exposure to insurance risk are generally determined based upon audits conducted after the policy expiration date. In accordance with SSAP No. 53, Property and Casualty Contracts - Premiums (SSAP 53), the Company records the audit premium estimates as an adjustment to written premium, and earns these premiums immediately. For premium estimates that result in a return of premium to the policyholder, the Company immediately reduces earned premiums. When the premium exceeds the amount of collateral held, a non-admitted asset (equivalent to 10.0% of this excess amount) is recorded. In accordance with SSAP 53, the Company reviews its ultimate losses with respect to its premium reserves. A premium deficiency liability is established if the premium reserves are not sufficient to cover the ultimate loss projection and associated acquisition expenses. Investment income is not considered in the calculation. For certain lines of business for which an insurance policy is issued on a claims-made basis, the Company offers to its insureds the option to purchase an extended reporting endorsement which permits the extended reporting of insured events after the termination of the claims-made contract. Extended reporting endorsements modify the discovery period of the underlying contract and can be for a defined period (e.g., six months, one year, five years) or an indefinite period. For defined reporting periods, premiums are earned over the term of the fixed period. For indefinite reporting periods, premiums are fully earned as written and loss and LAE liabilities associated with the unreported claims are recognized immediately. For warranty insurance, the Company will generally offer reimbursement coverage on service contracts issued by an authorized administrator and sold through a particular retail channel. Premiums are recognized over the life of the reimbursement policy in proportion to the expected loss emergence. The expected loss emergence can vary substantially by policy due to the characteristics of products sold by the retailer, the terms and conditions of service contracts sold as well as the duration of an original equipment manufacturer. The Company reviews all such factors to produce earnings curves which approximate the expected loss emergence for a particular contract in order to recognize the revenue earned. In accordance with SSAP No. 78, Multiple Peril Crop Insurance (SSAP 78), the Company elected to compute the unearned premium reserve associated with the Multiple Peril Crop Insurance program on a daily pro rata method as the Company did not believe it could demonstrate that the period of risk differs significantly from the contract period. The Company reduced its loss expenses for expense payments associated with catastrophe coverage by $168 and $231 in 2009 and 2008, respectively. The Company reduced its other underwriting expenses for expense payments associated with buy-up coverage by $23,194 and $422 in 2009 and 2008, respectively. Reinsurance: Ceded premiums, commissions, expense reimbursements and ----------- reserves related to ceded business are accounted for on a basis consistent with that used in accounting for the original contracts issued and the terms of the reinsurance contract. Ceded premiums are reported as a reduction of premium earned. Amounts applicable to 15 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) ceded reinsurance for unearned premium reserves, and reserves for losses and LAE have been reported as a reduction of these items, and expense allowances received in connection with ceded reinsurance are accounted for as a reduction of the related acquisition cost. Retroactive Reinsurance: Retroactive reinsurance reserves are reported ----------------------- separately in the balance sheet. Gains or losses are recognized in the Statements of Income as part of Other Income. Surplus gains are reported as segregated unassigned surplus until the actual retroactive reinsurance recovered exceeds the consideration paid. Deposit Accounting: Assumed and ceded reinsurance contracts which based on ------------------ internal analysis, do not transfer a sufficient amount of insurance risk are recorded as deposit accounting transactions. In accordance with SSAP 62, and SSAP No. 75, Reinsurance Deposit Accounting, An Amendment to SSAP No. 62, Property and Casualty Reinsurance, the Company records the net consideration paid or received as a deposit asset or liability, respectively. The deposit asset is reported as admitted if i) the assuming company is licensed, accredited or qualified by PA SAP; or ii) the collateral (i.e: funds withheld, letters of credit or trusts) provided by the reinsurer meet all the requirements of PA SAP. The deposit asset or liability is adjusted by calculating the effective yield on the deposit to reflect the actual payments made or received to date and the expected future payments with a corresponding credit or charge to other gain in the Statements of Income. High Deductible Policies: In accordance with SSAP 65, Company establishes ------------------------ loss reserves for high deductible policies net of deductibles (or reserve credits). As of December 31, 2009 and 2008, the amount of reserve credits recorded for high deductibles on unpaid claims amounted to $3,809,019 and $3,813,813, respectively. The Company establishes a non-admitted asset for 10% of paid loss recoverables, on high deductible policies, in excess of collateral held on an individual insured basis, or for 100% of paid loss recoverables where no collateral is held. As of December 31, 2009 and 2008, the amount billed and recoverable on paid claims was $47,081 and $67,546, respectively, of which $34,077 and $43,168, respectively, where non-admitted. Additionally, the Company establishes an allowance for doubtful accounts for such paid loss recoverables in excess of collateral and after non-admitted assets, and does not recognize reserve credits where paid loss credits are deemed by the Company to be uncollectible. Foreign Property Casualty Business: As agreed with the Company's ---------------------------------- domiciliary state, the Company accounts for its participation in the business of the Association by (a) recording its net (after pooling) participation of such business as direct writings in its statutory financial statements; (b) recording in the statements of income its participation in the results of underwriting and investment income; and, (c) recording in the statements of admitted assets and liabilities, capital and surplus, its participation in the significant insurance and reinsurance balances; its net participation in all other assets (such as the invested assets) and liabilities has been recorded in Equities in Underwriting Pools and Associations. Commissions and Underwriting Expenses: Commissions, premium taxes, and ------------------------------------- certain underwriting expenses related to premiums written are charged to income at the time the premiums are written and are included in Other Underwriting Expenses Incurred. In accordance with SSAP 62, the Company records a liability, equal to the difference between the acquisition cost and the reinsurance commissions received, on those instances where ceding commissions paid exceed the acquisition cost of the business ceded. The liability is amortized pro rata over the effective period of the reinsurance agreement in proportion to the amount of coverage provided under the reinsurance contract. 16 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Reserves for Losses and LAE: The reserves for losses and LAE, including --------------------------- IBNR losses, are determined on the basis of actuarial specialists' evaluations and other estimates, including historical loss experience. The methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated as needed, and any resulting adjustments are recorded in the current period. Accordingly, losses and LAE are charged to income as incurred. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. The Company discounts its loss reserves on workers' compensation claims. The calculation of the Company's tabular discount is based upon the 1979-81 Decennial Mortality Table, and applying a 3.5% interest rate. Loss reserves and LAE reserves (net of reinsurance) subject to the tabular discounting were $5,472,009 and $5,123,777, as of December 31, 2009 and 2008, respectively. As of December 31, 2009 and 2008, the Company's tabular discount amounted to $254,318 and $278,546, respectively, all of which were applied against the Company's case reserves. As prescribed by the Pennsylvania Insurance statutes, the calculation of the Company's non-tabular discount is determined as follows: . For accident years 2001 and prior - based upon the industry payout pattern and a 6.0% interest rate. . For accident years 2002 and subsequent - At December 31, 2009, with the approval of the Commissioner, the Company discounted its workers compensation loss reserves for accident years 2002 and subsequent at a rate of approximately 4.25%, which is slightly less than what is commensurate with the yield on its municipal bond portfolio with maturities consistent with the expected payout pattern. At December 31, 2008, the Company discounted its workers compensation loss reserves for accident years 2002 and subsequent using a rate commensurate with the yield on U.S. Treasury securities with maturities consistent with the expected payout pattern. As of December 31, 2009 and 2008, the reserves for losses (net of reinsurance) subject to non-tabular discounting were $5,472,009 and $5,123,777, respectively. As of December 31, 2009, the Company's non-tabular discount amounted to $940,266, of which $440,159 and $500,107 were applied to case reserves and IBNR, respectively. As of December 31, 2008, the Company's non-tabular discount amounted to $891,315, of which $345,981 and $545,334 were applied to case reserves and IBNR, respectively. Foreign Exchange: Assets and liabilities denominated in foreign currencies ---------------- are translated at the rate of exchange in effect at the close of the reporting period. Revenues, expenses, gains, losses and surplus adjustments are translated using weighted average exchange rates. Unrealized gains and losses from translating balances from foreign currency into United States currency are recorded as adjustments to surplus. Realized gains and losses resulting from foreign currency transactions are included in income in Other Income. Statutory Basis Reserves: Certain required statutory basis reserves, ------------------------ principally the provision for reinsurance, are charged to surplus and reflected as a liability of the Company. Policyholders' Dividends: Dividends to policyholders are charged to ------------------------ income as declared. 17 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Capital and Surplus: Common capital stock and capital in excess of par value ------------------- represent amounts received by the Company in exchange for shares issued. The common capital stock represents the number of shares issued multiplied by par value per share. Capital in excess of par value represents the value received by the Company in excess of the par value per share and subsequent capital contributions in cash or in kind from its shareholder. Non-Admitted Assets: Certain assets, principally electronic data processing ------------------- (EDP) equipment, software, leasehold improvements, certain overdue agents' balances, accrued retrospective premiums, certain deposit accounting assets that do not meet all of the Commonwealth of Pennsylvania's requirements for admissibility, prepaid expenses, certain deferred taxes that exceed statutory guidance and unsupported current taxes are designated as non-admitted assets and are directly charged to Unassigned Surplus. EDP equipment primarily consists of non-operating software and is depreciated over its useful life, generally not exceeding 5 years. Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the leasehold improvement. In connection therewith, for the years ended December 31, 2009 and 2008, depreciation and amortization expense amounted to $24,277 and $26,663, respectively, and accumulated depreciation as of December 31, 2009 and 2008 amounted to $129,629 and $149,204, respectively. Reclassifications: Certain balances contained in the 2008 and 2007 financial ----------------- statements have been reclassified to conform with the current year's presentation. NOTE 2 - ACCOUNTING ADJUSTMENTS TO STATUTORY BASIS FINANCIAL STATEMENTS ----------------------------------------------------------------------- A. CHANGE IN ACCOUNTING PRINCIPLES: -------------------------------- SSAP 43R -------- In the third quarter of 2009, the Company adopted SSAP 43R. Pursuant to SSAP 43R, if the fair value of a loan-backed or structured security is less than its amortized cost basis at the balance sheet date, an entity shall assess whether the impairment is other-than temporary. When an impairment is present, SSAP 43R requires the recognition of credit-related OTTI for loan-backed and structured securities when the projected discounted cash flows for a particular security are less than the security's amortized cost. When a credit-related OTTI is present, the amount of OTTI recognized as a realized loss shall be equal to the difference between the investment's amortized cost basis and the present value of cash flows expected to be collected. Under the prescribed OTTI guidance for loan-backed and structured securities in the SSAP 43 that was in effect prior to the third quarter of 2009, OTTI was recognized when the amortized cost basis of a security exceeded undiscounted cash flows and such securities were written down to the amount of the undiscounted cash flows. SSAP 43R required application to existing and new investments held by a reporting entity on or after September 30, 2009. The guidance in SSAP 43R that was effective in the third quarter of 2009 required the identification of all the loan-backed and structured securities for which an OTTI had been previously recognized and may result in OTTI being recognized on certain securities that previously were not considered impaired under SSAP43. For this population of securities, if a reporting entity did not intend to sell the security, and had the intent and ability to retain the investment in the security for a period of time sufficient to recover the amortized cost basis, the reporting entity should have recognized the cumulative effect of initially applying SSAP 43R as an adjustment to the opening balance of unassigned funds with a corresponding adjustment to applicable financial statement elements. 18 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) As a result of the adoption of SSAP 43R, the Company recognized the following cumulative effect adjustment (CEA) in its 2009 Annual Statement, net of the related tax effect:
Direct (Charge) or Credit to Unassigned Surplus ------------------ Gross cumulative effect adjustment (CEA) - Net increase in the amortized cost of loan-backed and structured securities at adoption $(140,595) Deferred tax on gross CEA 49,208 --------- Net cumulative effect of change in Accounting Principle included in Statements of income $ (91,387) =========
SSAP 10R -------- The Company accounted its income taxes in accordance with SSAP 10, Income Taxes. On December 7, 2009, the NAIC voted to approve SSAP No. 10R, Income Taxes - Revised, A Temporary Replacement of SSAP No. 10 (SSAP 10R). The new standard is effective December 31, 2009 for 2009 and 2010 interim and annual periods. The Company adopted SSAP 10R to account for its income taxes in its 2009 annual filing. Income tax expense and deferred tax are recorded, and deferred tax assets are admitted in accordance with SSAP 10R. In addition to the admissibility test on deferred tax assets, SSAP 10R requires assessing the need for a valuation allowance on deferred tax assets. In accordance with the additional requirements, the Company assesses its ability to realize deferred tax assets primarily based on the earnings history, the future earnings potential, the reversal of taxable temporary differences, and the tax planning strategies available to the Company when recognizing deferred tax assets. In its 2009 annual filing, the Company admitted additional deferred tax assets of $242,874 as a result of the adoption of SSAP 10R. See Note 9 herein for further discussion. 19 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) B. OTHER ADJUSTMENTS TO SURPLUS: ----------------------------- The Company has dedicated significant effort to the resolution of ongoing weaknesses in internal controls. As a result of these remediation efforts, management concluded that adjustments should be made to the assets, liabilities, and surplus to policyholders Capital and Surplus as reported in the Company's 2008, 2007 and 2006 annual statutory basis financial statements. While these adjustments were noteworthy, after evaluating the quantitative and qualitative aspects of these corrections, the Company concluded that its prior period financial statements were not materially misstated and, therefore, no restatement was required. These adjustments resulted in an after tax statutory (charges) credits that in accordance with SSAP No. 3 Accounting Changes and Correction of Errors, have been reported as an adjustment to unassigned surplus as of January 1, 2009, 2008 and 2007. The impact of these adjustments on policyholder surplus as of January 1, 2009, 2008 and 2007 is as follows:
POLICYHOLDERS TOTAL ADMITTED SURPLUS ASSETS TOTAL LIABILITIES ------------- -------------- ----------------- BALANCE AT DECEMBER 31, 2008 $11,825,423 $33,560,936 $21,735,513 Adjustments to beginning Capital and Surplus: Asset realization (94,074) (94,074) -- Liability correction (52,996) -- 52,996 Federal income taxes, net of capital contributions of $83,361 20,762 20,762 -- ----------- ----------- ----------- TOTAL ADJUSTMENTS TO BEGINNING CAPITAL AND SURPLUS (126,308) (73,312) 52,996 ----------- ----------- ----------- BALANCE AT JANUARY 1, 2009, AS ADJUSTED $11,699,115 $33,487,624 $21,788,509 =========== =========== ===========
An explanation for each of the adjustments for prior period corrections is described below: The decrease in admitted assets is primarily the result of: (a) adjustments reported by the Association as of December 31, 2009 (carrying value of affiliates, foreign exchange, and reinsurance balances); (b) the reversal of a duplicate reinsurance payable balance (which had been netted against reinsurance recoverables); and (c) decreases to the carrying values of certain affiliates. The increase in liabilities is primarily the result of: (a) adjustments to historical carried case and unearned premium reserves; (b) an adjustment to the revenue recognition policy for a specific insurance contract, resulting in the re-establishment of unearned premium reserves; (c) the accrual of an unrecorded liability for claim handling expenses; and (d) several remediation-related reinsurance accounting adjustments (such as: reconciliation adjustments, and insolvency/commutation write-offs). The decrease in federal income taxes is primarily the result of: (a) non-admitted prior year income tax receivables that were not settled at year end; (b) adjustment to tax discounting on loss reserves for workers' compensation; (c) deferred tax asset reconciliation to book unrealized gains and unrealized foreign exchange gains, offset by corresponding changes in nonadmitted tax assets; (d) removal of duplicated tax deduction for affiliate dividends; and (e) tax deduction for nontaxable book gain. 20 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
POLICYHOLDERS TOTAL ADMITTED SURPLUS ASSETS TOTAL LIABILITIES ------------- -------------- ----------------- BALANCE AT DECEMBER 31, 2007 $12,156,993 $34,600,821 $22,443,828 Adjustments to beginning Capital and Surplus: Asset realization, net of taxes (9,665) (9,665) -- Federal income taxes, net of capital adjustments of $61,900 -- -- -- ----------- ----------- ----------- TOTAL ADJUSTMENT TO BEGINNING CAPITAL AND SURPLUS (9,665) (9,665) -- ----------- ----------- ----------- BALANCE AT JANUARY 1, 2008, AS ADJUSTED $12,147,328 $34,591,156 $22,443,828 =========== =========== ===========
An explanation for each of the adjustments for prior period corrections is described below: Asset realization: The Company identified that a commuted retroactive ceded ----------------- reinsurance reserve asset should have been written-off in a prior year. Federal income taxes (current and deferred): The change in federal income taxes ------------------------------------------- is primarily related to (i) the appropriate characterization as a settlement of an intercompany balance impacting unassigned surplus rather than a capital contribution with no impact to total capital and surplus; (ii) an increase in provisions for potential tax exposures; and (iii) corrections to the deferred income tax inventory and the current tax receivable.
