-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N2fjg3Eiu6rCujsNGMqm55N0dAnNV66GeKxKEF3pVk16+4iKD/368xRc9aFdQ27I bYZoxvb9PfPM4c0gzdKfvg== 0000945094-02-000520.txt : 20020814 0000945094-02-000520.hdr.sgml : 20020814 20020814134033 ACCESSION NUMBER: 0000945094-02-000520 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLENBROOK LIFE & ANNUITY CO CENTRAL INDEX KEY: 0000945094 IRS NUMBER: 351113325 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-82906 FILM NUMBER: 02734039 BUSINESS ADDRESS: STREET 1: 3100 SANDERS ROAD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 8474022400 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 10-Q 1 glacq2doc.txt GLENBROOK LIFE & ANNUITY COMPANY 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 333-88870 GLENBROOK LIFE AND ANNUITY COMPANY (Exact name of registrant as specified in its charter) ARIZONA 35-1113325 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3100 Sanders Road Northbrook, Illinois 60062 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including are code: 847/402-5000 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No As of July 31, 2002, Registrant had 5,000 shares of common capital stock outstanding, par value $500 per share all of which shares are held by Allstate Life Insurance Company. GLENBROOK LIFE AND ANNUITY COMPANY INDEX TO QUARTERLY REPORT ON FORM 10-Q JUNE 30, 2002
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Statements of Operations for the Three Month and Six Month Periods Ended June 30, 2002 and 2001 (unaudited) 3 Condensed Statements of Financial Position as of June 30, 2002 (unaudited) and December 31, 2001 4 Condensed Statements of Cash Flows for the Six Month Periods Ended June 30, 2002 and 2001 (unaudited) 5 Notes to Condensed Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17 Signature Page 18
2 PART 1. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS GLENBROOK LIFE AND ANNUITY COMPANY CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended June 30, June 30, ------------------------- --------------------------- ------------------------- --------------------------- (in thousands) 2002 2001 2002 2001 ------------ ---------- ------------ ------------- (Unaudited) (Unaudited) REVENUES Net investment income $ 2,576 $ 2,658 $ 5,149 $ 5,394 Realized capital gains and losses - - 54 (46) Administration fees - 28 - 57 ----------- ---------- ------------ ------------- 2,576 2,686 5,203 5,405 COSTS AND EXPENSES Administration expenses - 22 - 43 ----------- ---------- ------------ ------------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 2,576 2,664 5,203 5,362 Income tax expense 900 930 1,818 1,873 ----------- ---------- ------------ ------------- NET INCOME $ 1,676 $ 1,734 $ 3,385 $ 3,489 =========== ========== ============ =============
See notes to condensed financial statements. 3 GLENBROOK LIFE AND ANNUITY COMPANY CONDENSED STATEMENTS OF FINANCIAL POSITION
June 30, December 31, 2002 2001 --------------- ----------------- --------------- ----------------- (in thousands, except par value data) (Unaudited) ASSETS Investments Fixed income securities, at fair value (amortized cost $153,331 and $154,154) $ 162,282 $ 160,974 Short-term 8,791 6,592 --------------- ---------------- Total investments 171,073 167,566 Cash 8,287 - Reinsurance recoverable from Allstate Life Insurance Company, net 5,868,403 5,378,036 Other assets 3,457 3,404 Separate Accounts 1,344,947 1,547,953 --------------- ---------------- TOTAL ASSETS $ 7,396,167 $ 7,096,959 =============== ================ LIABILITIES Contractholder funds $ 5,861,211 $ 5,370,475 Reserve for life-contingent contract benefits 7,192 7,561 Current income taxes payable 1,813 3,844 Deferred income taxes 3,358 2,610 Other liabilities and accrued expenses 3,645 - Payable to affiliates, net 6,913 2,198 Separate Accounts 1,344,947 1,547,953 --------------- ---------------- TOTAL LIABILITIES 7,229,079 6,934,641 --------------- ---------------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4) SHAREHOLDER'S EQUITY Common stock, $500 par value, 10,000 shares authorized, 5,000 shares issued and outstanding 2,500 2,500 Additional capital paid-in 119,241 119,241 Retained income 39,529 36,144 Accumulated other comprehensive income: Unrealized net capital gains and losses 5,818 4,433 --------------- ---------------- Total accumulated other comprehensive income 5,818 4,433 --------------- ---------------- TOTAL SHAREHOLDER'S EQUITY 167,088 162,318 --------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 7,396,167 $ 7,096,959 =============== ================
See notes to condensed financial statements. 4 GLENBROOK LIFE AND ANNUITY COMPANY CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, --------------------------- --------------------------- (in thousands) 2002 2001 ------------ ------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,385 $ 3,489 Adjustments to reconcile net income to net cash provided by operating activities Amortization and other non-cash items 15 (44) Realized capital gains and losses (54) 46 Changes in: Income taxes payable (2,029) 1,873 Payable to affiliates, net 4,715 (2,888) Other operating assets and liabilities 3,592 (221) ----------- ------------ Net cash provided by operating activities 9,624 2,255 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Fixed income securities Proceeds from sales 2,222 1,251 Investment collections 8,837 4,433 Investments purchases (10,197) (21,143) Change in short-term investments, net (2,199) (296) ----------- ------------ Net cash used in investing activities (1,337) (15,755) ----------- ------------ NET INCREASE (DECREASE) IN CASH 8,287 (13,500) CASH AT BEGINNING OF PERIOD - 13,500 ----------- ------------ CASH AT END OF PERIOD $ 8,287 $ - =========== ============
See notes to condensed financial statements. 5 GLENBROOK LIFE AND ANNUITY COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed financial statements include the accounts of Glenbrook Life and Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"). The condensed financial statements and notes as of June 30, 2002 and for the three-month and six-month periods ended June 30, 2002 and 2001 are unaudited. The condensed financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Glenbrook Life and Annuity Company Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. To conform with the 2002 and year-end 2001 presentations, certain prior year amounts have been reclassified. NEW ACCOUNTING STANDARD In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and other Intangible Assets", which eliminates the requirement to amortize goodwill, and requires that goodwill and separately identified intangible assets with indefinite lives be evaluated for impairment on an annual basis (or more frequently if impairment indicators arise) on a fair value basis. The Company adopted SFAS No. 142 effective January 1, 2002. The non-amortization provisions of SFAS No. 142 had no impact on the Company as all expenses of the Company, including goodwill amortization, are ceded to ALIC pursuant to a reinsurance agreement. During the second quarter of 2002, the Company completed the initial goodwill impairment test required by SFAS No. 142 and concluded that goodwill was not impaired. PENDING ACCOUNTING STANDARD On July 31, 2002, the AICPA issued an exposure draft Statement of Position ("SOP") entitled "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". The accounting guidance contained in the proposed SOP applies to several of the Company's products and product features. The proposed effective date of the SOP is fiscal years beginning after December 15, 2003, with earlier adoption encouraged. Initial application should be as of the beginning of the fiscal year; therefore, if adopted during an interim period of 2003, prior interim periods should be restated. Most provisions of the proposed SOP will have a minimal impact to the Company, however, a provision that requires the establishment of a liability in addition to the account balance for contracts that contain death or other insurance benefits may have a material impact on the condensed statement of operations ceded to ALIC depending on the market conditions at the time of adoption. Contracts affected are those that contain provisions wherein the amounts assessed against the contractholder each period for the insurance benefit feature are not proportionate to the insurance coverage provided for the period. These contract provisions are commonly referred to as guaranteed minimum death benefits. The SOP concludes, in accordance with the Company's policy, that no liability should be recognized during the accumulation phase for contract features that guarantee a minimum amount for annuitization, upon election by the contractholder, at a contractually specified future date. These product features are commonly referred to as guaranteed minimum income benefits. 6 GLENBROOK LIFE AND ANNUITY COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 2. REINSURANCE The Company has reinsurance agreements whereby all contract charges, credited interest, policy benefits and certain expenses are ceded to ALIC and are reflected net of such reinsurance in the condensed statements of operations. Reinsurance recoverables and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the condensed statements of financial position. The Company continues to have primary liability as the direct insurer for risks reinsured. Investment income earned on the assets which support contractholder funds and the reserve for life-contingent contract benefits is not included in the Company's condensed financial statements as those assets are owned and managed by ALIC under the terms of reinsurance agreements. The following table summarizes amounts ceded to ALIC under reinsurance agreements.
