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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
The registrant meets the conditions set forth in General Instruction
J(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
For fiscal year ended DECEMBER 31, 1995 Commission file numbers: 33-62193
33-91916
33-92842
GLENBROOK LIFE AND ANNUITY COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 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)
847/402-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 December 31, 1995, there were 4,200 shares of common capital stock
outstanding, par value $500 per share all of which shares are held by
Allstate Life Insurance Company.
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GLENBROOK LIFE AND ANNUITY COMPANY
(A wholly owned subsidiary of Allstate Life Insurance Company
Annual Report for 1995 On Form 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business**.......................................................3
Item 2. Properties**.....................................................4
Item 3. Legal Proceedings................................................4
Item 4. Submission of Matters to a Vote of Security Holders*...........N/A
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................................5
Item 6. Selected Financial Data*.......................................N/A
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................5
Item 8. Financial Statements.............................................8
Item 9. Disagreements on Accounting and Financial Disclosure...........N/A
PART III
Item 10. Directors and Executive Officers of the Registrant*............N/A
Item 11. Executive Compensation*........................................N/A
Item 12. Security Ownership of Certain Beneficial Owners and
Management*..................................................N/A
Item 13. Certain Relationships and Related Transactions*................N/A
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...........................................21
Index to Financial Statement Schedules.......................................8
Signatures..................................................................22
* Omitted pursuant to General Instruction J(2) of Form 10-K.
**Item prepared in accordance with General Instruction J(2) of Form 10-K.
2
PART I
ITEM 1. BUSINESS
Glenbrook Life and Annuity Company (hereinafter "Glenbrook Life" or the
"Company"), is a stock life insurance company which was organized under the
laws of the State of Illinois in 1992. The Company was originally organized
under the laws of the State of Indiana in 1965. From 1965 to 1983 the Company
was known as "United Standard Life Assurance Company" and from 1983 to 1992
the Company was known as "William Penn Life Assurance Company of America."
Glenbrook Life's products, group and individual annuities and life insurance,
have been approved by the states where offered.
Glenbrook Life is a wholly owned subsidiary of Allstate Life Insurance
Company ("Allstate Life"), a stock life insurance company incorporated under
the laws of Illinois. Allstate Life is a wholly owned subsidiary of Allstate
Insurance Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. With the exception of directors'
qualifying shares, all of the outstanding capital stock of Allstate is owned
by The Allstate Corporation ("Corporation"). The Corporation was capitalized
in 1993 with the contribution of all of the outstanding common stock of
Allstate. Sears, Roebuck and Co. ("Sears") had previously been the direct
owner of all the common stock of Allstate. On June 9, 1993 the Corporation
completed its initial public offering of 89,500,000 common shares. On June
30, 1995, Sears distributed its remaining 80.3% ownership in the Corporation
to Sears common shareholders through a tax-free dividend.
Glenbrook Life and Allstate Life entered into reinsurance agreements,
effective June 5, 1992, under which Glenbrook Life reinsures
substantially all of its business with Allstate Life. Under the agreements,
premiums, expenses and benefits under all general account contracts are
transferred to Allstate Life and the net cash flows are invested by Allstate
Life, to support the liabilities assumed under the reinsurance agreements.
The funds necessary to support the operations of the Company are provided by
Allstate Life.
Under the Company's reinsurance agreements with Allstate Life, the
Company reinsures all reserve liabilities with Allstate Life except for
variable contracts. The Company's variable contract assets are held in
legally-segregated, unitized separate accounts and are retained by the
Company. Investment income and realized gains and losses of the separate
account investments accrue directly to the contractholders (net of fees), and
are not included in the Company's results of operations.
Glenbrook Life's operations consist of one business segment which is the
sale of life insurance and annuity products.
Glenbrook Life's and Allstate Life's general account assets must be
invested in accordance
3
with applicable state laws. These laws govern the nature and quality of
investments that may be made by life insurance companies and the percentage
of their assets that may be committed to any particular type of investment.