POLICYHOLDERS TOTAL ADMITTED SURPLUS ASSETS TOTAL LIABILITIES ------------- -------------- ----------------- BALANCE AT DECEMBER 31, 2006 $10,420,212 $31,626,970 $21,206,758 Adjustment to beginning Capital and Surplus: Federal income taxes (87,263) (87,263) -- ----------- ----------- ----------- TOTAL ADJUSTMENT TO BEGINNING CAPITAL AND SURPLUS (87,263) (87,263) -- ----------- ----------- ----------- BALANCE AT JANUARY 1, 2007, AS ADJUSTED $10,332,949 $31,539,707 $21,206,758 =========== =========== ===========
An explanation for each of the adjustment for prior period corrections is described below: Federal income taxes (current and deferred): The change in federal income taxes ------------------------------------------- is primarily related to an increase in provisions for potential tax exposures, and corrections to the deferred income tax inventory and the current tax receivable. 21 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 3 - INVESTMENTS -------------------- STATUTORY FAIR VALUE OF FINANCIAL INSTRUMENTS: ---------------------------------------------- The following table presents the carrying amount and statutory fair values of the Company's financial instruments as of December 31, 2009 and 2008:
2009 2008 ------------------------- ------------------------- CARRYING STATUTORY CARRYING STATUTORY AMOUNT FAIR VALUE AMOUNT FAIR VALUE ----------- ----------- ----------- ----------- Assets: Bonds $12,579,023 $12,919,764 $12,882,016 $12,050,220 Common stocks 6,984,703 6,987,393 8,904,447 8,907,414 Preferred stocks 868 1,468 2,022,748 2,022,850 Other invested assets 2,982,542 2,982,542 2,745,371 2,745,371 Cash and short-term investments 1,896,392 1,896,392 939,308 939,308 Receivable for securities 479 479 6,702 6,702 Equities and deposits in pool & associations 613,296 613,296 718,937 718,937 Liabilities: Collateral deposit liability 445,678 445,678 575,926 575,926
The methods and assumptions used in estimating the statutory fair values of financial instruments are as follows: . The fair values of bonds, unaffiliated common stocks and preferred stocks are based on fair values that reflect the price at which a security would sell in an arms length transaction between a willing buyer and seller. As such, sources of valuation include third party pricing sources, stock exchange, broker or custodian or SVO. . The statutory fair values of affiliated common stock are based on the underlying equity of the respective entity's financial statements. . Other invested assets include primarily partnerships and joint ventures. Fair values are based on the net asset value of the respective entity's financial statements. . The carrying value of all other financial instruments approximates fair value. 22 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The amortized cost and market values of the Company's bond investments as of December 31, 2009 and 2008 are outlined in the table below:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- -------- ---------- ----------- AS OF DECEMBER 31, 2009: U.S. governments $ 26,289 $ 876 $ 7 $ 27,158 All other governments 468,736 16,256 165 484,827 States, territories and possessions 1,666,746 100,263 3,929 1,763,080 Political subdivisions of states, territories and possessions 2,307,984 141,123 13,821 2,435,286 Special revenue and special assessment obligations and all 5,434,251 201,740 33,792 5,602,199 non-guaranteed obligations of agencies and authorities and their political subdivisions Industrial and miscellaneous 2,675,017 113,766 181,569 2,607,214 ----------- -------- ---------- ----------- TOTAL BONDS, AS OF DECEMBER 31, 2009 $12,579,023 $574,024 $ 233,283 $12,919,764 =========== ======== ========== =========== AS OF DECEMBER 31, 2008: U.S. governments $ 14,397 $ 2,196 $ -- $ 16,593 All other governments 500,791 21,243 79 521,955 States, territories and possessions 1,997,332 53,446 38,850 2,011,928 Political subdivisions of states, territories and possessions 2,796,359 87,205 86,640 2,796,924 Special revenue and special assessment obligations and all 6,555,283 81,711 395,993 6,241,001 non-guaranteed obligations of agencies and authorities and their political subdivisions Public utilities 57,854 5,328 -- 63,182 Industrial and miscellaneous 960,000 1,423 562,786 398,637 ----------- -------- ---------- ----------- TOTAL BONDS, AS OF DECEMBER 31, 2008 $12,882,016 $252,552 $1,084,348 $12,050,220 =========== ======== ========== ===========
The amortized cost and market values of bonds at December 31, 2009, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. AMORTIZED COST MARKET VALUE ----------- ------------ Due in one year or less $ 18,870 $ 19,220 Due after one year through five years 865,071 910,458 Due after five years through ten years 2,098,423 2,205,796 Due after ten years 9,006,655 9,373,746 Structured securities 590,004 410,544 ----------- ----------- Total bonds $12,579,023 $12,919,764 =========== =========== 23 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Proceeds from sales and gross realized gain and gross realized losses were as follows:
FOR THE YEARS ENDED DECEMBER 31, 2009 2008 2007 -------------------------------- ----------------------- ----------------------- ----------------------- EQUITY EQUITY EQUITY BONDS SECURITIES BONDS SECURITIES BONDS SECURITIES ---------- ---------- ---------- ---------- ---------- ---------- Proceeds from sales $2,429,677 $3,160,576 $2,895,171 $1,369,718 $4,680,678 $245,854 Gross realized gains 40,059 1,945,047 26,312 274,555 1,071 33,315 Gross realized losses 51,351 283,808 58,949 48,111 40,525 9,273
The cost or amortized cost and market values of the Company's common and preferred stocks, as of December 31, 2009 and 2008, are set forth in the table below:
DECEMBER 31, 2009 ----------------------------------------------------------------------------- COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET NON-ADMITTED CARRYING COST GAINS LOSSES VALUE ASSET VALUE ---------- ---------- ---------- ---------- ------------ ---------- Common stocks: -------------- Affiliated $1,911,719 $5,005,334 $67,969 $6,849,084 $ -- $6,849,084 Non-affiliated 135,520 6,638 3,849 138,309 2,690 135,619 ---------- ---------- ------- ---------- ------ ---------- TOTAL $2,047,239 $5,011,972 $71,818 $6,987,393 $2,690 $6,984,703 ========== ========== ======= ========== ====== ========== Preferred stocks: ----------------- Non-affiliated $ 939 $ 600 $ 72 $ 1,468 $ -- $ 868 ---------- ---------- ------- ---------- ------ ---------- TOTAL $ 939 $ 600 $ 72 $ 1,468 $ -- $ 868 ========== ========== ======= ========== ====== ==========
DECEMBER 31, 2008 ----------------------------------------------------------------------------- COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET NON-ADMITTED CARRYING COST GAINS LOSSES VALUE ASSET VALUE ---------- ---------- ---------- ---------- ------------ ---------- Common stocks: -------------- Affiliated $3,087,473 $5,870,599 $295,440 $8,662,632 $ -- $8,662,632 Non-affiliated 223,540 32,117 10,875 244,782 2,967 241,815 ---------- ---------- -------- ---------- ------ ---------- TOTAL $3,311,013 $5,902,716 $306,315 $8,907,414 $2,967 $8,904,447 ========== ========== ======== ========== ====== ========== Preferred stocks: ----------------- Affiliated $2,000,000 $ -- $ -- $2,000,000 $ -- $2,000,000 Non-affiliated 27,448 102 4,700 22,850 -- 22,748 ---------- ---------- -------- ---------- ------ ---------- TOTAL $2,027,448 $ 102 $ 4,700 $2,022,850 $ -- $2,022,748 ========== ========== ======== ========== ====== ==========
24 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The fair market value together with the aging of the gross pre-tax unrealized losses with respect to the Company's bonds and stocks as of December 31, 2009 and 2008 is set forth in the table below:
12 MONTHS OR LESS GREATER THAN 12 MONTHS TOTAL ----------------------- ---------------------- ----------------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED DESCRIPTION OF SECURITIES VALUE LOSSES VALUE LOSSES VALUE LOSSES ------------------------- ---------- ---------- -------- ---------- ---------- ---------- As of December 31, 2009: ------------------------ U. S. governments $ 12,137 $ 7 $ -- $ -- $ 12,137 $ 7 All other governments 38,779 165 -- -- 38,779 165 States, territories and possessions 111,175 1,609 34,974 2,320 146,149 3,929 Political subdivisions of states, 181,277 4,060 38,357 9,761 219,634 13,821 territories and possessions Special revenue 517,527 5,929 418,037 27,863 935,564 33,792 Industrial and miscellaneous 350,894 177,100 12,078 4,469 362,972 181,569 ---------- -------- -------- -------- ---------- -------- TOTAL BONDS 1,211,789 188,870 503,446 44,413 1,715,235 233,283 ---------- -------- -------- -------- ---------- -------- Affiliated 0 -- 65,380 67,969 65,380 67,969 Non-affiliated 8,150 577 7,088 3,272 15,238 3,849 ---------- -------- -------- -------- ---------- -------- Total common stocks 8,150 577 72,468 71,241 80,618 71,818 ---------- -------- -------- -------- ---------- -------- Preferred stock 1 72 -- -- 1 72 ---------- -------- -------- -------- ---------- -------- TOTAL STOCKS 8,151 649 72,468 71,241 80,619 71,890 ---------- -------- -------- -------- ---------- -------- TOTAL BONDS AND STOCKS $1,219,940 $189,519 575,914 $115,653 $1,795,854 $305,173 ========== ======== ======== ======== ========== ========
25 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
12 MONTHS OR LESS GREATER THAN 12 MONTHS TOTAL ----------------------- ---------------------- ----------------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED DESCRIPTION OF SECURITIES VALUE LOSSES VALUE LOSSES VALUE LOSSES ------------------------- ---------- ---------- -------- ---------- ---------- ---------- As of December 31, 2008: ------------------------ All other governments $ 115,861 $ 79 $ -- $ -- $ 115,861 $ 79 States, territories and possessions 696,184 32,589 77,150 6,261 773,334 38,850 Political subdivisions of states, 1,054,553 58,867 225,237 27,773 1,279,790 86,640 territories and possessions Special revenue 3,446,206 223,839 814,612 172,154 4,260,818 395,993 Industrial and miscellaneous 69,890 90,877 189,598 471,909 259,488 562,786 ---------- -------- ---------- -------- ---------- ---------- TOTAL BONDS 5,382,694 406,251 1,306,597 678,097 6,689,291 1,084,348 ---------- -------- ---------- -------- ---------- ---------- Affiliated 28,297 12,703 314,955 282,737 343,252 295,440 Non-affiliated 54,696 10,813 543 62 55,239 10,875 ---------- -------- ---------- -------- ---------- ---------- Total common stocks 82,993 23,516 315,498 282,799 398,491 306,315 ---------- -------- ---------- -------- ---------- ---------- Preferred stock 20,351 4,700 -- -- 20,351 4,700 ---------- -------- ---------- -------- ---------- ---------- TOTAL STOCKS 103,344 28,216 315,498 282,799 418,842 311,015 ---------- -------- ---------- -------- ---------- ---------- TOTAL BONDS AND STOCKS $5,486,038 $434,467 $1,622,095 $960,896 $7,108,133 $1,395,363 ========== ======== ========== ======== ========== ==========
As of December 31, 2009, the Company does not intend to sell these securities. The Company reported write-downs on its bond investments due to OTTI in fair value of $220,241, $2,409 and $5,664 in 2009, 2008 and 2007, respectively, and reported write-downs on its common and preferred stock investments due to OTTI in fair value of $17,661, $32,165 and $10,659 during 2009, 2008 and 2007, respectively. 26 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) During 2009, 2008 and 2007, the Company reported the following write-downs on its joint ventures and partnership investments due to OTTI in fair value:
FOR THE YEARS ENDED DECEMBER 31, 2009 2008 2007 ------------------------------------------------------- -------- ------- ------- AIG French Prop FD (Eur) $ 3,925 $ -- $ -- Apollo IV LP 1,546 -- -- AQR Global Asset Allocation Institutional Fund III L.P. -- 2,172 -- Blackstone Distressed Securities Fund L.P. 20,622 -- -- Blackstone Firestone 66,300 -- -- Blackstone III 2,664 -- -- Blackstone Kalix Fund L.P. 7,876 -- -- Blackstone Real Estate Partners III, L.P. 2,506 -- -- Brep III L.P. -- 7,582 -- Capvest Equity Partners, L.P. 25,070 -- -- Century Park Capital Partners II, L.P. 1,749 -- -- Cisa NPL 10,408 -- -- Copper River Partners, L.P. (fka: Rocker Partners) 8,652 -- -- DLJ Merchant Banking Partners -- -- 3,454 Exponent Private Equity Partners, LP -- -- 1,990 Fenway Fund II -- 1,610 -- Fenway Partners -- 1,049 -- Greenwich Street Capital Partners, L.P. 1,537 -- -- Greystone Capital Partners I, L.P. 2,517 -- -- KKR Europeam Fund II, LP 23,442 -- -- Marlwood -- 3,000 -- Matlin Patterson Global Opportunities Partners -- 3,361 -- Midocean Partners III 2,185 -- -- North Castle II -- -- 4,162 Peake Joint Venture -- -- 2,773 Thayer Equity III -- 1,381 -- The Second Cinven Fund 1,352 -- -- Warburg Equity LP -- -- 1,656 Warburg Pincus Equity Partners -- 2,547 -- 21st Century LP -- -- 1,030 Items less than $1.0 million 9,665 5,616 5,616 -------- ------- ------- TOTAL $192,016 $28,318 $20,681 ======== ======= =======
Securities carried at an amortized cost of $3,327,013 and $2,482,149 were deposited with regulatory authorities as required by law as of December 31, 2009 and 2008, respectively. During 2009, 2008 and 2007, included in Net Investment Income Earned were investment expenses of $9,235, $7,027 and $8,689, respectively, and interest expense of $9,292, $27,193 and $116,601, respectively. 27 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) In September 2006, the FASB issued an accounting standard that defined fair value, established a framework for measuring fair value and expands disclosure requirements regarding fair value measurements but did not change existing guidance about whether an asset or liability is carried at fair value. The Company adopted the standard on January 1, 2008. The Company measures at fair value on a recurring basis certain bonds (specifically, bonds with NAIC ratings of 3 or lower where market is less than amortized cost), common and preferred stocks. 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 occur with sufficient frequency and volume to provide pricing information on an ongoing basis. An other-than-active market is one in which 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 standard defines three "levels" based on observability of inputs available in the marketplace used to measure the fair values. Such levels are: . 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. . Level 2: Fair value measurements, based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices 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 asset or liability. Bonds, Common Stocks, Preferred Stocks The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Whenever available, the Company uses market values for common stocks, preferred stocks and bonds with NAIC ratings of 3 or below where market value is less than amortized cost. When market values are not available, market values are obtained from third party pricing sources. 28 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The following table presents information about financial instruments carried at fair value on a recurring basis and indicates the level of the fair value measurement on the levels of the inputs used: DECEMBER 31, 2009 ---------------------------- Level 1 Level 2 Level 3 Total ------- ------- -------- -------- Bonds $ -- $819 $ 91,515 $ 92,334 Common stocks 60,809 -- 77,500 138,309 Preferred stocks -- 1 -- 1 ------- ---- -------- -------- Total $60,809 $820 $169,015 $230,644 ======= ==== ======== ======== DECEMBER 31, 2008 ------------------------------ Level 1 Level 2 Level 3 Total ------- ------- ---------- ---------- Bonds $ -- $ 1,557 $ 120,230 $ 121,787 Common stocks 88,130 39,618 114,067 241,815 Preferred stocks -- 21,221 2,000,661 2,021,882 ------- ------- ---------- ---------- Total $88,130 $62,396 $2,234,958 $2,385,484 ======= ======= ========== ========== The following table presents changes during 2009 and 2008 in Level 3 financial instruments measured at fair value on a recurring basis, and the realized and unrealized gains (losses) recorded in income during 2009 and 2008 related to the Level 3 financial instruments that remained in the balance sheet at December 31, 2009 and 2008:
Net Realized and Unrealized Gains (Losses) Unrealized Included in Net Investment Gains (Losses) Purchases, Sales, Balance at Balance Beginning Income and Realized Included in Issuances, Transfers In December 31, of Year Capital Gains (Losses) Surplus Settlements, Net (Out) 2009 ----------------- -------------------------- -------------- ----------------- ------------ ------------ Bonds $ 120,230 $(174,462) $76,770 $ 779 $ 68,198 $ 91,515 Common stocks 114,067 -- (4,131) -- (32,436) 77,500 Preferred stocks 2,000,661 (589) -- (2,000,971) 899 -- ---------- --------- ------- ----------- -------- -------- Total $2,234,958 $(175,051) $72,639 $(2,000,192) $ 36,661 $169,015 ========== ========= ======= =========== ======== ========
Net Realized and Unrealized Gains (Losses) Unrealized Included in Net Investment Gains (Losses) Purchases, Sales, Balance at Balance Beginning Income and Realized Included in Issuances, Transfers In December 31, of Year Capital Gains (Losses) Surplus Settlements, Net (Out) 2008 ----------------- -------------------------- -------------- ----------------- ------------ ------------ Bonds $ 116,959 $ 344 $(66,583) $(12,993) $ 82,503 $ 120,230 Common stocks 74,796 -- (44) -- 39,315 114,067 Preferred stocks 2,011,218 5,798 -- (16,045) (310) 2,000,661 ---------- ------ -------- -------- -------- ---------- Total $2,202,974 $6,142 $(66,627) $(29,038) $121,508 $2,234,958 ========== ====== ======== ======== ======== ==========
Other invested assets The Company initially estimates the fair value of investments in joint ventures and limited partnerships (predominately private limited partnerships and certain hedge funds) by reference to transaction price. Subsequently, the Company obtains the fair value of these investments generally from net asset value information provided by the general partner or 29 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) manager of the investments, the financial statements of which are audited annually. The Company considers observable market data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair value measurement. The Company also measures the fair value of certain assets such as joint ventures and limited partnerships included in other invested assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Assets measured at fair value on a non-recurring basis on which impairment charges were recorded were as follows: DECEMBER 31, 2009 ------------------------------------- Level 1 Level 2 Level 3 Total ------- -------- ------- ------ Other invested assets $-- $-- $6,819 $6,819 --- --- ------ ------ Total $-- $-- $6,819 $6,819 === === ====== ====== DECEMBER 31, 2008 -------------------------------------- Level 1 Level 2 Level 3 Total ------- -------- ------- ------- Other invested assets $-- $-- $17,651 $17,651 --- --- ------- ------- Total $-- $-- $17,651 $17,651 === === ======= ======= Loan-Backed and Structured Securities: At December 31, 2009, the Company had no loan-backed and structured securities with the intent to sell or that the company does not have the intent or ability to hold to recovery. 30 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) At December 31, 2009, the Company held the following loan-backed and structured securities for which it had recognized credit-related OTTI after adoption of SSAP 43R:
Book/Adj Carrying Value Amortized cost before current Projected Cash Recognized Amortized Cost Cusip period OTTI Flows OTTI after OTTI Fair Value ----------------------------------------------------------------------------------- 126694A40 $ 1,268 $ 1,244 $ 25 $ 1,244 $ 1,085 23243AAB2 66,020 64,970 1,051 64,970 47,880 23244JAC0 32,633 32,582 50 32,582 24,541 251510LD3 48,232 47,472 759 47,472 25,647 39538AAC0 26,039 25,683 357 25,683 14,094 39538AAG1 31,640 29,987 1,654 29,987 6,512 39538BAB0 26,529 26,108 422 26,108 13,869 39538BAE4 32,087 30,860 1,227 30,860 8,298 39538CAC6 26,304 25,997 307 25,997 9,081 39538CAE2 35,171 21,145 14,026 21,145 8,845 39539HAC4 25,435 25,243 191 25,243 16,828 45254NQX8 17,922 17,111 811 17,111 11,273 525221JH1 18,465 18,321 144 18,321 12,006 52522RAB6 43,336 42,598 738 42,598 36,688 52525LAQ3 46,479 39,508 6,971 39,508 25,169 57645TAA5 60,288 59,367 920 59,367 32,838 61748JAD9 9,844 9,644 199 9,644 6,072 -------- -------- ------- -------- -------- Grand total $547,692 $517,840 $29,852 $517,840 $300,726 ======== ======== ======= ======== ========
The Company recognized total OTTI of $354,210 for loan-backed and structured securities currently held by the Company at December 31, 2009. At December 31, 2009, the Company held securities with unrealized losses (fair value is less than cost or amortized cost) for which OTTI had not been recognized in earnings as a realized loss. Such unrealized losses include securities with a recognized OTTI for non interest (credit) related declines that were recognized in earnings, but for which an associated interest related decline has not been recognized in earnings as a realized 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:
12 Months or Greater than Less 12 Months Total ---------------------- ---------------------- ---------------------- Unrealized Unrealized Unrealized Description of Securities Fair Value Losses Fair Value Losses Fair Value Losses ------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Loan-backed Securities $289,639 $176,581 $10,029 $4,463 $299,668 $181,044 -------- -------- ------- ------ -------- -------- Total temporarily impaired securities $289,639 $176,581 $10,029 $4,463 $299,668 $181,044 ======== ======== ======= ====== ======== ========
31 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) In its OTTI, the Company considers all information relevant to the collectibility 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. On January 30, 2009, the Company acquired junior and senior notes of $235,000 and $1,562,000 respectively from Fieldstone Securitization I LLC, a wholly-owned subsidiary of LSP Holdings LLC. LSP Holdings LLC is an affiliate of the Company and a wholly-owned subsidiary of Chartis U.S. The Company does not have a controlling interest in Fieldstone Securitization I LLC. The junior and senior notes, are classified as bonds, have a maturity date of January 23, 2039 and have stated interest rates of 8.50% and 5.85%, respectively and have been rated by A.M Best. The Commissioner has approved that the notes be characterized as non-affiliate debt investments for financial reporting purposes. In connection with the issuance of the notes, AIG LS Holdings LLC, a wholly-owned subsidiary of LSP Holdings LLC, used a portion of the proceeds to repay $401,396 to the Company in connection with an existing liquidity facility between the two parties. On February 12, 2010, the Company acquired junior and senior notes of $210,000 and $474,000 respectively from Fieldstone Securitization II LLC. Please refer to the subsequent events disclosure for additional details. 32 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 4 - RESERVES FOR LOSSES AND LAE ------------------------------------ A reconciliation of the Company's reserves for losses and LAE as of December 31, 2009, 2008 and 2007 is set forth in the table below:
2009 2008 2007 ----------- ----------- ----------- RESERVES FOR LOSSES AND LAE, END OF PRIOR YEAR $13,354,448 $13,852,252 $12,901,979 Incurred losses and LAE related to: Current accident year 4,412,647 5,536,365 5,280,665 Prior accident years 1,115,434 137,636 51,911 ----------- ----------- ----------- TOTAL INCURRED LOSSES AND LAE 5,528,081 5,674,001 5,332,576 ----------- ----------- ----------- Paid losses and LAE related to: Current accident year (1,360,823) (1,679,345) (1,426,309) Prior accident years (3,951,398) (4,492,460) (2,955,994) ----------- ----------- ----------- TOTAL PAID LOSSES AND LAE (5,312,221) (6,171,805) (4,382,303) ----------- ----------- ----------- RESERVES FOR LOSSES AND LAE, AS OF DECEMBER 31, $13,570,308 $13,354,448 $13,852,252 =========== =========== ===========
For 2009, the Company experienced significant adverse loss and LAE reserve development, including accretion of loss reserve discount. The adverse development was almost entirely attributable to the Excess Casualty and Excess Workers Compensation classes of business. The Company modified its loss development assumptions for each of these classes of business in 2009 in response to the higher then expected loss emergence. For 2008, the development was slightly favorable prior to accretion of the workers compensation discount, and slightly adverse after recognition of accretion of discount. Favorable development on Directors & Officers liability and other classes of business offset adverse development on the Company's Excess Casualty business. The adverse development on Excess Casualty was primarily related to accident years 2003 and prior. In calendar year 2008, two transactions resulted in a significant increase in paid loss with a corresponding decrease in loss reserves. These transactions were the result of the Canadian Branch novation (see Note 5E) and the Foreign Operations restructuring (see Note 5E). The total calendar year paid losses as a result of these events were approximately $349,600 and $323,000 for the Canada novation and Foreign Operations restructuring, respectively. These payments are spread over multiple accident years and resulted in modest beneficial development of about $22,800. In addition, in 2008, the Company recorded paid losses of $114,000 relating to one credit excess of loss assumed treaty applicable to accident year 2008. There will be no additional impact from this treaty as the full limits of the treaty have been paid. Also, the 2009 paid losses and LAE reflect the commutation of the 21st Century Personal Auto Group. See Note 5E for further details. In 2007, the development was also primarily related to the accretion of workers compensation discount. In addition to the accretion of discount, there was adverse development in 2007 related to accident years 2003 and prior, offset by favorable development from accident years 2004 through 2006. The favorable developments for accident year 2004 through 2006 were spread across many classes of business. The adverse developments from accident years 2003 and prior related primarily to the Company's excess casualty and primary workers compensation classes of business. 33 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) As of December 31, 2009, 2008 and 2007, the Company's reserves for losses and LAE have been reduced by anticipated salvage and subrogation of $176,082, $188,634 and $211,061, respectively. As of December 31, 2009, 2008 and 2007, the Company's reserves for losses and LAE have been reduced by credits for reinsurance recoverable of $5,508,465, $5,509,912 and $6,206,161, respectively (exclusive of inter-company pooling). ASBESTOS AND ENVIRONMENTAL RESERVES ----------------------------------- The Company continues to receive indemnity claims asserting injuries from toxic waste, hazardous substances, asbestos and other environmental pollutants and alleged damages to cover the clean-up costs of hazardous waste dump sites (environmental claims). Estimation of environmental claim loss reserves is a difficult process, as these claims, which emanate from policies written in 1984 and prior years, cannot be estimated by conventional reserving techniques. Environmental claim development is affected by factors such as inconsistent court resolutions, the broadening of the intent of policies and scope of coverage and increasing number of new claims. The Company and other industry members have and will continue to litigate the broadening judicial interpretation of policy coverage and the liability issues. If the courts continue in the future to expand the intent of the policies and the scope of the coverage, as they have in the past, additional liabilities would emerge for amounts in excess of reserves held. This emergence cannot now be reasonably estimated, but could have a material impact on the Company's future operating results or financial position. The Company's environmental exposure arises from the sale of general liability, product liability or commercial multi-peril liability insurance, or by assumption of reinsurance within these lines of business. The Company tries to estimate the full impact of the asbestos and environmental exposure by establishing full case basis reserves on all known losses and establishes bulk reserves for IBNR losses and LAE based on management's judgment after reviewing all the available loss, exposure, and other information. 34 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The Company's asbestos and environmental related loss and LAE reserves (including case & IBNR reserves) for the years ended December 31, 2009, 2008 and 2007, gross and net of reinsurance credits, are as follows:
ASBESTOS LOSSES ENVIRONMENTAL LOSSES ------------------------------------- -------------------------------- 2009 2008 2007 2009 2008 2007 --------- ---------- ---------- -------- -------- -------- Direct: Loss and LAE reserves, beginning of year $ 955,576 $1,037,644 $1,159,145 $111,308 $144,753 $188,294 Incurred losses and LAE 185,330 103,898 36,688 (3,945) (14,424) (494) Calendar year paid losses and LAE (200,776) (185,966) (158,189) (13,893) (19,021) (43,047) --------- ---------- ---------- -------- -------- -------- LOSS AND LAE RESERVES, END OF YEAR $ 940,130 $ 955,576 $1,037,644 $ 93,470 $111,308 $144,753 ========= ========== ========== ======== ======== ======== Assumed: Loss and LAE reserves, beginning of year $ 91,172 $ 94,635 $ 102,751 $ 5,358 $ 6,262 $ 5,223 Incurred losses and LAE (1,601) 13,277 5,447 905 (776) 1,463 Calendar year paid losses and LAE 1,161 (16,740) (13,563) (200) (128) (424) --------- ---------- ---------- -------- -------- -------- LOSS AND LAE RESERVES, END OF YEAR $ 90,732 $ 91,172 $ 94,635 $ 6,063 $ 5,358 $ 6,262 ========= ========== ========== ======== ======== ======== Net of reinsurance: Loss and LAE reserves, beginning of year $ 437,834 $ 489,872 $ 562,722 $ 60,851 $ 75,608 $ 97,333 Incurred losses and LAE 57,182 29,204 10,719 1,900 34 1,785 Calendar year paid losses and LAE (79,911) (81,242) (83,569) (11,281) (14,791) (23,510) --------- ---------- ---------- -------- -------- -------- LOSS AND LAE RESERVES, END OF YEAR $ 415,105 $ 437,834 $ 489,872 $ 51,470 $ 60,851 $ 75,608 ========= ========== ========== ======== ======== ========
The amount of ending reserves for Bulk and IBNR included in the table above for Asbestos and Environmental losses is as follows:
ASBESTOS LOSSES ENVIRONMENTAL LOSSES ------------------------------ --------------------------- 2009 2008 2007 2009 2008 2007 -------- -------- -------- ------- ------- ------- Direct basis $531,709 $553,517 $653,522 $30,707 $41,812 $59,210 Assumed reinsurance basis 44,255 39,647 47,441 549 102 1,257 Net of ceded reinsurance basis 234,033 251,965 331,405 14,852 20,141 27,383
The amount of ending reserves for LAE included in the table above for Asbestos and Environmental losses is as follows:
ASBESTOS LOSSES ENVIRONMENTAL LOSSES ------------------------------ --------------------------- 2009 2008 2007 2009 2008 2007 -------- -------- -------- ------- ------- ------- Direct basis $ 59,079 $ 61,469 $ 72,614 $13,160 $17,919 $25,376 Assumed reinsurance basis 7,398 7,520 6,935 173 115 370 Net of ceded reinsurance basis 28,484 31,111 36,486 6,302 8,703 11,567
35 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Management believes that the reserves carried for the asbestos and environmental claims at December 31, 2009 are adequate as they are based on known facts and current law. AIG continues to receive claims asserting injuries from toxic waste, hazardous substances, and other environmental pollutants and alleged damages to cover the cleanup costs of hazardous waste dump sites (hereinafter collectively referred to as environmental claims) and indemnity claims asserting injuries from asbestos. Estimation of asbestos and environmental claims loss reserves is a difficult process, as these claims, which emanate from policies written in 1984 and prior years, cannot be estimated by conventional reserving techniques. NOTE 5 - RELATED PARTY TRANSACTIONS ----------------------------------- A. NATIONAL UNION INTER-COMPANY POOLING AGREEMENT ---------------------------------------------- The Company, as well as certain insurance affiliates, is party to an inter-company reinsurance pooling agreement. In accordance with the terms and conditions of this agreement, the member companies cede all direct and assumed business, except business from foreign branches (excluding Canada), to the Company (the lead pooling participant). In turn, each pooling participant receives from the Company their percentage share of the pooled business. The Company's share of the pool is 38.0%. Accordingly, premiums earned, losses and LAE incurred, and other underwriting expenses, as well as related assets and liabilities, in the accompanying financial statements emanate from the Company's percentage participation in the pool. A list of all pooling participants and their respective participation percentages is set forth in Note 1. Effective January 1, 2008 AIU Insurance Company's (AIUI) percentage in the Commercial Pool was reduced from 1% to 0% and C&I's participation was revised retroactively to 11% from 10%. Cessions from AIUI to the Commercial Pool will be run off. AIUI was relieved of any and all corresponding liabilities related to its 1% participation. B. CHARTIS OVERSEAS ASSOCIATION POOLING ARRANGEMENT ------------------------------------------------ AIG formed the Association; a Bermuda unincorporated association, in 1976, as the pooling mechanism for AIG's international general insurance operations. In exchange for membership in the Association at the assigned participation, the members contributed capital in the form of cash and other assets, including rights to future business written by international operations owned by the members. The legal ownership and insurance licenses of these international branches remain in the name of New Hampshire, National Union, and the Company. On annual basis the Association files audited financial statements in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of New York. 36 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) At the time of forming the Association, the member companies entered into an open-ended reinsurance agreement, cancelable with six months written notice by any member. The reinsurance agreement governs the insurance business pooled in the Association. The initial participation established was subsequently amended for profits and losses for each year derived from reinsurance of risks situated in Japan (excluding certain Japanese situs risks. The participation for Japanese and non-Japanese business underwritten via the Association is set forth in the table below:
INITIAL PARTICIPATION PARTICIPATION PERCENT MEMBER COMPANY NAIC CO. CODE PERCENT SPECIFIC TO JAPAN RISK ----------------------------------------------------------- ------------- ------------- ---------------------- Chartis Overseas Limited -- 67.0% 85.0% Commercial Pool member companies, as follows: -- 33.0% 15.0% New Hampshire Insurance Company 23841 12.0% 10.0% National Union Fire Insurance Company of Pittsburgh, Pa. 19445 11.0% 5.0% American Home Assurance Company 19380 10.0% 0.0%
In accordance with the National Union inter-company pooling agreement, the Commercial Pool member companies' participation in the Association is pooled among all Commercial Pool members proportional to their participation in the Commercial Pool. The Company's participation in the Association after the application of its participation in the National Union inter-company pooling agreement has been presented in the accompanying financial statements as follows: AS OF DECEMBER 31, 2009 2008 ----------------------------------------------- --------- --------- Assumed reinsurance receivable $ 24,062 $ 38,842 Funds held by ceding reinsurers 8,660 7,200 Reinsurance recoverable 36,773 28,459 Equities in underwriting pools and associations 613,296 718,937 --------- --------- TOTAL ASSETS $ 682,791 $ 793,438 --------- --------- Loss and LAE reserves 519,157 579,040 Unearned premium reserves 237,124 254,319 Funds held 15,330 15,867 Ceded balances payable 64,825 79,212 Retroactive reinsurance (140) (140) Assumed reinsurance payable 10,963 26,888 --------- --------- TOTAL LIABILITIES $ 847,259 $ 955,186 --------- --------- TOTAL SURPLUS $(164,468) $(161,748) ========= ========= 37 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) As of December 31, 2009, the Association reported an asset of $2.3 billion representing the value of subsidiaries and affiliated entities ("SCAs"). As of December 31, 2009, Chartis Europe S.A. represented $1.9 billion and Chartis UK Holdings represented $338 million of this total SCA asset, respectively. The Company's interest in the SCAs reported by the Association is consistent with its participation in the Association and the National Union inter-company pooling agreement and was $290 million as of December 31, 2009, which has been reported by the Company as a component Equities in Underwriting Pools and Associations. C. GUARANTEE ARRANGEMENTS The Company has issued guarantees whereby the Company unconditionally and irrevocably guarantees all present and future obligations and liabilities of any kind arising from the policies of insurance issued by the guaranteed companies. The Company would be required to perform under the guarantee agreements in events or circumstances (including bankruptcy, reorganization and similar proceedings) whereby the guaranteed companies fail to make payments under the policies of insurance (including guaranteed investment contracts and funding agreements) they have issued. The guarantees will remain in effect until terminated by the Company. The Company has the unilateral right to terminate the guarantees effective thirty (30) days after publication of a notice to terminate in the Wall Street Journal. The guarantees are not expected to have a material effect upon the Company's surplus. The Company believes that the likelihood of a payment under any of the guarantees is remote. These guarantees are provided to maintain the guaranteed company's rating status issued by certain rating agencies. In the event of termination of a guarantee, obligations in effect or contracted for on the date of termination would remain covered until extinguished. The Company is party to an agreement with AIG whereby AIG has agreed to make any payments due under the guarantees in the place and stead of the Company. 38 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The guarantees that were in effect as of December 31, 2009 are included in the table below:
Date Date Policyholder Invested Estimated Policyholders' Guaranteed Company Issued Terminated Obligations @ Assets @ Loss Surplus -------------------------------------------------- -------- ---------- ------------- ----------- --------- -------------- AHICO First American-Hungarian Insurance Company ** 9/15/98 1/30/09 $ 172,298 $ 227,663 $-- $ 52,625 AIG Global Trade and Political Risk Insurance Company 11/5/97 11/30/07 -- 250,322 -- 139,235 AIG Polska Towarzystwo Ubezpiecen S.A. ** 9/15/98 1/30/09 4,070 7,395 -- 29,367 AIG Romania Insurance Company, S.A. ** 12/23/98 49,510 -- -- -- AIG Slovakia Insurance Company A.S. ** 12/23/98 1/30/09 99 -- -- -- American General Life Insurance Company of Delaware (f/k/a AIG Life Insurance Company) 7/13/98 12/29/06 8,440,153 9,445,065 -- 449,900 American International Assurance Co (Bermuda) Ltd. ** 8/23/99 1/31/08 21,539,522 1,825,127 -- 1,945,197 American International Life Assurance Company of New York 7/13/98 4/30/10 5,906,818 6,366,496 -- 520,401 Audubon Insurance Company 11/5/97 23,025 55,763 -- 51,074 Chartis Excess Limited (f/k/a AIG Excess Liability Insurance International Ltd.) 5/28/98 2,553,456 709,346 -- 330,246 Chartis Insurance Company - Puerto Rico (f/k/a American International Insurance Company of Puerto Rico) 11/5/97 12/31/09 208,417 192,219 -- 154,714 Chartis Insurance Ireland Limited (f/k/a AIG Europe (Ireland) Ltd.) ** 12/15/97 862,648 469,998 -- 245,871 Chartis Select Insurance Company (f/k/a AIG Excess Liability Insurance Company Ltd.) ** 7/29/98 559,077 3,884,267 -- 1,726,293 Chartis Ukraine Insurance Company (f/k/a AIG Ukraine) ** 10/1/00 8,732 -- -- 5,478 CJSC (f/k/a AIG Russia Insurance Company ZAO) ** 9/15/98 1/30/09 176,017 359,704 -- 107,620 First American Czech Insurance Company, A.S. ** 9/15/98 1/30/09 524,861 666,269 -- 118,680 La Meridional Compania Argentina de Seguros S.A ** 1/6/98 235,655 55,855 -- 26,952 Landmark Insurance Company 3/2/98 90,437 415,254 -- 170,635 New Hampshire Indemnity Company, Inc. *** 12/15/97 8/31/09 54,946 147,378 -- 160,259 ----------- ----------- --- ---------- TOTAL $41,409,741 $25,078,121 $-- $6,234,547 =========== =========== === ==========
* The guaranteed company is also backed by a support agreement issued by AIG. ** Policyholders' surplus is based on local GAAP financial statements. *** Formerly part of AIG's U.S. Personal Auto Group, sold on July 1, 2009 to Farmers Group, Inc., a subsidiary of Zurich Financial Services Group (ZFSG). As part of the sale, ZFSG issued a hold harmless agreement to the Company with respect to the Company's obligations under this guarantee. @ Policyholder's Obligations and Invested Assets includes separate account liabilities and separate account assets, respectively. The Company does not believe that the events of AIG discussed in Notes 13 and 14 will increase the likelihood that the guarantees will be materially impacted. 39 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) C. INVESTMENTS IN AFFILIATES As of December 31, 2009 and 2008, the Company's preferred and common stock investments with its affiliates together with the related change in unrealized appreciation, net of $2,690 and $0 of non-admitted balances, respectively, were as follows:
AFFILIATE ACTUAL OWNERSHIP COST CARRYING VALUE AT CHANGE IN CARRYING AFFILIATED INVESTMENT PERCENT 2009 DECEMBER 31, 2009 VALUE 2009 --------------------------------------------------------- --------- ---------- ----------------- ------------------ Preferred stocks: AIG Capital Corporation (c) 0.0% -- -- (2,000,000) ---------- ---------- ----------- TOTAL PREFERRED STOCKS - AFFILIATES -- -- (2,000,000) ---------- ---------- ----------- Common stocks: 21st Century Insurance Group (a) 0.0% -- -- (231,483) Chartis Claims, Inc. (formerly AIG Domestic Claims, Inc.) 100.0% 118,000 55,461 (18,469) AIG Lodging Opportunities, Inc. 100.0% 3,234 1,423 326 American International Insurance Co. (a) 21.0% -- -- (78,478) American International Realty, Inc. 22.0% 9,911 14,457 (20,969) Chartis Specialty Insurance Company (formerly American International Specialty Lines Insurance Company) 70.0% 154,297 487,974 (20,363) Eastgreen, Inc. 9.7% 8,976 6,959 (25) International Lease Finance Corporation (ILFC) (b) 0.0% -- -- (2,406,928) Lexington Insurance Company 70.0% 363,046 3,631,135 647,187 Mt. Mansfield Co. Inc. 100.0% 50,433 50,433 50,433 National Union Fire Ins. Company of La. 100.0% 2,500 7,394 236 National Union Fire Ins. Company of Vt. 100.0% 41,000 60,965 32,668 Pine Street Real Estate Holding Corp. 22.1% 3,139 1,537 76 AIG Excess Liability Insurance Company Ltd. 100.0% 435,454 1,726,293 288,378 Spruce Peak Realty LLC (d) 1.0% 224 224 224 United Guaranty Corporation 45.9% 721,505 804,829 (56,361) ---------- ---------- ----------- TOTAL COMMON STOCKS - AFFILIATES 1,911,719 6,849,084 (1,813,548) ---------- ---------- ----------- TOTAL COMMON AND PREFERRED STOCK - AFFILIATES $1,911,719 $6,849,084 $(3,813,548) ========== ========== ===========
(a) As referenced in Note 5E, the Company sold its ownership in 21st Century to Farmers Group Inc. (b) As referenced in Note 5E, the Company sold its ownership of ILFC to AIG Capital Corporation. (c) As referenced in Note 14, the Company redeemed its investment in AIG Capital Corporation. (d) Spruce Peak Realty LLC is 99% owned by Mt. Mansfield Co. Inc., which is also an affiliate and 100% owned by the Company. The remaining 1% of Spruce Peak Realty LLC is owned by the Company. 40 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 and 2007 (000'S OMITTED)
CARRYING AFFILIATE ACTUAL VALUE AT CHANGE IN OWNERSHIP COST DECEMBER 31, CARRYING AFFILIATED INVESTMENT PERCENT 2008 2008 VALUE 2008 ------------------------------------------------ --------- ---------- ------------ ---------- Preferred stocks: Everest Broadband Inc 0.0% $ -- $ -- $ (10,247) AIG Capital Corporation (c) 100.0% 2,000,000 2,000,000 -- ----- ---------- ----------- --------- TOTAL PREFERRED STOCKS - AFFILIATES 2,000,000 2,000,000 (10,247) ---------- ----------- --------- Common stocks: 21st Century Insurance Group 32.0% 464,344 231,483 19,526 AIG Domestic Claims 100.0% 118,000 73,930 295 AIG Lodging Opportunities, Inc. 100.0% 3,234 1,097 1,097 AIU Insurance Company 0.0% -- -- (446,078) American International Insurance Co. 21.0% 76,283 78,478 78,478 American International Realty, Inc. 22.0% 26,456 35,426 80 Chartis Specialty Insurance Company (formerly American International Specialty Lines Insurance Company) 70.0% 154,297 508,337 58,265 Eastgreen, Inc. 9.7% 8,975 6,984 (20) International Lease Finance Corporation 32.8% 795,122 2,406,928 203,191 Lexington Insurance Company 70.0% 363,046 2,983,948 (201,773) National Union Fire Ins. Company of La. 100.0% 2,501 7,158 1,066 National Union Fire Ins. Company of Vt. 100.0% 41,000 28,297 (3,147) Pine Street Real Estate Holding Corp. 22.1% 3,139 1,461 1,461 AIG Excess Liability Insurance Company Ltd. 100.0% 435,454 1,437,915 189,839 United Guaranty Corporation 45.9% 595,622 861,190 406,634 ---------- ----------- --------- TOTAL COMMON STOCKS - AFFILIATES 3,087,473 8,662,632 308,914 ---------- ----------- --------- TOTAL COMMON AND PREFERRED STOCK - AFFILIATES $5,087,473 $10,662,632 $ 298,667 ========== =========== =========
The remaining equity interest in these investments is owned by other affiliated companies, which are wholly-owned by the Ultimate Parent. Lexington Insurance Company's admitted assets, liabilities and capital and surplus as of December 31, 2009 and 2008 and net income for the years ended December 31, 2009 and 2008 are set forth below: 2009 2008 ----------- ----------- Total admitted assets $15,989,207 $15,323,228 Total liabilities 10,801,871 11,060,446 Total capital and surplus 5,187,336 4,262,783 Total liabilities, capital and surplus 15,989,207 15,323,228 Net income 629,642 208,534 41 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) On December 31, 2009, National Union acquired a 100% interest in Mt. Mansfield/Spruce Peak Realty. As part of this transaction, the Company established negative goodwill in the amount of $125,565. Additionally, as part of the transaction Chartis Inc. has commuted to pay a percentage of the positive cash flows Mt. Mansfield to the Ultimate Parent. The Company has ownership interests in certain affiliated real estate holding companies. From time to time, the Company may own investments in partnerships across various other AIG affiliated entities with a combined percentage greater than 10.0%. As of December 31, 2009 and 2008, the Company's total investments in partnerships with affiliated entities where AIG's interest was greater than 10.0% amounted to $842,176 and $941,485, respectively. E. RESTRUCTURING ------------- DOMESTIC OPERATIONS ------------------- The Company sold its 32.77% interest in the issued and outstanding common stock of International Lease Finance Corporation (ILFC) to AIG Capital Corporation, a wholly owned subsidiary of AIG. As a result of this transaction, the Company received cash equal to the statutory book value of its ILFC common stock and recorded a gain of $1,927,160. In accordance with the tax sharing agreement, the Company was reimbursed $952,593 and recorded such amount as additional paid in capital. Effective July 1, 2009, the 21st Century Personal Auto Group (PAG) was sold to Farmers Group, Inc. (FGI), a subsidiary of Zurich Financial Services Group for $1.9 billion. Of the $1.9 billion proceeds received by AIG member companies from the sale of the PAG entities to FGI, $0.2 billion was retained by Chartis U.S. Inc. as consideration for the PAG entities it owned and $1.7 billion was provided to the Chartis U.S. insurance entities. American International Insurance Company (AIIC) was the lead company in the Personal Lines Pool which was the mechanism for sharing the PAG and the Private Client Group (PCG) business underwritten among the Personal Lines Pool members. PCG business was underwritten directly by member companies of the Personal Lines Pool as well as the insurance entities of Chartis U.S. Inc. not subject to this sale ("Chartis U.S. Inc. companies"). The PCG business written by Chartis U.S. Inc. companies was ceded 100% to AIIC as the pool lead. The total of the PCG business assumed by AIIC, the PCG business underwritten directly by Personal Lines Pool members, as well as the PAG business retained by AIIC ("net business of the Personal Lines Pool") was then subject to a 50% quota share to National Union. The Commercial Pool members participated in this business assumed by the Company at their stated pool percentages. In connection with this sale, various reinsurance agreements between the PAG companies and the Chartis U.S. Inc. companies (including the Company) were partially or fully commuted as of June 30, 2009. The major transactions are summarized below: 1. The quota share reinsurance agreement between the Company and AIIC under which AIIC ceded 50% of the net business of the Personal Lines Pool to the Company was commuted as of June 30, 2009. 2. All liabilities relating to existing PCG business that was written on a direct basis by members of the Personal Lines Pool were transferred to the Company under the terms of the PCG Business Reinsurance and Administration Agreement, effective June 30, 2009. 42 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) 3. All obligations and liabilities relating to the PCG business that was directly written and ceded by Chartis U.S. Inc. companies to AIIC under various quota share reinsurance agreements were commuted as of June 30, 2009. Following these transactions the Chartis U.S. Inc. companies settled all amounts due to AIIC in securities and cash totaling $871.9 million. The Company's share of this settlement was $329.9 million. The Chartis U.S. Inc. companies which owned 21st Century Insurance Group (a member company of PAG), recorded dividend income and a resulting intangible asset of approximately $527.5 million for the fair value of the PCG business, which was not subject to the PAG sale and was retained by the Chartis U.S. Inc. companies going forward. Additionally, capital contributions were received by the owners of 21st Century Insurance Group of $184.6 million from Chartis U.S. as part of the tax sharing agreement. The Company's share of these transactions was divided income of $154.8 million and a capital contribution of $54.2 million. Following the sale of the PAG entities, which included the Company's ownership in 21st Century Insurance Group and AIIC., the Company received $319.1 million of the $1.7 billion of proceeds received by the Chartis U.S. Inc. companies. As a result of these transactions involving the sale of these PAG entities, the Company recorded a pre-tax loss of $120.9 million. On June 30, 2008, AIUI paid a dividend representing its 25% ownership interest in AIIC to its owners, the Company, Chartis PC and the Insurance Company of the State of Pennsylvania (ISOP). The dividend paid to each of AIUI's owners was based on the proportionate ownership interest of AIUI by each company. As a result of this transaction, the Company recorded a dividend of $84,000 which valued AIIC as $76,283 and $7,707 of cash, while Chartis PC and ISOP each recorded their proportionate share. This transaction was designed to simplify the organization and provide an enhanced regulatory and legal platform. On various dates during 2008, the Company made additional investments in United Guaranty Corporation (UGC) totaling $497,789. The Company's ownership interest did not change. AMERICAN HOME CANADIAN BRANCH NOVATION -------------------------------------- Effective November 1, 2008, the American Home Canadian Branch (the Branch) entered into an assumption reinsurance and asset purchase agreement with Chartis Insurance Company of Canada (formerly AIG Commercial Insurance Company of Canada) under which the existing and inforced policies of insurance issued by the Branch were novated to Chartis Insurance Company of Canada. Subsequent to the transfer, the Branch ceased operations and is in the process of being dissolved. The transaction has been accounted for at fair value in accordance with Statement of Statutory Accounting Principles (SSAP) No. 25, Accounting for and Disclosures About Transactions with Affiliates and Other Related Parties, as it qualifies as an "economic transaction". The fair value of the liabilities assumed by Chartis Insurance Company of Canada were approximately $2,146,053. In connection with Chartis Insurance Company of Canada's assumption of such liabilities, the Branch transferred assets at fair value equal to the obligations assumed by AIGCIC less a balance representing intangible assets of approximately $75,693 which has been deferred and will be amortized over a 10 year period by American Home Assurance Company. In addition, a total ceding commission equal to $39,655 as well as an underwriting gain of $38,228, both of which are subject to the pooling agreement in which the Company participates, were recognized as an immediate gain by the pool participants. The Company's total gain, including $15,069 representing its share of the ceding commission, was $29,596. 