UNITED STATES
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 I(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, 1998 Commission file numbers: 033-50884
033-84480
033-90272
333-25057
033-35412
002-82511
Northbrook Life Insurance Company
---------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-300152
--------- -----------
(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
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 1998, there were 25,000 shares of common capital stock
outstanding, par value $100 per share all of which shares are held by Allstate
Life Insurance Company.
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NORTHBROOK LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Allstate Life Insurance Company)
Annual Report for 1998 On Form 10-K
TABLE OF CONTENTS
PAGE
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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................... 6
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk...........................................13
ITEM 8. Financial Statements and Supplementary Data...........13
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................13
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...................................14
Index to Financial Statement Schedules..............................15
Signatures..........................................................16
Exhibit Index.......................................................E-1
* Omitted pursuant to General Instruction I(2) of Form 10-K.
** Item prepared in accordance with General Instruction I(2) of Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
Northbrook Life Insurance Company (hereinafter "Northbrook Life" or the
"Company"), incorporated in 1978 as a stock life insurance company under the
laws of the State of Illinois and redomesticated to Arizona in December, 1998.
The Company has done business continuously since its incorporation as
"Northbrook Life Insurance Company."
Northbrook Life is a wholly owned subsidiary of Allstate Life Insurance
Company ("ALIC"), a stock life insurance company incorporated under the laws of
Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance Company
("AIC"), a stock property-liability insurance company incorporated under the
laws of Illinois. All of the outstanding capital stock of AIC is owned by The
Allstate Corporation ("Corporation").
Northbrook Life's operations consist of one business segment which is the
sale of life insurance and savings products.
Northbrook Life and ALIC entered into reinsurance agreements, effective
December 31, 1987, under which Northbrook Life reinsures substantially all of
its business with ALIC. Under the agreements, purchase payments under
substantially all general account contracts are transferred to ALIC and become
invested with the assets of ALIC, and ALIC accepts 100% of the liability under
such contracts. However, the obligations of ALIC under the reinsurance
agreements are to the Company. In addition, assets of the Company that relate to
insurance in-force excluding Separate Account assets are transferred to ALIC.
Therefore, the funds necessary to support the operations of the Company are
provided by ALIC and the Company is not required to obtain additional capital to
support in-force or future business.
Under the Company's reinsurance agreements with ALIC, the Company reinsures
substantially all reserve liabilities with ALIC except for variable contracts.
The Company's variable contract assets and liabilities are held in legally-
segregated, unitized Separate Accounts and are retained by the Company. However,
the transactions related to such variable contracts such as premiums, expenses
and benefits are transferred to ALIC.
3
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Northbrook Life's and ALIC's general account assets must be invested in
accordance 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.
Northbrook 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 1,700 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 ALIC which automatically reinsures all
net business of Northbrook Life. A.M. Best Company also assigns Northbrook Life
the rating of A+(r) because Northbrook Life automatically reinsures all business
with Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's Investors Service
assigns an Aa2 (excellent) financial strength rating to the Company. Northbrook
Life shares the same ratings of its parent, ALIC.
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.
Northbrook Life is registered with the Securities and Exchange Commission
("SEC") as an issuer of registered products. The SEC also regulates certain
Northbrook Life Separate Accounts which issue variable life contracts or,
together with the Company, issue variable annuity contracts.
ITEM 2. PROPERTIES
Northbrook Life occupies office space provided by AIC in Northbrook,
Illinois. Expenses associated with these offices are allocated to Northbrook
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 position or results of operations of the Company.
4
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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, ALIC. All
of ALIC's outstanding shares are owned by AIC. All of the outstanding shares of
AIC are owned by The Corporation.
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion highlights significant factors influencing
results of operations and changes in financial position of Northbrook Life
Insurance Company (the "Company"). It should be read in conjunction with the
financial statements and related notes.
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"), markets
savings products and life insurance products through Dean Witter Reynolds Inc.,
a wholly owned subsidiary of Morgan Stanley Dean Witter. Life insurance includes
universal life and variable life products. Savings products include deferred
annuities such as variable annuities and fixed rate single and flexible premium
annuities, and immediate annuities. The Company re-domesticated its operations
from Illinois to Arizona in 1998. The Company has identified itself as a single
segment entity.
The assets and liabilities related to flexible premium deferred variable
annuity contracts and variable life policies are legally segregated and
reflected as Separate Account assets and liabilities and are carried at fair
value in the statements of financial position. Investment income and realized
gains and losses of the Separate Accounts accrue directly to the contractholders
(net of fees) and, therefore, are not included in the Company's statements of
operations and comprehensive income.
RESULTS OF OPERATIONS
($ in thousands)
1998 1997 1996
-------- -------- --------
Net investment income $ 5,691 $ 5,146 $ 4,888
======== ======== ========
Realized capital gains and losses, after-tax $ 1 $ (44) $ (13)
======== ======== ========
Net income $ 3,698 $ 3,322 $ 3,202
======== ======== ========
Total investments $ 91,419 $ 79,433 $ 74,069
======== ======== ========
The Company has reinsurance agreements under which substantially all
contract and policy related transactions are transferred to ALIC. The Company's
results of operations include only net investment income and realized capital
gains and losses earned on the assets of the Company that are not transferred
under reinsurance agreements.
Net income for 1998 and 1997 increased $376 thousand and $120 thousand,
respectively, primarily as a result of increased net investment income.
Pretax net investment income increased 10.6% to $5.7 million in 1998 and
5.3% to $5.1 million in 1997. For both years, the additional investment income
was earned on higher investment balances arising from positive cash flows from
operating activities. In addition, in 1998, positive cash flows from operating
activities were favorably impacted by changes in inter-company settlement
procedures. Lower investment expenses contributed favorably to the net
investment income increase in 1998. In 1997, the increase in net investment
income was partially offset by increased investment expenses.
Realized capital gains, after-tax, were $1,000 in 1998 compared to
realized capital losses, after-tax, of $44 thousand in 1997. In 1998, realized
capital gains resulted from gains on calls of fixed income securities partially
offset by losses on fixed income security sales. In 1997, the losses arose
principally from the sale of fixed income securities. Year-to-year fluctuations
in realized capital gains and losses are largely the result of the timing of
sales decisions reflecting management's view of individual securities and
overall market conditions.
6
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FINANCIAL POSITION
($ in thousands)
1998 1997
---------- ----------
Fixed income securities (1) $ 86,336 $ 76,402
Short-term investments 5,083 3,031
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Total investments $ 91,419 $ 79,433
========== ==========
Reinsurance recoverable from ALIC $2,148,091 $2,293,094
========== ==========
Separate Account assets and liabilities $7,031,083 $5,719,203
========== ==========
Contractholder funds $2,003,122 $2,148,555
========== ==========
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $81,156 and $72,491 at December 31, 1998 and 1997,
respectively.