Of Allstate Life's consolidated invested assets of $27,256 million on
December 31, 1995, 81.5% was invested in fixed income securities, 2.9% in
equities, 11.8% in mortgage loans, and 3.8% in real estate, short-term
investments and other assets.
Glenbrook Life is engaged in a business that is highly competitive
because of the large number of stock and mutual life insurance companies and
other entities competing in the sale of insurance and annuities. There are
approximately 2,000 stock, mutual and other types of insurers in business in
the United States. Several independent rating agencies regularly evaluate
life insurer's claims paying ability, quality of investments and overall
stability. A.M. Best Company assigns A+(Superior) to Allstate Life which
automatically reinsures all net business of Glenbrook Life. A.M. Best Company
also assigns Glenbrook Life the rating of A+(r) because Glenbrook Life
automatically reinsures all business with Allstate Life. Standard & Poor's
Insurance Rating Services assigned AA+(Excellent) to the Company's
claims-paying ability and Moody's Investors Service assigned an Aa3
(excellent) financial stability rating to the Company. Glenbrook Life shares
the same ratings of its parent, Allstate Life.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Current and proposed measures which may
significantly affect the Company's insurance business relate to the taxation
of insurance companies, the tax treatment of insurance products and the
removal of barriers preventing banks from engaging in the insurance business.
Glenbrook Life is regulated by the Securities and Exchange Commission
("SEC") as an issuer of registered products. The SEC also regulates certain
Glenbrook Life Separate Accounts through which the Company issues variable
annuity contracts.
ITEM 2. PROPERTIES
Glenbrook Life occupies office space provided by its parent, Allstate
Life, in Northbrook, Illinois. Expenses associated with these offices are
allocated on a indirect basis to Glenbrook Life.
ITEM 3. LEGAL PROCEEDINGS
The Company and its Board of Directors know of no material legal
proceedings pending to which the Company is a party or which would materially
affect the Company. The Company is involved in pending and threatened
litigation in the normal course of its business in which claims for monetary
damages are asserted. Management, after consultation with legal counsel, does
not anticipate the ultimate liability arising from such pending or threatened
litigation to have a material effect on the financial condition of the
Company.
4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding shares are owned by its parent,
Allstate Life. Allstate Life's outstanding shares are owned by Allstate.
With the exception of director's qualifying shares, all of the outstanding
capital stock of Allstate is owned by The Allstate Corporation
("Corporation"). The Corporation was capitalized in 1993 with the
contribution of all of the outstanding common stock of Allstate. Sears,
Roebuck and Co. ("Sears") had previously been the direct owner of all the
common stock of Allstate. On June 9, 1993 the Corporation completed its
initial public offering of 89,500,000 common shares. On June 30, 1995, Sears
distributed it's remaining 80.3% ownership in the Corporation to Sears common
shareholders through a tax-free dividend.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following highlights significant factors influencing results of
operations and financial position.
Glenbrook Life and Annuity Company ("the Company"), which is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), currently issues flexible
premium fixed annuities, and beginning in 1995, flexible premium deferred
variable annuity contracts through its Separate Accounts. The Company markets
its products through banks and other financial institutions.
The Company reinsures all of its annuity deposits with Allstate Life, and
all life insurance in force with other reinsurers. Accordingly, the financial
results reflected in the Company's statements of operations relate only to the
investment of those assets of the Company that are not transferred to Allstate
Life or other reinsurers under the reinsurance treaties.
Separate Account assets and liabilities are legally segregated and carried
at fair value in the statements of financial position. The Separate Account
investment portfolios were initially funded with a $10 million seed money
contribution from the Company in 1995. Investment income and realized gains and
losses of the Separate Account investments, other than the portion related to
the Company's participation, accrue directly to the contractholders (net of
fees) and, therefore, are not included in the Company's statements of
operations.