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- -------------------------- ------------ ------------- ----------- ----------- (in thousands) 2002 2001 2002 2001 ------------ ------------- ----------- ----------- Contract charges $ 8,479 $ 7,828 $ 15,775 $ 16,443 Credited interest, policy benefits and certain expenses 90,345 104,023 176,972 196,026
7 GLENBROOK LIFE AND ANNUITY COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 3. COMPREHENSIVE INCOME The components of other comprehensive income on a pretax and after-tax basis are as follows:
Three Months Ended June 30, -------------------------------------------------------------------------------- (in thousands) 2002 2001 ------------------------------------- --------------------------------------- After- After- Pretax Tax tax Pretax Tax tax --------- -------- --------- ---------- --------- ---------- --------- -------- --------- ---------- --------- ---------- UNREALIZED CAPITAL GAINS AND LOSSES: Unrealized holding gains (losses) arising during the period $ 4,032 $ (1,411) $ 2,621 $ (1,827) $ 639 $ (1,188) Less: reclassification adjustments - - - - - --------- -------- --------- --------- --------- --------- Unrealized net capital gains (losses) 4,032 (1,411) 2,621 (1,827) 639 (1,188) --------- -------- --------- --------- --------- --------- Other comprehensive income (loss) $ 4,032 $ (1,411) 2,621 $ (1,827) $ 639 (1,188) ========= ========= ========= ========= Net income 1,676 1,734 --------- --------- Comprehensive income $ 4,297 $ 546 ========= ========= Six Months Ended June 30, -------------------------------------------------------------------------------- (in thousands) 2002 2001 ------------------------------------- --------------------------------------- After- After- Pretax Tax tax Pretax Tax tax --------- -------- --------- ---------- --------- ---------- --------- -------- --------- ---------- --------- ---------- UNREALIZED CAPITAL GAINS AND LOSSES: Unrealized holding gains (losses) arising during the period $ 2,185 $ (765) $ 1,420 $ 272 $ (95) $ 177 Less: reclassification adjustments 54 (19) 35 (46) 16 (30) --------- -------- --------- --------- --------- --------- Unrealized net capital gains (losses) 2,131 (746) 1,385 318 (111) 207 --------- -------- --------- --------- --------- --------- Other comprehensive income (loss) $ 2,131 $ (746) 1,385 $ 318 $ (111) 207 ========= ======== ========= ========= Net income 3,385 3,489 --------- --------- Comprehensive income $ 4,770 $ 3,696 ========= =========
4. REGULATION AND LEGAL PROCEEDINGS The Company's business is subject to the effects of a changing social, economic and regulatory environment. State and federal regulatory initiatives have varied and have included employee benefit regulations, removal of barriers preventing banks from engaging in the securities and insurance businesses, tax law changes affecting the taxation of insurance companies, the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles, and the overall expansion of regulation. The ultimate changes and eventual effects, if any, of these initiatives are uncertain. Various other legal and regulatory actions are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of an increasing number of class action lawsuits and other types of litigation based on a variety of issues, some of which involve claims for substantial and/or indeterminate amounts (including punitive and treble damages) and the outcomes of which are unpredictable. However, at this time, based on their present status, it is the opinion of management that the ultimate liability, if any, in one or more of these other actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial position of the Company. 8 GLENBROOK LIFE AND ANNUITY COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 5. THIRD PARTY ADMINISTRATION AGREEMENT On July 18, 2001, the Company entered into an administrative services agreement with American Maturity Life Insurance Company ("American Maturity"), which was effective as of January 2, 2001, to administer certain blocks of annuities that American Maturity reinsures to ALIC. Pursuant to the terms of the agreement, the Company is to provide insurance contract administration and financial services for all contracts covered under the reinsurance agreement. The administrative services agreement can be terminated by either the Company or American Maturity upon mutual consent or as otherwise provided for in the terms of the agreement. Beginning in the 4th quarter of 2001, all Administrative Fees earned and Administrative Expenses incurred by the Company are ceded to ALIC in accordance with reinsurance agreements. 9 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 THE FOLLOWING DISCUSSION HIGHLIGHTS SIGNIFICANT FACTORS INFLUENCING RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL POSITION OF GLENBROOK LIFE AND ANNUITY COMPANY (THE "COMPANY"). IT SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES THERETO FOUND UNDER PART I. ITEM 1. CONTAINED HEREIN AND WITH THE DISCUSSION, ANALYSIS, FINANCIAL STATEMENTS AND NOTES THERETO IN PART I. ITEM 1. AND PART II. ITEM 7. AND ITEM 8. OF THE GLENBROOK LIFE AND ANNUITY COMPANY ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, WHICH INCLUDES A DISCUSSION OF THE COMPANY'S CRITICAL ACCOUNTING POLICIES. OVERVIEW The Company, a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"), markets a diversified group of products to meet consumers' lifetime needs in the areas of protection and retirement solutions through financial services firms. The Company's products include interest-sensitive life, including single premium life and variable life; fixed annuities, including market value adjusted annuities and equity-indexed annuities; immediate annuities; and variable annuities. The Company has identified itself as a single segment entity. The assets and liabilities related to variable contracts are legally segregated and reflected as Separate Accounts. The assets of the Separate Accounts are carried at fair value. Separate Accounts liabilities represent the contractholders' claims to the related assets and are carried at the fair value of the assets. Investment income and realized capital gains and losses of the Separate Accounts accrue directly to the contractholders and therefore are not included in the Company's condensed statements of operations. Revenues to the Company from the Separate Accounts consist of contract maintenance and administration fees and mortality, surrender and expense charges, all of which are ceded to ALIC. Absent any contract provision wherein the Company guarantees either a minimum return or account value upon death or annuitization, variable annuity and variable life contractholders bear the investment risk that the Separate Accounts' funds may not meet their stated objectives. These guarantees are ceded to ALIC in accordance with the reinsurance agreements.
RESULTS OF OPERATIONS (in thousands) Three Months Ended Six Months Ended June 30, June 30, ---------------------------- -------------------------- ---------- --- ------------- ---------- --- ----------- 2002 2001 2002 2001 ---------- ------------- ---------- ----------- ---------- ------------- ---------- ----------- Net investment income $ 2,576 $ 2,658 $ 5,149 $ 5,394 Realized capital gains and losses - - 54 (46) Administration fees - 28 - 57 Administration expenses - 22 - 43 Income tax expense 900 930 1,818 1,873 ---------- ------------ ----------- --------- Net income $ 1,676 $ 1,734 $ 3,385 $ 3,489 ========== ============ =========== =========
The Company has reinsurance agreements under which all contract and policy related liabilities are transferred to ALIC. The Company's results of operations include net investment income and realized capital gains and losses earned on the assets of the Company that are not transferred under the reinsurance agreements. Net income decreased 3.3% in the second quarter of 2002 compared to the same period in 2001. Net income for the first six months of 2002 decreased 3.0% compared to the same period last year. These decreases are primarily a result of a decrease in net investment income. Pretax net investment income decreased 3.1% in the second quarter of 2002 compared to the same period in 2001. For the first six months of 2002 pretax net investment income decreased 4.5% compared to the same period last year. The decrease in net investment income is due to lower yields partially offset by increased investment balances. Investments at June 30, 2002, excluding Separate Accounts and unrealized capital gains 10 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 and losses, grew 2.2% as compared to June 30, 2001. This increase was due to positive cash flows from operations. There were no after-tax realized capital gains or losses in the second quarter of 2002 and 2001. For the first six months of 2002, after-tax realized capital gains were $35 thousand compared to after-tax realized capital losses of $30 thousand in the same period last year. Realized capital gains and losses result from the sale of fixed income securities. Period to period fluctuations in realized capital gains and losses are the result of timing of sales decisions reflecting management's decision on positioning of the portfolio, assessments of individual securities, overall market conditions and write-downs when the Company determines that a decline in the value of a security is other than temporary.
FINANCIAL POSITION (in thousands) June 30, December 31, 2002 2001 ---------------- ------------------ ---------------- ------------------ Fixed income securities (1) $ 162,282 $ 160,974 Short-term 8,791 6,592 --------------- ---------------- Total investments $ 171,073 $ 167,566 =============== ================ Cash $ 8,287 $ -- =============== ================ Reinsurance recoverable from ALIC, net $ 5,868,403 $ 5,378,036 =============== ================ Contractholder funds $ 5,861,211 $ 5,370,475 =============== ================ Reserve for life-contingent contract benefits $ 7,192 $ 7,561 =============== ================ Separate Accounts assets and liabilities $ 1,344,947 $ 1,547,953 =============== ================
(1) Fixed income securities are carried at fair value. Amortized cost for these securities was $153.3 million and $154.2 million at June 30, 2002 and December 31, 2001, respectively. Total investments were $171.1 million at June 30, 2002 compared to $167.6 million at December 31, 2001. The increase was primarily due to positive cash flows generated from operations and increased unrealized gains on fixed income securities. At June 30, 2002, unrealized capital gains on fixed income securities were $9.0 million compared to $6.8 million at December 31, 2001. At June 30, 2002, 97.2% of the Company's fixed income securities portfolio was rated investment grade, which is defined by the Company as a security having a rating from the National Association of Insurance Commissioners ("NAIC") of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company internal rating. Commencing in late July 2002, deterioration of U.S. credit markets significantly escalated. For example, in July the Lehman Bothers U.S. Investment-Grade Credit Index under-performed U.S. Treasuries by 259 basis points, its second-worst month ever. In particular, the telecommunications, airlines, and energy sectors in which the Company has holdings have been adversely affected. This deterioration, along with reduced market liquidity, could also extend to other segments of the economy and is expected to lead to increased recognition of realized capital losses from investment write-downs and portfolio trading in subsequent periods. At June 30, 2002, cash was $8.3 million compared to none at December 31, 2001. Cash increased due to a change in the management process for Separate Accounts receipts and disbursements. At June 30, 2002, Contractholder funds increased $490.7 million to $5.86 billion from $5.37 billion at December 31, 2001 as a result of additional deposits from fixed annuities and credited interest, partially offset by surrenders and withdrawals. Reinsurance recoverable from ALIC increased correspondingly by $490.4 million due to the increase in contractholder funds. At June 30, 2002, Separate Accounts assets and liabilities decreased 13.1% to $1.34 billion compared to the December 31, 2001 balance. The decreases were primarily attributable to unrealized losses in the Separate Accounts investment portfolios due to equity market conditions and surrenders and withdrawals, partially offset by sales of variable annuity contracts and transfers from the fixed account contract option to variable Separate Accounts funds. 11 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 CAPITAL RESOURCES AND LIQUIDITY CAPITAL RESOURCES The company's capital resources consist of shareholder's equity. The following table summarizes the capital resources.
June 30, December 31, (in thousands) 2002 2001 -------------- ---------------- -------------- ---------------- Common stock and retained income $ 161,270 $ 157,885 Accumulated other comprehensive income 5,818 4,433 ------------ -------------- Total shareholder's equity $ 167,088 $ 162,318 ============ ==============