43 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) In relation to and prior to this transaction, Chartis U.S. Inc. contributed capital to Chartis Insurance Company of Canada in the amount of approximately $964,000. Chartis U.S. Inc. obtained such funding via dividends paid by the following entities: Company Dividend -------------------------------------------------------- -------- National Union Fire Insurance Company of Pittsburgh, Pa. $299,000 American Home Assurance Company 170,000 Commerce and Industry Insurance Company 103,000 Chartis Property Casualty Company 103,000 The Insurance Company of the State of Pennsylvania 122,000 New Hampshire Insurance Company 167,000 During the fourth quarter of 2008 and subsequent to the transaction, the Branch repatriated its remaining net assets of $921,000 to American Home Assurance Company. American Home Assurance Company utilized $691,000 of this repatriated amount to pay a dividend to Chartis Insurance Company of Canada of $691,000. Subsequently, Chartis Insurance Company of Canada contributed such funds to the following entities in consideration for the dividends paid to originally fund the transaction: Capital Company Contribution -------------------------------------------------------- ------------ National Union Fire Insurance Company of Pittsburgh, Pa. $299,000 Chartis Property Casualty Company 103,000 The Insurance Company of the State of Pennsylvania 122,000 New Hampshire Insurance Company 167,000 FOREIGN OPERATIONS RESTRUCTURING -------------------------------- UK Restructure & Part VII ------------------------- In 2007, the foreign property and casualty division of AIG announced the restructuring of its United Kingdom (UK) general insurance operations designed to simplify the organization, provide an enhanced regulatory and legal platform and improve transparency and efficiency. In December 2007, New Hampshire Insurance Company transferred substantially all of the business written by its United Kingdom branch (the UK Branch) to AIG UK Ltd., a UK affiliate formerly known as Landmark Insurance Company Limited. This transfer was accomplished pursuant to an application made to the High Court of Justice in England and Wales for an order under Part VII of the Financial Services and Markets Act 2000 of the UK. The results of the UK branch had been previously reported through the Company's participation in the Association. The Association reports on a fiscal year ending on November 30th. Although the Company's fiscal year ends on December 31st, the Company's annual financial statements have historically and consistently reported the results of its participation in the Association based on the Association's fiscal year close of November 30th. In order to achieve consistency in its financial reporting, the Company, with the permission of the New York and Pennsylvania Insurance Departments, recorded the effects of this transaction in its 2008 statutory financial statements. 44 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Amended Corporate Structure --------------------------- In 2007, to support the legal realignment of its UK operations, AIUO Ltd incorporated the intermediate holding companies AIG UK Holding Limited, AIG UK Financing Company Limited, and AIG UK Sub Holdings Limited. On November 26, 2007, AIUO Ltd transferred the shares of its wholly owned subsidiary, Landmark Insurance Company Ltd (Landmark) to AIU UK Holdings (UK Holdings) in return for share capital of UK Holdings. Landmark was then renamed AIG UK Ltd and its holding was cascaded down to AIG UK Financing Company Limited and on to AIG UK Sub Holding Company Limited in share for share exchanges on November 27 and 28, respectively. AIUO Ltd also transferred the shares in its wholly owned subsidiary, AIG Europe UK Limited to UK Holdings in exchange for the issuance of additional shares in UK Holdings. AIG Europe UK Limited was then renamed AIG UK Services Limited and its share holding was cascaded down through AIG UK Financing Company Limited, AIG UK Sub Holding Company Limited and on to AIG UK Limited. Two other affiliates of the Company, AIG Europe Ireland and American International Company Ltd made cash contributions to UK Holding in exchange for share capital of UK Holdings. Business Transfer ----------------- On December 1, 2007, AIG transferred all of the business written by New Hampshire Insurance Company's UK Branch to AIG UK Ltd. This transaction was accomplished pursuant to an application made to the High Court of Justice in England and Wales for an order under Part VII of the Financial Services and Markets Act 2000 of the UK to transfer the aforementioned business (Part VII Transaction). Prior to the transfer, the business of the UK Branch was recorded by the Company through its participation in the Association. The Association business is reflected in various insurance accounts within the Company's Statement of Admitted Assets, Liabilities and Capital & Surplus and the Statement of Income. By transferring the existing rights and future rights of the UK business, the Association members transferred the value of the business, and unrealized translation balances, to AIG UK Ltd and shares of AIG UK Ltd stock were issued to the members of the Association for fair value of the business transferred. These shares were then transferred to UK Holdings in exchange for shares in UK Holdings. New Hampshire UK Aviation business was transferred by New Hampshire directly, for shares of AIG UK Ltd stock equal to the fair value of the Aviation business transferred. Additionally, as part of the transaction several intercompany reinsurance agreements (both commutations and new contracts) were executed involving other subsidiaries of AIG. The results of the New Hampshire UK Aviation business had been previously reported through the Company's participation in the Commercial Pool. During the 2008 year there were additional contributions to UK Holdings by the Association and AIUO Ltd. In aggregate, UK Holdings issued 21,448 common equity shares in exchange for all assets contributed, which included cash, intangibles and the value of the contributed entities and rights of the UK business. For US income tax purposes, the restructuring of the UK Branch qualified as a tax free reorganization. While generally tax free, certain intangible assets were recognized as taxable income upon transfer to AIG UK Ltd. pursuant to Internal Revenue Code section 367. Additionally, unrealized foreign currency gains and losses were realized upon the termination of the UK Branch. It is expected that foreign currency gains and losses offset each other for tax purposes resulting in an immaterial net number. The tax effects of the transaction reported in the Company's financial statements are disclosed below. 45 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Completion of the aforementioned business transfer, including the related reinsurance transactions, resulted in the following changes to the 2008 Company's financial statements: Investment P VII in UK Transfer Holdings Total --------- ---------- --------- Participation in the Association $(404,362) $(15,464) $(419,827) Liabilities 470,937 -- 470,937 Underwriting income 60,836 -- 60,836 Other income 3,993 -- 3,993 Net income (pre-tax) 92,535 -- 92,535 Surplus (pre-tax) 66,575 (15,464) 51,110 F. OTHER RELATED PARTY TRANSACTIONS -------------------------------- The following table summarizes transactions (excluding reinsurance and cost allocation transactions) that occurred during 2009 and 2008 between the Company and any affiliated companies that exceeded half of one percent of the Company's admitted assets as of December 31, 2009 and 2008 and all capital contributions and dividends:
ASSETS RECEIVED BY ASSETS TRANSFERRED BY THE COMPANY THE COMPANY ----------------------- ----------------------- DATE OF EXPLANATION OF NAME OF STATEMENT STATEMENT TRANSACTION TRANSACTION AFFILIATE VALUE DESCRIPTION VALUE DESCRIPTION ----------- ---------------------- ----------------- --------- ----------- --------- ----------- 07/31/09 Dividend Chartis U.S. Inc. $ -- -- $537,000 Cash 07/01/09 Capital contribution (a) Chartis U.S. Inc. 54,190 In kind -- -- 12/31/09 Capital contribution (c) Chartis U.S. Inc. 70,711 In kind -- -- 09/30/09 Capital contribution (b) Chartis U.S. Inc. 952,593 In kind -- -- Various Capital contribution Chartis U.S. Inc. 9,907 In kind -- -- Various Additional investments UGC 125,884 In kind -- -- Various Sale of securities AHAC 585,381 Cash 594,895 Bond Various Sale of securities LEX 215,466 Cash 207,921 Bond
(a) Related to sale of Personal Auto Group (PAG). See Note 5E. (b) Sale of ILFC. Refer to Note 5E (c) Capital contributions in lieu of tax sharing agreement LEX: Lexington Insurance Company 46 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
ASSETS RECEIVED BY ASSETS TRANSFERRED BY THE COMPANY THE COMPANY ----------------------- ----------------------- DATE OF EXPLANATION OF NAME OF STATEMENT STATEMENT TRANSACTION TRANSACTION AFFILIATE VALUE DESCRIPTION VALUE DESCRIPTION ----------- ---------------------- ----------------- --------- ----------- --------- ----------- 03/31/08 Dividend Chartis U.S. Inc. $ -- -- $275,000 Cash 06/30/08 Dividend (a)(b) Chartis U.S. Inc. -- -- 858,760 In kind 06/30/08 Dividend Chartis U.S. Inc. -- -- 250,000 Cash 06/30/08 Dividend (b) AIUI 84,000 In kind -- -- 09/30/08 Dividend (a) Chartis U.S. Inc. -- -- 54,465 Cash 11/03/08 Dividend (a) Chartis U.S. Inc. -- -- 299,000 Cash Various Dividend LEX 210,000 Cash -- -- Various Dividend AIG Cap Corp Pref 100,000 Cash -- -- Various Dividend AIUI 128,000 Cash -- -- 06/30/08 Capital contribution Chartis U.S. Inc. 11,881 In kind -- -- 09/30/08 Capital contribution (b) Chartis U.S. Inc. 531,613 In kind -- -- Cash & 12/31/08 Capital contribution (c) Chartis U.S. Inc. 299,000 securities -- -- Various Capital contribution (d) Chartis U.S. Inc. 416,916 In kind -- -- Various Capital contribution Chartis U.S. Inc. (3,449) In kind Various Additional investment UGC 497,789 Investment 497,789 Cash
LEX: Lexington Insurance Company (a) Extraordinary dividend - Refer to Note 11 (b) Transfer and reorganization of AIUI - Refer to Note 5E (c) The transfer of AHAC Canadian branch to Chartis Insurance Company of country-regionplaceCanada - Refer to Note 5E (d) Capital contributions in lieu of tax sharing agreement - Refer to Note 9 In the ordinary course of business, the Company utilizes AIG Technology, Inc., PineBridge Investment LLC (PineBridge), and Chartis Claims, Inc. for data center systems, investment services, salvage and subrogation, and claims management, respectively. As of March 2010, PineBridge was sold to a third party. It will continue to manage a portion of the Company's investments. In connection with these services, the fees incurred by the Company to these affiliates during 2009, 2008 and 2007 are outlined in the table below:
FOR THE YEARS ENDED DECEMBER 31, 2009 2008 2007 ---------------------------------------------------------------- -------- -------- -------- AIG Technology, Inc. $ 30,323 $ 32,761 $ 30,148 PineBridge Investment LLC (formerly AIG Global Investment Corp.) 6,076 6,700 7,139 Chartis Claims, Inc. (formerly AIG Domestic Claims, Inc.) 270,160 268,146 257,540 -------- -------- -------- TOTAL $306,559 $307,607 $294,827 ======== ======== ========
As of December 31, 2009 and 2008, short-term investments included amounts invested in the AIG Managed Money Market Fund of $1,882,260 and $734,525, respectively. As of December 31, 2009 and 2008, other invested assets included $936,167 and $612,384, respectively, of loans with an affiliate. The proceeds from the loans were used by the affiliate for the acquisition of life settlements. 47 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Federal and foreign income taxes receivable/payable from/to affiliates as of December 31, 2009 and 2008 amounted to $261,158 and $(167,471), respectively. During 2009, 2008 and 2007 the Company sold premium receivables without recourse to AI Credit Corporation (AICC) (a formerly wholly owned AIG subsidiary) and recorded losses on these transactions as follows. AICC was purchased by an unaffiliated third party during 2009 and the outstanding receivables were sold by AICC to Risk Specialists Companies Insurance Agency, Inc. The Company did not sell any additional premiums receivable balances after the sale of AICC. AS OF DECEMBER 31, 2009 2008 2007 ------------------------ ------- ------- ------- Accounts receivable sold $28,656 $75,661 $56,857 Losses recorded 675 1,945 1,694 As of December 31, 2009 and 2008, the Company had the following balances receivable/payable from/to its affiliates (excluding reinsurance transactions). These balances are net of non-admitted amounts of $72,518 and $91,974, respectively, at December 31, 2009 and 2008. AS OF DECEMBER 31, 2009 2008 --------------------------------------------------- ---------- ---------- Balances with pool member companies $ 194,242 $ 257,373 Balances with less than 0.5% of admitted assets 2,245,844 177,430 ---------- ---------- RECEIVABLE FROM PARENT, SUBSIDIARIES AND AFFILIATES $2,440,086 $ 434,803 ========== ========== Balances with pool member companies $ 116,222 $1,155,784 Balances with less than 0.5% of admitted assets 212,532 148,998 ---------- ---------- PAYABLE TO PARENT, SUBSIDIARIES AND AFFILIATES $ 328,754 $1,304,782 ========== ========== On March 31, 2005 the Company and certain of its affiliates entered into a settlement agreement with an insured to release all the asbestos claims and other products coverage potentially available under the applicable insurance policies by making specified payments to the insured on a quarterly basis from March 2005 to December 2016. Between March 31, 2006 and March 25, 2008 the insured entered into a series of receivable sale agreements with AICC whereby AICC purchased the insured's March 2006 to December 2016 receivables of $365,000 for $278,930. The Company did not reduce its loss reserves for the agreements between the insured and AICC. On October 27, 2009 AIG Funding, Inc. (AIGF) entered into an assignment and assumption agreement with AICC whereby AIGF assumed the remaining outstanding receivables from AICC, at net book value, as a partial payment against outstanding intercompany loan principal balances owed to AIGF by AICC. The amount, at net book value, was $225,962. 48 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 6 - REINSURANCE -------------------- In the ordinary course of business, the Company reinsures certain risks with affiliates and other companies. Such arrangements serve to limit the Company's maximum loss on catastrophes and large and unusually hazardous risks. To the extent that any reinsuring company might be unable to meet its obligations, the Company would be liable for its respective participation in such defaulted amounts. The Company purchased catastrophe excess of loss reinsurance covers protecting its net exposures from an excessive loss arising from property insurance losses and excessive losses in the event of a catastrophe under workers' compensation contracts issued without limit of loss. During 2009, 2008 and 2007, the Company's net premiums written and net premiums earned were comprised of the following:
2009 2008 2007 ------------------------- ------------------------- ------------------------- FOR THE YEARS ENDED DECEMBER 31, WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED -------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Direct premiums $ 6,293,106 $ 6,258,037 $ 6,346,614 $ 5,967,292 $ 5,450,523 $ 5,319,330 Reinsurance premiums assumed: Affiliates 13,353,275 15,180,172 17,910,581 20,121,728 22,972,380 22,951,382 Non-affiliates 560,836 632,527 301,155 503,276 528,953 493,411 ----------- ----------- ----------- ----------- ----------- ----------- GROSS PREMIUMS 20,207,217 22,070,736 24,558,350 26,592,296 28,951,856 28,764,123 ----------- ----------- ----------- ----------- ----------- ----------- Reinsurance premiums ceded: Affiliates 13,322,772 14,735,091 16,925,631 18,259,644 19,911,172 19,869,772 Non-affiliates 1,140,940 1,246,179 1,053,565 1,067,568 1,264,103 1,227,602 ----------- ----------- ----------- ----------- ----------- ----------- NET PREMIUMS $ 5,743,505 $ 6,071,466 $ 6,579,154 $ 7,265,084 $ 7,776,581 $ 7,666,749 =========== =========== =========== =========== =========== ===========
49 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The maximum amount of return commissions which would have been due reinsurers if all of the Company's reinsurance had been cancelled as of December 31, 2009 and 2008 with the return of the unearned premium reserve is as follows:
ASSUMED REINSURANCE CEDED REINSURANCE NET ----------------------- ----------------------- --------------------- UNEARNED UNEARNED UNEARNED PREMIUM COMMISSION PREMIUM COMMISSION PREMIUM COMMISSION RESERVES EQUITY RESERVES EQUITY RESERVES EQUITY ---------- ---------- ---------- ---------- -------- ---------- DECEMBER 31, 2009: Affiliates $7,795,151 $1,036,216 $7,324,831 $ 980,942 $470,320 $ 55,274 Non affiliates 596,114 79,242 399,445 $ 53,492 196,669 25,750 ---------- ---------- ---------- ---------- -------- -------- TOTALS $8,391,265 $1,115,458 $7,724,276 $1,034,434 $666,989 $ 81,024 ========== ========== ========== ========== ======== ======== DECEMBER 31, 2008: Affiliates $9,216,633 $1,213,853 $8,644,760 $1,132,628 $571,873 $ 81,225 Non affiliates 667,805 87,952 504,664 $ 66,120 163,142 21,832 ---------- ---------- ---------- ---------- -------- -------- TOTALS $9,884,438 $1,301,805 $9,149,424 $1,198,748 $735,015 $103,057 ========== ========== ========== ========== ======== ========
As of December 31, 2009 and 2008, and for the years then ended, the Company's unearned premium reserves, paid losses and LAE, and reserves for losses and LAE (including IBNR), have been reduced for reinsurance ceded as follows: UNEARNED PAID RESERVES FOR PREMIUM LOSSES LOSSES AND RESERVES AND LAE LAE ---------- -------- ------------ DECEMBER 31, 2009: Affiliates $7,324,831 $150,519 $33,903,933 Non-affiliates 399,445 348,225 3,203,311 ---------- -------- ----------- TOTAL $7,724,276 $498,744 $37,107,244 ========== ======== =========== DECEMBER 31, 2008: Affiliates $8,644,760 $288,984 $34,199,712 Non-affiliates 504,664 390,595 2,482,579 ---------- -------- ----------- TOTAL $9,149,424 $679,579 $36,682,291 ========== ======== =========== 50 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The Company's unsecured reinsurance recoverables as of December 31, 2009 in excess of 3.0% of its capital and surplus is set forth in the table below:
NAIC Co. REINSURER CODE AMOUNT ---------------------------------------------------------- -------- ----------- Affilliates: National Union Pool 19380 $39,176,227 AIU Insurance Company 159,399 American International Reinsurance Co. Ltd. -- 308,398 Chartis Overseas Ltd 437,619 AIG Global Trade And Political Risk Ins Company 10651 252,319 United Guaranty Insurance Company 11715 39,366 Lexington Insurance Company 19437 19,204 American International Life Assurance Co. of NY (US) 60607 5,131 Chartis Specialty Insurance Company 26883 7,665 Chartis Select Insurance Company 10932 3,674 Audubon Insurance Company 19933 1,183 Ascot Syndicate Lloyd's 1414 -- 2,304 Chartis Europe SA -- 16,501 Chartis Insurance UK Ltd -- 6,439 Chartis Insurance Company of Canada -- 5,465 Landmark Insurance Company -- 1,132 Other affiliates less than $1.0 million -- 5,290 ----------- TOTAL AFFILIATES $40,447,316 ----------- Non-Affilliates: -- ----------- TOTAL AFFILIATES AND NON-AFFILIATES $40,447,316 ===========
During 2009, 2008, and 2007, the Company reported in its Statements of Income statutory losses (gains) of $11,466, $173, and $(4,270), respectively, as a result of losses incurred from commutations with the following reinsurers: COMPANY 2009 2008 2007 --------------------------------------- ------- ---- ------- American International Reinsurance Co. $10,855 $ -- $ -- Nichido -- -- (4,422) Other reinsurers less than $1.0 million 611 173 152 ------- ---- ------- TOTAL $11,466 $173 $(4,270) ======= ==== ======= As of December 31, 2009 and 2008, the Company had reinsurance recoverables on paid losses in dispute of $135,255 and $118,898, respectively. During 2009, 2008 and 2007, the Company wrote-off reinsurance recoverable balances of $9,450, $(5,178) and $14,497, respectively. 51 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) As described in Note 5, the Company is party to an inter-company pooling agreement. In the ordinary course of business, the Company also assumes business, primarily from affiliated entities. As of December 31, 2009 and 2008, the Company's premium receivable and losses payable on assumed business are as follows:
2009 AFFILIATE NON-AFFILIATE TOTAL ------------------------------------------------------------- --------- --------------- -------- Premiums in course of collection $184,440 $26,399 $210,839 Reinsurance payable on paid loss and loss adjustment expenses 209,384 12,491 221,875
2008 AFFILIATE NON-AFFILIATE TOTAL ------------------------------------------------------------- --------- ------------- -------- Premiums in course of collection $428,532 $6,834 $435,366 Reinsurance payable on paid loss and loss adjustment expenses 502,228 6,457 508,685
In 2009, the primary component of the affiliated assumed reinsurance balances summarized above were due from and to Chartis Specialty Insurance Company (formerly known as American International Specialty Lines Insurance Company) and LEX. In 2009, AIIC was no longer an affiliate. In 2008, the primary components of the affiliated assumed reinsurance balances summarized above relate to reinsurance agreements with member companies of the Personal Lines Pool (AIIC) and Chartis Specialty Insurance Company (CSIC). By virtue of participation in the inter-company pooling agreement, the Company's premium receivable and losses payable on assumed reinsurance attributable to parties excluded from the Commercial Pool as of December 31, 2009 and 2008 are as follows:
2009 2008 ----------------- ------------------ Caption CSIC LEX AIIC CSIC ------------------------------------------------------------- ------- ------- -------- ------- Premiums in course of collection $45,094 $21,846 $105,692 $92,674 Reinsurance payable on paid loss and loss adjustment expenses 80,087 19,860 122,908 87,616
NOTE 7 - RETROACTIVE REINSURANCE -------------------------------- In 2008, the Company commuted a reinsurance treaty ceded to an affiliate, American International Reinsurance Co. (AIRCO), which incepted in 1998 and was accounted for as retroactive reinsurance. During 2008, the Company recorded the following changes to Reserves Transferred, Paid Losses Reimbursed or Recovered, Consideration Paid or Received and Special Surplus from Retroactive Reinsurance attributable to this commutation were as follows: 2008 --------- Reserves transferred $(401,754) Paid losses recovered (355,164) Consideration paid (212,172) Special surplus from retroactive reinsurance (46,592) 52 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The Company's retroactive reinsurance reserve balances (as reinsured or as reinsurer) as of December 31, 2009 and 2008, are set forth in the table below:
2009 2008 ---------------- ---------------- REINSURER ASSUMED CEDED ASSUMED CEDED ------------------------------------------------- ------- ------ ------- ------ Chartis Specialty Insurance Co. $2,952 $ -- $2,967 $ -- Commerce and Industry Insurance Company of Canada 4,405 -- 4,405 -- Lyndon Property Ins. Co. -- 1,465 -- 1,785 Transatlantic -- -- -- 1,380 All other reinsurers less than 1.0 million -- 675 -- 2,014 ------ ------ ------ ------ TOTAL $7,357 $2,140 $7,372 $5,179 ====== ====== ====== ======
NOTE 8 - DEPOSIT ACCOUNTING ASSETS AND LIABILITIES -------------------------------------------------- Certain of the products offered by the Company include funding components or have been structured in a manner such that little or no insurance risk is transferred. Funds received in connection with these arrangements are recorded as deposit liabilities, rather than premiums and incurred losses. In addition, the Company has entered into several ceded reinsurance arrangements, both treaty and facultative, which were determined to be deposit agreements. Conversely, funds paid in connection with these arrangements are recorded as deposit assets, rather than as ceded premiums and ceded incurred losses. As of December 31, 2009 and 2008, the Company's deposit assets and liabilities were comprised of the following: DEPOSIT DEPOSIT FUNDS HELD FUNDS HELD ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ---------- ----------- DECEMBER 31, 2009: Direct $ -- $ 93,380 $ -- $-- Assumed -- 95,014 93,433 -- Ceded 1,684 -- -- -- ------ -------- ------- --- TOTAL $1,684 $188,394 $93,433 $-- ====== ======== ======= === DEPOSIT DEPOSIT FUNDS HELD FUNDS HELD ASSETS LIABILITIES ASSETS LIABILITIES -------- ------------------------ ----------- DECEMBER 31, 2008: Direct $ -- $101,097 $ -- $ -- Assumed -- 97,668 93,433 -- Ceded 559,534 -- -- 510,960 -------- -------- ------- -------- TOTAL $559,534 $198,765 $93,433 $510,960 ======== ======== ======= ======== 53 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) A reconciliation of the Company's deposit asset and deposit liabilities as of December 31, 2009 and 2008 is set forth in the table below:
2009 2008 ----------------------- ----------------------- DEPOSIT DEPOSIT DEPOSIT DEPOSIT ASSETS LIABILITIES ASSETS LIABILITIES --------- ----------- --------- ----------- BALANCE AT JANUARY 1 $ 559,534 $ 198,765 $ 793,216 $ 200,040 Deposit activity, including loss recoveries (625,704) (8,404) (264,327) 83 Interest income or expense, net of amortization of margin 25,825 (1,967) 12,739 (1,358) Non-admitted asset portion 42,029 -- 17,906 -- --------- --------- --------- --------- BALANCE AT DECEMBER 31 $ 1,684 $ 188,394 $ 559,534 $ 198,765 ========= ========= ========= =========