Total investments increased to $91.4 million at December 31, 1998 from
$79.4 million at December 1997. The increase was primarily due to amounts
invested from positive cash flows generated from operations. In 1998, positive
cash flows from operating activities were favorably impacted by changes in
inter-company cash settlement procedures.
FIXED INCOME SECURITIES The Company's fixed income securities portfolio consists
of mortgage-backed securities, publicly traded corporate bonds, U.S. government
bonds and tax-exempt municipal bonds. The Company generally holds its fixed
income securities for the long term, but has classified all of these securities
as available for sale to allow maximum flexibility in portfolio management. At
December 31, 1998, unrealized net capital gains on the fixed income securities
portfolio totaled $5.2 million compared to $3.9 million as of December 31, 1997.
The increase in the unrealized gain position is primarily attributable to lower
interest rates.
At December 31, 1998, all of the Company's fixed income securities
portfolio was rated investment grade, which is defined by the Company as a
security having a National Association of Insurance Commissioners ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating. The quality mix of the Company's fixed income securities
portfolio at December 31, 1998 is presented below.
($ in thousands)
NAIC
RATINGS MOODY'S EQUIVALENT DESCRIPTION FAIR VALUE PERCENT TO TOTAL
------- ------------------------------ ---------- ----------------
1 Aaa/Aa/A $ 84,176 97.5%
2 Baa 2,160 2.5
---------- ---------
$ 86,336 100.0%
========== =========
7
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At December 31, 1998 and 1997, $40.0 million and $39.0 million,
respectively, of the fixed income securities portfolio was invested in
mortgage-backed securities ("MBS"). At December 31, 1998, all of the MBS are
investment grade and have underlying collateral that is guaranteed by U.S.
government entities; thus credit risk is minimal.
MBS, however, are subject to interest rate risk as the duration and
ultimate realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
where cost does not significantly exceed par value, and with repayment
protection to provide more certain cash flows to the Company. At December 31,
1998, the amortized cost of the MBS portfolio was below par value by $1.3
million and over 17% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against declining interest rates.
The Company closely monitors its fixed income securities portfolio for
declines in value that are other than temporary. Securities are placed on
non-accrual status when they are in default or when the receipt of interest
payments is in doubt.
SHORT TERM INVESTMENTS The Company's short-term investment portfolio was $5.1
million and $3.0 million at December 31, 1998 and 1997, respectively. The
Company invests available cash balances primarily in taxable short-term
securities having a final maturity date or redemption date of one year or less.
CONTRACTHOLDER FUNDS AND REINSURANCE RECOVERABLE FROM ALIC During 1998,
contractholder funds decreased by $145.4 million and reinsurance recoverable
from ALIC under reinsurance agreements decreased by $145.0 million. Sales of
fixed annuity contracts and interest credited to contractholders were more than
offset by fixed annuity surrenders, withdrawals, policyholder transfers from
fixed annuity contracts to flexible premium deferred variable annuity contracts,
and benefits paid. Reinsurance recoverable from ALIC relates to contract benefit
obligations ceded to ALIC.
SEPARATE ACCOUNTS Separate Account assets and liabilities increased 22.9% to
$7.0 billion in 1998. The increases were primarily attributable to increased
sales of flexible premium deferred variable annuity contracts and favorable
investment performance of the Separate Accounts investment portfolios, partially
offset by variable annuity surrenders and withdrawals.
MARKET RISK
Market risk is the risk that the Company will incur losses due to adverse
changes in equity prices or interest rates. The Company's primary market risk
exposure is to changes in interest rates, although the Company also has certain
exposures to changes in equity prices.
INTEREST RATE RISK Interest rate risk is the risk that the Company will incur
economic losses due to adverse changes in interest rates, as the Company invests
substantial funds in interest-sensitive assets.
One way to quantify this exposure is duration. Duration measures the
sensitivity of the fair value of assets to changes in interest rates. For
example, if interest rates increase 1%, the fair value of an asset with a
duration of 5 years is expected to decrease in value by approximately 5%. At
December 31, 1998, the Company's asset duration was approximately 4.1 years, a
slight decrease from the 4.7 years reported for December 31, 1997.
8
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To calculate duration, the Company projects asset cash flows, and
discounts them to a net present value basis using a risk-free market rate
adjusted for credit quality, sector attributes, liquidity and other specific
risks. Duration is calculated by revaluing these cash flows at an alternative
level of interest rates, and determining the percentage change in fair value
from the base case. The projections include assumptions (based upon historical
market and Company specific experience) reflecting the impact of changing
interest rates on the prepayment and/or option features of instruments, where
applicable. Such assumptions relate primarily to mortgage-backed securities,
collateralized mortgage obligations, and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its
duration calculation and interest rates in effect at December 31, 1998,
management estimates that a 100 basis point immediate, parallel increase in
interest rates ("rate shock") would decrease the net fair value of its assets
identified above by approximately $3.5 million, an amount essentially unchanged
from the amount reported for December 31, 1997. The selection of a 100 basis
point immediate rate shock should not be construed as a prediction by the
Company's management of future market events; but rather, to illustrate the
potential impact of such an event.
To the extent that actual results differ from the assumptions utilized,
the Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
EQUITY PRICE RISK Equity price risk is the risk that the Company will incur
economic losses due to adverse changes in equity prices. At December 31, 1998
the Company had variable annuity and variable life funds with balances totaling
$7.0 billion. The Company earns mortality and expense fees as a percentage of
fund balance. In the event of an immediate decline of 10% in the fund balances
due to equity market declines, the Company would earn approximately $9.5 million
less in annualized fee income which would be ceded to ALIC.
CORPORATE OVERSIGHT In formulating and implementing policies for investing new
and existing funds, AIC, an indirect parent of the Company, administers and
oversees investment risk management processes primarily through three oversight
bodies: the Boards of Directors and Investment Committees of its operating
subsidiaries, and the Credit and Risk Management Committee ("CRMC"). The Boards
of Directors and Investment Committees provide executive oversight of investment
activities. The CRMC is a senior management committee consisting of the Chief
Investment Officer, the Investment Risk Manager, and other investment officers
who are responsible for the day-to-day management of market risk. The CRMC meets
at least monthly to provide detailed oversight of investment risk, including
market risk.
AIC has investment guidelines that define the overall framework for
managing market and other investment risks, including the accountabilities and
controls over these activities. In addition, AIC has specific investment
policies for each of its affiliates, including the Company, that delineate the
investment limits and strategies that are appropriate for the Company's
liquidity, surplus, product and regulatory requirements.
9
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LIQUIDITY AND CAPITAL RESOURCES
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 of policyholder claims, benefits, contract
maturities, contract surrenders and withdrawals and certain operating costs 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 dependant on
ALIC's ability to meet those demands. ALIC's claims-paying ability was rated
Aa2, AA+ and A+ by Moody's, Standard and Poor's and A.M. Best, respectively, at
December 31, 1998.