5
RESULTS OF OPERATIONS
1995 1994 1993
--------- --------- ---------
$ IN THOUSANDS
Net investment income...................................................................... $ 3,996 $ 2,017 $ 753
--------- --------- ---------
Realized capital gains (losses), after tax................................................. $ 298 $ -- $ 54
--------- --------- ---------
Net income................................................................................. $ 2,879 $ 1,294 $ 529
--------- --------- ---------
Fixed income securities, at amortized cost................................................. $ 44,112 $ 51,527 $ 9,543
--------- --------- ---------
Net investment income increased $2.0 million in 1995, and $1.3 million in
1994. In both years, the increases were attributable to an increased level of
investments, including the Company's participation in the Separate Accounts
during 1995, and a $40 million capital contribution received from Allstate Life
in the third quarter of 1994. Net income increases of $1.6 million and $0.8
million reflect the change in net investment income in both years.
Realized capital gains after tax of $0.3 million in 1995 were the result of
sales of investments to fund the Company's participation in the Separate
Accounts.
FINANCIAL POSITION
1995 1994
---------- ---------
$ IN THOUSANDS
Fixed income securities, at fair value........................................................... $ 48,815 $ 49,807
---------- ---------
Unrealized net capital gains (losses) (1)........................................................ $ 5,164 $ (1,720)
---------- ---------
Separate Account assets, at fair value........................................................... $ 15,578 $ --
---------- ---------
Contractholder funds............................................................................. $1,340,925 $ 696,854
---------- ---------
Reinsurance recoverable from Allstate Life....................................................... $1,340,925 $ 696,854
---------- ---------
- -----------------
(1) Unrealized net capital gains (losses) exclude the effect of deferred income
taxes.
Fixed income securities are classified as available for sale and carried in
the statements of financial position at fair value. Although the Company
generally intends to hold its fixed income securities for the long-term, such
classification affords the Company flexibility in managing the portfolio in
response to changes in market conditions.
At December 31, 1995 unrealized capital gains were $5.2 million compared to
unrealized capital losses of $1.7 million at December 31, 1994. The significant
change in the unrealized capital gain/loss position is primarily attributable to
declining interest rates.
At December 31, 1995 both contractholder funds and amounts recoverable from
Allstate Life under reinsurance treaties reflect an increase of $644 million.
These increases result from sales of the Company's single and flexible premium
deferred annuities partially offset by surrenders. Reinsurance recoverable from
Allstate Life relates to policy benefit obligations ceded to Allstate Life.
6
The Company's participation in the Separate Accounts of $10.5 million at
December 31, 1995 is included in the Separate Accounts assets. Unrealized net
capital gains arising from the Company's participation in the Separate Accounts
was $0.3 million, net of tax, at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Allstate Life made a $40 million capital contribution to the Company in the
third quarter of 1994.
Under the terms of intercompany reinsurance agreements, assets of the
Company that relate to insurance in force, excluding Separate Account assets,
are transferred to Allstate Life or other reinsurers, who maintain investment
portfolios which support the Company's products.
7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
INDEX
PAGE
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Independent Auditors' Report 9
Financial Statements:
Statements of Financial Position,
December 31, 1995 and 1994 10
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 11
Statements of Shareholder's Equity for the Years Ended
December 31, 1995, 1994 and 1993 12
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 13
Notes to Financial Statements 14
Schedule IV - Reinsurance for the Years Ended
December 31, 1995, 1994 and 1993 20
8
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of
Glenbrook Life and Annuity Company as of December 31, 1995 and 1994, and the
related Statements of Operations, Shareholder's Equity and Cash Flows for each
of the three years in the period ended December 31, 1995. Our audits also
included Schedule IV -- Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Glenbrook Life and Annuity Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles. Also, in our opinion, Schedule IV
- -- Reinsurance, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note 3 to the financial statements, in 1993 the Company
changed its method of accounting for investments in fixed income securities.