SHAREHOLDER'S EQUITY Shareholder's equity increased $4.8 million in the first six months of 2002 when compared to December 31, 2001, due to an increase in net income and an increase in unrealized net capital gains and losses. DEBT The Company had no outstanding debt at June 30, 2002 and December 31, 2001. FINANCIAL RATINGS AND STRENGTHS Financial strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies and, generally, may be expected to have an effect on an insurance company's sales. On an ongoing basis, rating agencies review the financial performance and condition of insurers. A multiple level downgrade, while not expected, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company shares its financial strength ratings with its parent, ALIC, due to the 100% reinsurance agreements. In February 2002, Standard & Poor's affirmed its December 31, 2001 ratings. Standard & Poor's revised its outlook for ALIC and its rated subsidiaries and affiliates, including the Company, to "negative" from "stable". This revision is part of an ongoing life insurance industry review being conducted by Standard & Poor's. Moody's and A.M. Best reaffirmed their ratings and outlook for the Company and ALIC. 12 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 LIQUIDITY The principal sources of funds for the Company include the following activities: SOURCES OF FUNDS Statutory premiums and deposits Reinsurance recoveries Receipts of principal, interest and dividends on investments Sales of investments Capital contributions from ALIC Inter-company loans The principal uses of funds for the Company include the following activities: USES OF FUNDS Payment of contract benefits, maturities, surrenders and withdrawals Reinsurance cessions and payments Operating expenses Purchase of investments Repayment of inter-company loans Dividends to ALIC Under the terms of reinsurance agreements, substantially all premiums and deposits, excluding those relating to Separate Accounts, are transferred to ALIC, which maintains the investment portfolios supporting the Company's products. Substantially all payments or policyholder claims, benefits, including guaranteed minimum income or death benefits, contract maturities, contract surrenders and withdrawals and certain operating costs, excluding those relating to Separate Accounts, are also reimbursed by ALIC under the terms of the reinsurance agreements. The Company continues to have primary liability as a direct insurer for risks reinsured. The Company's ability to meet liquidity demands is dependent on ALIC's ability to meet its obligations under the reinsurance program. ALIC's financial strength was rated Aa2, AA+, and A+ by Moody's, Standard & Poor's and A.M. Best, respectively, at June 30, 2002. The Company has entered into an inter-company loan agreement with the Corporation. The amount of inter-company loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. No amounts were outstanding for the Company under the inter-company loan agreement at June 30, 2002 and December 31, 2001. FORWARD LOOKING STATEMENTS AND RISK FACTORS This document contains "forward-looking statements" that anticipate results based on management's plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like "plans," "expects," "will," "anticipates," "estimates," "intends," "believes," "likely," and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, regulatory approvals, market position, expenses, financial results and reserves. Forward-looking statements are based on management's current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate. However, we believe that our forward-looking statements are based on reasonable, current expectations and assumptions. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments. If the expectations or assumptions underlying our forward-looking statements prove inaccurate or if risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. In addition to the normal risks of business, the Company is subject to significant risk factors, including those listed below which apply to it as an insurance business and a provider of other financial services. 13 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 o Currently, the Corporation is examining the potential exposure, if any, of its insurance operations from acts of terrorism. The Corporation is also examining how best to address this exposure, if any, considering the interests of policyholders, shareholders, the lending community, regulators and others. The Company generally does not have exclusions for terrorist events included in its life insurance policies. In the event that a terrorist act occurs, the Company may be adversely impacted, depending on the nature of the event. With respect to the Company's investment portfolio, in the event that commercial insurance coverage for terrorism becomes unavailable or too expensive, there could be significant adverse impacts on some portion of the Company's portfolio, particularly in sectors such as airlines and real estate. For example, certain debt obligations might be adversely affected due to the inability to obtain coverage to restore the related real estate or other property, thereby creating the potential for increased default risk. o Changes in market interest rates can have adverse effects on the Company's investment portfolio and investment income. Increasing market interest rates have an adverse impact on the value of the investment portfolio, for example, by decreasing unrealized capital gains on fixed income securities. In addition, increases in market interest rates as compared to rates offered on some of the Company's products could make those products less attractive and lead to lower sales and/or increase the level of surrenders on these products. Declining market interest rates could have an adverse impact on the Company's investment income as the Company reinvests proceeds from positive cash flows from operations and proceeds from maturities, calls and prepayments of investments into new investments that could be yielding less than the portfolio's average rate. Changes in market interest rates as compared to rates offered on some of the Company's products could make those products less attractive if competitive investment margins are not maintained, leading to lower sales and/or changes in the level of surrenders and withdrawals on these products. o The Company amortizes deferred policy acquisition costs ("DAC") related to interest-sensitive life and investment contracts in proportion to gross profits over the estimated lives of the contract periods. Periodically, the Company updates the assumptions underlying the gross profits, which include estimated future contract charges, investment margins and expenses, in order to reflect actual and expected experience and its potential impact to the valuation of DAC. Updates to these assumptions could potentially result in adjustment to the cumulative amortization of DAC. For example, reduced estimated future gross profits resulting from declines in contract charges assessed against the Separate Accounts' balances invested in equity securities which have declined in value, could potentially result in increased amortization of DAC. An adjustment, if any, may have a material effect on results of operations ceded to ALIC. DAC and any related adjustments are ceded to ALIC. o The impact of decreasing Separate Accounts balances resulting from volatile market conditions, underlying fund performance and sales management performance could cause contract charges realized by the Company, as well as ALIC, to decrease and lead to an increase of exposure to pay guaranteed minimum income and death benefits and could result in increased statutory reserves for these benefits, reducing the Company's, as well as ALIC's statutory capital and surplus. In addition, it is possible that the assumptions and projections used by the Company in establishing prices for the guaranteed minimum death benefits and guaranteed minimum income benefits on variable annuities, particularly assumptions and projections about investment performance, do not accurately anticipate the level of costs that the Company will ultimately incur and cede to ALIC in providing those benefits, resulting in adverse mortality trends that may have a material effect on results of operations ceded to ALIC. o Conditions in the U.S. and international stock markets can have an impact on the Company's variable annuity sales. In general, sales of variable annuities increase when the stock markets are generally rising over an extended period of time and decrease when the stock markets are falling over an extended period of time. o In order to manage interest rate risk, from time to time the Company adjusts the effective duration of assets in the investment portfolio. Those adjustments may have an impact on the value of the investment portfolio and on investment income. o Management believes the reserves for life-contingent contract benefits are adequate to cover ultimate policy benefits, despite the underlying risks and uncertainties associated with their determination when payments will not occur until well into the future. Reserves are based on many assumptions and estimates, including estimated premiums received over the assumed life of the policy, the timing of the event covered by the insurance policy, the amount of contract benefits to be paid and the investment returns on the assets purchased with the premium received. The Company periodically reviews and revises its estimates. If future experience differs from assumptions, it may have a material impact on results of operations ceded to ALIC. 14 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 o Under current U.S. tax law and regulations, deferred and immediate annuities and life insurance, including interest-sensitive products, receive favorable policyholder tax treatment. Any legislative or regulatory changes that adversely alter this treatment are likely to negatively affect the demand for these products. In addition, recent changes in the federal estate tax laws will affect the demand for the types of life insurance used in estate planning. o The Company is affiliated with various entities registered under the federal securities laws as broker-dealers, investment advisers and/or investment companies. These entities are subject to the regulatory jurisdiction of the Securities and Exchange Commission, the National Association of Securities Dealers and/or, in some cases, state securities administrators. The laws regulating the securities products and activities of the Company are complex, numerous and subject to change. As with any highly regulated industry, there is some degree of risk of regulatory non-compliance; however the Company has in place various legal and compliance personnel, procedures and systems designed to reasonably assure compliance with these requirements. o The Company distributes its products under agreements with other members of the financial services industry that are not affiliated with the Company. Termination of one or more of these agreements due to, for example, changes in control of any of these entities, could have a detrimental effect on the Company's sales. This risk may be exacerbated due to the enactment of the Gramm-Leach-Bliley Act of 1999, which eliminated many federal and state law barriers to affiliations among banks, securities firms, insurers and other financial service providers. o While positive operating cash flows are expected to continue to meet the Corporation's liquidity requirements, the Corporation's liquidity could be constrained by a catastrophe which results in extraordinary losses, a downgrade of the Corporation's current long-term debt rating of A1 and A+ (from Moody's and Standard & Poor's, respectively) to non-investment grade status of below Baa3/BBB-, a downgrade in AIC's financial strength rating from Aa2, AA and A+ (from Moody's, Standard & Poor's and A.M. Best, respectively) to below Baa/BBB/B, or a downgrade in ALIC's or the Company's financial strength rating from Aa2, AA+ and A+ (from Moody's, Standard & Poor's and A.M. Best, respectively) to below Aa3/AA-/A-. In the event of a downgrade of the Corporation's ratings, ALIC and its subsidiaries could also experience a similar downgrade. o The events of September 11, 2001, and the resulting disruption in the financial markets revealed weaknesses in the physical and operational infrastructure that underlies the U.S. and worldwide financial systems. Those weaknesses did not impair the Company's liquidity in the wake of September 11, 2001. However, if an event of similar or greater magnitude occurred in the future and if the weaknesses in the physical and operational infrastructure of the U.S. and worldwide financial systems are not remedied, the Company could encounter significant difficulties in transferring funds, buying and selling securities and engaging in other financial transactions that support its liquidity. o Financial strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies and, generally, may be expected to have an effect on an insurance company's business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade or change a company's ratings due to, for example, a decline in the value of a company's investment portfolio or increased reserves due to additional minimum income or death benefit exposure resulting from market declines. A multiple level downgrade of either the Company or ALIC, while not expected, could have a material adverse effect on the Company's sales, including the competitiveness of the Company's product offerings, its ability to market products, and its financial condition and results of operations. Also, the rating agencies have a variety of policies and practices regarding the relationships among ratings of affiliated entities. As such, the ratings of the Company or ALIC could be affected by changes in ratings of AIC and/or the Corporation. o State insurance regulatory authorities require insurance companies to maintain specified levels of statutory capital and surplus. In addition, competitive pressures require the Company to maintain financial strength ratings. These restrictions affect the Company's ability to pay shareholder dividends to ALIC and use its capital in other ways. 15 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 o The Company currently has Separate Account liabilities which contain death benefit features covered by the exposure draft Statement of Position ("SOP") entitled "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". The Company does not currently hold liabilities for death benefit features covered by the SOP. If adopted, the Company's establishment of liabilities with respect to the contracts could have a material impact on the statement of operations ceded to ALIC, however the market values at the time of adoption will affect the amount of the liability required. o Following enactment of the Gramm-Leach-Bliley Act of 1999, federal legislation that allows mergers that combine commercial banks, insurers and securities firms, state insurance regulators have been collectively participating in a reexamination of the regulatory framework that currently governs the United States insurance business in an effort to determine the proper role of state insurance regulation in the U.S. financial services industry. In addition, members of Congress have introduced or discussed measures to