The primary sources for the remainder of the Company's funds are
collection of principal and interest from the investment portfolio and capital
contributions from ALIC. The primary uses for the remainder of the Company's
funds are to purchase investments and pay costs associated with the maintenance
of the Company's investment portfolio.
At December 31, 1998, the Moody's and Standard and Poor's financial
strength ratings for the Company were Aa2 and AA+, respectively.
The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists of
a formula for determining each insurer's RBC and a model law specifying
regulatory actions if an insurer's RBC falls below specified levels. The RBC
formula for life insurance companies establishes capital requirements relating
to insurance, business, asset and interest rate risks. At December 31, 1998, RBC
for the Company was significantly above a level that would require regulatory
action.
YEAR 2000
The Company is dependent upon certain services provided for it by the
Corporation including computer-related systems, and systems and equipment that
are not typically thought of as computer-related (referred to as "non-IT"). For
this reason, the Company is reliant upon the Corporation for the establishment
and maintenance of its computer-related systems and non-IT.
The Corporation is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, insurance processing,
underwriting, loss reserving, investments and other enterprise systems. Since
many of the Corporation's older computer software programs recognize only the
last two digits of the year in any date, some software may fail to operate
properly in or after the year 1999, if the software is not reprogrammed,
remediated, or replaced ("Year 2000"). Also, non-IT often contain embedded
hardware or software that may have a Year 2000 sensitive component. The
Corporation believes that many of its counterparties and suppliers also have
Year 2000 issues and non-IT issues which could affect the Corporation.
In 1995, the Corporation commenced a plan consisting of four phases which
are intended to mitigate and/or prevent the adverse affects of the Year 2000
issues on its systems: 1) inventory and assessment of affected systems and
equipment, 2) remediation and compliance of systems and equipment through
strategies that include the replacement or enhancement of existing systems,
upgrades to operating systems already covered by maintenance agreements and
modifications to existing systems to make them Year 2000 compliant, 3) testing
of systems using clock-forward testing for both current and future dates and for
dates which trigger specific processing, and 4) contingency planning which will
address possible adverse scenarios and the potential financial impact to the
Corporation's results of operations, liquidity or financial position.
10
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The Corporation believes that the first three steps of this plan,
assessment, remediation and testing, including clock-forward testing which is
being performed on the Corporation's systems and non-IT, are mostly complete for
the Corporation's critical systems. In April 1998, the Corporation announced its
main premium application system, ALERT, which manages more than 20 million auto
and homeowners policies, is Year 2000 compliant. The Corporation is relying on
other remediation techniques for its midrange and personal computer
environments, and certain mainframe applications.
Certain investment processing systems, midrange computers and personal
computer enviornments are planned to be remediated by the middle of 1999, and
some systems and non-IT related to discontinued or non-critical functions of the
Corporation are planned to be abandoned by the end of 1999.
The Corporation is currently in the process of identifying key processes
and developing contingency plans in the event that the systems supporting these
key processes are not Year 2000 compliant at the end of 1999. Management
believes these contingency plans should be completed by mid-1999. Until these
plans are complete, management is unable to determine an estimate of the most
reasonably possible worst case scenario due to issues relating to the Year 2000.
In addition, the Corporation is actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Corporation's exposure to both their Year 2000 issues and non-IT issues. This
assessment has included the solicitation of external counterparties and
suppliers, evaluating responses received and testing third party interfaces and
interactions to determine compliance. Currently the Corporation has solicited
approximately 1,500, and has received responses from approximately 75% of its
counterparties and suppliers. The Corporation will continue its efforts to
solicit responses on Year 2000 compliance from these parties. The majority of
these responses have stated that the counterparties and suppliers believe that
they will be Year 2000 compliant and that no transactions will be affected.
However, some key vendors have not provided affirmative responses to date. The
Corporation has also decided to test certain interfaces and interactions to gain
additional assurance on third party compliance. If key vendors are unable to
meet the Year 2000 requirement, the Corporation is preparing contingency plans
that will allow the Corporation to continue to sell its products and to service
its customers. Management believes these contingency plans should be completed
by mid-1999. The Corporation currently does not have sufficient information to
determine whether or not all of its external counterparties and suppliers will
be Year 2000 ready.
The Corporation is currently assessing the level of Year 2000 risk
associated with certain personal lines policies that have been issued. To date,
no changes have been made in the coverages provided by the Corporation's
personal auto and homeowners lines policies to specifically exclude coverage for
Year 2000 related claims. This does not mean that all losses, or any particular
type of loss, that might be related to Year 2000 will be covered. Rather, all
claims will continue to be evaluated on a case-by-case basis to determine
whether coverage is available for a particular loss in accordance with the
applicable terms and conditions of the policy in force.
The Corporation also has investments which have been publicly and privately
placed. The Corporation may be exposed to the risk that the issuers of these
investments will be adversely impacted by Year 2000 issues. The Corporation
assesses the impact which Year 2000 issues have on the Corporation's investments
as part of due diligence for proposed new investments, and in its ongoing review
of all current portfolio holdings. Any recommended actions with respect to
individual investments are determined by taking into account the potential
impact of Year 2000 on the issuer. Contingency plans are being created for any
securities held whose issuer is determined to not be Year 2000 compliant.
11
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The Corporation presently believes that it will resolve the Year 2000 issue
in a timely manner. Year 2000 costs are expensed as incurred, therefore the
majority of the expenses related to this project have been incurred as of
December 31, 1998. The Corporation estimates that approximately $125 million in
costs will be incurred between the years of 1995 and 2000. These amounts include
costs directly related to fixing Year 2000 issues, such as modifying software
and hiring Year 2000 solution providers. These amounts also include costs
incurred to replace certain non-compliant systems which would not have been
otherwise replaced. A portion of these costs will be incurred by the Company on
a pro rata basis of usage of the computer-related systems and non-IT, as
compared to the usage of all entities which share these services with the
Corporation. These amounts are not expected to be material to the results of
operations of the Company.
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The pertinent provisions of Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 8 to 9 are herein incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements filed with this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disclosure required by this Item.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS. The Registrants financial statements, for the year
ended December 31, 1998, together with the Report of Independent Accountants are
set forth on pages F-1 - F-16 of this report.
2. FINANCIAL STATEMENT SCHEDULES. The following are included in Part IV of
this report:
Schedule IV - Reinsurance page F-17
All other schedules have been omitted because they are not applicable or
not required or because the required information is included in the financial
statements or notes thereto.
3. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation
S-K are listed under the caption "Exhibits" in Item 14(c).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended December 31, 1998.