/s/ DELOITTE & TOUCHE LLP
Chicago, IL
March 1, 1996
9
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
---------------------
1995 1994
---------- ---------
($ IN THOUSANDS)
Assets
Investments
Fixed income securities
Available for sale, at fair value (amortized cost $44,112 and $51,527)..................... $ 48,815 $ 49,807
Short-term................................................................................... 2,102 924
---------- ---------
Total investments........................................................................ 50,917 50,731
Reinsurance recoverable from Allstate Life Insurance Company................................... 1,340,925 696,854
Cash........................................................................................... 264
Deferred income taxes.......................................................................... 542
Other assets................................................................................... 2,021 2,118
Separate Accounts.............................................................................. 15,578
---------- ---------
Total assets............................................................................. $1,409,705 $ 750,245
---------- ---------
---------- ---------
Liabilities
Contractholder funds........................................................................... $1,340,925 $ 696,854
Income taxes payable........................................................................... 1,637 605
Deferred income taxes.......................................................................... 1,828
Net payable to Allstate Life Insurance Company................................................. 255 128
Separate Accounts.............................................................................. 5,048
---------- ---------
Total liabilities........................................................................ 1,349,693 697,587
---------- ---------
Shareholder's equity
Common stock ($500 par value, 4,200 shares authorized, issued, and outstanding)................ 2,100 2,100
Additional capital paid-in..................................................................... 49,641 49,641
Unrealized net capital gains (losses).......................................................... 3,357 (1,118)
Retained income................................................................................ 4,914 2,035
---------- ---------
Total shareholder's equity............................................................... 60,012 52,658
---------- ---------
Total liabilities and shareholder's equity............................................... $1,409,705 $ 750,245
---------- ---------
---------- ---------
See notes to financial statements.
10
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
($ IN THOUSANDS)
Revenues
Net investment income..................................................................... $ 3,996 $ 2,017 $ 753
Realized capital gains (losses)........................................................... 459 83
--------- --------- ---
Income before income taxes.................................................................. 4,455 2,017 836
Income tax expense.......................................................................... 1,576 723 307
--------- --------- ---
Net income.................................................................................. $ 2,879 $ 1,294 $ 529
--------- --------- ---
--------- --------- ---
See notes to financial statements.
11
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
ADDITIONAL UNREALIZED NET
COMMON CAPITAL CAPITAL GAINS RETAINED
STOCK PAID-IN (LOSSES) INCOME TOTAL
----------- ----------- --------------- ----------- ---------
($ IN THOUSANDS)
Balance, December 31, 1992................................... $ 2,100 $ 9,641 $ (10) $ 212 $ 11,943
Net income................................................. 529 529
Change in unrealized net capital gains and losses.......... 703 703
----- ----------- ------ ----- ---------
Balance, December 31, 1993................................... 2,100 9,641 693 741 13,175
Net income................................................. 1,294 1,294
Capital contribution....................................... 40,000 40,000
Change in unrealized net capital gains and losses.......... (1,811) (1,811)
----- ----------- ------ ----- ---------
Balance, December 31, 1994................................... 2,100 49,641 (1,118) 2,035 52,658
Net income................................................. 2,879 2,879
Change in unrealized net capital gains and losses.......... 4,475 4,475
----- ----------- ------ ----- ---------
Balance, December 31, 1995................................... $ 2,100 $ 49,641 $ 3,357 $ 4,914 $ 60,012
----- ----------- ------ ----- ---------
----- ----------- ------ ----- ---------
See notes to financial statements.
12
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
($ IN THOUSANDS)
Cash flows from operating activities
Net income........................................................................... $ 2,879 $ 1,294 $ 529
Adjustments to reconcile net income to net cash from operating activities
Deferred income taxes.............................................................. (39)
Realized capital gains............................................................. (459) (83)
Changes in other operating assets and liabilities.................................. 1,217 (180) 656
--------- --------- ---------
Net cash from operating activities............................................... 3,598 1,114 1,102
--------- --------- ---------
Cash flows from investing activities
Fixed income securities available for sale
Proceeds from sales................................................................ 7,836 3,015
Investment collections............................................................. 1,568 649 969
Investment purchases............................................................... (1,491) (42,729) (3,737)
Participation in Separate Account.................................................... (10,069)
Change in short-term investments, net................................................ (1,178) 667 (1,102)
--------- --------- ---------
Net cash from investing activities............................................... (3,334) (41,413) (855)
--------- --------- ---------
Cash flows from financing activities
Capital contribution................................................................. 40,000
--------- --------- ---------
Net cash from financing activities............................................... -- 40,000 --
--------- --------- ---------
Net increase (decrease) in cash........................................................ 264 (299) 247
Cash at beginning of year.............................................................. -- 299 52
--------- --------- ---------
Cash at end of year.................................................................... $ 264 $ -- $ 299
--------- --------- ---------
--------- --------- ---------
See notes to financial statements.