permit optional federal chartering, and thus regulation, of some types of insurance business, such as life insurance and annuities. We cannot predict whether any state or federal measures will be adopted to change the nature or scope of the regulation of the insurance business or what affect any such measures would have on the Company. o The Gramm-Leach-Bliley Act of 1999 permits mergers that combine commercial banks, insurers and securities firms under one holding company. Until passage of the Gramm-Leach-Bliley Act, the Glass Steagall Act of 1933 had limited the ability of banks to engage in securities-related businesses and the Bank Holding Company Act of 1956 had restricted banks from being affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act, bank holding companies may acquire insurers and insurance holding companies may acquire banks. In addition, grandfathered unitary thrift holding companies, including The Allstate Corporation, may engage in activities that are not financial in nature. The ability of banks to affiliate with insurers may materially adversely affect all of the Company's product lines by substantially increasing the number, size and financial strength of potential competitors. o In some states, mutual insurance companies can convert to a hybrid structure known as a mutual holding company. This process converts insurance companies owned by their policyholders to become stock insurance companies owned (through one or more intermediate holding companies) partially by their policyholders and partially by stockholders. Also, some states permit the conversion of mutual insurance companies into stock insurance companies (demutualization). The ability of mutual insurance companies to convert to mutual holding companies or to demutualize may materially adversely affect all of our product lines by substantially increasing competition for capital in the financial services industry. o The impact of The Sarbanes-Oxley Act of 2002 on the business of the Company is being evaluated but cannot be determined at this time. 16 PART II - Other Information Item 1. Legal Proceedings The discussion "Regulation and Legal Proceedings" in Part I, Item 1, Note 5 of this Form 10-Q is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits An Exhibit Index has been filed as part of this report on page E-1. (b) Reports on Form 8-K None. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated August 13, 2002. GLENBROOK LIFE AND ANNUITY COMPANY ------------------------------------ (Registrant) By /s/SAMUEL H. PILCH ------------------ Samuel H. Pilch Group Vice President and Controller (chief accounting officer and authorized officer of registrant) 18
Exhibit Index EXHIBIT NO. DESCRIPTION 10.1 Underwriting Agreement for "Provider" Variable Annuity Contracts between Glenbrook Life and Annuity Company and ALFS, Inc. effective January 1, 1997 10.2 Underwriting Agreement for "Provider" Variable Life Insurance between Glenbrook Life and Annuity Company and ALFS, Inc. effective January 1, 1997 10.3 Reinsurance Agreement between Glenbrook Life and Annuity Company and Allstate Life Insurance Company effective June 5, 1992 as amended by Amendment No.1 effective June 8, 1995, Amendment No.2 executed December 18, 1995 and Amendment No.3 executed October 22, 1998 10.4 Reinsurance Agreement between Glenbrook Life and Annuity Company and Allstate Life Insurance Company effective September 1, 1993, as amended by Amendment No.1 executed June 8, 1995, Amendment No.2 effective January 1, 1993 and Amendment No. 3 executed October 22, 1998 E-1
EX-10 3 glacqexh10.txt AGREEMENTS Exhibit 10.1 UNDERWRITING AGREEMENT for "Provider" Variable Annuity Contracts THIS AGREEMENT, is entered into as of the effective date provided below, by and among GLENBROOK LIFE AND ANNUITY COMPANY, ("Glenbrook Life" or "Company") a life insurance company organized under the laws of the State of Illinois, on its own and on behalf of the GLENBROOK LIFE MULTI-MANAGER VARIABLE ACCOUNT ("Separate Account") a separate account established pursuant to the insurance laws of the State of Illinois, and ALLSTATE LIFE FINANCIAL SERVICES, INC., ("Principal Underwriter"), a corporation organized under the laws of the state of Delaware. RECITALS WHEREAS, Company proposes to issue to the public certain flexible premium deferred variable annuity contracts identified in the Attachment A ("Contracts"); and WHEREAS, Company, by resolution adopted on January 15, 1996, established the Separate Account for the purpose of issuing the Contracts; and WHEREAS, the Separate Account is registered with the Securities and Exchange Commission ("Commission") as a unit investment trust under the Investment Company Act of 1940 (File Nos. 333-00999, 811-07541); and WHEREAS, the Contracts to be issued by Company are registered with the Commission under the Securities Act of 1933 and the Investment Company Act of 1940 (File Nos: 333-00987 and 811-07541) for offer and sale to the public, and otherwise are in compliance with all applicable laws; and WHEREAS, Principal Underwriter, a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc. ("NASD"), proposes to act as principal underwriter on an agency (best efforts) basis in the marketing and distribution of said Contracts; and WHEREAS, Company desires to obtain the services of Principal Underwriter as an underwriter and distributor of said Contracts issued by Company through the Separate Account; NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants and conditions set forth herein, and for other good and valuable consideration, the Company, the Separate Account, and the Principal Underwriter hereby agree as follows: 1. AUTHORITY AND DUTIES (a) Principal Underwriter will serve as an underwriter and distributor on an agency basis for the Contracts which will be issued by the Company through the Separate Account. (b) Principal Underwriter will use its best efforts to provide information and marketing assistance to licensed insurance agents and broker-dealers on a continuing basis. However, Principal Underwriter shall be responsible for compliance with the requirements of state broker-dealer regulations and the Securities Exchange Act of 2 1934 as each applies to Principal Underwriter in connection with its duties as distributor of said Contracts. Moreover, Principal Underwriter shall conduct its affairs in accordance with the rules of Fair Practice of the NASD. (c) Subject to agreement with the Company, Principal Underwriter may enter into selling agreements with broker-dealers which are registered under the Securities Exchange Act of 1934 and/or authorized by applicable law or exemptions to sell variable annuity contracts issued by Company through the Separate Account. Any such contractual arrangement is expressly made subject to this Agreement, and Principal Underwriter will at all times be responsible to Company for supervision of compliance with the federal securities laws regarding distribution of Contracts. 2. WARRANTIES (a) The Company represents and warrants to Principal Underwriter that: (i) Registration Statements (on Forms S-1 and N-4) for each of the Contracts identified in Attachment A have been filed with the Commission in the form previously delivered to Principal Underwriter and that copies of any and all amendments thereto will be forwarded to Principal Underwriter at the time that they are filed with Commission; (ii) The Registration Statements and any further amendments or supplements thereto will, when they become effective, conform in all material respects to the requirements of the Securities Act of 1933 and the Investment 3 Company Act of 1940, and the rules and regulations of the Commission under such Acts, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statement or omission made in reliance upon and in conformity with information furnished in writing to Company by Principal Underwriter expressly for use therein; (iii) The Company is validly existing as a stock life insurance company in good standing under the laws of the State of Illinois, with power to own its properties and conduct its business as described in the Prospectus, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business; (iv) The Contracts to be issued by the Company and through the Separate Account and offered for sale by Principal Underwriter on behalf of the Company hereunder have been duly and validly authorized and, when issued and delivered with payment therefore as provided herein, will be duly and validly issued and will conform to the description of such Contracts contained in the Prospectuses relating thereto; (v) Those persons who offer and sell the Contracts are to be appropriately licensed or appointed to comply with the state insurance laws; 4 (vi) The performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in a violation of any of the provisions of or default under any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which Company is a party or by which Company is bound (including Company's Charter or By-laws as a stock life insurance company, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Company or any of its properties); (vii) There is no consent, approval, authorization or order of any court or governmental agency or body required for the consummation by Company of the transactions contemplated by this Agreement, except such as may be required under the Securities Exchange Act of 1934 or state insurance or securities laws in connection with the distribution of the Contracts; and (viii) There are no material legal or governmental proceedings pending to which Company or the Separate Account is a party or of which any property of Company or the Separate Account is the subject (other than as set forth in the Prospectus relating to the Contracts, or litigation incidental to the kind of business conducted by the Company) which, if determined adversely to Company, would individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of Company. (b) Principal Underwriter represents and warrants to Company that: 5 (i) It is a broker-dealer duly registered with the Commission pursuant to the Securities Exchange Act of 1934, is a member in good standing of the NASD, and is in compliance with the securities laws in those states in which it conducts business as a broker-dealer; (ii) As a principal underwriter, it shall permit the offer and sale of Contracts to the public only by and through persons who are appropriately licensed under the securities laws and who are appointed in writing by the Company to be authorized insurance agents unless such persons are exempt from licensing and appointment requirements; (iii) The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of or constitute a default under any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which Principal Underwriter is a party or by which Principal Underwriter is bound (including the Certificate of Incorporation or By-laws of Principal Underwriter or any order, rule or regulation of any court or governmental agency or body having jurisdiction over either Principal Underwriter or its property); and (iv) To the extent that any statements made in the Registration Statements, or any amendments or supplements thereto, are made in reliance upon and in conformity with written information furnished to Company by Principal Underwriter expressly for use therein, such statements will, when they 6 become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Securities Act of 1933 and the rules and regulations of the Commission thereunder, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 3. BOOKS AND RECORDS (a) Principal Underwriter shall keep, in a manner and form approved by Company and in accordance with Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, correct records and books of account as required to be maintained by a registered broker-dealer, acting as principal underwriter, of all transactions entered into on behalf of Company with respect to its activities under this Agreement. Principal Underwriter shall make such records and books of account available for inspection by the Commission, and Company shall have the right to inspect, make copies of or take possession of such records and books of account at any time upon demand. (b) Subject to applicable Commission or NASD restrictions, Company will send confirmations of Contract transactions to Contract Owners. Company will make such confirmations and records of transactions available to Principal Underwriter upon request. Company will also maintain Contract Owner records on behalf of Principal Underwriter to the extent permitted by applicable securities laws. 7 4. SALES MATERIALS (a) After authorization to commence the activities contemplated herein, Principal Underwriter will utilize the currently effective prospectus relating to the subject Contracts in connection with its underwriting, marketing and distribution efforts. As to other types of sales material, Principal Underwriter hereby agrees and will require any participating or selling broker-dealers to agree that they will use only sales materials which have been authorized for use by Company, which conform to the requirements of federal and state laws and regulations, and which have been filed where necessary with the appropriate regulatory authorities, including the NASD. (b) Principal Underwriter will not distribute any prospectus, sales literature or any other printed matter or material in the underwriting and distribution of any Contract if, to the knowledge of Principal Underwriter, any of the foregoing misstates the duties, obligation or liabilities of Company or Principal Underwriter. 5. COMPENSATION (a) Company agrees to pay Principal Underwriter for direct expenses incurred on behalf of Company. Such direct expenses shall include, but not be limited to, the costs of goods and services purchased from outside vendors, travel expenses and state and federal regulatory fees incurred on behalf of Company. 8 (b) Principal Underwriter shall present a statement after the end of the quarter showing the apportionment of services rendered and the direct expenses incurred. Settlements are due and payable within thirty days. 6. PURCHASE PAYMENTS Principal Underwriter shall arrange that all purchase payments collected on the sale of the Contracts are promptly and properly transmitted to Company for immediate allocation to the Separate Account in accordance with the procedures of Company and the directions furnished by the purchasers of such Contracts at the time of purchase. 