2009 2008 ------------------------ ------------------------ FUNDS HELD FUNDS HELD FUNDS HELD FUNDS HELD ASSETS LIABILITIES ASSETS LIABILITIES ---------- ----------- ---------- ----------- BALANCE AT JANUARY 1 $93,433 $ 510,960 $ 104,412 $ 734,590 Contributions -- 377 -- 152 Withdrawals -- (533,982) (10,979) (251,335) Interest -- 22,645 -- 27,553 ------- --------- --------- --------- BALANCE AT DECEMBER 31 $93,433 $ -- $ 93,433 $ 510,960 ======= ========= ========= ========= The Company also reinsures risks and assumes reinsurance from other affiliates. As agreed upon with NY SAP, transactions with Union Excess Reinsurance Company Ltd. (Union Excess) are treated as affiliated. On December 16, 2009, all contracts ceded by the Company directly or indirectly to Union Excess were commuted and the net balances among all the parties have been settled. As a result of such settlement of balances, the Company received net cash of $46,273, securities of $2,416, and the release of $303,085 of funds held liabilities for the settlement of deposit assets of $407,410 with a non-admitted portion of $42,029. Also, during 2009, loss recoveries from Union Excess resulted in decreases in deposit assets and funds held liabilities of $230,897. The net effect of these transactions was to reduce surplus to policyholders by $13,607. The Company also holds a note from Union Excess in the amount of $39,065. The note is secured by the proceeds of a certain swap transaction between Union Excess and Starr International Company, Inc. (SICO). SICO is contesting liability under the swap; as such, the Company has provided a 100% valuation allowance. During 2008, the Company commuted deposit balances of $49,917 with a participant in the Union Excess reinsurance programs, resulting in no gain or loss to the Company, and balances of $149,584 with European Reinsurance Company Ltd., resulting in a loss of $2,452. 54 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 9 - FEDERAL INCOME TAXES ----------------------------- The Company files a consolidated U.S. federal income tax return with the Ultimate Parent and its domestic subsidiaries. Beginning in January 1, 2008, a tax Sub Group was formed among twenty seven Chartis U.S. Inc. (formerly known as AIG Commercial Insurance Group, Inc.) and United Guaranty Companies under Chartis, Inc. The tax Sub Group will be allocated tax and will pay or receive its portion of the consolidated tax benefit or liability as if the Sub Group were filing its own consolidated income tax return except that AIG, Inc. will also reimburse the Sub Group Parent currently for any Sub Group tax attributes utilized in the AIG, Inc. consolidated income tax return to the extent they were not otherwise utilized on a separate company basis. Once the tax is allocated to the Sub Group, the Sub Group then allocates taxes to member companies as if the member companies were on a separate return basis except that current benefit for losses is given if losses or tax attributes are utilized by the Sub Group. In addition, to the provisions outlined above, the agreement further provides that: . Any tax realized by the Company from triggering the deferred inter-company gain (as determined under Treasury Regulation Section 1.1502-13) of a "Qualifying Transaction" will be paid by AIG, Inc. A Qualifying Transaction is the transfer or sale of the stock or substantially all of the assets of an operating subsidiary which results in a deferred inter-company gain, including the pre-existing deferred inter-company gain from a prior sale or transfer. . As of the effective date of the agreement and for future periods, Chartis, Inc. assumed or will assume each Sub Group members' Tax Reserve in a deemed capital transaction. Tax Reserves mean any unrecognized tax benefit recorded in accordance with ASC 740 and any tax liability recorded as the result of an agreed upon adjustment with the tax authorities. . The tax sharing agreement was modified to be consistent with the AIG, Inc. and Federal Reserve Bank of New York Credit Agreement ("Credit Agreement"). Generally, the amended agreement provides that in an Asset Sale the Company will remit to AIG, Inc. no more than it otherwise would have absent the Credit Agreement. . In the event the Company is deconsolidated from the AIG consolidated federal income tax return, AIG Parent, Sub Group Parent, and the Company will determine under a separate agreement the final allocation of tax attributes and the final settlement of inter-company tax balances. Pursuant to the current tax sharing agreement, Chartis, Inc. currently holds tax liabilities related to uncertain tax positions and tax liabilities recorded as the result of agreed upon adjustments with the tax authorities of $265,568 through 2009. In addition, AIG assumed tax of $952,593 and $307,216 relating to qualifying on asset sales in accordance with the Credit Agreement during 2009 and 2008, respectively. For 2007, the Company filed a consolidated U.S. federal income tax return with the Ultimate Parent and its domestic subsidiaries pursuant to a tax sharing agreement. The agreement provides that the Ultimate Parent will not charge the Company a greater portion of the consolidated tax liability than would have been paid by the Company if it had filed a separate federal income tax return. In addition, the agreement provides that the Company will be reimbursed by the Ultimate Parent for tax benefits relating to any net losses or any tax credit of the Company utilized in filing the consolidated return. 55 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The federal income tax recoverable/payable in the accompanying statement of admitted assets, liabilities, and capital and surplus are due to/from the Parent. The statutory U.S. federal income tax rate is 35% at December 31, 2009. The Paragraph references in the tables below refer to corresponding paragraphs in SSAP 10R. The components of the Company's net deferred tax assets/liabilities as of December 31, 2009 and 2008 are as follows:
2009 2008 ---------------------------------- ------------------------------- As of December 31, ORDINARY CAPITAL TOTAL ORDINARY CAPITAL TOTAL ---------------------------------------------- ---------- -------- ---------- -------- ------- ---------- Gross deferred tax assets $1,091,055 $211,981 $1,303,036 $928,226 $77,059 $1,105,285 Less: valuation allowance -- -- -- -- -- -- ---------- -------- ---------- -------- ------- ---------- Adjusted gross DTAs after valuation allowance 1,091,055 211,981 1,303,036 928,226 77,059 1,105,285 Gross deferred tax liabilities (81,360) -- (81,360) (55,331) 88,452) (143,783) ---------- -------- ---------- -------- ------- ---------- Net deferred tax assets/(liabilities) before admissibility test 1,009,695 211,981 1,221,675 872,895 88,607 961,502 ========== ======== ========== ======== ======= ========== Admitted pursuant to: Carried back losses that reverse in subsequent calendar year -- 99,485 99,485 -- -- -- The lesser of adjusted gross DTAs realizable within 12 months or 10% statutory surplus 344,939 -- 344,939 363,447 -- 363,447 Adjusted gross DTAs that can be offset against DTLs 81,360 -- 81,360 55,331 88,452 143,783 Additional admitted DTAs Carried back losses that reverse in subsequent three calendar year 10,756 10,756 -- -- -- The lesser of adjusted gross DTAs realizable within 36 months or 15% statutory surplus 232,118 -- 232,118 -- -- -- Adjusted gross DTAs that can be offset against DTLs -- -- -- -- -- -- ---------- -------- ---------- -------- ------- ---------- Total admitted deferred tax asset 658,417 110,241 768,658 418,778 88,452 507,230 Deferred DTLs (81,360) -- (81,360) (55,331) 88,452) (143,783) ---------- -------- ---------- -------- ------- ---------- Net admitted DTAs 577,057 110,241 687,298 363,447 -- 363,447 Non admitted DTAs 432,638 101,740 534,377 598,055 -- 598,055 ---------- -------- ---------- -------- ------- ---------- Total net DTAs 1,009,695 211,981 1,221,675 961,502 -- 961,502 ========== ======== ========== ======== ======= ==========
56 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The Company has elected to admit DTAs pursuant to Paragraph 10.e. It recorded an increase in admitted DTAs as the result of its election to employ the provisions of Paragraph 10.e. as follows:
CHANGE DURING 2009 ----------------------------- DESCRIPTION ORDINARY CAPITAL TOTAL -------------------------------------------------------------------- -------- ------- ------- Gross deferred tax assets 162,829 34,922 197,751 Less: valuation allowance -- -- -- ------- ------- ------- Adjusted gross DTAs after valuation allowance 162,829 34,922 197,751 Gross deferred tax liabilities (26,029) 88,452 62,423 ------- ------- ------- Net deferred tax assets/(liabilities) before admissibility test 136,800 123,374 260,174 ======= ======= ======= Admitted pursuant to: Carried back losses that reverse in subsequent calendar year -- 99,485 99,485 The lesser of adjusted gross DTAs realizable within 12 months or 10% statutory surplus (18,508) -- (18,508) Adjusted gross DTAs that can be offset against DTLs 26,029 (88,452) (62,423) Additional admitted DTAs Carried back losses that reverse in subsequent three calendar year -- 10,756 10,756 The lesser of adjusted gross DTAs realizable within 36 months or 15% statutory surplus 232,118 -- 232,118 Adjusted gross DTAs that can be offset against DTLs -- -- -- ------- ------- ------- Total admitted deferred tax asset 239,639 21,789 261,428 Deferred DTLs (26,029) 88,452 62,423 ------- ------- ------- Net admitted DTAs 213,610 110,241 323,851 Non-admitted DTAs (76,810) 13,133 (63,677) ------- ------- ------- Total net DTAs 136,800 123,374 260,174 ======= ======= =======
The amount of admitted deferred tax assets, admitted assets, statutory surplus and total adjusted capital in the risk-based capital calculation resulting from the use of paragraph 10.a., 10.b., 10.c., and 10.e. are as follows:
DESCRIPTION WITH PARA S 10.A.-C WITH PARA S 10.E. DIFFERENCE ------------------------------------- ------------------- ----------------- ---------- Admitted DTAs 444,424 687,298 242,874 Admitted assets 525,926 769,731 243,805 Statutory surplus 1,202,312 1,803,468 601,156 Total adjusted capital 11,718,096 11,718,096 -- Authorized control level used in 10.d 2,574,862 2,574,862 --
57 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) During 2009, 2008 and 2007, the Company's current income tax expense/ (benefit) was comprised of the following:
For the years ended December 31, 2009 2008 2007 ---------------------------------------------------- --------- -------- -------- Income tax expense/(benefit) on net underwriting and investment income ($384,905) $ 67,928 $424,729 Tax on capital gains/(losses) 930,452 (13,526) 3,076 Foreign income tax expense 6,290 -- Federal income tax adjustment - prior years 1,479 (28,151) 85,892 --------- -------- -------- CURRENT INCOME TAX EXPENSE INCURRED $ 553,316 $ 26,251 $513,694 ========= ======== ========
The composition of the Company's net deferred tax assets as of December 31, 2009 and 2008, along with the changes in deferred income taxes for 2009, is set forth in the table below:
AS OF DECEMBER 31, 2009 2008 CHANGE CHARACTER ------------------------------------------------ ---------- ---------- --------- --------- Deferred tax assets: Loss Reserve Discount $ 353,686 $ 378,131 ($ 24,445) Ord Non -Admitted Assets 224,679 144,894 79,785 Ord Unearned Premium Reserve 247,259 267,944 (20,685) Ord Unrealized Capital Losses 5,519 -- 5,519 Cap Partnerships -- -- -- Ord Pension Adjustments -- -- -- Ord Bad Debt Expense 94,049 134,704 (40,655) Ord NOL -- -- -- Ord FTC 2,109 -- 2,109 Ord RCG 352,568 195,427 157,141 Cap Other Temporary Differences 23,167 4,185 18,982 Ord ---------- ---------- --------- GROSS DEFERRED TAX ASSETS 1,303,036 1,125,285 177,751 Non-admitted deferred tax assets (534,378) (598,055) 63,677 ---------- ---------- --------- ADMITTED DEFERRED TAX ASSETS 768,658 527,230 241,428 ========== ========== ========= Deferred tax liabilities: Unrealized capital gains $- $ (88,452) $ 88,452 Ord Investments -- (3,981) 3,981 Depreciation -- (22,091) 22,091 Bond discount -- (11,610) 11,610 Other temporary differences (81,360) (17,649) (63,711) Cap ---------- ---------- --------- GROSS DEFERRED TAX LIABILITIES (81,360) (143,783) 62,423 ---------- ---------- --------- NET ADMITTED DEFERRED TAX ASSETS 687,298 383,447 303,850 ========== ========== ========= Gross deferred tax assets 1,303,036 1,125,285 177,751 Gross deferred tax liabilities (81,360) (143,783) 62,423 ---------- ---------- --------- NET DEFERRED TAX ASSETS 1,221,676 981,502 240,173 Income tax effect of unrealized capital gains 93,971 --------- Total change in deferred tax 146,203 ========= Change in deferred tax - current year 38,269 Change in deferred tax - prior period correction 127,934
58 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The application of SSAP 10R requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized (a likelihood of more than 50 percent). Significant judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate. When making its assessment about the realization of its deferred tax assets at December 31, 2009, the Company considered all available evidence, as required by income tax accounting guidance, including: . the nature, frequency, and severity of current and cumulative financial reporting losses; . transactions completed, including the sale of PAG, and transactions expected to be completed in the near future; . the carryforward periods for the net operating and capital loss and foreign tax credit carryforward; . the application of the amended tax sharing agreement between the Tax Sub Group and the Ultimate Parent; and . tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax assets. Estimates of future taxable income generated from specific transactions and tax planning strategies discussed above could change in the near term, perhaps materially, which may require the Company to adjust its valuation allowance. Such adjustments, either positive or negative, could be material to the Company's financial condition or its results of operations for an individual reporting period. At December 31, 2009, the Company recorded gross deferred tax assets before valuation allowance of $1,303,036. The full amounts are more likely than not to be realized. Therefore, the Company reflected zero valuation allowance against its deferred tax assets. 59 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The actual tax expense on income from operations differs from the tax expense calculated at the statutory tax rate. A reconciliation of the Company's income tax expense and the significant items causing this difference for the years ended December 31, 2009, 2008 and 2007 are as follows:
2009 2008 2007 ------------------------ ----------------------- ----------------------- AMOUNT TAX EFFECT AMOUNT TAX EFFECT AMOUNT TAX EFFECT ----------- ---------- ---------- ---------- ---------- ---------- Net income before federal income taxes and capital gains taxes $ 1,394,300 $ 488,005 $1,395,995 $ 488,598 $1,798,601 $ 629,510 BOOK TO TAX ADJUSTMENTS: Tax exempt income (379,686) (132,890) (479,107) (167,687) (766,259) (268,191) Intercompany dividends (287,872) (100,755) (503,426) (176,199) (139,912) (48,969) Subpart F Income, Gross-Up & FTC -- -- Meals and entertainment 909 318 1,490 522 1,846 646 Non-deductible penalties 767 268 803 281 1,592 557 Change in non-admitted assets (227,957) (79,785) 244,297 85,504 (29,824) (10,438) Federal income tax adjustments - prior years -- 17,098 -- 5,332 -- 80,466 Change in tax positions -- 50,468 -- 27,569 -- 38,078 Audit Adjustments - other adjustments -- -- -- -- -- -- Remediation adjustments -- -- -- -- -- -- Other -- 3,603 -- -- -- -- Sale of divested entities (27,239) (9,534) -- -- -- -- Sale of ILFC 795,000 278,250 (186,625) (65,319) -- -- ----------- --------- ---------- --------- ---------- --------- TOTAL BOOK TO TAX ADJUSTMENTS (126,078) 27,042 (922,568) (289,998) (932,557) (207,851) ----------- --------- ---------- --------- ---------- --------- TOTAL FEDERAL TAXABLE INCOME AND TAX $ 1,268,222 $ 515,047 $ 473,427 $ 198,600 $ 866,044 $ 421,659 =========== ========= ========== ========= ========== ========= Current federal income tax (377,136) 39,777 510,618 Income tax on net realized capital gains 930,452 (13,526) 3,076 Change in net deferred income taxes (38,269) 172,349 (92,036) --------- --------- --------- TOTAL FEDERAL INCOME TAX 515,047 198,600 421,658 ========= ========= =========
The amount of federal income tax incurred and available for recoupment in the event of future net operating losses for tax purposes for 2009 is set forth in the table below: YEAR ORDINARY CAPITAL TOTAL ---- -------- ------- ------- 2007 None 343,131 343,131 2008 None 67,927 67,927 2009 None None None As of December 31, 2009, the Company had $2,109 foreign tax credits carry forwards available to offset against future taxable income. The Company had no unused net operating loss or capital loss carry forwards or tax credits available to offset against future taxable income as of December 31, 2009 and 2008. Federal income taxes paid to (recovered from) the Ultimate Parent amounted to $102,218 during 2009, $53,271 during 2008, and $304,501 during 2007. As of December 31, 2009, the Company had no deposits under IRC (S) 6603. Under the current tax allocation agreement, interest and penalties related to uncertain tax positions taken by the company are accrued not by the Company but by Chartis, Inc., the Subgroup parent. At December 31, 2009 and 2008, the interest accrued by Chartis Inc. relating to the Company's uncertain tax positions was $17,426 and $9,400. 60 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Listed below are the tax years that remain subject to examination by major tax jurisdictions: AT DECEMBER 31, 2009 MAJOR TAX JURISDICTIONS OPEN TAX YEARS ----------------------- -------------- UNITED STATES 2000 - 2008 NOTE 10 - PENSION PLANS AND DEFERRED COMPENSATION ARRANGEMENTS -------------------------------------------------------------- A. PENSION PLAN ------------ Employees of AIG, the ultimate holding company, 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. AIG's U.S. retirement plan is a qualified, non-contributory defined benefit retirement plan which is subject to the provisions of the Employee Retirement Income Security Act 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 five or more years of service is 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 ten 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 employees forfeit their right to receive any pension benefits accumulated thus far. Annual funding requirements are determined based on the Projected Unit Credit Cost Method which attributes a pro-rata portion of the total projected benefit payable at normal retirement to each year of credited service. The following table sets forth the funded status of the AIG US retirement plan, valued in accordance with NAIC Statement of Statutory Accounting Principles (SSAP) No. 89, Accounting for Pensions. AS OF DECEMBER 31, 2009 2008 ------------------ ---------- ---------- Fair value of plan assets $3,350,505 $2,723,034 Less projected benefit obligation 3,366,515 3,378,510 ---------- ---------- Funded status $ (16,010) $ (655,476) ========== ========== The Company's share of net expense for the qualified pension plan was $14,701, $7,149 and $5,279 for the years ended December 31, 2009, 2008 and 2007, respectively. The allocation from the holding company is based on payroll for the Company. 61 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) In March 2009, AIG contributed approximately $420,000 to the AIG US retirement plan. B. 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 ten years of service. Retirees and their dependents who were 65 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 $2,000. The maximum life insurance benefit prior to age 70 is $32 with a maximum $25 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 for retirement at ages 55 through 59 and $10 for retirement at ages 60 through 64 and $15 from retirement at ages 65 and over. AIG's U.S. postretirement medical and life insurance benefits obligations, valued in accordance with NAIC Statement of Statutory Accounting Principles (SSAP) No. 11, Postemployment Benefits and Compensated Absences, as of December 31, 2009 and 2008 were $200,768 and $198,015, respectively. These obligations are not funded currently. The Company's allocated share of other postretirement benefit plan expenses were $112, $280 and $328 for the years ended December 31, 2009, 2008 and 2007, respectively. AIG is the Plan Sponsor of the pension, postretirement and benefit plans and is ultimately responsible for the conduct of the plans. The Company is only obligated to the extent of their allocation of expenses from these plans. The allocation from the holding company is based on payroll for the Company. The weighted average assumptions that were used to determine its pension benefit obligations as of December 31, 2009, 2008 and 2007 are set forth in the table below: 62 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED)
AS OF DECEMBER 31, 2009 2008 2007 ------------------ ----------------- ----------------- ----------------- Discount rate 6.00% 6.50% 6.50% Rate of compensation increase (average) 4.00% 4.25% 4.25% Measurement date December 31, 2009 December 31, 2008 December 31, 2007 Medical cost trend rate N/A N/A N/A
C. STOCK OPTIONS AND DEFERRED COMPENSATION PLAN -------------------------------------------- Some of the Company's officers and key employees could receive compensation pursuant to awards under several share-based employee compensation plans; AIG 1999 Stock Option Plan, as amended; AIG 1996 Employee Stock Purchase 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; AIG 2007 Stock Incentive Plan, as amended, and the AIG 2005-2006 Deferred Compensation Profit Participation Plan. AIG currently settles share option exercises and other share awards to participants by issuing shares it previously acquired and holds in its treasury account. During 2009, 2008 and 2007, AIG allocated $13,270, $19,161 and $14,808, respectively, of these stock options and certain other deferred compensation programs to the Company. D. 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 COBRA medical subsidies. The costs of these plans are borne by AIG. E. 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 2009 is $3,500. NOTE 11 - CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS ------------------------------------------------------- 63 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) A. CAPITAL AND SURPLUS ------------------- The portion of unassigned surplus as of December 31, 2009 and 2008 represented by each item below is as follows: 2009 2008 ----------- ----------- Unrealized gains and losses $ 5,274,143 $ 5,805,880 Non-admitted asset values (1,155,586) (1,188,887) Provision for reinsurance (93,549) (100,847) In calculating the provision for reinsurance as of December 31, 2009, Management utilized collateral including letters of credit and assets in trust provided by its Ultimate Parent of $283,790 and $368,817, respectively. The use of these assets was approved by the domiciliary regulator. The changes in unrealized gains and non-admitted assets reported in the Statements of Income and Changes in Capital and Surplus were derived as follows: Change in net unrealized gains 2009 ---------------------------------------- ----------- Unrealized gains, current year $ 5,274,143 Unrealized gains, previous year 5,805,880 ----------- Change in unrealized gains (531,737) Change in tax on unrealized gains 20,011 Adjustments to beginning surplus 84,902 Amortization of goodwill (7,741) ----------- Change in unrealized, net of taxes $ (434,565) =========== Change in non-admitted asset values 2009 ---------------------------------------- ----------- Non-admitted asset values, current year $(1,155,586) Non-admitted asset values, previous year (1,188,887) ----------- Change in non-admitted assets 33,301 Change in accounting principles SSAP 10R (242,874) Adjustments to beginning surplus 7,789 ----------- Change in non-admitted assets $ (201,784) =========== B. RISK-BASED CAPITAL REQUIREMENTS ------------------------------- 64 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) The NAIC has adopted a Risk-Based Capital (RBC) formula to be applied to all property and casualty insurance companies. RBC is a method of establishing the minimum amount of capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. A company's RBC is calculated by applying different factors to various asset classes, net premiums written and loss and LAE reserves. A company's result from the RBC formula is then compared to certain established minimum capital benchmarks. To the extent a company's RBC result does not either reach or exceed these established benchmarks, certain regulatory actions may be taken in order for the insurer to meet the statutorily-imposed minimum capital and surplus requirements. In connection therewith, the Company has satisfied the capital and surplus requirements of RBC for the 2009 reporting period. C. DIVIDEND RESTRICTIONS --------------------- Under Pennsylvania law, the Company may pay cash dividends only from earned surplus determined on a statutory basis. Further, the Company is restricted (on the basis of the greater of 10% of the Company's statutory surplus as of December 31, 2009, or 100% of the Company's net income, for the year then ended) as to the amount of dividends it may declare or pay in any twelve-month period without the prior approval of the Insurance Department of the Commonwealth of Pennsylvania. In connection therewith, at December 31, 2009, the maximum dividend payments, which may be made without prior approval during 2010, is approximately $1,241,507. Within the limitations noted above, no dividends may be paid out of segregated surplus. There are no restrictions placed on the portion of Company profits that may be paid as ordinary dividends to stockholders. There were no restrictions placed on the Company's surplus including for whom the surplus is being held. There is no stock held by the Company for any special purpose. However, the Company has agreed to provide advance notice to Pennsylvania Insurance Department of (i) any proposed transactions between the Company and AIG or an AIG affiliate not in the ordinary course of business, and (ii) any proposed dividends or distributions. During 2009, the Company paid $537,000 in ordinary dividends to Chartis U.S. Inc. During 2008, the Company paid $1,737,225 in dividends to Chartis U.S. Inc. which included $1,212,225 of extraordinary dividends. All of the extraordinary dividends were approved by the Insurance Department of the Commonwealth of Pennsylvania. Refer to Note 5E for additional information. NOTE 12 - CONTINGENCIES ----------------------- 65 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) A. LEGAL PROCEEDINGS ----------------- The Company is involved in various legal proceedings incident to the operation of its business. Such proceedings include claims litigation in the normal course of business involving disputed interpretations of policy coverage. Other proceedings in the normal course of business include allegations of underwriting errors or omissions, bad faith in the handling of insurance claims, employment claims, regulatory activity, and disputes relating to the Company's business ventures and investments. Other legal proceedings include the following: AIG, National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), and Chartis Specialty Insurance Company (f/k/a American International Specialty Lines Insurance Company) have been named defendants (the AIG Defendants) in two putative class actions in state court in Alabama that arise out of the 1999 settlement of class and derivative litigation involving Caremark Rx, Inc. (Caremark). The plaintiffs in the second-filed action have intervened in the first-filed action, and the second-filed action has been dismissed. An excess policy issued by a subsidiary of AIG with respect to the 1999 litigation was expressly stated to be without limit of liability. In the current action, plaintiffs allege that the judge approving the 1999 settlement was misled as to the extent of available insurance coverage and would not have approved the settlement had he known of the existence and/or unlimited nature of the excess policy. They further allege that the AIG Defendants and Caremark are liable for fraud and suppression for misrepresenting and/or concealing the nature and extent of coverage. In their complaint, plaintiffs request compensatory damages for the 1999 class in the amount of $3,200,000, plus punitive damages. The AIG Defendants deny the allegations of fraud and suppression and have asserted, inter alia, that information concerning the excess policy was publicly disclosed months prior to the approval of the settlement. The AIG Defendants further assert that the current claims are barred by the statute of limitations and that plaintiffs' assertions that the statute was tolled cannot stand against the public disclosure of the excess coverage. Plaintiffs, in turn, have asserted that the disclosure was insufficient to inform them of the nature of the coverage and did not start the running of the statute of limitations. The intervening plaintiffs had requested a stay of all trial court proceedings pending their appeal of an order dismissing certain lawyers and law firms who represented parties in the underlying class and derivative actions. After the Alabama Supreme Court affirmed the trial court's dismissal in September 2008, the intervening plaintiffs filed an Amended Complaint in Intervention on December 1, 2008, which named Caremark, AIG and certain subsidiaries, including National Union and Chartis Specialty Insurance Company, as defendants, and purported to bring claims against all defendants for deceit and conspiracy to deceive, and to bring a claim against AIG and its subsidiaries for aiding and abetting Caremark's alleged deception. After the defendants moved to dismiss the Amended Complaint in Intervention and, in the alternative, for a more definite statement, and the plaintiffs reached an agreement to withdraw additional motions seeking to disqualify certain plaintiffs' counsel, on March 2, 2009, the court granted the intervening plaintiffs' motion to withdraw the Amended Complaint in Intervention. On April 14, 2009, the court established a schedule for class action discovery that was scheduled to lead to a hearing on class certification in March 2010. The court has since entered an order appointing a special master to resolve certain discovery disputes and requiring the parties to submit a new discovery schedule after those disputes are resolved. The parties are presently engaged in class discovery. 