13
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
Glenbrook Life and Annuity Company (the "Company") is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), which is wholly owned by
Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary of The
Allstate Corporation (the "Corporation"). On June 30, 1995, Sears, Roebuck and
Co. ("Sears") distributed its 80.3% ownership in the Corporation to Sears common
shareholders through a tax-free dividend (the "Distribution").
The Company develops and markets flexible premium deferred variable annuity
contracts and single and flexible premium deferred annuities to individuals
through banks and financial institutions in the United States.
Annuity contracts issued by the Company are subject to discretionary
withdrawal or surrender by the contractholder, subject to applicable surrender
charges. These contracts are reinsured with Allstate Life (Note 4) which selects
assets to meet the anticipated cash flow requirements of the assumed
liabilities. Allstate Life utilizes various modeling techniques in managing the
relationship between assets and liabilities and employs strategies to maintain
investments which are sufficiently liquid to meet obligations to contractholders
in various interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Currently there is proposed legislation which
would permit banks greater participation in securities businesses, which could
eventually present an increased level of competition for sales of the Company's
annuity contracts. Furthermore, the federal government may enact changes which
could possibly eliminate the tax-advantaged nature of annuities or eliminate
consumers' need for tax deferral, thereby reducing the incentive for customers
to purchase the Company's products. While it is not possible to predict the
outcome of such issues with certainty, management evaluates the likelihood of
various outcomes and develops strategies, as appropriate, to respond to such
challenges.
Certain reclassifications have been made to the prior year financial
statements to conform to the presentation for the current year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIFE INSURANCE ACCOUNTING
The Company sells long-duration contracts that do not involve significant
risk of policyholder mortality or morbidity (principally single and flexible
premium annuities) which are considered investment contracts.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual and group
annuities that include an investment component. Payments received are recorded
as interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest accrued to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. Credited interest
rates on contractholder funds ranged from 3.0% to 7.4% for those contracts with
fixed interest rates and from 4.25% to 7.9% for those with flexible rates during
1995.
SEPARATE ACCOUNTS
During 1995, the Company issued flexible premium deferred variable annuity
contracts, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts (Glenbrook Life and Annuity Company
Variable Annuity Account and Glenbrook Life and Annuity Company Separate Account
A), unit investment trusts registered with the Securities and Exchange
Commission. Assets of the Separate Accounts are invested in funds of management
investment companies. For certain variable annuity contracts, the Company has
entered into an exclusive distribution arrangement with distributors.
The assets of the Separate Accounts are carried at fair value. Unrealized
gains and losses on the Company's participation in the Separate Account, net of
deferred income taxes, is shown as a component of shareholder's equity. The
Company's participation in the Separate Account, amounting to $10,530 at
December 31, 1995, is subject to certain withdrawal restrictions which are
dependent upon aggregate fund net asset values. In addition, limitations exist
with regard to the maximum amount which can be withdrawn by the Company within
any 30-day period.
Investment income and realized gains and losses of the Separate Accounts,
other than the portion related to the Company's participation, accrue directly
to the contractholders and, therefore, are not included in the accompanying
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees and mortality and
expense risk charges, which are entirely ceded to Allstate Life.
14
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
Beginning June 5, 1992, the Company reinsures all new business to Allstate
Life (Note 4). Life insurance in force prior to that date is ceded to
non-affiliated reinsurers.
Contract charges and credited interest are ceded and reflected net of such
cessions in the statements of operations. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position.