7. UNDERWRITING TERMS (a) Principal Underwriter makes no representations or warranties regarding the number of Contracts to be sold by licensed broker-dealers and registered representatives of broker-dealers or the amount to be paid thereunder. Principal Underwriter does, however, represent that it will actively engage in its duties under this Agreement on a continuous basis while there are effective registration statements with the Commission. (b) Principal Underwriter will use its best efforts to ensure that the Contracts shall be offered for sale by registered broker-dealers and registered representatives (who are duly licensed as insurance agents) on the terms described in the currently effective prospectus describing such Contracts. 9 (c) It is understood and agreed that Principal Underwriter may render similar services to other companies in the distribution of other variable contracts. (d) The Company will use its best efforts to assure that the Contracts are continuously registered under the Securities Act of 1933 (and under any applicable state "blue sky" laws) and to file for approval under state insurance laws when necessary. (e) The Company reserves the right at any time to suspend or limit the public offering of the subject Contracts upon one day's written notice to Principal Underwriter. 8. LEGAL AND REGULATORY ACTIONS (a) The Company agrees to advise Principal Underwriter immediately of: (i) any request by the Commission for amendment of the Registration Statement or for additional information relating to the Contracts; (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement relating to the Contracts or the initiation of any proceedings for that purpose; and (iii) the happening of any known material event which makes untrue any statement made in the Registration Statement relating to the Contracts or which requires the making of a change therein in order to make any statement made therein not misleading. 10 (b) Each of the undersigned parties agrees to notify the other in writing upon being apprised of the institution of any proceeding, investigation or hearing involving the offer or sale of the subject Contracts. (c) During any legal action or inquiry, Company will furnish to Principal Underwriter such information with respect to the Separate Account and Contracts in such form and signed by such of its officers as Principal Underwriter may reasonably request and will warrant that the statements therein contained when so signed are true and correct. 9. TERMINATION (a) This Agreement will terminate automatically upon its assignment. (b) This Agreement shall terminate without the payment of any penalty by either party upon sixty (60) days' advance written notice. (c) This Agreement shall terminate at the option of the Company upon institution of formal proceedings against Principal Underwriter by the NASD or by the Commission, or if Principal Underwriter or any representative thereof at any time: (i) employs any device, scheme, artifice, statement or omission to defraud any person; 11 (ii) fails to account and pay over promptly to the Company money due it according to the Company's records; or (iii) violates the conditions of this Agreement. 10. INDEMNIFICATION The Company agrees to indemnify Principal Underwriter for any liability that it may incur to a Contract owner or party-in-interest under a Contract: (a) arising out of any act or omission in the course of or in connection with rendering services under this Agreement; or (b) arising out of the purchase, retention or surrender of a contract; provided, however, that the Company will not indemnify Principal Underwriter for any such liability that results from the willful misfeasance, bad faith or gross negligence of Principal Underwriter or from the reckless disregard by such Principal Underwriter of its duties and obligations arising under this Agreement. 11. GENERAL PROVISIONS (a) This Agreement shall be subject to the laws of the State of Illinois. 12 (b) This Agreement, along with any Schedules attached hereto and incorporated herein by reference, may be amended from time to time by the mutual agreement and consent of the undersigned parties. (c) In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in way be affected or impaired thereby. IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed, to be effective as of January 1, 1997. GLENBROOK LIFE AND ANNUITY COMPANY (and GLENBROOK LIFE MULTI-MANAGER VARIABLE ACCOUNT) BY: /s/ Craig G. Whitehead 5/23/97 ------------------------- -------------------------------- Sr. Vice President Date (Ratified for above) ALLSTATE LIFE FINANCIAL SERVICES, INC. BY: /s/ Robert Kelly 5/29/97 ------------------------- -------------------------------- President Date (Ratified for above) 13 Attachment A UNDERWRITING AGREEMENT "Contracts" Form # - ----------- ------ GROUP MASTER POLICY GLAU 228 INDIVIDUAL CONTRACT GLAU 178, 229 14 Exhibit 10.2 UNDERWRITING AGREEMENT for "Provider" Variable Life Insurance THIS AGREEMENT, is entered into as of the effective date provided below, by and among GLENBROOK LIFE AND ANNUITY COMPANY, ("Glenbrook Life" or "Company") a life insurance company organized under the laws of the State of Illinois, on its own and on behalf of the GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A, Separate Account") a separate account established pursuant to the insurance laws of the State of Illinois, and ALLSTATE LIFE FINANCIAL SERVICES, INC., ("Principal Underwriter"), a corporation organized under the laws of the state of Delaware. RECITALS WHEREAS, Company proposes to issue to the public certain modified single premium variable life contracts identified in the Attachment A ("Contracts"); and WHEREAS, Company, by resolution adopted on January 15, 1996, established the Separate Account for the purpose of issuing the Contracts; and WHEREAS, the Separate Account is registered with the Securities and Exchange Commission ("Commission") as a unit investment trust under the Investment Company Act of 1940 (File No. 811-07825); and WHEREAS, the Contracts to be issued by Company are registered with the Commission under the Securities Act of 1933 and the Investment Company Act of 1940 (File No: 333-02851) for offer and sale to the public, and otherwise are in compliance with all applicable laws; and WHEREAS, Principal Underwriter, a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc. ("NASD"), proposes to act as principal underwriter on an agency (best efforts) basis in the marketing and distribution of said Contracts; and WHEREAS, Company desires to obtain the services of Principal Underwriter as an underwriter and distributor of said Contracts issued by Company through the Separate Account; NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants and conditions set forth herein, and for other good and valuable consideration, the Company, the Separate Account, and the Principal Underwriter hereby agree as follows: 1. AUTHORITY AND DUTIES (a) Principal Underwriter will serve as an underwriter and distributor on an agency basis for the Contracts which will be issued by the Company through the Separate Account. (b) Principal Underwriter will use its best efforts to provide information and marketing assistance to licensed insurance agents and broker-dealers on a continuing basis. However, Principal Underwriter shall be responsible for compliance with the requirements of state broker-dealer regulations and the Securities Exchange Act of 1934 as each applies to Principal Underwriter in connection with its duties as distributor of said Contracts. Moreover, Principal Underwriter shall conduct its affairs in accordance with the rules of Fair Practice of the NASD. 2 (c) Subject to agreement with the Company, Principal Underwriter may enter into selling agreements with broker-dealers which are registered under the Securities Exchange Act of 1934 and/or authorized by applicable law or exemptions to sell variable annuity contracts issued by Company through the Separate Account. Any such contractual arrangement is expressly made subject to this Agreement, and Principal Underwriter will at all times be responsible to Company for supervision of compliance with the federal securities laws regarding distribution of Contracts. 2. WARRANTIES (a) The Company represents and warrants to Principal Underwriter that: (i) Registration Statements (on Forms S 6 and N-8B2 for each of the Contracts identified in Attachment A have been filed with the Commission in the form previously delivered to Principal Underwriter and that copies of any and all amendments thereto will be forwarded to Principal Underwriter at the time that they are filed with Commission; (ii) The Registration Statements and any further amendments or supplements thereto will, when they become effective, conform in all material respects to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, and the rules and regulations of the Commission under such Acts, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, 3 however, that this representation and warranty shall not apply to any statement or omission made in reliance upon and in conformity with information furnished in writing to Company by Principal Underwriter expressly for use therein; (iii) The Company is validly existing as a stock life insurance company in good standing under the laws of the State of Illinois, with power to own its properties and conduct its business as described in the Prospectus, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business; (iv) The Contracts to be issued by the Company and through the Separate Account and offered for sale by Principal Underwriter on behalf of the Company hereunder have been duly and validly authorized and, when issued and delivered with payment therefore as provided herein, will be duly and validly issued and will conform to the description of such Contracts contained in the Prospectuses relating thereto; (v) Those persons who offer and sell the Contracts are to be appropriately licensed or appointed to comply with the state insurance laws; (vi) The performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in a violation of any of the provisions of or default under any statute, indenture, 4 mortgage, deed of trust, note agreement or other agreement or instrument to which Company is a party or by which Company is bound (including Company's Charter or By-laws as a stock life insurance company, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Company or any of its properties); (vii) There is no consent, approval, authorization or order of any court or governmental agency or body required for the consummation by Company of the transactions contemplated by this Agreement, except such as may be required under the Securities Exchange Act of 1934 or state insurance or securities laws in connection with the distribution of the Contracts; and (viii) There are no material legal or governmental proceedings pending to which Company or the Separate Account is a party or of which any property of Company or the Separate Account is the subject (other than as set forth in the Prospectus relating to the Contracts, or litigation incidental to the kind of business conducted by the Company) which, if determined adversely to Company, would individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of Company. (b) Principal Underwriter represents and warrants to Company that: (i) It is a broker-dealer duly registered with the Commission pursuant to the Securities Exchange Act of 1934, is a member in good standing of the 5 NASD, and is in compliance with the securities laws in those states in which it conducts business as a broker-dealer; (ii) As a principal underwriter, it shall permit the offer and sale of Contracts to the public only by and through persons who are appropriately licensed under the securities laws and who are appointed in writing by the Company to be authorized insurance agents unless such persons are exempt from licensing and appointment requirements; (iii) The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of or constitute a default under any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which Principal Underwriter is a party or by which Principal Underwriter is bound (including the Certificate of Incorporation or By-laws of Principal Underwriter or any order, rule or regulation of any court or governmental agency or body having jurisdiction over either Principal Underwriter or its property); and (iv) To the extent that any statements made in the Registration Statements, or any amendments or supplements thereto, are made in reliance upon and in conformity with written information furnished to Company by Principal Underwriter expressly for use therein, such statements will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Securities Act 6 of 1933 and the rules and regulations of the Commission thereunder, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 3. BOOKS AND RECORDS (a) Principal Underwriter shall keep, in a manner and form approved by Company and in accordance with Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, correct records and books of account as required to be maintained by a registered broker-dealer, acting as principal underwriter, of all transactions entered into on behalf of Company with respect to its activities under this Agreement. Principal Underwriter shall make such records and books of account available for inspection by the Commission, and Company shall have the right to inspect, make copies of or take possession of such records and books of account at any time upon demand. (b) Subject to applicable Commission or NASD restrictions, Company will send confirmations of Contract transactions to Contract Owners. Company will make such confirmations and records of transactions available to Principal Underwriter upon request. Company will also maintain Contract Owner records on behalf of Principal Underwriter to the extent permitted by applicable securities laws. 7 4. SALES MATERIALS (a) After authorization to commence the activities contemplated herein, Principal Underwriter will utilize the currently effective prospectus relating to the subject Contracts in connection with its underwriting, marketing and distribution efforts. As to other types of sales material, Principal Underwriter hereby agrees and will require any participating or selling broker-dealers to agree that they will use only sales materials which have been authorized for use by Company, which conform to the requirements of federal and state laws and regulations, and which have been filed where necessary with the appropriate regulatory authorities, including the NASD. (b) Principal Underwriter will not distribute any prospectus, sales literature or any other printed matter or material in the underwriting and distribution of any Contract if, to the knowledge of Principal Underwriter, any of the foregoing misstates the duties, obligation or liabilities of Company or Principal Underwriter. 