(c) EXHIBITS
Exhibit No. Description
3(i) Amended and Restated Articles of Incorporation and Articles of
Redomestication of Northbrook Life Insurance Company
(filed herewith)
3(ii) Amended and Restated By-laws of Northbrook Life Insurance
Company (filed herewith)
27 Financial Data Schedule (filed herewith)
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Financial Statements
Index
-----
Page
----
Independent Auditors' Report............................................... F-1
Financial Statements:
Statements of Financial Position
December 31, 1998 and 1997........................................... F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-5
Notes to Financial Statements......................................... F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-17
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INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:
We have audited the accompanying Statements of Financial Position of Northbrook
Life Insurance Company (the "Company", an affiliate of The Allstate Corporation)
as of December 31, 1998 and 1997, and the related Statements of Operations and
Comprehensive Income, Shareholder's Equity and Cash Flows for each of the three
years in the period ended December 31, 1998. 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 the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 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.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 19, 1999
F-1
<PAGE>
F-2
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,156 and $72,491) $ 86,336 $ 76,402
Short-term 5,083 3,031
---------- ----------
Total investments 91,419 79,433
Reinsurance recoverable from Allstate Life
Insurance Company 2,148,091 2,293,094
Receivable from affiliates, net -- 1,467
Other assets 8,206 5,033
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL ASSETS $9,278,799 $8,098,230
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $ 145,055 $ 144,352
Contractholder funds 2,003,122 2,148,555
Current income taxes payable 1,830 162
Deferred income taxes 3,316 2,674
Payable to affiliates, net 6,586 --
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL LIABILITIES 9,190,992 8,014,946
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 25,000 shares
authorized, issued and outstanding 2,500 2,500
Additional capital paid-in 56,600 56,600
Retained income 25,340 21,642
Accumulated other comprehensive income:
Unrealized net capital gains 3,367 2,542
---------- ----------
Total accumulated other comprehensive income 3,367 2,542
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 87,807 83,284
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $9,278,799 $8,098,230
========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-3
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,691 $ 5,146 $ 4,888
Realized capital gains and losses 2 (68) (20)
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 5,693 5,078 4,868
Income tax expense 1,995 1,756 1,666
------- ------- -------
NET INCOME 3,698 3,322 3,202
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital gains and losses 825 1,256 (1,371)
------- ------- -------
COMPREHENSIVE INCOME $ 4,523 $ 4,578 $ 1,831
======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-4
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK $ 2,500 $ 2,500 $ 2,500
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN 56,600 56,600 56,600
-------- -------- --------
RETAINED INCOME
Balance, beginning of year 21,642 18,320 15,118
Net income 3,698 3,322 3,202
-------- -------- --------
Balance, end of year 25,340 21,642 18,320
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 2,542 1,286 2,657
Change in unrealized net capital gains and losses 825 1,256 (1,371)
-------- -------- --------
Balance, end of year 3,367 2,542 1,286
-------- -------- --------
Total shareholder's equity $ 87,807 $ 83,284 $ 78,706
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-5
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,698 $ 3,322 $ 3,202
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization and
other non-cash items 518 516 782
Realized capital gains and losses (2) 68 20
Changes in:
Life-contingent contract benefits and
contractholder funds 273 205 (198)
Income taxes payable 1,866 (480) 346
Other operating assets and liabilities 4,126 (264) 542
-------- -------- --------
Net cash provided by operating activities 10,479 3,367 4,694
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,922 1,606 3,522
Investment collections 10,253 10,036 5,770
Investment purchases (20,690) (18,568) (15,532)
Change in short-term investments, net (1,964) 3,559 1,459
-------- -------- --------
Net cash used in investing activities (10,479) (3,367) (4,781)
-------- -------- --------
NET DECREASE IN CASH -- -- (87)
CASH AT THE BEGINNING OF YEAR -- -- 87
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-6
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Northbrook Life
Insurance 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"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance exclusively through Dean
Witter Reynolds Inc. ("Dean Witter") (see Note 4), a wholly owned subsidiary of
Morgan Stanley Dean Witter. Savings products include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities. Life insurance includes universal life and variable life
products. In 1998, substantially all of the Company's statutory premiums and
deposits were from annuities. The Company re-domesticated its operations from
Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrenders or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses. Such events would present
an increased level of competition for sales of the Company's products.
Furthermore, the market for deferred annuities and interest-sensitive life
insurance is enhanced by the tax incentives available under current law. Any
legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums and deposits for the Company are
California, Florida and Texas for the year ended December 31, 1998. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits are ceded to ALIC under reinsurance
agreements.
<PAGE>
F-7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. 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.
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues to
have primary liability as the direct insurer for risks reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
<PAGE>
F-8
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, 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. The Company's Separate Accounts consist
of: Northbrook Variable Annuity Account, Northbrook Variable Annuity Account II
and Northbrook Life Variable Life Separate Account A. Each of the Separate
Accounts are unit investment trusts registered with the Securities and Exchange
Commission.
The assets of the Separate Accounts are carried at fair value. 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
statements of operations and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to structured
settlement annuities with life contingencies, is computed on the basis of
assumptions as to future investment yields, mortality, morbidity, terminations
and expenses. These assumptions include provisions for adverse deviation and
generally vary by such characteristics as type of coverage, year of issue and
policy duration. Reserve interest rates ranged from 4.00% to 11.00% during 1998.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.25% to 6.50% for those with flexible rates.
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.
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
<PAGE>
F-9
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. Reinsurance recoverable and the related reserve for life-contingent
contract benefits and contracholder funds are reported separately in the
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 financial statements as those assets are owned and managed under the
terms of reinsurance agreements. The following amounts were ceded to ALIC under
reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
Premiums $ 2,528 $ 1,979 $ 3,775
Contract charges 102,218 83,559 60,744
Credited interest, policy benefits,
and certain expenses 217,428 201,526 218,088
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred 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 $26,230, $23,978 and $26,583 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
<PAGE>
F-10
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have a strategic alliance with Dean Witter to develop,
market and distribute proprietary annuity and life insurance products through
Morgan Stanley Dean Witter Financial Advisors. Affiliates of Dean Witter are the
investment managers for the Morgan Stanley Dean Witter Variable Investment
Series, Morgan Stanley Universal Funds, Inc. and the Van Kampen American Capital
Life Investment Trust, the funds in which the assets of the Separate Accounts
are invested.
Under the terms of the strategic alliance, the Company has agreed to use Dean
Witter as an exclusive distribution channel for the Company's products. In
addition to the Company's products, Dean Witter markets other products which
compete with those of the Company. The strategic alliance is cancelable by
either party, however, the Company believes the benefits derived by Dean Witter
will preserve the alliance. If Dean Witter would choose to cancel the alliance,
existing contracts and policies would not be affected.
5. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
--------------------
AMORTIZED FAIR
COST GAINS LOSSES VALUE
---------- ------- ------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998
U.S. government and agencies $ 8,648 $ 1,469 $ -- $10,117
Municipal 590 11 -- 601
Corporate 33,958 1,634 (16) 35,576
Mortgage-backed securities 37,960 2,250 (168) 40,042
------- ------- ------- -------
Total fixed income securities $81,156 $ 5,364 $ (184) $86,336
======= ======= ======= =======
AT DECEMBER 31, 1997
U.S. government and agencies $ 8,638 $ 823 $ -- $ 9,461
Municipal 1,143 28 -- 1,171
Corporate 25,913 897 (12) 26,798
Mortgage-backed securities 36,797 2,315 (140) 38,972
------- ------- ------- -------
Total fixed income securities $72,491 $ 4,063 $ (152) $76,402
======= ======= ======= =======
</TABLE>
<PAGE>
F-11
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 1,443 $ 1,452
Due after one year through five years 7,546 7,950
Due after five years through ten years 26,008 27,429
Due after ten years 8,199 9,463
------- -------
43,196 46,294
Mortgage-backed securities 37,960 40,042
------- -------
Total $81,156 $86,336
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 5,616 $ 5,364 $ 4,675
Short-term investments 190 84 390
------- ------- -------
Investment income, before expense 5,806 5,448 5,065
Investment expense 115 302 177
------- ------- -------
Net investment income $ 5,691 $ 5,146 $ 4,888
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 2 $ (70) $ (22)
Short-term investments -- 2 2
------- ------- -------
Realized capital gains and losses 2 (68) (20)
Income tax (1) 24 7
------- ------- -------
Realized capital gains and losses, after tax $ 1 $ (44) $ (13)
======= ======= =======
Excluding calls and prepayments, gross losses of $9, $70 and $32 were realized
on sales of fixed income securities during 1998, 1997 and 1996, respectively.
<PAGE>
F-12
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 81,156 $ 86,336 $ 5,364 $ (184) $ 5,180
======== ======== ======== ========
Deferred income taxes (1,813)
--------
Unrealized net capital gains $ 3,367
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 1,269 $ 1,932 $(2,108)
Deferred income taxes (444) (676) 737
------- ------- -------
Increase (decrease) in unrealized net
capital gains $ 825 $ 1,256 $(1,371)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $9,188
were on deposit with regulatory authorities as required by law.
6. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including universal
life-type insurance reserves and deferred income taxes) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income,
are generally of a short-term nature. Their carrying values are assumed to
approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 86,336 $ 86,336 $ 76,402 $ 76,402
Short-term investments 5,083 5,083 3,031 3,031
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
<PAGE>
F-13
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $1,839,114 $1,814,684 $1,977,479 $1,951,214
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
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 account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
7. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal income tax allocation agreement (the "Allstate Tax
Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this results
in the Company's annual income tax provision being computed, with adjustments,
as if the Company filed a separate return.
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, 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"). 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 Company in the
consolidated federal income tax return.
<PAGE>
F-14
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax assets and liabilities at December 31,
are as follows:
1998 1997
---- ----
DEFERRED ASSETS
Separate Accounts $ -- $ 149
------- -------
DEFERRED LIABILITIES
Difference in tax bases of investments (1,503) (1,454)
Unrealized net capital gains (1,813) (1,369)
------- -------
Total deferred liabilities (3,316) (2,823)
------- -------
Net deferred liability $(3,316) $(2,674)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
---- ---- ----
Current $ 1,797 $ 1,843 $ 1,642
Deferred 198 (87) 24
------- ------- -------
Total income tax expense $ 1,995 $ 1,756 $ 1,666
======= ======= =======
The Company paid income taxes of $129, $2,236 and $2,308 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $1,830 and $162
at December 31, 1998 and 1997, respectively.
<PAGE>
F-15
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt income (0.2) (0.4) (0.6)
Other 0.2 -- (0.2)
------ ------ ------
Effective income tax rate 35.0% 34.6% 34.2%
====== ====== ======
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1998, approximately $16,
will result in federal income taxes payable of $6 if distributed by the Company.
No provision for taxes has been made as the Company has no plan to distribute
amounts from this account. No further additions to the account have been
permitted since the Tax Reform Act of 1984.
8. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Arizona
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), 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 significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
<PAGE>
F-16
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 the Company 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 1999 without prior approval of the Arizona Department of Insurance is
$3,518.
9. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------- ---------------------------- -----------------------------
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized capital gains
and losses:
- ---------------------------------
Unrealized holding gains
(losses) arising during
the period $ 1,271 $ (445) $ 826 $ 1,862 $ (652) $ 1,210 $(2,130) $ 745 $(1,385)
Less: reclassification
adjustment for realized
net capital gains
included in net income 2 (1) 1 (70) 24 (46) (22) 8 (14)
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) 1,269 (444) 825 1,932 (676) 1,256 (2,108) 737 (1,371)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 1,269 $ (444) $ 825 $ 1,932 $ (676) $ 1,256 $(2,108) $ 737 $(1,371)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
<PAGE>
F-17
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 494,256 $ 494,256 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 104,746 $ 104,746 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 515,890 $ 515,890 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 85,538 $ 85,538 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 556,242 $ 556,242 $ --
========= ========= ==========
Premiums and contract charges:
Life and annuities $ 64,519 $ 64,519 $ --
========= ========= ==========
<PAGE>
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.