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. Fixed
income securities are carried at fair value. The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a separate
component of shareholder's equity. Provisions are made to write down the
carrying value of fixed income securities for declines in value that are other
than temporary. Such writedowns are included in realized capital gains and
losses.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
rates. Deferred income taxes also arise from unrealized capital gains or losses
on fixed income securities carried at fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTING CHANGE
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires that investments classified
as available for sale be carried at fair value. Previously, fixed income
securities classified as available for sale were carried at the lower of
amortized cost or fair value, determined in the aggregate. Unrealized holding
gains and losses are reflected as a separate component of shareholder's equity,
net of deferred income taxes. The net effect of adoption of this statement
increased shareholder's equity at December 31, 1993 by $693, with no impact on
net income.
4. RELATED PARTY TRANSACTIONS
REINSURANCE
Contract charges ceded to Allstate Life under reinsurance agreements were
$1,523 and $409 in 1995 and 1994, respectively. Credited interest and expenses
ceded to Allstate Life amounted to $71,905 and $26,177 in 1995 and 1994,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets were transferred to Allstate Life under the terms of reinsurance
treaties. Reinsurance ceded arrangements do not discharge the Company as the
primary insurer.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by Allstate in conducting its business activities. The Company
reimburses Allstate for the operating expenses incurred by Allstate on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $348, $271 and $59 in 1995, 1994 and 1993, respectively.
Investment-related expenses are retained by the Company. All other costs are
assumed by Allstate Life under reinsurance treaties.
15
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
LAUGHLIN GROUP
Laughlin Group, Inc. ("Laughlin"), a wholly-owned subsidiary of Laughlin
Group Holdings Inc., a wholly-owned subsidiary of Allstate Life which was
acquired in September 1995, is a third-party marketer which distributes the
products of insurance carriers including the Company. Laughlin markets the
Company's flexible premium deferred variable annuity contracts and flexible
premium deferred annuities. Sales commissions paid to Laughlin subsequent to the
acquisition date of $3,439 were ceded to Allstate Life.
5. INCOME TAXES
Allstate Life and its life insurance subsidiaries, including the Company,
will file a consolidated federal income tax return. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
subsidiaries, whether or not such benefits generated by the subsidiaries would
be available on a separate return basis. The Corporation and its domestic
subsidiaries including the Company (the "Allstate Group"), will be eligible to
file a consolidated tax return beginning in the year 2000.
Prior to the Distribution, the Allstate Group joined with Sears and its
domestic business units (the "Sears Group") in the filing of a consolidated
federal income tax return (the "Sears Tax Group") and were parties to a federal
income tax allocation agreement (the "Tax Sharing Agreement"). As a member of
the Sears Tax Group, the Corporation was jointly and severally liable for the
consolidated income tax liability of the Sears Tax Group. Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Allstate Group in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Company filed a
separate return, except that items such as net operating losses, capital losses
or similar items which might not be immediately recognizable in a separate
return, were allocated according to the Tax Sharing Agreement and reflected in
the Company's provision to the extent that such items reduced the Sears Tax
Group's federal tax liability.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The
agreement provides that all Consolidated Tax Years will continue to be governed
by the Tax Sharing Agreement with respect to the Company's federal income tax
liability and taxes payable to or recoverable from the Sears Group.
The components of the deferred income tax assets and liabilities at December
31, 1995 and 1994 are as follows:
1995 1994
--------- ---------
Unrealized net capital losses on fixed income securities............................................... $ -- $ 602
Other.................................................................................................. 4
--------- ---
Total deferred assets................................................................................ -- 606
--------- ---
--------- ---
Unrealized net capital gains on fixed income securities................................................ $ (1,807)
Difference in tax bases of investments................................................................. (21)
Other.................................................................................................. (64)
--------- ---
Total deferred liabilities........................................................................... (1,828) (64)
--------- ---
Net deferred (liability) asset....................................................................... $ (1,828) $ 542
--------- ---
--------- ---
The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Current..................................................................................... $ 1,615 $ 652 $ 290
Deferred.................................................................................... (39) 71 17
--------- --- ---
Income tax expense........................................................................ $ 1,576 $ 723 $ 307
--------- --- ---
--------- --- ---
The Company paid income taxes of $874, $57 and $290 in 1995, 1994 and 1993,
respectively, under the Tax Sharing Agreement. The Company had income taxes
payable to Allstate Life of $1,637 and $605 at December 31, 1995 and 1994,
respectively.