66 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) On September 2, 2005, certain AIG companies including American Home Assurance Company, AIU Insurance Company and New Hampshire Insurance Company (collectively, the AIG Parties) sued (i) The Robert Plan Corporation (RPC), an agency that formerly serviced assigned risk automobile insurance business for the AIG Parties; (ii) certain affiliates of RPC; and (iii) two of RPC's senior executives. This suit was brought in New York Supreme Court and alleges the misappropriation of funds and other violations of contractual arrangements. On September 26, 2005, RPC countersued the AIG Parties and AIG itself for, among other things, $370,000 in disgorged profits and $500,000 of punitive damages under a claim of fraud. On March 10, 2006, RPC moved to dismiss its fraud claim without prejudice for the purposes of bringing that claim in New Jersey. On that date, RPC also amended its counterclaim, setting forth a number of causes of action for breach of contract. The parties filed cross motions to dismiss various counts of the complaint and counterclaims. These motions were granted in part and denied in part by the court. RPC appealed certain aspects of the court's ruling. That appeal remains pending. On August 25, 2008, RPC, one of its affiliates, and one of the defendant RPC executives filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code). On October 7, 2008, the Court entered an Order staying this action in light of those bankruptcy proceedings. On January 15, 2009, RPC filed a notice of removal to the United States District Court for the Southern District of New York. The action was subsequently transferred to the Eastern District of New York and then referred to the United States Bankruptcy Court for that District. The AIG Parties moved to remand the case, and the Court granted that motion on April 12, 2010. On January 19, 2010, the Court entered an Order converting the bankruptcy proceeding to one under Chapter 7 of the Bankruptcy Code. In July 2007, RPC (along with Eagle Insurance Company (Eagle) and Newark Insurance Corporation (Newark), two of RPC's subsidiary insurance companies) filed a separate complaint in New Jersey alleging claims for fraud and negligent misrepresentation against AIG and the AIG Parties in connection with certain 2002 contracts. That complaint seeks damages of at least $100,000, unspecified punitive damages, declaratory relief, and imposition of a constructive trust. Because Eagle and Newark are in liquidation with the Commissioner of the New Jersey Department of Banking and Insurance as liquidator, the AIG Parties believe that only the Commissioner -- and not RPC -- has the authority to direct Eagle and Newark to bring the claims asserted in this action. On December 7, 2007, this action was stayed pending judicial determination of this issue in the Eagle/Newark rehabilitation/liquidation proceeding. In October 2008, the Court dismissed the action without prejudice for failure to prosecute. Nevertheless, on January 14, 2009, RPC filed a notice of removal of the New Jersey action to the United States District Court for the District of New Jersey and, on February 2, 2009, moved to transfer the New Jersey action to the Eastern District of New York, where RPC's Chapter 11 proceeding is pending. The AIG Parties filed a motion to dismiss the case for lack of subject matter jurisdiction because the purportedly removed action had been dismissed three months before RPC filed its purported notice of removal, and consideration of RPC's transfer motion was stayed until the Court ruled on the AIG Parties' motion to dismiss. On August 10, 2009, the Court granted the AIG Parties' motion to dismiss and denied RPC's transfer motion as moot. To the AIG Parties' knowledge, since that time, RPC has not sought to have the New Jersey state court action reinstated. The AIG Parties believe that RPC's claims are without merit and intend to defend them vigorously, but cannot now determine whether RPC will attempt to reassert its claims in New Jersey or estimate either the likelihood of prevailing in these actions or the potential damages in the event liability is determined. 67 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) Effective February 9, 2006, AIG reached a resolution of claims and matters under investigation with the United States Department of Justice (the DOJ), the United States Securities and Exchange Commission (the SEC), the Office of the Attorney General of the State of New York (the NYAG) and the New York Insurance Department (the NYDOI). The settlements resolve outstanding litigation and allegations by such agencies against AIG in connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments. As a result of these settlements, AIG recorded an after-tax-charge of $1,150,000 in the fourth quarter of 2005, and made payments or placed in escrow approximately $1,640,000 including (i) $375,000 into a fund under the supervision of the NYAG and NYDOI to be available principally to pay certain AIG insurance company subsidiary policyholders who purchased excess casualty policies through Marsh & McLennan Companies, Inc. and Marsh Inc. (the Excess Casualty Fund) and (ii) $343,000 into a fund under the supervision of the NYAG and the NYDOI to be used to compensate various states in connection with the underpayment of certain workers compensation premium taxes and other assessments. As of February 29, 2008, eligible policyholders entitled to receive approximately $358,700 (or 95%) of the Excess Casualty Fund had opted to receive settlement payments in exchange for releasing AIG and its subsidiaries from liability relating to certain insurance brokerage practices. In accordance with the settlement agreements, all amounts remaining in the Excess Casualty Fund were used by AIG to settle claims from other policyholders relating to such practices. Various state regulatory agencies have reviewed certain other transactions and practices of AIG and its subsidiaries, including the Company, in connection with certain industry-wide and other inquiries including, but not limited to, insurance brokerage practices relating to contingent commissions and the liability of certain AIG subsidiaries, including the Company, for taxes, assessments and surcharges relating to the underreporting or misreporting of workers compensation premium. On January 29, 2008 AIG reached settlements in connection with these state reviews, subject to court approval, with the Attorneys General of the States of Florida, Hawaii, Maryland, Michigan, Oregon, Texas and West Virginia, the Commonwealths of Massachusetts and Pennsylvania, and the District of Columbia; the Florida Department of Financial Services; and the Florida Office of Insurance Regulation. The settlement agreements call for AIG to pay a total of $12,500 to be allocated among the ten jurisdictions and also require AIG to continue to maintain certain producer compensation disclosure and ongoing compliance initiatives. On March 13, 2008, AIG also reached a settlement with the Pennsylvania Insurance Department, which calls for AIG to provide annual reinsurance reports and maintain certain producer compensation disclosure and ongoing compliance initiatives, and to pay a total of $13,500, $4,400 of which was previously paid to Pennsylvania in connection with prior settlement agreements. On February 16, 2006, the Attorney General of the State of Minnesota filed a complaint against AIG and certain of its subsidiaries, including the Company, alleging that, beginning no later than 1985, AIG made false statements and reports to Minnesota agencies and regulators, unlawfully reduced AIG's contributions and payments to Minnesota's workers' compensation funds, misreported the character of workers' compensation premiums as general or auto liability premiums, and unlawfully reduced its Minnesota tax obligations. The State of Minnesota sought injunctive relief, damages, penalties and interest. In December 2007, the parties settled the matter, which resolved claims asserted on behalf of the Minnesota Department of Revenue through tax year 2003, the Minnesota Special Compensation Fund through fiscal year 2003 and the Minnesota Attorney General through 2003, without compromising any of the claims of the Minnesota Insurance Guaranty Association, Minnesota Assigned Risk Plan or Minnesota Department of Commerce. 68 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) On May 24, 2007, the National Workers Compensation Reinsurance Pool (NWCRP), on behalf of its participant members, filed a lawsuit against AIG and certain of its subsidiaries, including the Company (collectively, the AIG parties), with respect to the underpayment of residual market assessments for workers compensation insurance. The complaint alleges claims for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), breach of contract, fraud and related state law claims arising out of AIG's alleged underpayment of these assessments between 1970 and the present and seeks damages purportedly in excess of $1,000,000. On August 6, 2007, the court denied the AIG parties' motion seeking to dismiss or stay the complaints or in the alternative, to transfer to the Southern District of New York. On December 26, 2007, the court denied the AIG parties' motion to dismiss the complaint. On March 17, 2008, the AIG parties filed an amended answer, counterclaims and third-party claims against the National Council on Compensation Insurance (in its capacity as attorney-in-fact for the NWCRP), the NWCRP, its board members, and certain of the other insurance companies that are members of the NWCRP alleging violations of RICO, as well as claims for conspiracy, fraud, and breach of fiduciary duty. The counterclaim-and third-party defendants filed motions to dismiss on June 9, 2008. On January 26, 2009, the AIG parties filed a motion to dismiss all claims in the complaint for lack of subject-matter jurisdiction. On February 23, 2009, the Court issued an order denying the motion to dismiss the AIG parties' counterclaims; granting the portion of the third-party defendants' motion to dismiss as to the AIG parties' third-party claims for RICO violations and conspiracy; and denying the portion of the third-party defendants' motion to dismiss as to the AIG parties' third-party claims for fraud, breach of fiduciary duty and unjust enrichment. On April 13, 2009, one of the third-party defendants filed third-party counterclaims against AIG, certain of its subsidiaries and certain former executives. On August 20, 2009, the court granted the AIG parties' motion to dismiss the NWCRP's claims for lack of subject matter jurisdiction. On September 25, 2009, the AIG parties, now in the position of plaintiff, filed an amended complaint that repleads their RICO and conspiracy claims - previously counterclaims that were dismissed without prejudice - against several competitors, as well as repleads the AIG parties' already sustained claims for fraud, breach of fiduciary duty and unjust enrichment against those parties, the NWCRP and the NCCI. On October 8, 2009, one competitor filed amended counterclaims against the AIG parties. The amended counterclaim is substantially similar to the complaint initially filed by the NWCRP, but also seeks damages related to non-NWCRP states and guaranty funds, in addition to asserting claims for other violations of state law. On October 30, 2009, all of the parties now in the position of defendant - the AIG parties' competitors, the NWCRP and NCCI - filed motions to dismiss many of the AIG parties' amended claims, and the AIG parties filed a motion to dismiss many of their competitor's counterclaims. Discovery is proceeding and fact discovery is currently scheduled to be completed by March 15, 2011. On April 1, 2009, a purported class action was filed in Illinois federal court against AIG and certain of its subsidiaries on behalf of a putative class of NWCRP participant members with respect to the underpayment of residual market assessments for workers compensation insurance. The complaint was styled as an "alternative complaint," should the court grant the AIG parties' motion to dismiss all claims against the defendants in the NWCRP lawsuit for lack of subject matter jurisdiction. The allegations in the class action complaint are substantially similar to those filed by the NWCRP, but the complaint adds certain former AIG executives as defendants and a RICO claim against those individuals. On August 28, 2009, the class action plaintiffs filed an amended complaint, removing the AIG executives as defendants. On October 30, 2009, the AIG parties filed a motion to dismiss many of the claims asserted in the class action complaint. Class discovery has been completed; merits discovery is proceeding and is scheduled to be completed by March 15, 2011. 69 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) On March 28, 2008, a Minnesota federal court granted AIG's motion to dismiss a lawsuit filed by the Minnesota Workers Compensation Reinsurance Association and the Minnesota Workers Compensation Insurers Association against AIG and certain of its subsidiaries, including the Company, with respect to the underpayment of residual market assessments for workers compensation insurance. On April 25, 2008, plaintiffs appealed to the United States Court of Appeals for the Eighth Circuit and also filed a new complaint making similar allegations in Minnesota state court. On April 30, 2008, substantially identical claims were also filed in Minnesota state court by the Minnesota Insurance Guaranty Association and Minnesota Assigned Risk Plan. On September 11, 2008, the parties to both actions entered into a settlement, resulting in the dismissal of all claims against AIG. In exchange for the dismissal and a broad release of claims, the financial terms of the settlement provided for AIG's payment of $21,500 to plaintiffs and waiver of its right to collect $3,500 in payments due from the plaintiffs. A purported class action was filed in South Carolina federal court on January 25, 2008 against AIG and certain of its subsidiaries on behalf of a class of employers that obtained workers compensation insurance from AIG companies and allegedly paid inflated premiums as a result of AIG's alleged underreporting of workers compensation premiums. An amended complaint was filed on March 24, 2008, and the AIG parties filed a motion to dismiss the amended complaint on April 21, 2008. On July 8, 2008, the court granted the AIG parties' motion to dismiss all claims without prejudice and granted plaintiff leave to refile subject to certain conditions. Plaintiffs filed their second amended complaint on July 22, 2008. On March 27, 2009, the court granted the AIG parties' motion to dismiss all claims in the second amended complaint related to pre-2001 policies and all claims against certain AIG subsidiaries, denied the motion to dismiss as to claims against AIG and the remaining subsidiaries, and granted the AIG parties' motion to strike certain allegations from the complaint. Limited discovery related to the AIG parties' filed-rate doctrine defense was conducted and certain legal issues related to that defense have been certified to the South Carolina Supreme Court for determination. However, this action no longer involves allegations of underreporting of workers' compensation premium and no longer relates to the regulatory settlements and litigation concerning those issues. In April 2007, the National Association of Insurance Commissioners (the NAIC) formed a Settlement Review Working Group, directed by the State of Indiana, to review the Workers Compensation Residual Market Assessment portion of the settlement between AIG, the NYAG, and the NYDOI. In late 2007, the Settlement Review Working Group, under the direction of Indiana, Minnesota and Rhode Island, recommended that a multi-state targeted market conduct examination focusing on workers compensation insurance be commenced under the direction of the NAIC's Market Analysis Working Group. AIG was informed of the multi-state targeted market conduct examination in January 2008. The lead states in the multi-state examination are Delaware, Florida, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All other states (and the District of Columbia) have agreed to participate in the multi-state examination. To date, the examination has focused on legacy issues related to AIG's writing and reporting of workers compensation insurance between 1985 and 1996. AIG has also been advised that the examination will focus on current compliance with legal requirements applicable to such business. Although AIG has been advised by counsel engaged by the lead states to assist in their investigation that to date no determinations have been made with respect to these issues, AIG cannot predict the outcome of the investigation and there can be no assurance that any regulatory action resulting from the investigation will not have a material adverse effect on the Company and its business. After the NYAG filed its complaint against insurance broker Marsh, policyholders brought multiple federal antitrust and Racketeer Influenced and Corrupt Organizations Act (RICO) class actions in jurisdictions across the nation against insurers and brokers, including AIG and a number of its subsidiaries, alleging that the insurers and 70 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) brokers engaged in a broad conspiracy to allocate customers, steer business, and rig bids. These actions, including 24 complaints filed in different federal courts naming AIG or an AIG subsidiary as a defendant, were consolidated by the judicial panel on multi-district litigation and transferred to the United States District Court for the District of New Jersey for coordinated pretrial proceedings. The consolidated actions have proceeded in that court in two parallel actions, In re insurance Brokerage Antitrust Litigation (the Commercial Complaint) and In re Employee Benefit Insurance Brokerage Antitrust Litigation (the Employee Benefits Complaint, and, together with the Commercial Complaint, the multi-district litigation). The plaintiffs in the Commercial Complaint are a group of corporations, individuals and public entities that contracted with the broker defendants for the provision of insurance brokerage services for a variety of insurance needs. The broker defendants were alleged to have placed insurance coverage on the plaintiffs' behalf with a number of insurance companies named as defendants, including certain AIG subsidiaries, including American Home Assurance Company (American Home), AIU Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pa., Chartis Specialty Insurance Company (f/k/a American International Specialty Lines Insurance Company), Chartis Property Casualty Company (f/k/a both Birmingham Fire Insurance Company of Pennsylvania and AIG Casualty Company), Commerce and Industry Insurance Company, Lexington Insurance Company, National Union Fire Insurance Company of Louisiana, New Hampshire Insurance Company, and The Insurance Company of the State of Pennsylvania. The Commercial Complaint also named various brokers and other insurers as defendants (three of which have since settled). The Commercial Complaint alleges that defendants engaged in a widespread conspiracy to allocate customers through "bid-rigging" and "steering" practices. The Commercial Complaint also alleges that the insurer defendants permitted brokers to place business with AIG subsidiaries through wholesale intermediaries affiliated with or owned by those same brokers rather than placing the business with AIG subsidiaries directly. Finally, the Commercial Complaint alleges that the insurer defendants entered into agreements with broker defendants that tied insurance placements to reinsurance placements in order to provide additional compensation to each broker. Plaintiffs assert that the defendants violated the Sherman Antitrust Act, RICO, the antirust laws of 48 states and the District of Columbia, and were liable under common law breach of fiduciary duty and unjust enrichment theories. Plaintiffs seek treble damages plus interest and attorneys' fees as a result of the alleged RICO and the Sherman Antitrust Act violations. The plaintiffs in the Employee Benefits Complaint are a group of individual employees and corporate and municipal employees alleging claims on behalf of two separate nationwide purported classes: an employee class and an employer class that acquired insurance products from the defendants from January 1, 1998 to December 31, 2004. The Employee Benefits Complaint names AIG, and certain of its subsidiaries, including American Home, as well as various other brokers and insurers, as defendants. The activities alleged in the Employee Benefits Complaint, with certain exceptions, tracked the allegations of contingent commissions, bid-rigging and tying made in the Commercial Complaint. The court in connection with the Commercial Complaint granted (without leave to amend) defendants' motions to dismiss the federal antitrust and RICO claims on August 31, 2007 and September 28, 2007, respectively. The court declined to exercise supplemental jurisdiction over the state law claims in the Commercial Complaint and therefore dismissed it in its entirety. On January 14, 2008, the court granted defendants' motion for summary judgment on the ERISA claims in the Employee Benefits Complaint and subsequently dismissed the remaining state law claims without prejudice, thereby dismissing the Employee Benefits Complaint in its entirety. On February 12, 2008 plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit 71 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) with respect to the dismissal of the Employee Benefits Complaint. Plaintiffs previously appealed the dismissal of the Commercial Complaint to the United States Court of Appeals for the Third Circuit on October 10, 2007. Both appeals are fully briefed and oral argument on both appeals took place on April 21, 2009. A number of complaints making allegations similar to those in the multi-district litigation have been filed against AIG, certain subsidiaries and other defendants in state and federal courts around the country. The defendants have thus far been successful in having the federal actions transferred to the District of New Jersey and consolidated into the multi-district litigation. These additional consolidated actions are still pending in the District of New Jersey, but are currently stayed pending a decision by the court on whether they will proceed during the appeal of the dismissal of the multi-district litigation. The AIG defendants have sought to have state court actions making similar allegations stayed pending resolution of the multi-district litigation. These efforts have generally been successful, although four cases have proceeded (one each in Florida and New Jersey state courts that have settled, and one each in Texas and Kansas state courts that are proceeding). In the Texas case, a hearing was held on November 11, 2009 on defendants' Special Exceptions. In the Kansas case, the defendants filed a motion to dismiss on January 14, 2010. On August 24, 2007, the Ohio Attorney General filed a complaint in the Ohio Court of Common Pleas against AIG and a number of its subsidiaries, and several other broker and insurer defendants, asserting violation of Ohio's antitrust laws. The complaint, which is similar to the Commercial Complaint, alleged that the AIG defendants and the other broker and insurer defendants conspired to allocate customers, divide markets, and restrain competition in commercial lines of casualty insurance sold through the broker defendant. The complaint sought treble damages on behalf of Ohio public purchasers of commercial casualty insurance, disgorgement on behalf of both public and private purchasers of commercial casualty insurance, as well as a $0.5 per day penalty for each day of conspiratorial conduct. The AIG defendants, along with other co-defendants, moved to dismiss the complaint on November 16, 2007. On June 30, 2008, the court denied defendants' motion to dismiss. On August 18, 2008, defendants filed their answers to the complaint. On April 1, 2010, the AIG defendants and the Ohio Attorney General executed an agreement settling the Ohio Attorney General's claims. The settlement agreement calls for the AIG defendants to pay a total of $9,000, and to continue to maintain certain producer compensation disclosure and ongoing compliance initiatives. AIG Domestic Claims, Inc. (AIGDC, n/k/a Chartis Claims, Inc.), an indirect wholly owned subsidiary of AIG that provides certain claims adjustment services to the Company, was named as a defendant in a putative class action lawsuit in the 14th Judicial District Court for the State of Louisiana. Plaintiffs were medical providers who allege that Chartis Claims, Inc. (as well as other defendants not affiliated with the Company) failed to comply with certain provisions of the Louisiana Any Willing Provider Act (the Act). The complaint sought monetary penalties and injunctive relief related to preferred provider organization discounts taken by defendants on bills submitted by Louisiana medical providers and hospitals who provided treatment or services to workers' compensation claimants. These claimants were occupationally ill or injured workers whose employers were named insureds under workers compensation policies issued by various insurance companies, including the Company. On September 23, 2005, certain defendants, including Chartis Claims, Inc. filed a motion for summary judgment, seeking dismissal of plaintiffs' claims, and plaintiffs cross-moved for partial summary judgment. On July 20, 2006, the Court both denied Chartis Claims, Inc. motion for summary judgment and granted plaintiffs' partial motion for summary judgment, holding that Chartis Claims, Inc. is a "group purchaser" under the Act, and that the Act applies to medical services provided to workers' compensation claimants. 