5. COMPENSATION (a) Company agrees to pay Principal Underwriter for direct expenses incurred on behalf of Company. Such direct expenses shall include, but not be limited to, the costs of goods and services purchased from outside vendors, travel expenses and state and federal regulatory fees incurred on behalf of Company. 8 (b) Principal Underwriter shall present a statement after the end of the quarter showing the apportionment of services rendered and the direct expenses incurred. Settlements are due and payable within thirty days. 6. PURCHASE PAYMENTS Principal Underwriter shall arrange that all purchase payments collected on the sale of the Contracts are promptly and properly transmitted to Company for immediate allocation to the Separate Account in accordance with the procedures of Company and the directions furnished by the purchasers of such Contracts at the time of purchase. 7. UNDERWRITING TERMS (a) Principal Underwriter makes no representations or warranties regarding the number of Contracts to be sold by licensed broker-dealers and registered representatives of broker-dealers or the amount to be paid thereunder. Principal Underwriter does, however, represent that it will actively engage in its duties under this Agreement on a continuous basis while there are effective registration statements with the Commission. (b) Principal Underwriter will use its best efforts to ensure that the Contracts shall be offered for sale by registered broker-dealers and registered representatives (who are duly licensed as insurance agents) on the terms described in the currently effective prospectus describing such Contracts. 9 (c) It is understood and agreed that Principal Underwriter may render similar services to other companies in the distribution of other variable contracts. (d) The Company will use its best efforts to assure that the Contracts are continuously registered under the Securities Act of 1933 (and under any applicable state "blue sky" laws) and to file for approval under state insurance laws when necessary. (e) The Company reserves the right at any time to suspend or limit the public offering of the subject Contracts upon one day's written notice to Principal Underwriter. 8. LEGAL AND REGULATORY ACTIONS (a) The Company agrees to advise Principal Underwriter immediately of: (i) any request by the Commission for amendment of the Registration Statement or for additional information relating to the Contracts; (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement relating to the Contracts or the initiation of any proceedings for that purpose; and (iii) the happening of any known material event which makes untrue any statement made in the Registration Statement relating to the Contracts or which requires the making of a change therein in order to make any statement made therein not misleading. 10 (b) Each of the undersigned parties agrees to notify the other in writing upon being apprised of the institution of any proceeding, investigation or hearing involving the offer or sale of the subject Contracts. (c) During any legal action or inquiry, Company will furnish to Principal Underwriter such information with respect to the Separate Account and Contracts in such form and signed by such of its officers as Principal Underwriter may reasonably request and will warrant that the statements therein contained when so signed are true and correct. 9. TERMINATION (a) This Agreement will terminate automatically upon its assignment. (b) This Agreement shall terminate without the payment of any penalty by either party upon sixty (60) days' advance written notice. (c) This Agreement shall terminate at the option of the Company upon institution of formal proceedings against Principal Underwriter by the NASD or by the Commission, or if Principal Underwriter or any representative thereof at any time: (i) employs any device, scheme, artifice, statement or omission to defraud any person; 11 (ii) fails to account and pay over promptly to the Company money due it according to the Company's records; or (iii) violates the conditions of this Agreement. 10. INDEMNIFICATION The Company agrees to indemnify Principal Underwriter for any liability that it may incur to a Contract owner or party-in-interest under a Contract: (a) arising out of any act or omission in the course of or in connection with rendering services under this Agreement; or (b) arising out of the purchase, retention or surrender of a contract; provided, however, that the Company will not indemnify Principal Underwriter for any such liability that results from the willful misfeasance, bad faith or gross negligence of Principal Underwriter or from the reckless disregard by such Principal Underwriter of its duties and obligations arising under this Agreement. 11. GENERAL PROVISIONS (a) This Agreement shall be subject to the laws of the State of Illinois. 12 (b) This Agreement, along with any Schedules attached hereto and incorporated herein by reference, may be amended from time to time by the mutual agreement and consent of the undersigned parties. (c) In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in way be affected or impaired thereby. IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed, to be effective as of January 1, 1997. GLENBROOK LIFE AND ANNUITY COMPANY (and GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A) BY: /s/ Craig G. Whitehead 5/23/97 -------------------------- ------------------------------- Sr. Vice President Date (ratified for above) ALLSTATE LIFE FINANCIAL SERVICES, INC. BY: /s/ Robert Kelly 5/29/97 -------------------------- ------------------------------- President Date (ratified for above) 13 Attachment A UNDERWRITING AGREEMENT
"CONTRACTS" FORM # - ----------- ------ SINGLE LIFE MASTER POLICY KLU205 SINGLE LIFE CONTRACT KLU97 JOINT AND SURVIVOR MASTER POLICY KLU207 JOINT AND SURVIVOR CONTRACT KLU98
14 Exhibit 10.3 REINSURANCE AGREEMENT BETWEEN THE GLENBROOK LIFE AND ANNUITY COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "ALLSTATE") ARTICLE I BASIS OF REINSURANCE 1. One-hundred percent (100%) of the net benefits (defined in Article II, Paragraph 1), under all eligible policies (defined in Schedule A) of GLENBROOK, will be reinsured with ALLSTATE. 2. The reinsurance will be ceded to ALLSTATE on an automatic coinsurance basis. 3. In no event will reinsurance on an application or a policy under this Agreement be in force unless the corresponding application or policy issued by GLENBROOK, or the reinsurance accepted by GLENBROOK, as the case may be, is in force. ARTICLE II REINSURANCE BENEFITS 1. Net benefits are defined as follows: (a) For an application received, or a policy issued directly by GLENBROOK and reinsured under this Agreement, net benefits are the actual amounts payable by GLENBROOK to the policyholder, less any amounts payable to GLENBROOK by another reinsurer with respect to the policy. These payments include, but are not limited to, death benefits, endowment benefits, annuity benefits, disability benefits, benefits under accident and health policies, surrender benefits, and payments on supplemental contracts with and without life contingencies. (b) For policies reinsured by GLENBROOK and retroceded under this Agreement, net benefits are the actual amounts payable by GLENBROOK to the ceding company with respect to the policy reinsured by GLENBROOK. These payments will include commissions and expense allowances on reinsurance accepted. 2. With respect to applications received, or policies issued directly or reinsured by GLENBROOK, after the Effective Date of this Agreement, ALLSTATE's liability for net benefits will begin simultaneously with that of GLENBROOK and will include any liability GLENBROOK may incur as a result of a Temporary Insurance Agreement or Conditional Receipt issued in conjunction with a policy subject to this Agreement. 3. ALLSTATE's liability under this Agreement will continue as long as GLENBROOK remains liable on the underlying coverage, and will terminate simultaneously with GLENBROOK's termination of liability. ARTICLE III SETTLEMENTS 1. While this Agreement is in effect, GLENBROOK shall pay to ALLSTATE, no less frequently than weekly, with respect to policies reinsured under this Agreement, a reinsurance premium equal to (or the accounting equivalent of) the sum of Items (a), (b) and (c) below, less the sum of Items (d) and (e) below, as applicable for the period since the date of GLENBROOK's last payment to ALLSTATE. (a) Gross premiums (direct and reinsurance assumed) collected by GLENBROOK. (b) Reserves transferred from a GLENBROOK Separate Account to the GLENBROOK General Account. (c) Policy loan repayments, including interest, collected by GLENBROOK. (d) Gross premiums refunded by GLENBROOK to policyholders. 2 (e) Reserves transferred from the GLENBROOK General Account to the GLENBROOK Separate Account. 2. While this Agreement is in effect, ALLSTATE shall pay to GLENBROOK, no less frequently than weekly, a benefit and expense allowance equal to (or the accounting equivalent of) the sum of Items (a), (b), (c), (d) and (e) below, with respect to the policies reinsured under this Agreement, as applicable for the period since the date of ALLSTATE's last payment to GLENBROOK. (a) Net benefits (as defined in Article II) paid by GLENBROOK. (b) Commissions and other sales compensation paid by GLENBROOK. (c) General insurance expenses paid by GLENBROOK. (d) Insurance taxes, licenses and fees (excluding Federal Income Tax) paid by GLENBROOK. (e) Policy loan distributions to policyholders paid by GLENBROOK. ARTICLE IV OVERSIGHTS ALLSTATE shall be bound as GLENBROOK is bound, and it is expressly understood and agreed that if failure to reinsure or failure to comply with any terms of this Agreement is shown to be unintentional and the result of misunderstanding or oversight on the part of either GLENBROOK or ALLSTATE, both GLENBROOK and ALLSTATE shall be restored to the positions they would have occupied had no such error or oversight occurred. ARTICLE V POLICY CHANGES If any change is made in coverage reinsured under this Agreement, GLENBROOK shall notify ALLSTATE. 3 ARTICLE VI RECAPTURE 1. If a Policy reinsured under this Agreement becomes ineligible for reinsurance (as specified in Schedule A), the policy will be immediately recaptured by GLENBROOK. 2. GLENBROOK shall notify ALLSTATE of any such recapture. 3. Within ninety (90) days after receiving notice of recapture under paragraph 1 of this Article VI, ALLSTATE shall pay to GLENBROOK an amount equal to the net reserves attributable to the recaptured policy. Such reserves will be calculated as mutually agreed upon by GLENBROOK and ALLSTATE. 4. Within ninety (90) days following the recapture by GLENBROOK of any business ceded to another reinsurer, GLENBROOK shall pay to ALLSTATE an amount equal to the net reserves attributable to the recaptured business. Such reserves will be calculated as mutually agreed upon by GLENBROOK and ALLSTATE. ARTICLE VII INSPECTION OF RECORDS GLENBROOK and ALLSTATE shall have the right, at any reasonable time, to examine at the office of the other, any books, documents, reports or records which pertain in any way to the policies reinsured under this Agreement. ARTICLE VIII INSOLVENCY 1. In the event of the insolvency of GLENBROOK, reinsurance under this Agreement is payable by ALLSTATE on the basis of its liability hereunder without diminution because of the insolvency of GLENBROOK. 4 2. Further, in the event of the insolvency of GLENBROOK, the liquidator, receiver or statutory successor of the insolvent GLENBROOK shall give written notice to ALLSTATE of the pendency of an obligation of the insolvent GLENBROOK on any policy reinsured, whereupon ALLSTATE may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to GLENBROOK or its liquidator or statutory successor. The expense thus incurred by ALLSTATE shall be chargeable, subject to court approval, against the insolvent GLENBROOK as part of the expenses of liquidation to the extent of a proportionate share of the benefit which may accrue to GLENBROOK solely as a result of the defense undertaken by ALLSTATE. 3. All monies due GLENBROOK or ALLSTATE under this Agreement shall be offset against each other, dollar for dollar, regardless of the insolvency of either party. ARTICLE IX ARBITRATION Any dispute arising with respect to this Agreement which is not settled by mutual agreement of the parties shall be referred to arbitration. Within twenty (20) days from receipt of written notice from one party that an arbitrator has been appointed, the other party will also name an arbitrator. The two arbitrators will choose a third arbitrator and will forthwith notify the contracting parties of such choice. Each arbitrator must be a present or former officer of a life insurance company and must have no present or past affiliation with this Agreement or with either party. The arbitrators will consider this Agreement as an honorable engagement rather than merely as a legal obligation, and will be relieved of all judicial formalities. The decision of the arbitrators will be final and binding upon the parties hereto. Each party shall bear the expenses of its own arbitrator and shall jointly and equally bear the expenses of the third arbitrator and of the arbitration. Any such arbitration will take place at the Home Office of GLENBROOK, unless some other location is mutually agreed upon. ARTICLE X PARTIES TO AGREEMENT This Agreement is solely between GLENBROOK and ALLSTATE. The acceptance of reinsurance hereunder does not create any right or legal relation whatever between ALLSTATE and any party in interest under any policy reinsured hereunder. 