16
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS
FAIR VALUES
The amortized cost, fair value and gross unrealized gains and losses for
fixed income securities are as follows:
GROSS UNREALIZED
AMORTIZED --------------------
COST GAINS LOSSES FAIR VALUE
----------- --------- --------- -----------
AT DECEMBER 31, 1995
U.S. government and agencies................................................... $ 24,722 $ 3,470 -- $ 28,192
Corporate...................................................................... 1,304 120 1,424
Mortgage-backed securities..................................................... 18,086 1,113 19,199
----------- --------- --------- -----------
Totals....................................................................... $ 44,112 $ 4,703 -- $ 48,815
----------- --------- --------- -----------
----------- --------- --------- -----------
AT DECEMBER 31, 1994
U.S. government and agencies................................................... $ 31,005 $ 30 $ 1,126 $ 29,909
Mortgage-backed securities..................................................... 20,522 624 19,898
----------- --------- --------- -----------
Total........................................................................ $ 51,527 $ 30 $ 1,750 $ 49,807
----------- --------- --------- -----------
----------- --------- --------- -----------
SCHEDULED MATURITIES
The scheduled maturities of fixed income securities available for sale at
December 31, 1995 are as follows:
AMORTIZED FAIR
COST VALUE
----------- ---------
Due in one year or less............................................................................ $ 398 $ 403
Due after one year through five years..............................................................
Due after five years through ten years............................................................. 15,883 17,681
Due after ten years................................................................................ 9,745 11,532
----------- ---------
26,026 29,616
Mortgage-backed securities......................................................................... 18,086 19,199
----------- ---------
Total............................................................................................ $ 44,112 $ 48,815
----------- ---------
----------- ---------
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities and the
Company's participation in the Separate Account included in shareholder's equity
at December 31, 1995 are as follows:
UNREALIZED
AMORTIZED FAIR NET GAINS/
COST VALUE (LOSSES)
----------- --------- -----------
Fixed income securities............................................................... $ 44,112 $ 48,815 $ 4,703
Participation in Separate Account..................................................... 10,069 10,530 461
Deferred income taxes................................................................. (1,807)
-----------
Total............................................................................... $ 3,357
-----------
-----------
17
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
The change in unrealized net capital gains and losses for fixed income
securities and the Company's participation in the Separate Account is as
follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Fixed income securities..................................................................... $ 6,423 $ (2,786) $ 1,076
Participation in Separate Account in 1995................................................... 461
Deferred income taxes....................................................................... (2,409) 975 (373)
--------- --------- ---------
Change in unrealized net capital gains and losses........................................... $ 4,475 $ (1,811) $ 703
--------- --------- ---------
--------- --------- ---------
COMPONENTS OF NET INVESTMENT INCOME
Investment income by investment type is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Investment income:
Fixed income securities...................................................................... $ 3,850 $ 1,984 $ 729
Short-term................................................................................... 113 48 35
Participation in Separate Account in 1995.................................................... 69
--------- --------- ---
Investment income, before expense.............................................................. 4,032 2,032 764
Investment expense............................................................................. 36 15 11
--------- --------- ---
Net investment income.......................................................................... $ 3,996 $ 2,017 $ 753
--------- --------- ---
--------- --------- ---
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains on investments are as follows:
YEAR ENDED
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
Fixed income securities............................................................................. $459 $-- $83
Income tax.......................................................................................... 161 29
---- ---- ----
Net realized gains.................................................................................. $298 $-- $54
---- ---- ----
---- ---- ----
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
The proceeds from sales of investments in fixed income securities, excluding
calls, were $7,836 and $3,015, with related gross realized gains of $459 and $22
for 1995 and 1993, respectively. There were no such amounts realized in 1994.
SECURITIES ON DEPOSIT
At December 31, 1995, fixed income securities with a carrying value of
$10,085 were on deposit with regulatory authorities as required by law.
7. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value of all financial
assets other than fixed income securities and all liabilities other than
contractholder funds approximates their carrying value as they are short-term in
nature.
Fair values for fixed income securities are based on quoted market prices.