72 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) On November 28, 2006, the Court issued an order certifying a class of providers and hospitals. In an unrelated action also arising under the Act, a Louisiana appellate court ruled that the Court lacked jurisdiction to adjudicate the claims at issue. In response, Chartis Claims, Inc. along with its co-defendants filed an exception for lack of subject matter jurisdiction. On January 19, 2007, the Court denied the motion, holding that it has jurisdiction over the putative class claims. Chartis Claims, Inc., along with the other defendants in the action, appealed the Court's class certification and jurisdictional ruling. On January 25, 2008, plaintiffs and Chartis Claims, Inc. agreed to resolve this action on a classwide basis for $28,750. The court granted final approval of the settlement in May 2008 and most of the settlement funds have been distributed. The action has also been dismissed with prejudice. AIG is also subject to various legal proceedings which have been disclosed in AIG's periodic filings under the Securities Exchange Act of 1934, as amended, in which the Company is not named as a party, but whose outcome may nonetheless adversely affect the Company's financial position or results of operation. Except as may have been otherwise noted above with respect to specific matters, the Company cannot predict the outcome of the matters described above, reasonably estimate the potential costs related to these matters, or determine whether other AIG subsidiaries, including the Company, would have exposure to proceedings in which they are not named parties by virtue of their participation in an intercompany pooling arrangement. In the opinion of management, except as may have been otherwise noted above with respect to specific matters, the Company's ultimate liability for the matters referred to above is not likely to have a material adverse effect on the Company's financial position, although it is possible that the effect would be material to the Company's results of operations for an individual reporting period. B. LEASES ------ The Company is the lessee for the office space occupied by it and several affiliates under various non-cancelable operating lease agreements that expire through October 21, 2023. Rental expense under these leases is allocated to each affiliate based upon the percentage of space occupied. The total lease expense was $93,579, $91,142 and $42,333 in 2009, 2008 and 2007, respectively. At January 1, 2010, the minimum aggregate annual rental commitments are as follows: 2010 $ 97,602 2011 98,388 2012 99,685 2013 85,658 2014 79,209 Thereafter 363,062 -------- TOTAL MINIMUM LEASE PAYMENTS $823,604 ======== Certain rental commitments have renewal options extending through the year 2035. Some of these renewals are subject to adjustments in future periods. 73 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) C. OTHER CONTINGENCIES ------------------- In the ordinary course of business, the Company enters into structured settlements to settle certain claims. Structured settlements involve the purchase of an annuity to fund future claim obligations. In the event the life insurers providing the annuity, on certain structured settlements, are not able to meet their obligations, the Company would be liable for the payments of benefits. As of December 31, 2009, the Company has not incurred a loss and there has been no default by any of the life insurers included in the transactions. Management believes that based on the financial strength of the life insurers involved in these structured settlements the likelihood of a loss is remote. The estimated loss reserves eliminated by such structured settlement annuities and the present value of annuities due from all life insurers (mostly affiliates) which the Company remains contingently liable amounted to $1,678,888 as of December 31, 2009. Also, as of December 31, 2009, the Company had the following amounts of annuities in excess of 1% of its policyholders' surplus due from the following life insurers: Licensed in Name of life insurer Location Balances New York --------------------------------------------- -------- -------- ----------- American General Life Insurance Company Texas $714,150 Yes American International Life Assurance Company New York 653,916 Yes BMO Life Assurance Company Canada 248,700 No Of the amount of annuities due from American General Life Insurance Company, $604,995 represents amounts assigned to the Company from American Home. As part of its private equity portfolio investment, as of December 31, 2009 the Company may be called upon for an additional capital investment of up to $388,432. The Company expects only a small portion of this additional capital will be called upon during 2010. The Company has committed to provide (pound)50,000 in capital to a Lloyd's Syndicate. The Company accrued a loss of (pound)10.8 million ($17.3 million) at December 31, 2009. As fully disclosed in Note 5, the Company has guaranteed the policyholder obligations of certain affiliated insurance companies. Each of the guaranteed affiliates has admitted assets in excess of policyholder liabilities. The Company believes that the likelihood of a payment under any of these guarantees is remote. Refer to Note 4 for Asbestos and Environmental claims. 74 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) NOTE 13 - OTHER SIGNIFICANT MATTERS ----------------------------------- The Company underwrites a significant concentration of its direct business with brokers. The Company's direct percentage of policyholder dividend participating policies is 0.05 percent. Policyholder dividends are accounted for on an incurred basis. In connection therewith, during 2009, 2008 and 2007, policyholder dividends amounted to $0, $360 and $130, respectively, and were reported as Other Income in the accompanying statements of income. As of December 31, 2009 and 2008, other admitted assets as reported in the accompanying Statements of Admitted Assets were comprised of the following balances: OTHER ADMITTED ASSETS 2009 2008 ----------------------------------------- --------- --------- Accrued recoverables and other assets $ 111,154 $ 122,345 Allowance for doubtful accounts (268,712) (375,946) Note receivable - reinsurance commutation 39,065 -- Guaranty funds receivable or on deposit 16,017 19,086 Loss funds on deposit 64,845 60,882 Paid loss clearing 318,182 332,286 Retroactive reinsurance recoverable 5,874 6,585 --------- --------- TOTAL OTHER ADMITTED ASSETS $ 286,425 $ 165,238 ========= ========= Guaranty funds receivable represent payments to various state insolvency funds which are recoupable against future premium tax payments in the respective states. Various states allow insurance companies to recoup assessments over a period of five to ten years. As of December 31, 2009 and 2008, the Company's liability for insolvency assessments amounted to $40,398 and $54,318, respectively, with related assets for premium tax credits of $16,017 and $19,086, respectively. Of the amount accrued, the Company expects to pay approximately $24,381 for insolvency assessments during the next year. In addition, the Company anticipates it will realize $9,709 of premium tax offset credits and the associated liability in years two through five. The remaining $6,308 will be realized between years five and ten. The Company routinely assesses the collectability of its receivable balances for potentially uncollectible premiums receivable due from agents and reinsurance recoverable balances. In connection therewith, as of December 31, 2009 and 2008, the Company had established an allowance for doubtful accounts of $268,712 and $375,946, respectively, which was reported as a contra asset within Other Admitted Assets in the accompanying Statements of Admitted Assets. During 2009, 2008 and 2007, the Company recorded $37,084, $50,530 and $94,880, respectively, for allowance for doubtful accounts to Net Loss from Agents' Balances Charged-off in the accompanying Statements of Income. 75 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) As of December 31, 2009 and 2008, other liabilities as reported in the accompanying Statements of Liabilities, Capital and Surplus were comprised of the following balances:
OTHER LIABILITIES 2009 2008 ----------------------------------------------------------------- -------- -------- Accrued retrospective premiums $ 74,830 $ 59,542 Amounts withheld or retained by company for account of others 5,951 5,957 Deferred commission earnings 6,488 11,667 Salvage and subrogation recoverable 1,034 8,019 Other liabilities, includes suspense accounts, experience account balances and certain accruals 145,924 90,290 Remittances and items not allocated 44,299 31,821 Retroactive reinsurance payable 1,830 7,255 -------- -------- TOTAL OTHER LIABILITIES $280,356 $214,551 ======== ========
EVENTS OCCURRING AT THE AIG LEVEL --------------------------------- In September 2008, AIG experienced a severe strain on its liquidity that resulted in AIG on September 22, 2008, entering into an $85 billion revolving credit facility and a guarantee and pledge agreement with the Federal Reserve Bank of New York ("NY Fed"). Pursuant to the credit facility agreement, on March 4, 2009, AIG issued 100,000 shares of Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share and at an initial liquidation preference of $5.00 per share (the "Series C Preferred Stock") to the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury. The Series C Preferred Stock is entitled to (i) participate in any dividends paid on the common stock with the payments attributable to the Series C Preferred Stock being approximately 79.9 percent of the aggregate dividends paid on AIG's common stock, treating the Series C Preferred Stock as if converted and (ii) vote with AIG's common stock on all matters submitted to AIG shareholders, and holds approximately 79.9 percent of the aggregate voting power of the common stock, treating the Series C Preferred Stock as if converted. The Series C Preferred Stock will remain outstanding even if the Credit Facility is repaid in full or otherwise terminates. The credit facility obligations are guaranteed by certain AIG subsidiaries and the obligations are secured by a pledge of certain assets of AIG and its subsidiaries. Although the Company is not a guarantor of the credit facility obligations and it has not pledged any assets to secure those obligations, its immediate parent company, AIG Commercial Insurance Group, Inc., has guaranteed the credit facility obligations (but has not pledged its ownership interest in the Company). On November 25, 2008, AIG entered into an agreement with the U.S. Department of the Treasury pursuant to which, among other things, AIG issued and sold to the U.S. Department of the Treasury, as part of the Troubled Assets Relief Program, $40 billion of Series D Fixed Rate Cumulative Perpetual Preferred Stock, par value $5.00 per share, (the "Series D Preferred Stock"), and a 10-year warrant to purchase 53,798,766 shares of common stock (the "Warrant"). The proceeds from the sale of the Series D Preferred Stock and the Warrant were used to repay borrowings under the credit facility and, in connection therewith, the maximum commitment amount under the credit facility agreement was reduced from $85 billion to $60 billion. 76 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) During the fourth quarter of 2008, AIG and certain of its subsidiaries entered into agreements with the NY Fed in connection with the special purpose financing vehicles known as Maiden Lane II LLC and Maiden Lane III LLC. The Company was not a party to these agreements and these transactions did not affect the Company's financial condition, results of operations or cash flows. On October 3, 2008, AIG announced a restructuring plan under which AIG's Life Insurance & Retirement Services operations and certain other businesses would be divested in whole or in part. Since that time, AIG has sold certain businesses and assets and has entered into contracts to sell others. However, global market conditions have continued to deteriorate, posing risks to AIG's ability to divest assets at acceptable values. AIG's restructuring plan has evolved in response to these market conditions. Specifically, AIG's current plans involve transactions between AIG and the NY Fed with respect to AIA and ALICO as noted above, as well as preparation for a potential sale of a minority stake in its property and casualty and foreign general insurance businesses. NOTE 14 - SUBSEQUENT EVENTS --------------------------- Type I - Recognized Subsequent Events: Subsequent events have been considered through May 3, 2010 for the statutory statement issued on May 3, 2010. The Company, with the approval of the Pennsylvania Insurance Department, has reflected the redemption of its investment in the Series A preferred shares of AIG Capital Corporation (Issuer) as a Type 1 subsequent event. On February 19, 2010, the Company received $2 billion from the Issuer as consideration for the redemption as well as $38,333 representing accrued dividends for the 4th quarter of 2009 and 1st quarter of 2010 through the settlement date. The proceeds received from the redemption and the accrued dividends through December 31, 2009 have been reported as part of the balance sheet account "Receivable from parent, subsidiaries and affiliates". Type II - Nonrecognized Subsequent Events: Subsequent events have been considered through May 3, 2010 for the statutory statement issued on May 3, 2010. On February 12, 2010, the Company acquired junior and senior notes of $210,000 and $474,000 respectively from Fieldstone Securitization II LLC, a wholly-owned subsidiary of Quartz Holdings LLC. Quartz Holdings LLC is an affiliate of the Company and a wholly-owned subsidiary of Chartis U.S., Inc. The Company does not have a controlling interest in Fieldstone Securitization II LLC. The junior and senior notes have a maturity date of January 25, 2040, have stated interest rates of 11% and 7.75%, respectively and have been self rated. The Department has approved that the notes be characterized as non-affiliate debt investments for financial reporting purposes. In connection with the issuance of the notes, Graphite Management LLC, a wholly-owned subsidiary of Quartz Holdings LLC, used a portion of the proceeds to repay $834,384 to the Company in connection with an existing liquidity facility between the two parties. On February 23, 2010, the Company entered into a Capital Maintenance Agreement (CMA) with its Ultimate Parent, AIG. The CMA provides that in the event that the Company's Total Adjusted Capital falls below 200% of the Company's Authorized Control Level Risk Based Capital (RBC), as shown in the Company's 2009 Annual Statement, 77 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pa. NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS DECEMBER 31, 2009, 2008 AND 2007 (000'S OMITTED) together with any adjustments or modifications required by the Company's domiciliary regulator, AIG will within thirty days of written notice thereof provide a capital contribution to the Company in an amount that equals the difference between the Company's Total Adjusted Capital and 200% of the Company's Authorized Control Level RBC. In lieu of making any such capital contribution, with the approval of the domiciliary insurance department, AIG may provide a letter of credit naming the Company as beneficiary. The current CMA supersedes and replaces a similar agreement that related to the Company's December 31, 2008 surplus position. On March 5, 2010, the Company's board of directors declared a dividend of $170 million to its immediate parent. As noted in Note 13, on April 21, 2009, AIG announced its intent to contribute Chartis Inc., the Company's intermediate parent company (formerly AIU Holdings, Inc.), and Chartis International, LLC (formerly AIU Holdings LLC) to a newly-formed special purpose vehicle ("SPV") in exchange for membership interests in the SPV, subject to receipt of applicable regulatory approvals. On July 27, 2009, AIG announced the formation of the SPV, and on January 29, 2010, AIG contributed Chartis Inc. to the SPV. AIG contributed Chartis International, LLC to the SPV on March 12, 2010. Effective April 1, 2010, the Commercial Pool commuted a significant reinsurance agreement covering multiple underwriting years with an affiliated reinsurer. The commutation was effected on a cutoff basis and resulted in the Commercial Pool recapturing loss and loss adjustment expense reserves of $2.21 billion in exchange for consideration of $1.84 billion, resulting in a loss of $366 million. The Company's share was $839 million, $700 million and $139 million, respectively. 78 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements. The following financial statements are incorporated by reference or included herein, as indicated below, to this Registration Statement: (1) Audited Financial Statements of Variable Account I of American General Life Insurance Company of Delaware for the year ended December 31, 2009 are included in Part B of the registration statement. (2) Audited Financial Statements of American General Life Insurance Company of Delaware for the year ended December 31, 2009, 2008 and 2007 are included in Part B of the registration statement. (3) The statutory statement of admitted assets, liabilities, capital and surplus of National Union Fire Insurance Company of Pittsburgh, Pa. as of December 31, 2009 and 2008, and the related statutory statements of income and changes in capital and surplus and of cash flow for each of the three years in the period ended December 31, 2009 are included in Part B of the registration statement. (b) Exhibits. (1)(a) Certificate of Resolution for AIG Life Insurance Company pursuant to the Board of Directors' meeting dated June 5, 1986, authorizing the establishment of separate accounts for the issuance and sale of variable and fixed annuity contracts. (1) (1)(b) Certificate of Resolution for AIG Life Insurance Company pursuant to the Board of Directors' meeting dated September 12, 1995, amending in its entirety the resolution previously passed by the Board of Directors on June 5, 1986, authorizing the establishment of separate accounts for the issuance and sale of variable life insurance contracts, as well as for variable and fixed annuity contracts. (6) (1)(c) AIG Life Insurance Company Unanimous Consent of the Board of Directors in Lieu of a Meeting dated December 7, 2009, changing the name of the Company from AIG Life Insurance Company to American General Life Insurance Company of Delaware, and resolving to amend all corporate documents as necessary and to execute and deliver all certificates, documents and instruments to carry out the resolutions. (15) C-1 (2) N/A (3)(a) Principal Underwriter's Agreement between AIG Life Insurance Company and American International Fund Distributors dated August 1, 1988. (1) (3)(b) Broker/Dealer Agreement between AIG Life Insurance Company and American International Fund Distributors dated August 1, 1988. (1) (3)(c) Selling Agreement between AIG Life Insurance Company, American International Life Assurance Company of New York, and AIG Equity Sales Corporation dated October 1998. (1) (3)(d) Distribution Agreement between AIG Life Insurance Company, American International Life Assurance Company of New York, and Alliance Fund Distributors dated June 11, 1991. (1) (3)(e) Form of Buy Sell Agreement between AIG Life Insurance Company and Alliance Global Investor Services, Inc. dated February, 2002. (4) (3)(f) Amendment to and Assignment and Assumption of the Principal Underwriter's Agreement between AIG SunAmerica Capital Services, Inc. ("SACS") and AIG Life Insurance Company ("AIG Life"), and the Selling, General Agent, and Related Agreements among SACS, AIG Life, and various Broker Dealers. (Filed herewith) (4)(a) Form of Group Variable Annuity Contract (11GVAN999) and Certificate (16GVAN999). (2) (4)(b) Form of Individual Variable Annuity Contract - Nonparticipating (11VAN0896). (13) (5)(a) Contract Form of variable annuity application (14VAN897). (1) (6)(a) By-Laws of American General Life Insurance Company of Delaware, restated as of December 7, 2009. (15) (6)(b) Certificate of Incorporation of AIG Life Insurance Company, dated December 6, 1991. (1) (6)(c) Restated Certificate of Incorporation of AIG Life Insurance Company dated December 6, 1991. (1) (6)(d) Certificate of Amendment of Certificate of Incorporation of AIG Life Insurance Company, dated December 3, 2001. (6) C-2 (6)(e) Restated Certificate of Incorporation of American General Life Insurance Company of Delaware, dated December 7, 2009. (15) (6)(f) Certificate of Change of Location of Registered Office and of Registered Agent, AIG Life Insurance Company, dated July 24, 2002. (3) (7) Reinsurance Agreement between AIG Life Insurance Company & AXA Corporate Solutions Life Reinsurance Company. (12) (8)(a) Administrative Agreement appointing Delaware Valley Financial Services, LLC by AIG Life Insurance Company and American International Life Assurance Company of New York, dated October 1, 1986. (1) (8)(b) Form of SEC Rule 22c-2 Information Sharing Agreement between Alliance Bernstein and AIG Life Insurance Company. (12) (8)(c)(i) Form of Service and Expense Agreement dated February 1, 1974, between American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company. (6) (8)(c)(ii) Form of Addendum No. 1 to Service and Expense Agreement dated February 1, 1974, between American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company, dated May 21, 1975. (6) (8)(c)(iii) Form of Addendum No. 2 to Service and Expense Agreement dated February 1, 1974, between American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company, dated September 23, 1975. (6) (8)(c)(iv) Form of Addendum No. 24 to Service and Expense Agreement dated February 1, 1974, between American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company, dated December 30, 1998. (6) (8)(c)(v) Form of Addendum No. 28 to Service and Expense Agreement dated February 1, 1974, among American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company and American General Life Companies, LLC, effective January 1, 2002. (6) (8)(c)(vi) Form of Addendum No. 30 to Service and Expense Agreement dated February 1, 1974, among American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company and American General Life Companies, LLC, effective January 1, 2002. (3) C-3 (8)(c)(vii) Form of Addendum No. 32 to Service and Expense Agreement dated February 1, 1974, among American International Group, Inc. and various affiliate subsidiaries, including AIG Life Insurance Company and American General Life Companies, LLC, effective May 1, 2004. (9) (8)(d) AIG Support Agreement between AIG Life Insurance Company and American International Group, Inc. (7) (8)(e) General Guarantee Agreement from National Union Fire Insurance Company of Pittsburgh, Pa. on behalf of AIG Life Insurance Company. (7) (8)(f) Notice of Termination of Guarantee as Published in the Wall Street Journal on November 24, 2006. (11) (9)(a) Opinion of Counsel and Consent of Depositor. (5) (9)(b) Opinion and Consent of Saul Ewing LLP, Counsel to National Union Fire Insurance Company of Pittsburgh, Pa. (8) (9)(c) Opinion and Consent of Sullivan & Cromwell LLP, Counsel to National Union Fire Insurance Company of Pittsburgh, Pa. (8) (10) Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers, LLP. (Filed herewith) (11) Not Applicable (12) Not Applicable (13)(a) Power of Attorney with respect to Registration Statements and Amendments thereto signed by the directors and, where applicable, officers of National Union Fire Insurance Company of Pittsburgh, Pa. (10) (13)(b) Power of Attorney with respect to Registration Statements and Amendments thereto signed by John Quinlan Doyle, Director and President, and Neil Anthony Faulkner, Director, and David Neil Fields, Director, of National Union Fire Insurance Company of Pittsburgh, Pa. (13) (13)(c) Power of Attorney with respect to Registration Statements and Amendments thereto removing Neil Anthony Faulkner, Director, and adding Mark Timothy Willis, Director, of National Union Fire Insurance Company of Pittsburgh, Pa. (14) C-4 ---------- (1) Incorporated by reference to Post-Effective Amendment No. 12 to Form N-4 Registration Statement (File No. 033-39171) of Variable Account I of AIG Life Insurance Company filed on October 27, 1998. (2) Incorporated by reference to initial filing of Form N-4 Registration Statement (File No. 333-93709) of Variable Account I of AIG Life Insurance Company filed on December 28, 1999. (3) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-4 Registration Statement (File No. 333-36260) of Variable Account I of AIG Life Insurance Company filed on April 28, 2004. (4) Incorporated by reference to Post-Effective Amendment No. 3 to Form N-4 Registration Statement (File No. 333-36260) of Variable Account I of AIG Life Insurance Company filed on February 13, 2002. (5) Incorporated by reference to Post-Effective Amendment No. 17 to Form N-4 Registration Statement (File No. 033-39171) of Variable Account I of AIG Life Insurance Company filed on April 30, 2002. (6) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-4 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on February 17, 2003. (7) Incorporated by reference to Post-Effective Amendment No. 14 to Form N-6 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on August 12, 2005. (8) Incorporated by reference to Post-Effective Amendment No. 5 to Form N-4 Registration Statement (File No. 333-102139) of Variable Account I of AIG Life Insurance Company filed on October 21, 2005. (9) Incorporated by reference to Post-Effective Amendment No. 13 to Form N-6 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on May 2, 2005. (10) Incorporated by reference to Post-Effective Amendment No. 8 to Form N-4 Registration Statement (File No. 333-102139) of Variable Account I of AIG Life Insurance Company filed on June 23, 2006. (11) Incorporated by reference to Post-Effective Amendment No. 19 to Form N-6 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on December 12, 2006. C-5 (12) Incorporated by reference to Post-Effective Amendment No. 20 to Form N-6 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on May 1, 2007. (13) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-6 Registration Statement (File No. 333-102139) of Variable Account I of AIG Life Insurance Company filed on May 1, 2007. (14) Incorporated by reference to Post-Effective Amendment No. 21 to Form N-6 Registration Statement (File No. 333-34199) of Variable Account II of AIG Life Insurance Company filed on April 30, 2008. (15) Incorporated by reference to Post-Effective Amendment No. 23 to Form N-6 Registration Statement (File No. 333-34199) of American General Life Insurance Company of Delaware Variable Account II filed on May 3, 2010. (16) Incorporated by reference to Post-Effective Amendment No. 11 to Form N-6 Registration Statement (File No. 333-102139) of Variable Account I of AIG Life Insurance Company filed on May 1, 2009. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Jay S. Wintrob Director and Chairman of the Board of Directors 1 SunAmerica Center, 1999 Avenue of the Stars Los Angeles, CA 90067 Mary Jane B. Fortin Director, President and Chief Executive Officer 2929 Allen Parkway Houston, TX 77019 David R. Armstrong Director, President and Chief Executive Officer - 3600 Route 66 Benefit Solutions Neptune, NJ 07754-1580 Robert M. Beuerlein Director, Senior Vice President and Chief and 2727-A Allen Parkway Appointed Actuary Houston, TX 77019 Jeffrey H. Carlson Director, Executive Vice President, Chief Service 2929 Allen Parkway and Information Officer Houston, TX 77019