NORTHBROOK LIFE INSURANCE COMPANY
By /s/ LOUIS G. LOWER, II
----------------------
Louis G. Lower, II
Chairman of the Board,Chief Executive Officer
and Director
(Principal Executive Officer)
Date March 3, 1999
------------------
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
Chairman of the Board,Chief Executive Officer
and Director
(Principal Executive Officer)
Date March 3, 1999
------------------
By /s/ PETER H. HECKMAN
----------------------
Peter H. Heckman
President, Chief Operating Officer
and Director
Date March 4, 1999
-------------------
By /s/ MICHAEL J. VELOTTA
----------------------
Michael J. Velotta
Vice President, Secretary,
General Counsel and Director
Date March 3, 1999
-------------------
By /s/ KEVIN R. SLAWIN
--------------------
Kevin R. Slawin
Vice President and Director
Date March 1, 1999
-------------------
By /s/ KEITH A. HAUSCHILDT
------------------------
Keith A. Hauschildt
Assistant Vice President and Controller
(Chief Accounting Officer)
Date March 4, 1999
-------------------
By /s/ SARAH R. DONAHUE
--------------------
Sarah R. Donahue
Assistant Vice President and Director
Date March 8, 1999
--------------------
16
<PAGE>
By /s/ JOHN R. HUNTER
------------------
John R. Hunter
Assistant Vice President and Director
Date March 4, 1999
--------------------
By /s/ CASEY J. SYLLA
--------------------
Casey J. Sylla
Chief Investment Officer and Director
Date March 4, 1999
--------------------
By /s/ TIMOTHY N. VANDER PAS
-------------------------
Timothy N. Vander Pas
Assistant Vice President and Director
Date March 3, 1999
--------------------
By /s/ THOMAS J. WILSON, II
------------------------
Thomas J. Wilson, II
Vice Chairman and Director
Date March 5, 1999
--------------------
17
<PAGE>
EXHIBIT INDEX
The Northbrook Life Insurance Company Form 10-K for
the year ended December 31, 1998
Exhibit No. Description
3(i) Amended and Restated Articles of Incorporation and Articles of
Redomestication of Northbrook Life Insurance Company
(filed herewith)
3(ii) Amended and Restated By-laws of Northbrook Life Insurance Company
(filed herewith)
27 Financial Data Schedule (filed herewith)
E-1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
AND ARTICLES OF REDOMESTICATION
OF
NORTHBROOK LIFE INSURANCE COMPANY
We, the undersigned, acting as incorporators for the purpose of
redomesticating Northbrook Life Insurance Company, an Illinois corporation,
which intends to continue its existence, without interruption, as a corporation
organized under the laws of the State of Arizona pursuant to Arizona Revised
Statutes ss. 20-231.A, do hereby adopt the following Amended and Restated
Articles of Incorporation and Articles of Redomestication for said corporation.
ARTICLE I
The name of the corporation shall be Northbrook Life Insurance Company
ARTICLE II
The corporation was incorporated in the State of Illinois on February 1,
1960, and was the surviving corporation of merger with an effective date of
December 16, 1959.
ARTICLE III
The existence of the corporation shall be perpetual.
ARTICLE IV
Upon the approval of these Amended and Restated Articles of Incorporation
and Articles of Redomestication by the necessary regulatory authorities,
Northbrook Life Insurance Company shall be and continue to be possessed of all
privileges, franchises and powers to the same extent as if it had been
originally incorporated under the laws of the State of Arizona; and all
privileges, franchises and powers belonging to said corporation, and all
property, real, personal and mixed, and all debts due on whatever account, all
Certificates of Authority, agent appointments, and all chooses in action, shall
be and the same are hereby ratified, approved, confirmed and assured to
Northbrook Life Insurance Company with like effect and to all intents and
purposes as if it had been originally incorporated under the laws of the State
of Arizona. Said corporation shall be given recognition as a domestic
corporation of the State of Arizona from and after December 16, 1959, and as a
domestic insurer of the State of Arizona from and after February 1, 1960, the
dates of its initial incorporation and authorization to transact insurance
business under the laws of the State of Illinois, effective the date of filing
with the Arizona Corporation Commission.
ARTICLE V
The nature of the business to be transacted and the objects and purposes
for which this corporation is organized include the transaction of any and all
lawful business for which insurance corporations may be incorporated under the
laws of the State of Arizona without limitation, and as said laws may be amended
from time to time, and specifically said corporation shall be authorized to
transact disability insurance, life insurance, annuities, variable life
insurance and variable annuities as defined pursuant to A.R.S. ss.ss. 20-253,
20-254, 20-254.01, 20-2601 and 20-2632 respectively, together with such other
kinds of insurance as the corporation may from time to time be authorized to
transact, and to act as a reinsurer of business for which it is duly authorized
consistent with the applicable federal and state requirements.
ARTICLE VI
The authorized capital of the corporation shall be $2,500,000, and shall
consist of 25,000 shares of voting common stock with a par value of $100.00 per
share. No holders of stock of the corporation shall have any preferential right
to subscription to any shares securities convertible into shares of stock of the
corporation, nor any right of subscription to any thereof other than such, if
any, as the Board of Directors in its discretion may determine, and at such
price as the Board of Directors in its discretion may fix; and any shares or
convertible securities which the Board of Directors may determine to offer for
subscription to the holders of stock at the time existing.
Nothing herein contained shall be construed as prohibiting the corporation
from issuing any shares of authorized but unissued common stock for such
consideration as the Board of Directors may determine, provided such issuance is
approved by the shareholders of the corporation by a majority of the votes
entitled to be cast at any annual or special meeting of shareholders called for
that purpose. No such authorized but unissued stock may, however, be issued to
the shareholders of the corporation by way of a stock dividend, split-up or in
any other manner of distribution unless the same ratable stock dividend, stock
split-up or other distribution be declared or made in voting common stock to the
holder of such voting common stock at the time outstanding. Each holder of
common stock shall be entitled to participate share for share in any cash
dividends which may be declared from time to time on the common stock of the
corporation by the Board of Directors and to receive pro rata the net assets of
the corporation on liquidation.
ARTICLE VII
The affairs of the corporation shall be conducted by a Board of Directors
consisting of not less than five (5) nor more than fifteen (15) directors as
fixed by the bylaws, and such officers as said directors may at any time elect
or appoint. No officer or director need be a shareholder of this corporation.
Eight (8) directors shall constitute the initial Board of Directors. The names
and addresses of the persons who are to serve as directors until the next annual
meeting of shareholders or until their successors are elected and qualified, and
of the persons who are to serve as officers until the next annual meeting of the
directors or until their successors are elected and qualify, are:
Board of Directors
Louis Gordon Lower, II., Chairman
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Peter Hall Heckman
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Michael Joseph Velotta
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
<PAGE>
John Roger Hunter
Allstate Plaza West
3100 Sanders Road
Northbrook Illinois 60062-7154
Kevin Rourke Slawin
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Casey Joseph Sylla
Allstate Plaza North
2775 Sanders Road
Northbrook, Illinois 60062-7154
Timothy Nicholas Vander Pas
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Thomas Joseph Wilson, II.
Allstate Plaza North
2775 Sanders Road
Northbrook, Illinois 60062-7154
Officers
Louis Gordon Lower, II, Chief Executive Officer
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Pete Hall Heckman - President and Chief Operating Officer
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Michael Joseph Velotta - Vice President, Secretary and General Counsel
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
James Philip Zils - Treasurer
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Marla Gay Friedman - Vice President
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Karen Cassidy Gardner - Vice President
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Kevin Rourke Slawin - Vice President
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-7154
Casey Joseph Sylla - Chief Investment Officer
Allstate Plaza North
2775 Sanders Road
Northbrook, Illinois 60062-7154
The directors shall have the power to adopt, amend, alter and repeal the
Bylaws, to manage the corporate affairs and make all rules and regulations
expedient for the management of the affairs of the corporation, to remove any
officer and to fill all vacancies occurring in the Board of Directors and
offices for any cause, and to appoint from their own number an executive
committee and other committees and vest said committees with all the powers
permitted by the Bylaws.