The December 31, 1995 and 1994 fair values and carrying values of fixed income
securities are discussed in Note 6.
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the fund balance less surrender charge. The fair value of immediate
annuities with fixed terms are estimated using discounted cash flow calculations
based on
18
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
7. FINANCIAL INSTRUMENTS (CONTINUED)
interest rates currently offered for contracts with similar terms and duration.
Contractholder funds on investment contracts had a carrying value of $1,340,925
at December 31, 1995 and a fair value of $1,282,248. The carrying value and fair
value at December 31, 1994 were $696,854 and $670,930, respectively.
8. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles with
statutory net income and capital and surplus, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities:
NET INCOME
YEAR ENDED
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Balance per generally accepted accounting principles....................................... $ 2,879 $ 1,294 $ 529
Income taxes............................................................................. (164) 29 8
Interest maintenance reserve............................................................. (53) 27
Non-admitted assets and statutory reserves............................................... (46) 15 (47)
--------- --------- ---
Balance per statutory accounting practices................................................. $ 2,669 $ 1,285 $ 517
--------- --------- ---
--------- --------- ---
SHAREHOLDER'S
EQUITY
DECEMBER 31,
----------------
1995 1994
------- -------
Balance per generally accepted accounting principles............................ $60,012 $52,658
Income taxes.................................................................. 698 (575)
Unrealized net capital gains (losses)......................................... (4,703) 1,719
Non-admitted assets and statutory reserves.................................... (1,702) (1,635)
------- -------
Balance per statutory accounting practices...................................... $54,305 $52,167
------- -------
------- -------
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares their statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the insurance
department of the State of Illinois. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus or
risk-based capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by insurance companies without the prior
approval of the state insurance regulator is limited to formula amounts based on
net income and capital and surplus, determined in accordance with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. The maximum amount of dividends that the Company can
distribute during 1996 without prior approval of both the Illinois and
California Departments of Insurance is $5,220.
19
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS
AMOUNT CEDED NET AMOUNT
----------- --------- -----------
YEAR ENDED DECEMBER 31, 1995
Life insurance in force..................................................................... $ 1,250 $ 1,250 $ --
----- --------- -----
----- --------- -----
Premiums and contract charges:
Life and annuities........................................................................ $ 6,571 $ 6,571 $ --
----- --------- -----
----- --------- -----
GROSS
AMOUNT CEDED NET AMOUNT
----------- --------- -----------
YEAR ENDED DECEMBER 31, 1994
Life insurance in force..................................................................... $ 1,250 $ 1,250 $ --
----- --------- -----
----- --------- -----
Premiums and contract charges:
Life and annuities........................................................................ $ 409 $ 409 $ --
----- --------- -----
----- --------- -----
GROSS
AMOUNT CEDED NET AMOUNT
----------- --------- -----------
YEAR ENDED DECEMBER 31, 1993
Life insurance in force..................................................................... $ 1,250 $ 1,250 $ --
----- --------- -----
----- --------- -----
Premiums and contract charges:
Life...................................................................................... 6 6 --
Contract charges.......................................................................... 70 70 --
----- --------- -----
$ 76 $ 76 $ --
----- --------- -----
----- --------- -----
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report. The page
number, if any, listed opposite a document indicates the page number in the
sequential numbering system in the manually signed original of this Report
where such document can be found.
(1) The financial statements filed as part of this Report are
listed in Item 8.
(2) Financial Statement Schedules
Schedule IV - Reinsurance page 20
(3) Exhibits
None
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GLENBROOK LIFE AND ANNUITY COMPANY
By /s/ Louis G. Lower, II
Louis G. Lower, II
Chief Executive Officer and Chairman
(Principal Executive Officer)
Date March 29, 1996
Pursuant to the Requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ Louis G. Lower, II
Louis G. Lower, II
Chief Executive Officer and Chairman
(Principal Executive Officer)
Date March 29, 1996
By /s/ Barry S. Paul
Barry S. Paul
Assistant Vice President and Controller
(Chief Accounting Officer)
Date March 29, 1996
22