C-6
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Don W. Cummings Director, Senior Vice President and Chief Financial 2727-A Allen Parkway Officer Houston, TX 77019 Kyle L. Jennings Director, Executive Vice President, General Counsel 2929 Allen Parkway and Secretary Houston, TX 77019 David W. O'Leary Director, Executive Vice and Chief Operating Officer 2929 Allen Parkway Houston, TX 77019 Steven D. Anderson Senior Vice President-Business Planning and Analysis 2929 Allen Parkway Houston, TX 77019 Erik A. Baden Senior Vice President-Strategic Marketing and 2929 Allen Parkway Business Development Houston, TX 77019 Wayne A. Barnard Senior Vice President and Illustration Actuary 2929 Allen Parkway Houston, TX 77019 David W. Butterfield Senior Vice President 3600 Route 66 Neptune, NJ 07754 Donna F. Fahey Senior Vice President 3600 Route 66 Neptune, NJ 07754-1580 John Gatesman Senior Vice President, Specialty Markets 2929 Allen Parkway Houston, TX 77019 William F. Guterding Senior Vice President 599 Lexington Avenue New York, NY 10022 Robert F. Herbert, Jr. Senior Vice President, Treasurer and Controller 2727-A Allen Parkway Houston, TX 77019
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NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Glen D. Keller Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Stephen Kennedy Senior Vice President, New Business Operations 2727-A Allen Parkway Houston, TX 77019 Frank A. Kophamel Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Simon J. Leech Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Charles L. Levy Senior Vice President and Medical Director 2727-A Allen Parkway Houston, TX 77019 Richard D. McFarland Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Mark R. McGuire Senior Vice President, Customer Service, 2727-A Allen Parkway Underwriting & Medical Houston, TX 77019 Laura W. Milazzo Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Barry Pelletteri Senior Vice President 3600 Route 66 Neptune, NJ 07754 John W. Penko Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Rodney E. Rishel Senior Vice President, Chief Product Officer 2929 Allen Parkway Houston, TX 77019
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NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Dale W. Sachtleben Senior Vice President 3051 Hollis Drive Springfield, IL 62704 Durr Sexton Senior Vice President and Chief Distribution Officer 2929 Allen Parkway Houston, TX 77019 Robert E. Steele Senior Vice President, Structured Settlements 205 E. 10th Avenue Amarillo, TX 79101 Chris Ayers Vice President 2727-A Allen Parkway Houston, TX 77019 Edward F. Bacon Vice President 2727-A Allen Parkway Houston, TX 77019 Joan M. Bartel Vice President 2929 Allen Parkway Houston, TX 77019 Walter E. Bednarski Vice President 3600 Route 66 Neptune, NJ 07754-1580 Michael B. Boesen Vice President 2727-A Allen Parkway Houston, TX 77019 Timothy H. Bolden Vice President , Chief Compliance Officer and Chief 2727-A Allen Parkway Counsel - Litigation Houston, TX 77019 David R. Brady Vice President 599 Lexington Avenue New York, NY 10022 Stephen J. Brenneman Vice President 600 King Street Wilmington, DE 19801
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NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- James B. Brown Vice President 2727 Allen Parkway Houston, TX 77019 Dan Chamberlain Vice President 2727-A Allen Parkway Houston, TX 77019 Mark E. Childs Vice President 2727-A Allen Parkway Houston, TX 77019 Robert M. Cicchi Vice President 2727-A Allen Parkway Houston, TX 77019 James Cortiglia Vice President 3600 Route 66 Neptune, NJ 07754 Timothy M. Donovan Vice President 2929 Allen Parkway Houston, TX 77019 Farideh N. Farrokhi Vice President and Assistant Secretary 2727-A Allen Parkway Houston, TX 77019 Marc Gamsin Vice President 1 SunAmerica Center, 1999 Avenue of the Stars Los Angeles, CA 90067 Frederick J. Garland, Jr. Vice President 2727-A Allen Parkway Houston, TX 77019 Maike George Vice President 2727-A Allen Parkway Houston, TX 77019 Liza Glass Vice President 2727-A Allen Parkway Houston, TX 77019
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NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Leo W. Grace Vice President and Assistant Secretary 2929 Allen Parkway Houston, TX 77019 Richard L. Gravette Vice President and Assistant Treasurer 2727-A Allen Parkway Houston, TX 77019 Daniel J. Gutenberger Vice President and Medical Director 1200 N. Mayfair Road Milwaukee, WI 53226 Roger E. Hahn Vice President and Chief Investment Officer 2929 Allen Parkway Houston, TX 77019 Joel H. Hammer Vice President 599 Lexington Avenue New York, NY 10022 D. Leigh Harrington Vice President 2929 Allen Parkway Houston, TX 77019 Keith C. Honig Vice President 1 SunAmerica Center, 1999 Avenue of the Stars Los Angeles, CA 90067 Donald E. Huffner Vice President and Real Estate Investment Officer 599 Lexington Avenue New York, NY 10022 Walter P. Irby Vice President and Chief Financial Officer - 2929 Allen Parkway Specialty Markets Group Houston, TX 77019 Karen M. Isaacs Vice President 3600 Route 66 Neptune, NJ 07754 Robert J. Ley Vice President 1200 N. Mayfair Road Milwaukee, WI 53226
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NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Gwendolyn J. Mallett Vice President 2727-A Allen Parkway Houston, TX 77019 Randy J. Marash Vice President 3600 Route 66 Neptune, NJ 07754 W. Larry Mask Vice President, Real Estate Investment Officer and 2929 Allen Parkway Assistant Secretary Houston, TX 77019 Melvin C. McFall Vice President 2727-A Allen Parkway Houston, TX 77019 Lochlan O. McNew Vice President and Investment Officer 2929 Allen Parkway Houston, TX 77019 Beverly A. Meyer Vice President 1200 N. Mayfair Road Milwaukee, WI 53226 Candace A. Michael Vice President 2727 Allen Parkway Houston, TX 77019 Michael R. Murphy Vice President 1200 N. Mayfair Road Milwaukee, WI 53226 Deanna Osmonson Vice President 2727-A Allen Parkway Houston, TX 77019 Greg Outcalt Vice President 1 SunAmerica Center, 1999 Avenue of the Stars Los Angeles, CA 90067 Rembert R. Owen, Jr. Vice President, Real Estate Investment Officer and 2929 Allen Parkway Assistant Secretary Houston, TX 77019
C-12
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Lori J. Payne Vice President 2929 Allen Parkway Houston, TX 77019 Cathy A. Percival Vice President and Medical Director 2727-A Allen Parkway Houston, TX 77019 Terri Robbins Vice President 175 Water Street New York, NY 10038 Debbie Runge Vice President, Human Resources 2727-A Allen Parkway Houston, TX 77019 Carly Sanchez Vice President, Human Resources and Chief Diversity 2727-A Allen Parkway Officer Houston, TX 77019 Michael Sibley Vice President Walnut Glen Tower 8144 Walnut Hill Lane Dallas, TX 75231 Brian Smith Vice President, Finance 3600 Route 66 Neptune, NJ 07754 T. Clay Spires Vice President and Tax Officer 2727-A Allen Parkway Houston, TX 77019 Dale Stewart Vice President and General Auditor 2727-A Allen Parkway Houston, TX 77019 Gregory R. Thornton Vice President 3051 Hollis Drive Springfield, IL 62704 Veronica Torralba Vice President 2929 Allen Parkway Houston, TX 77019
C-13
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR BUSINESS ADDRESS AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE ------------------------ --------------------------------------------------- Richard P. Vegh Vice President 3600 Route 66 Neptune, NJ 07754 Christian D. Weiss Vice President 2727-A Allen Parkway Houston, TX 77019 Lauren W. Jones Chief Counsel - Business Lines and Assistant 2929 Allen Parkway Secretary Houston, TX 77019
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT The Depositor is an indirect wholly-owned subsidiary of American International Group, Inc. An organizational chart for American International Group, Inc. can be found as Exhibit 21 in American International Group, Inc.'s Form 10-K, SEC file Number 001-08787, accession number 0001047469-10-001465, filed February 26, 2010. Exhibit 21 is incorporated herein by reference. The Registrant is a separate account of American General Life Insurance Company of Delaware (Depositor). CHANGE OF CONTROL OF AMERICAN INTERNATIONAL GROUP, INC. ------------------------------------------------------- On March 4, 2009, American International Group, Inc. issued and sold to the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury (the "Trust"), 100,000 shares of American International Group, Inc.'s Series C Perpetual, Convertible, Participating Preferred Stock (the "Stock") for an aggregate purchase price of $500,000, with an understanding that additional and independently sufficient consideration was also furnished to American International Group, Inc. by the Federal Reserve Bank of New York (the "FRBNY") in the form of its lending commitment (the "Credit Facility") under the Credit Agreement, dated as of September 22, 2008, between American International Group, Inc. and the FRBNY. The Stock has preferential liquidation rights over American International Group, Inc. common stock, and, to the extent permitted by law, votes with American International Group Inc.'s common stock on all matters submitted to American International Group, Inc.'s shareholders. The Trust has approximately 79.8% of the aggregate voting power of American International Group Inc.'s common stock and is entitled to approximately 79.8% of all dividends paid on American International Group, Inc.'s common stock, in each case treating the Stock as if converted. The Stock will remain outstanding even if the Credit Facility is repaid in full or otherwise terminates. American General Life Insurance Company of Delaware is not a guarantor of the Credit Facility obligations and it has not pledged any assets to secure those obligations. C-14 ITEM 27. NUMBER OF CONTRACT OWNERS As of April 19, 2010, the number of AllianceBernstein Ovation contracts funded by Variable Account I was 6,667 of which 2,150 were qualified contracts and 4,517 were non-qualified contracts. ITEM 28. INDEMNIFICATION Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE Except as otherwise required by applicable law: (a) The company shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or on behalf of the company) by reason of the fact that he is or was director, officer, or employee or agent of the company, or is or was serving at the request of the company as director, officer, employee or agent of another company or enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding; provided that he (1) acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the company; and, (2) with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, by itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was lawful. (b) The company shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or on behalf of the company to procure a judgment in the company's favor, by reason of the fact that he is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another company or enterprise, against expenses (including attorney's fees), judgments and amounts paid in C-15 settlement actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding; provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the company unless and only to the extent that the court in which such action, suit or proceeding was brought or any other court of competent jurisdiction shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity. (c) To the extent that a director, officer, or employee or agent of the company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) above (unless ordered by a court or made pursuant to a determination by a court as hereinafter provided) shall be made by the company upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances and he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (1) by the Board by a majority of a quorum consisting of directors who were not parties to such action, suit or proceeding (disinterested), or (2) by a committee of disinterested directors designated by majority vote of disinterested directors, even though less than a quorum, or (3) by independent legal counsel in a written opinion, and such legal counsel was selected by a majority vote of a quorum of the disinterested directors, or (4) by the stockholders. In the absence of a determination that indemnification is proper, the director, officer or employee may apply to the court conducting the proceeding or another court of competent jurisdiction which shall determine whether the director, officer, employee or agent has met the applicable standard or conduct set forth in paragraphs (a) and (b). If the court shall so determine, indemnification shall be made under paragraph (a) or (b) as the case may be. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the company in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the manner provided in paragraph (d) upon receipt of a written instrument acceptable to the Board by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the company as authorized in this section. (f) The indemnification provided by the company's By-Laws shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit or the heirs, executors and administrators of such a person. C-16 (g) The company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another company, or enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the company would have the power to indemnify him against such liability under the provisions of the company's By-Laws. ITEM 29. PRINCIPAL UNDERWRITER (a) Registrant's principal underwriter, American General Equity Services Corporation, also acts as principal underwriter for the following investment companies: AMERICAN GENERAL LIFE INSURANCE COMPANY Separate Account A Separate Account D Separate Account VA-1 Separate Account VA-2 Separate Account VL-R Separate Account VUL Separate Account VUL-2 AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE Variable Account II AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK Variable Account A Variable Account B THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK Separate Account USL VA-R Separate Account USL VL-R (b) Management. NAME AND PRINCIPAL POSITIONS AND OFFICES WITH UNDERWRITER BUSINESS ADDRESS AMERICAN GENERAL EQUITY SERVICES CORPORATION ------------------------ ------------------------------------------------ Mary Jane B. Fortin Director and Chairman of the Board of Directors 2929 Allen Parkway Houston, TX 77019 David W. O'Leary Director, President and Chief Executive Officer 2929 Allen Parkway Houston, TX 77019 C-17 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH UNDERWRITER BUSINESS ADDRESS AMERICAN GENERAL EQUITY SERVICES CORPORATION ------------------------ ------------------------------------------------ Mark R. McGuire Director and Senior Vice President 2727-A Allen Parkway Houston, TX 77019 Kyle L. Jennings Executive Vice President, General Counsel and 2929 Allen Parkway Secretary Houston, TX 77019 Larry Blews Vice President and Chief Compliance Officer 2727-A Allen Parkway Houston, TX 77019 Robert F. Herbert, Jr. Vice President 2727-A Allen Parkway Houston, TX 77019 Deanna D. Osmonson Vice President 2727-A Allen Parkway Houston, TX 77019 T. Clay Spires Vice President and Tax Officer 2727-A Allen Parkway Houston, TX 77019 Rhonda Washington Treasurer and Controller 2727-A Allen Parkway Houston, TX 77019 Lauren W. Jones Assistant Secretary 2929 Allen Parkway Houston, TX 77019 Ann Wohn Assistant Secretary 2929 Allen Parkway Houston, TX 77019 John D. Fleming Assistant Treasurer 2929 Allen Parkway Houston, TX 77019 C-18 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH UNDERWRITER BUSINESS ADDRESS AMERICAN GENERAL EQUITY SERVICES CORPORATION ------------------------ ------------------------------------------------ Barbara J. Moore Assistant Tax Officer 2727-A Allen Parkway Houston, TX 77019 (c) Compensation From the Registrant.
Name of Principal Net Underwriting Compensation Brokerage Compensation Underwriter Discounts and on Redemption Commissions Commissions AIG Equity Sales Corp. 0 0 0 0
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All of the accounts, books, records or other documents required to be kept by Section 31(a) of the Investment Company Act of 1940 and its rules are maintained by Depositor at 2929 Allen Parkway, Houston, Texas 77019 or its record keeper, Delaware Valley Financial Services, P.O. Box 3031, Berwyn, PA 19312-0031, which provides certain servicing for the Depositor. ITEM 31. MANAGEMENT SERVICES Not Applicable. ITEM 32. UNDERTAKINGS (a) Undertakings of the Registrant The Registrant undertakes: A) to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the Contracts may be accepted; B) to include either (1) as part of any application to purchase a Contract offered by a prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a toll-free number or a post card or similar written communication affixed to or included in the applicable prospectus that the applicant can use to send for a Statement of Additional Information; C) to deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. C-19 (b) Undertakings of the Depositor During any time there are insurance obligations outstanding and covered by the guarantee issued by National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union Guarantee Period"), filed as an exhibit to this Registration Statement (the "National Union Guarantee"), the Depositor hereby undertakes to provide notice to contract owners covered by the National Union Guarantee promptly after the happening of significant events related to the National Union Guarantee. These significant events include: (i) termination of the National Union Guarantee that has a material adverse effect on the contract owner's rights under the National Union Guarantee; (ii) a default under the National Union Guarantee that has a material adverse effect on the contract owner's rights under the National Union Guarantee; or (iii) the insolvency of National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"). Depositor hereby undertakes during the National Union Guarantee Period to cause Registrant to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the current annual audited statutory financial statements of National Union in the Registration Statement are updated to be as of a date not more than 16 months prior to the effective date of this Registration Statement, and to cause Registrant to include as an exhibit to this Registration Statement the consent of the independent registered public accounting firm of National Union regarding such financial statements. During the National Union Guarantee Period, the Depositor hereby undertakes to include in the prospectus to policy owners, an offer to supply the Statement of Additional Information which shall contain the annual audited statutory financial statements of National Union, free of charge upon a policy owner's request. As of December 29, 2006 at 4:00 p.m. Eastern time (the "Point of Termination"), the National Union Guarantee was terminated for prospectively issued Contracts. The National Union Guarantee will not cover any Contracts with a date of issue later than the Point of Termination. The National Union Guarantee will continue to cover Contracts with a date of issue earlier than the Point of Termination until all insurance obligations under such Contracts are satisfied in full. REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED UNDER THE CONTRACTS PURSUANT TO SECTION 26(E)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940 American General Life Insurance Company of Delaware represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by American General Life Insurance Company of Delaware. C-20 POWERS OF ATTORNEY Each person whose signature appears below hereby appoints Robert F. Herbert, Jr., Don W. Cummings and Kyle L. Jennings and each of them, any one of whom may act without the joinder of the others, as his/her attorney-in-fact to sign on his/her behalf and in the capacity stated below and to file all amendments to this Registration Statement, which amendment or amendments may make such changes and additions to this Registration Statement as such attorney-in-fact may deem necessary or appropriate. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Account I of American General Life Insurance Company of Delaware (f/k/a AIG Life Insurance Company), certifies that it meets the requirements of the Securities Act of 1933 Rule 485(b) for effectiveness of this amended Registration Statement and has caused this amended Registration Statement to be signed on its behalf, in the City of Houston, and State of Texas on this 30th day of April, 2010. VARIABLE ACCOUNT I OF AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE (Registrant) BY: AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE (On behalf of the Registrant and itself) BY: ROBERT F. HERBERT, JR. ---------------------- ROBERT F. HERBERT, JR. SENIOR VICE PRESIDENT, TREASURER AND CONTROLLER AGLD - 1 As required by the Securities Act of 1933, this amended Registration Statement has been signed by the following persons, on behalf of the Registrant and Depositor, in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- JAY S. WINTROB Director and Chairman April 30, 2010 -------------- of the Board of Directors JAY S. WINTROB MARY JANE B. FORTIN Director, President and April 30, 2010 ------------------- Chief Executive Officer MARY JANE B. FORTIN DON W. CUMMINGS Director, Senior April 30, 2010 --------------- Vice President and DON W. CUMMINGS Chief Financial Officer KYLE L. JENNINGS Director April 30, 2010 ---------------- KYLE L. JENNINGS DAVID R. ARMSTRONG Director April 30, 2010 ------------------ DAVID R. ARMSTRONG ROBERT M. BEUERLEIN Director April 30, 2010 ------------------- ROBERT M. BEUERLEIN JEFFREY H. CARLSON Director April 30, 2010 ------------------ JEFFREY H. CARLSON DAVID W. O'LEARY Director April 30, 2010 ---------------- DAVID W. O'LEARY AGLD - 2 333-102139 811-05301 SIGNATURES National Union Fire Insurance Company of Pittsburgh, Pa. has caused this amended Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of New York, and State of New York on the 30th day of April, 2010. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. BY: ROBERT S. SCHIMEK ----------------- ROBERT S. SCHIMEK CHIEF FINANCIAL OFFICER, SENIOR VICE PRESIDENT AND TREASURER NU - 1 This amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- *KRISTIAN P. MOOR Director and Chairman April 30, 2010 ----------------- KRISTIAN P. MOOR *JOHN Q. DOYLE Director, President and April 30, 2010 -------------- Chief Executive Officer JOHN Q. DOYLE *ROBERT S. SCHIMEK Director, Chief Financial April 30, 2010 ------------------ Officer, Senior Vice ROBERT S. SCHIMEK President, and Treasurer *DAVID NEIL FIELDS Director April 30, 2010 ------------------ DAVID NEIL FIELDS *DAVID L. HERZOG Director April 30, 2010 ---------------- DAVID L. HERZOG *ROBERT E. LEWIS Director April 30, 2010 ---------------- ROBERT E. LEWIS MONIKA MARIA MACHON Director April 30, 2010 ------------------- MONIKA MARIA MACHON *NICHOLAS S. TYLER Director April 30, 2010 ------------------ NICHOLAS S. TYLER *NICHOLAS C. WALSH Director April 30, 2010 ------------------ NICHOLAS C. WALSH *MARK TIMOTHY WILLIS Director April 30, 2010 -------------------- MARK TIMOTHY WILLIS * BY: ROBERT S. SCHIMEK ----------------- ROBERT S. SCHIMEK ATTORNEY-IN-FACT (Exhibit (13) to the Registration Statement) NU - 2 EXHIBIT INDEX ITEM 24. EXHIBITS (3)(f) Amendment to and Assignment and Assumption of the Principal Underwriter's Agreement between AIG SunAmerica Capital Services, Inc. ("SACS") and AIG Life Insurance Company ("AIG Life"), and the Selling, General Agent, and Related Agreements among SACS, AIG Life, and various Broker Dealers. (10) Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP. E-1