ARTICLE VIII
The Corporation may indemnify any person as permitted by the laws of the
State of Arizona, and as further specified in its Bylaws, including the power to
purchase and maintain insurance to indemnify the corporation for any obligation
which it may incur as a result of such indemnification.
ARTICLE IX
All directors of the corporation shall be elected at the annual meeting of
the shareholders, which shall be held on the third Tuesday of February of each
year or such other date and time as may be determined by the Board of Directors,
unless such day falls on a holiday, in which event the regular annual meeting
shall be held on the next succeeding business day.
ARTICLE X
The registered office of business of the corporation shall be located in
the City of Phoenix, Maricopa County, Arizona, but it may have other places of
business and transact business, and its Board of Directors or shareholders may
meet for the transaction of business, at such other place or places within or
without the State of Arizona which its Board of Directors may designate.
ARTICLE XI
The fiscal year of the corporation shall be the calendar year.
ARTICLE XII
In no event shall the corporation incur indebtedness in excess of the
amount authorized by law.
ARTICLE XIII
The shares of the corporation, when issued, shall be non-assessable, except
to the extent required by the Constitution, specifically, but not in limitation
thereof, as provided by Article XIV, Section 11 of the Constitution of the State
of Arizona and the laws of the State of Arizona.
ARTICLE XIV
The private property of the shareholders, directors and officers of the
corporation shall be forever exempt from debts and obligations of the
corporation.
ARTICLE XV
The Bylaws of the corporation may be repealed, altered amended, or
substitute Bylaws may be adopted, by the directors or the shareholders, in
accordance with the provisions contained in said Bylaws.
ARTICLE XVI
J. Michael Low of 2999 North 44th Street, Suite 250, Phoenix, Arizona,
85018, having been a bona fide resident of Arizona for at least three (3) years,
is hereby appointed the statutory agent of this corporation in the State of
Arizona, upon whom notices and processes, including service of summons, may be
served, and which, when so served shall have lawful personal service on the
corporation. The Board of Directors may revoke this appointment at any time, and
shall fill the vacancy in such position whenever one exists.
ARTICLE XVII
The names and addresses of the incorporators of the corporation are:
J. Michael Low
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
S. David Childers
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Steven R. Henry
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Kathleen T. Newcomb
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Charles R. Bassett
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
All individual incorporators are eighteen (18) years of age or older.
All powers, duties and responsibilities of the incorporators shall cease at
the time of delivery of these Amended and Restated Articles of Incorporation and
Articles of Redomestication to the Arizona Corporation Commission for filing.
IN WITNESS WHEREOF, we hereunto affix our signatures as of the ____ day of
, --------------------------- 199 . ----
- ---------------------------- -----------------------------
J. Michael Low S. David Childers
- ---------------------------- -----------------------------
Steven R. Henry Kathleen T. Newcomb
- ----------------------------
Charles R. Bassett
Subscribed, sworn to and acknowledged before me this _______ day of , 199 .
- ------------------ ---
-------------------------
Notary Public
My Commission Expires:
- -------------------------
<PAGE>
APPOINTMENT OF STATUTORY AGENT
I, J. Michael Low, being a resident of the State of Arizona for at least
three (3) years preceding this appointment, do hereby accept appointment as
Statutory Agent for Northbrook Life Insurance Company in accordance with the
Arizona Revised Statutes until appointment of a successor Statutory Agent and
removal.
DATED, this ____ day of , 199 .
---------------------- -------
------------------------------
J. Michael Low, Esq.
Low & Childers, P.C.
APPOINTMENT OF STATUTORY AGENT
I, J. Michael Low, being a resident of the State of Arizona for at least
three (3) years preceding this appointment, do hereby accept appointment as
Statutory Agent for Northbrook Life Insurance Company in accordance with the
Arizona Revised Statutes until appointment of a successor Statutory Agent and
removal.
DATED, this ____ day of , 199 . --------------------------- -------
------------------------------
J. Michael Low, Esq.
Low & Childers, P.C.
AMENDED AND RESTATED BYLAWS
OF
NORTHBROOK LIFE INSURANCE COMPANY
ARTICLE I
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of the
corporation shall be held at the principal office of the corporation, or at such
other place as shall be set forth in the notice of meeting, on the third Tuesday
in February, or on such other date as the Board of Directors or the Chief
Executive Officer and/or President may determine, for the purpose of electing
directors and for the transaction of such other business as may be brought
before the meeting.
Section 2. Notice of Annual Meeting. Notice of the time and place of
holding such annual meeting shall be given by the Secretary by mailing a copy
thereof to each stockholder entitled to vote thereat at his address as it
appears on the books of the corporation, or by delivering it to him in person,
not less than ten days nor more than sixty days before such meeting. The officer
or agent having charge of the stock transfer books for shares of the corporation
shall make a complete record of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each. Such record shall be produced
and kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder during the whole time of the meeting for the
purposes thereof.
Section 3. Special Meetings. Special meetings of the stockholders, to be
held at the principal office of the corporation or elsewhere, shall be called by
the Chief Executive Officer and/or President, and must be called by him, or in
his absence by the Vice President, on receipt of a written request from the
holders of a majority of the outstanding stock of the corporation or from a
majority of the directors of the corporation.
Section 4. Notice of Special Meetings. Notice of the time, place, and
purpose of each special meeting shall be given by the Secretary by mailing a
copy thereof to each stockholder entitled to vote thereat at his address as it
appears on the books of the corporation, or by delivering it to him in person,
at least ten days and not more than sixty days prior to the date of such
meeting.
Section 5. Waiver of Notice of Meeting. Notice of any meeting of
stockholders, annual or special, shall not be required to be given to any
stockholder entitled to vote thereat who shall attend such meeting in person or
by proxy, or who shall before or after such meeting, in person or by proxy
thereunto authorized, waive notice of such meeting in writing or by telegraph or
cable.
Section 6. Quorum; Adjournments of Meetings. At all meetings of the
stockholders, except as otherwise provided by law, the holders of a majority of
the outstanding stock of the corporation, present in person or by proxy and
entitled to vote thereat, shall constitute a quorum for the transaction of
business, unless the representation of a larger number shall be required by law,
in which event such number shall constitute a quorum. In the absence of a
quorum, a majority in interest of the stockholders so present or represented may
adjourn the meeting from time to time until a quorum is obtained. No notice
shall be necessary for any such adjourned meeting except the statement at the
meeting which is adjourned. At any such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 7. Organization. Except where otherwise provided by statute, the
Chief Executive Officer and/or President of the corporation, shall call meetings
of the stockholders and shall act as chairman of such meetings. In the absence
of the Chief Executive Officer and/or President and Vice President, a chairman
shall be chosen by the stockholders present. The Secretary of the corporation
shall act as secretary at all meetings of the stockholders, but in the absence
of the Secretary the presiding officer may appoint any person to act as
secretary of the meeting.