5 GLENBROOK shall be and remain solely liable to any insured, contract owner, or beneficiary under any policy reinsured hereunder. ARTICLE XI DURATION OF AGREEMENT This Agreement is effective as of June 5, 1992, and is unlimited as to its duration; provided, however, it may be terminated with respect to the reinsurance of new business by either party giving sixty (60) days prior written notice of termination to the other party. IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly executed in duplicate by their respective officers on the date shown below. GLENBROOK LIFE AND ANNUITY COMPANY, of Northbrook, Illinois By /s/ Craig G. Whitehead ---------------------------- Title Assistant Vice President ------------------------- Date June 5, 1992 -------------------------- ALLSTATE LIFE INSURANCE COMPANY, of Northbrook, Illinois By /s/ James D. Clements ---------------------------- Title Assistant Vice President ------------------------- Date June 5, 1992 -------------------------- 6 REINSURANCE AGREEMENT BETWEEN GLENBROOK LIFE AND AUNNITY COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS (HEREAFTER "ALLSTATE") SCHEDULE A COVERAGES ELIGIBLE FOR REINSURANCE HEREUNDER The coverages eligible for reinsurance hereunder are: 1. All those policies issued by, or applications for policies submitted to, GLENBROOK on and after the Effective Date of this Agreement, but only to the extent that the liability of GLENBROOK therefor is funded out of assets allocable to its General Account, and 2. All reinsurance accepted by GLENBROOK on and after the Effective Date of this Agreement. 7 AMENDMENT # 1 TO THE REINSURANCE AGREEMENT BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "ALLSTATE") WHEREAS, Glenbrook and Allstate entered into a Coinsurance Agreement (hereinafter "Agreement") having an effective date of June 5, 1992; and, WHEREAS, the California Insurance Department has determined that various changes to the Agreement are required under California insurance law; and, WHEREAS, Glenbrook and Allstate desire to amend the Agreement with respect to coverage issued to California residents to meet the California requirements; NOW THEREFORE, the Agreement is hereby amended with respect to California residents, as follows; 1.) Article VIII, "INSOLVENCY", is hereby amended by deleting said Article in its entirety, and replacing it with the following new Article VIII. ARTICLE VIII INSOLVENCY 1. The portion of any risk or obligation assumed by Allstate, when such portion is ascertained, shall be payable on demand of Glenbrook at the same time as Glenbrook shall pay its net retained portion of such risk or obligation, and the reinsurance shall be payable by Allstate on the basis of the liability of Glenbrook under the contract or contracts reinsured under this Agreement without diminution because of the insolvency of Glenbrook. In the event of insolvency and the appointment of a conservator, liquidator or statutory successor of Glenbrook, such portion shall be payable to such conservator, liquidator or statutory successor immediately upon demand, on the basis of claims allowed against Glenbrook by any court of competent jurisdiction or, by any conservator, liquidator, or statutory successor of Glenbrook having authority to allow such claims, without diminution because of such insolvency or because such conservator, liquidator or statutory successor has failed to pay all or a portion of any claims. Payments by Allstate as above set forth shall be made directly to Glenbrook or its conservator, liquidator or statutory successor. 2. Further, in the event of the insolvency of Glenbrook, the liquidator, receiver or statutory successor of the insolvent Glenbrook shall give written notice to Allstate of the pendency of an obligation of the insolvent Glenbrook on any policy reinsured, whereupon Allstate may investigate such claim and interpose at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to Glenbrook or its liquidator or statutory successor. The expense thus incurred by Allstate shall be chargeable, subject to court approval, against the insolvent Glenbrook as part of the expenses of liquidation to the extent of a proportionate share of the benefit which may accrue to Glenbrook solely as a result of the defense undertaken by Allstate. 2.) Article IX, ARBITRATION, shall be amended to include the following language at the end of that article: The decision of the Arbitrators shall be handed down within 45 days of the date on which the arbitration is concluded. 3.) The second paragraph of Article X, PARTIES TO THE AGREEMENT, shall be deleted in its entirety and shall be replaced with the following language: This Agreement shall be effective as of June 5, 1992, and will be unlimited as to its duration; provided, however, it may be terminated with respect to the reinsurance of new business by either party giving the other party ninety (90) days prior written notice of termination to the other party. 4.) In addition, a new Article XII is added to the Agreement, as follows: ARTICLE XII OFFSET All monies due Glenbrook or Allstate under this Agreement shall be offset against each other dollar for dollar. 5.) Finally, a new Article XIII is added to the Agreement, as follows: ARTICLE XIII ENTIRE AGREEMENT This Agreement constitutes the entire contract between ALLSTATE and GLENBROOK. No variation, modification or changes to this Agreement shall binding unless in writing and signed by an officer of each party. This Amendment shall be effective on June 8, 1995. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. GLENBROOK LIFE AND ANNUITY COMPANY ALLSTATE LIFE INSURANCE COMPANY By: /s/ Maria G. Friedman By: /s/ Michael J. Velotta --------------------- ---------------------------- Title: Vice President Title: VP, Secy & Gen Counsel ------------------ ------------------------ Date: June 8, 1995 Date: June 8, 1995 --------------------- ---------------------------- AMENDMENT NUMBER 2 TO THE REINSURANCE AGREEMENT EFFECTIVE JUNE 5, 1992 BETWEEN [GLENBROOK LIFE AND ANNUITY COMPANY] (HEREINAFTER CALLED "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY (HEREINAFTER CALLED "ALLSTATE") IT IS HEREBY AGREED, that the Reinsurance Agreement effective June 5, 1992 between GLENBROOK and ALLSTATE (hereinafter "Agreement"), is amended as provided below. 1. Effective January 1, 1995, Article III is hereby amended by adding the following new paragraph: ALLSTATE shall pay to GLENBROOK, no less frequently than annually, any taxes incurred by GLENBROOK as a result of Section 848 of the Internal Revenue Code which concerns capitalization of policy acquisition costs. 2. Effective January 1, 1993, Article III is hereby amended by adding the following new paragraph: ALLSTATE and GLENBROOK agree to an election under Treasury Regulations 1-848-2(g)(8), as follows: (a) For each taxable year under this Agreement, the party with net positive consideration, as defined in the regulations promulgated under Treasury Code Section 848, will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1); (b) GLENBROOK and ALLSTATE agree to exchange information pertaining to the amount of net consideration for all reinsurance agreements in force between them to ensure consistency for purposes of computing specified policy acquisition expenses. GLENBROOK and ALLSTATE shall agree on the amount of such net consideration for each taxable year no later than the May 1 following the end of such year. (c) This election shall be effective for 1993 and for all subsequent taxable years for which this Agreement remains in effect. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. Page 1 of 2 Glenbrook Life and Annuity Company By /s/ Sarah R. Donahue --------------------- Title Vice President --------------------- Date 12/18/95 --------------------- Allstate Life Insurance Company By /s/ C. Nelson Strom --------------------- Title AVP --------------------- Date 11/3/95 --------------------- Page 2 of 2 AMENDMENT NUMBER 3 TO THE REINSURANCE AGREEMENT EFFECTIVE JUNE 5, 1992 BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY (HEREINAFTER CALLED "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY (HEREINAFTER CALLED "ALLSTATE") WHEREAS, GLENBROOK and ALLSTATE entered into a Reinsurance Agreement effective June 5, 1992 (hereinafter "Agreement"); and WHEREAS, the parties now believe that the Agreement does not accurately reflect their existing practices relating to settlements for certain tax benefits and liabilities; and WHEREAS, the parties desire to amend the Agreement to reflect the existing practices with respect to such tax settlements; NOW, THEREFORE, IT IS HEREBY AGREED, that the Agreement is amended as provided below. 1.) Article III, paragraph 2, is amended by replacing subparagraph (d) with a new subparagraph (d), as follows: (d) Insurance taxes, licenses and fees (excluding Federal Income Tax that is not related to the contracts reinsured under this Agreement), incurred by GLENBROOK with respect to the contracts reinsured under this Agreement. Page 1 of 2 2.) Article III is further amended by adding a new paragraph 3, as follows: 3. No less frequently than quarterly, ALLSTATE will calculate the amount of federal and state income tax liabilities incurred by GLENBROOK for the quarter related to the contracts reinsured under this Agreement, and the amount of federal and state income tax benefits earned by GLENBROOK for the quarter related to the contracts reinsured under this Agreement. If tax liabilities exceed tax benefits, the difference, plus a gross-up for additional federal and state income taxes, will be paid by ALLSTATE to GLENBROOK. If tax benefits exceed tax liabilities, the difference, plus a gross-up for additional federal and state income taxes, will be paid by GLENBROOK to ALLSTATE. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. Glenbrook Life and Annuity Company By /s/ Sarah R. Donahue ---------------------------- Title Assistant Vice President ---------------------------- Date October 22, 1998 ---------------------------- Allstate Life Insurance Company By /s/ C. Nelson Strom ---------------------------- Title AVP ---------------------------- Date 10/22/98 ---------------------------- Page 2 of 2 Exhibit 10.4 REINSURANCE AGREEMENT BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "ALLSTATE") ARTICLE I BASIS OF REINSURANCE 1. ALLSTATE will indemnify and GLENBROOK will automatically reinsure with ALLSTATE, according to the terms and conditions hereof, the net liability for applications received and contracts issued subsequent to the Effective Date by GLENBROOK on the contracts listed in Schedule A. 2. The indemnity reinsurance provided hereunder shall be on a modified coinsurance basis. GLENBROOK shall retain, maintain, and own all assets held in relation to the Reserve, as defined in Article II of this Agreement. 3. In no event will reinsurance on an application or a policy under this Agreement be in force unless the corresponding application is pending with GLENBROOK or policy issued by GLENBROOK, or the reinsurance accepted by GLENBROOK, as the case may be, is in force. ARTICLE II LIABILITY OF ALLSTATE 1. The liability of ALLSTATE with respect to any contract reinsured hereunder will begin simultaneously with that of GLENBROOK. ALLSTATE'S liability with respect to any contract reinsured hereunder will terminate on the date GLENBROOK'S liability on such contract terminates or the date this Agreement is terminated, whichever is earlier. However, termination of this Agreement will not terminate ALLSTATE'S liability for benefit payments incurred prior to the date of termination. 2. For the purpose of this Agreement, the term "Reserve" will be the "Total Liabilities" of GLENBROOK'S Variable Annuity Separate Accounts (corresponding to amounts shown on page 3, line 17 of 1992 Separate Accounts Statutory Statements). ARTICLE III MONTHLY SETTLEMENTS 1. While this Agreement is in effect, GLENBROOK shall pay to ALLSTATE on a daily basis, with respect to eligible policies under this Agreement, a reinsurance premium equal to the sum of Items (a) and (b) below, less the sum of Items (c) and (d) below. (a) Gross premiums (direct and reinsurance assumed) collected by GLENBROOK. (b) Reserves transferred from the GLENBROOK General Account to a GLENBROOK Separate Account. (c) Gross premiums refunded by GLENBROOK to policyholders. (d) Reserves transferred from a GLENBROOK Separate Account to the GLENBROOK General Account. 2. While this Agreement is in effect, ALLSTATE shall pay to GLENBROOK on a daily basis a benefit and expense allowance equal to the sum of Items (a), (b), (c), and (d) below. (a) Net benefits (as defined in Paragraph 3 of this Article III) paid by GLENBROOK with respect to the contracts reinsured under this Agreement. (b) Commissions and other sales compensation incurred by GLENBROOK with respect to the contracts reinsured under this Agreement. (c) General insurance expenses incurred by GLENBROOK with respect to the contracts reinsured under this Agreement. (d) Insurance taxes, licenses and fees (excluding Federal Income Tax) incurred by GLENBROOK with respect to the contracts reinsured under this Agreement. 3. Net Benefits are defined as follows: (a) For a contract issued directly by GLENBROOK and reinsured under this Agreement, net benefits are the actual amounts payable by GLENBROOK to the 2 contractholder, less any amounts payable to GLENBROOK by another reinsurer with respect to the contract. These payments include death benefits, endowment benefits, annuity benefits, disability benefits, benefits under A & H policies, withdrawals, surrender benefits and payments on supplementary contracts with and without life contingencies. (b) For contracts reinsured by GLENBROOK and retroceded under this Agreement, net benefits and commission and expense allowances are the actual amounts payable by GLENBROOK to the ceding company with respect to the contract reinsured by GLENBROOK. 4. Allstate shall pay to GLENBROOK, no less frequently than annually, any taxes incurred by GLENBROOK as a result of Section 848 of the Internal Revenue Code which concerns capitalization of policy acquisition costs. ARTICLE IV DAILY RESERVE ADJUSTMENTS While this Agreement is in effect, on a daily basis a reserve adjustment equal to the amount defined below shall be paid. Let: RC = The Reserve change in GLENBROOK'S Variable Annuity Separate Accounts from the end of the prior accounting period to the end of the current accounting period for the reinsured contracts (corresponding to the sum of the amounts on page 4, lines 10, 11, 12 and 13 of 1992 Separate Account Statutory Statements). NII = The net investment income in GLENBROOK'S Variable Annuity Separate Accounts (corresponding to the sum of the amounts on page 4, line 2 of 1992 Separate Account Statutory Statements), minus interest income on GLENBROOK'S capital investment in Separate Accounts. 3 If RC is greater than NII then a reserve adjustment of RC-NII is payable by ALLSTATE to GLENBROOK. If NII is greater than RC, then a reserve adjustment of NII-RC is payable by GLENBROOK to ALLSTATE. ARTICLE V OVERSIGHTS ALLSTATE shall be bound as GLENBROOK is bound, and it is expressly understood and agreed that if failure to reinsure or failure to comply with any terms of this Agreement is shown to be unintentional and the result of misunderstanding or oversight on the part of either GLENBROOK or ALLSTATE, both GLENBROOK and ALLSTATE shall be restored to the positions they would have occupied had such error or oversight not occurred. ARTICLE VI INSPECTION OF RECORDS GLENBROOK and ALLSTATE shall have the right, at any reasonable time, to examine at the office of the other, any books, documents, reports or records which pertain in any way to the contracts reinsured under this Agreement. ARTICLE VII INSOLVENCY 1. In the event of the insolvency of GLENBROOK, reinsurance hereunder is payable by ALLSTATE on the basis of its liability hereunder without diminution because of the insolvency of GLENBROOK. 2. Further, in the event of the insolvency of GLENBROOK, the liquidator, receiver or statutory successor of the insolvent GLENBROOK shall give written notice to ALLSTATE of the pendency of any obligation of the insolvent GLENBROOK on any policy reinsured, whereupon ALLSTATE may investigate such claim and interpose at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to GLENBROOK or its liquidator or statutory 4 successor. The expense thus incurred by ALLSTATE shall be chargeable, subject to court approval, against the insolvent GLENBROOK as part of the expenses of liquidation to the extent of a proportionate share of the benefit which may accrue to GLENBROOK solely as a result of the defense undertaken by ALLSTATE. 3. All moneys due GLENBROOK or ALLSTATE under this agreement shall be offset against each other, dollar for dollar, regardless of any insolvency of either party. ARTICLE VIII ARBITRATION Any dispute arising with respect to this Agreement which is not settled by mutual agreement of the parties shall be referred to arbitration. Within twenty (20) days from receipt of written notice from one party that an arbitrator has been appointed, the other party will also name an arbitrator. The two arbitrators shall choose a third arbitrator and shall forthwith notify the contracting parties of such choice. Each arbitrator shall be a present or former officer of a life insurance company and should have no present or past affiliation with this Agreement or with either party. The arbitrators shall consider this Agreement as an honorable engagement rather than merely as a legal obligation, and shall be relieved of all judicial formalities. The decision of the arbitrators shall be final and binding upon the parties hereto. Each party shall bear the expenses of its own arbitrator and shall jointly and equally bear the expenses of the third arbitrator and of the arbitration. Any such arbitration shall take place at the Home Office of GLENBROOK, unless some other location is mutually agreed upon. ARTICLE IX PARTIES TO AGREEMENT This agreement is solely between GLENBROOK and ALLSTATE. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between ALLSTATE and any party in interest under any contract of GLENBROOK reinsured hereunder. GLENBROOK shall be and remain solely liable to any insured, contract owner, or beneficiary under any contract reinsured hereunder. 5 ARTICLE X DURATION OF AGREEMENT This agreement will be effective as of September 1st, 1993, and will be unlimited as to its duration; provided, however, it may be terminated with respect to the reinsurance of new business by either party giving sixty (60) days prior written notice of termination. ARTICLE XI ENTIRE AGREEMENT This Agreement constitutes the entire contract between ALLSTATE and GLENBROOK. No variation, modification or changes to this Agreement shall be binding unless in writing and signed by an officer of each party. IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly executed in duplicate by their respective officers on the dates shown below. GLENBROOK LIFE AND ANNUITY COMPANY of Northbrook, Illinois By /s/ Craig G. Whitehead ----------------------------------------- Title Assistant Vice President ------------------------------------- Date September 8, 1993 -------------------------------------- ALLSTATE LIFE INSURANCE COMPANY of Northbrook, Illinois By /s/ James D. Clements ----------------------------------------- Title Assistant Vice President, Assistant Secretary & Assistant General Counsel -------------------------------------- Date September 3, 1993 --------------------------------------- 6 SCHEDULE A CONTRACTS SUBJECT TO REINSURANCE Any annuity contract whose reserve is invested, in whole or in part, in any account designated as a GLENBROOK Separate Account shall be reinsured under this Agreement; provided, however, that the portion of any such contract which is not so invested is not covered under this Agreement. 7 AMENDMENT # 1 TO THE REINSURANCE AGREEMENT BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS (HEREINAFTER "ALLSTATE") WHEREAS, Glenbrook and Allstate entered into a Modified Coinsurance Agreement (hereinafter "Agreement") having an effective date of September 1, 1993; and, WHEREAS, the California Insurance Department has determined that various changes to the Agreement are required under California insurance law; and, WHEREAS, Glenbrook and Allstate desire to amend the Agreement with respect to coverage issued to California residents to meet the California requirements; NOW THEREFORE, the Agreement is hereby amended with respect to California residents, as follows; 1.) Article VII, "INSOLVENCY", is hereby amended by deleting said Article in its entirety, and replacing it with the following new Article VII: ARTICLE VII INSOLVENCY 1. The portion of any risk or obligation assumed by Allstate, when such portion is ascertained, shall be payable on demand of Glenbrook at the same time as Glenbrook shall pay its net retained portion of such risk or obligation, and the reinsurance shall be payable by Allstate on the basis of the liability of Glenbrook under the contract or contracts reinsured under this Agreement without diminution because of the insolvency of Glenbrook. In the event of insolvency and the appointment of a conservator, liquidator or statutory successor of Glenbrook, such portion shall be payable to such conservator, liquidator or statutory successor immediately upon demand, on the basis of claims allowed against Glenbrook by any court of competent jurisdiction or, by any conservator, liquidator, or statutory successor of Glenbrook having authority to allow such claims, without diminution because of such insolvency or because such conservator, liquidator or statutory successor has failed to pay all or a portion of any claims. Payments by Allstate as above set forth shall be made directly to Glenbrook or its conservator, liquidator or statutory successor. 2. Further, in the event of the insolvency of Glenbrook, the liquidator, receiver or statutory successor of the insolvent Glenbrook shall give written notice to Allstate of the pendency of an obligation of the insolvent Glenbrook on any policy reinsured, whereupon Allstate may investigate such claim and interpose at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to Glenbrook or its liquidator or statutory successor. The expense thus incurred by Allstate shall be chargeable, subject to court approval, against the insolvent Glenbrook as part of the expenses of liquidation to the extent of a proportionate share of the benefit which may accrue to Glenbrook solely as a result of the defense undertaken by Allstate. 2.) Article VIII, ARBITRATION, shall be amended to include the following language at the end of that article: The decision of the Arbitrators shall be handed down within 45 days of the date on which the arbitration is concluded. 3.) Article X, DURATION OF THE AGREEMENT, shall be deleted in its entirety and shall be replaced with the following language: This Agreement shall be effective as of September 1, 1993, and will be unlimited as to its duration; provided, however, it may be terminated with respect to the reinsurance of new business by either party giving the other party ninety (90) days prior written notice of termination to the other party. 4.) In addition, a new Article XII is added to the Agreement, as follows: ARTICLE XII OFFSET All monies due Glenbrook or Allstate under this Agreement shall be offset against each other dollar for dollar. 5.) Finally, the definition of "RC" contained in Article IV, DAILY RESERVE ADJUSTMENTS, shall be deleted and replaced with the following language: RC = The Reserve change in GLENBROOK'S Variable Annuity Separate Accounts from the end of the prior accounting period to the end of the current accounting period for the reinsured contracts (corresponding to the sum of the amounts on page 4, lines 10, 11, 12, and 13 of 1992 Separate Account Statutory Statements). An accounting period shall be defined as one day. This amendment shall be effective __________, 1995. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. GLENBROOK LIFE AND ANNUITY COMPANY ALLSTATE LIFE INSURANCE COMPANY By: /s/ Maria G. Friedman By: /s/ Michael J. Velotta ----------------------- ------------------------- Title: Vice President Title: VP, Secy & Gen Counsel --------------- --------------------- Date: June 8, 1995 Date: June 8, 1995 ------------------ ----------------------- AMENDMENT NUMBER 2 TO THE REINSURANCE AGREEMENT EFFECTIVE SEPTEMBER 1, 1993 BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY (HEREAFTER CALLED "GLENBROOK") AND ALL STAR LIFE INSURANCE COMPANY (HEREINAFTER CALLED "ALLSTATE") IT IS HEREBY AGREED, that the Reinsurance Agreement effective September 1, 1993 between GLENBROOK and ALLSTATE (hereinafter "Agreement"), is amended as provided below. Effective January 1, 1993, Article III is hereby amended by adding the following new paragraph: ALLSTATE and GLENBROOK agree to an election under Treasury Regulations 1-848-2(g)(8), as follows: (a) For each taxable year under this Agreement, the party with net positive consideration, as defined in the regulations promulgated under Treasury Code Section 848, will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1); (b) GLENBROOK and ALLSTATE agree to exchange information pertaining to the amount of net consideration for all reinsurance agreements in force between them to ensure consistency for purposes of computing specified policy acquisition expenses. GLENBROOK and ALLSTATE shall agree on the amount such net consideration for each taxable year no later than the May 1 following the end of such year. (c) This election shall be effective for 1993 and for all subsequent taxable years for which this Agreement remains in effect. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. Glenbrook Life and Annuity Company By /s/ Sarah R. Donahue --------------------- Title Vice President --------------------- Date 12/18/95 --------------------- Page 1 of 2 Allstate Life Insurance Company By /s/ C. Nelson Strom -------------------- Title AVP -------------------- Date 11/3/95 -------------------- Page 2 of 2 AMENDMENT NUMBER 3 TO THE REINSURANCE AGREEMENT EFFECTIVE SEPTEMBER 1, 1993 BETWEEN GLENBROOK LIFE AND ANNUITY COMPANY (HEREINAFTER CALLED "GLENBROOK") AND ALLSTATE LIFE INSURANCE COMPANY (HEREINAFTER CALLED "ALLSTATE") WHEREAS, GLENBROOK and ALLSTATE entered into a Reinsurance Agreement effective September 1, 1993 (hereinafter "Agreement"); and WHEREAS, the parties now believe that the Agreement does not accurately reflect their existing practices relating to settlements for certain tax benefits and liabilities; and WHEREAS, the parties desire to amend the Agreement to reflect the existing practices with respect to such tax settlements; NOW, THEREFORE, IT IS HEREBY AGREED, that the Agreement is amended as provided below. 1.) Article III, paragraph 2, is amended by replacing subparagraph (d) with a new subparagraph (d), as follows: (d) Insurance taxes, licenses and fees (excluding Federal Income Tax that is not related to the contracts reinsured under this Agreement ), incurred by GLENBROOK with respect to the contracts reinsured under this Agreement. 2.) Article III is further amended by adding a new paragraph 5, as follows: 5. No less frequently than quarterly, ALLSTATE will calculate the Page 1 of 2 amount of federal and state income tax liabilities incurred by GLENBROOK for the quarter related to the contracts reinsured under this Agreement, and the amount of federal and state income tax benefits earned by GLENBROOK for the quarter related to the contracts reinsured under this Agreement. If tax liabilities exceed tax benefits, the difference, plus a gross-up for additional federal and state income taxes, will be paid by ALLSTATE to GLENBROOK. If tax benefits exceed tax liabilities, the difference, plus a gross-up for additional federal and state income taxes, will be paid by GLENBROOK to ALLSTATE. Except as amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. Glenbrook Life and Annuity Company By /s/ Sarah R. Donahue ----------------------------- Title Assistant Vice President ----------------------------- Date October 22, 1998 ----------------------------- Allstate Life Insurance Company By /s/ C. Nelson Strom ----------------------------- Title AVP ----------------------------- Date 10/22/98 ----------------------------- Page 2 of 2 -----END PRIVACY-ENHANCED MESSAGE-----