Section 8. Voting. At each meeting of the stockholders, every stockholder
entitled to vote thereat shall be entitled to vote in person or by proxy
appointed by an instrument in writing, subscribed by such stockholder or his
duly authorized attorney, and delivered to the secretary of the meeting, and he
shall have one vote for each share of the voting stock outstanding in his name,
except that the cumulative system of voting as required by the laws of Arizona
shall govern the election of directors. Upon demand of any stockholder, the
votes for directors or upon any question before the meeting shall be by ballot.
Section 9. Consents. Whenever the vote of stockholders is required or
permitted to be taken at a meeting thereof in connection with any corporate
action, the meeting and the vote of stockholders may be dispensed with if all
the stockholders who would have been entitled to vote upon the actions, if such
meeting were held, shall consent in writing to such corporate actions being
taken.
ARTICLE II
Board of Directors
Section 1. Number, Qualifications, Election, and Term of Office. The number
of directors shall be not less than five (5) no more than fifteen (15) which
number may be altered from time to time as provided by the Arizona General
Corporation Law, Title 10, Chapter 8, Section 10-803, et seq. No director need
be a holder of capital stock of the corporation. The directors shall be elected
annually, and each shall continue in office until the next annual meeting held
after his election and until his successor shall have been elected and
qualified, except that a director may be removed with or without cause, and his
successor elected and qualified, in advance of an annual meeting, at a special
meeting of stockholders called for that purpose, by vote of a majority of the
outstanding stock of the corporation. A director whose removal is thus proposed
shall be given written notice of the meeting not less than seven days prior
thereto.
Section 2. Vacancies and Resignation. In case of any vacancy in the Board
of Directors through death, resignation, disqualification, increase in number,
or other cause, the remaining director or directors, although less than a
quorum, by affirmative vote of a majority thereof may elect a successor or
successors to hold office for the unexpired portion of the term of the director
whose place shall be vacant, and until the election and qualification of his
successor or successors. Any director of the corporation may resign by giving
written notice to the Chief Executive Officer and/or President or Secretary,
which resignation shall be effective on the date specified in the notice, or, if
no date is specified, upon its acceptance by the Board of Directors.
Section 3. Powers and Duties. The Board of Directors shall have general
power to manage and control the business and property of the corporation.
Section 4. Place of Meeting. The Board of Directors may hold its meetings
at such place or places within or without the State of Arizona as the Board may
from time to time determine.
Section 5. Annual Meeting. After each annual meeting of stockholders for
the election of directors, the newly elected Board of Directors shall meet for
the purpose of organization and the transaction of such other business as may
properly come before the meeting. Such an annual meeting shall be held at the
place where the annual meeting of stockholders was held at which they were
elected, or at such other place as the new Board shall determine. Notice of such
annual meeting need not be given.
Section 6. Regular Meetings: Notice. Regular meetings of the Board of
Directors may be held at such time and place as may be determined by the Board,
and thereupon no notice of such regular meetings need be given.
Section 7. Special Meetings: Notice. Special meetings of the Board of
Directors shall be held at any time and place upon the call of the Chief
Executive Officer and/or President, or any two (2) Directors. Notice of the
time, place, and purpose of every special meeting of the Board shall be given to
each director by the Chief Executive Officer and/or President or Secretary
either by mail, personally, telegram or telephone at least two day's before the
meeting.
Section 8. Waiver of Notice of Meeting. Notice of any special meeting of
the Board of Directors need not be given to any director who shall attend such
meeting in person or shall participate in such meeting by telephone, or who
shall before or after such meeting waive notice in writing, by telegraph or by
cable.
Section 9. Quorum. A majority of the directors in office present in person
or by participation by telephone shall constitute a quorum for the transaction
of business, but if at any meeting of the Board there shall be less than such
quorum, the directors present may adjourn the meeting from time to time until a
quorum is obtained. No notice shall be necessary for any such adjourned meeting
except the statement at the meeting which is adjourned.
Section 10. Organization. Every meeting of the Board of Directors shall be
presided over by the Chairman of the Board, or in his absence the Chief
Executive Officer and/or President. In the absence of the Chairman and the Chief
Executive Officer and/or President, a presiding officer shall be chosen by the
directors present. The Secretary of the corporation shall act as secretary of
the meeting, but in his absence the presiding officer may appoint any person to
act as secretary of the meeting.
Section 11. Consents. Whenever the vote of directors is required or
permitted to be taken at a meeting thereof in connection with any corporate
action, the meeting and the vote of directors may be dispensed with if all the
directors shall consent in writing to such corporate actions being taken.
Section 12. Action Without Meeting. Unless otherwise restricted by the
articles of incorporation or these bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 13. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors, and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
such meetings. The amount or rate of such compensation of members of the Board
of Directors or of committees shall be established by the Board of Directors and
shall be set forth in the minutes of the Board.
Section 14. Distributions From Capital Surplus. The Board of Directors of
the corporation may, from time to time, distribute on a pro rata basis to its
stockholders out of the capital surplus of the corporation a portion of its
assets, in cash or property.
Section 15. Repurchase of Shares. The Board of Directors of the corporation
may from time to time cause the corporation to purchase its own shares to the
extent of the unreserved and unrestricted earned and capital surplus of the
corporation.
Section 16. Chairman of the Board. If the Board of Directors appoints a
Chairman of the Board, he shall, notwithstanding any other provision in these
bylaws to the contrary, preside at all meetings of stockholders and the Board of
Directors. He shall have such powers and perform such other duties as may be
prescribed by the Board of Directors.
ARTICLE III
Officers
Section 1. Number. The officers of the corporation shall be Chief Executive
Officer and/or President, one or more Vice Presidents, a Secretary, a Treasurer,
and such other officers as may be appointed from time to time by the Board of
Directors. One person may hold more than one office in the corporation.
Section 2. Election, Qualification and Term of Office. The officers of the
corporation shall be chosen annually at the first meeting of the newly elected
Board of Directors held immediately following the annual meeting of
stockholders.
Section 3. Other Officers and Agents. The Board of Directors may appoint
from time to time such other officers or agents as it shall deem necessary, each
of whom shall hold office during the pleasure of the Board and have such
authority and perform such duties as the Board of Directors may from time to
time determine.
Section 4. Removal and Resignation. Any officer, agent or employee of the
corporation may be removed, with or without cause, by the Board of Directors,
and may resign by giving written notice to the Chief Executive Officer and/or
President or Secretary, which resignation shall be effective on the date
specified in the notice, or, if no date is specified, upon its acceptance by the
Board of Directors.
Section 5. Chief Executive Officer and/or President: Powers and Duties. The
Chief Executive Officer and/or President shall, subject to the control of the
Board of Directors, have general charge of the business of the corporation. He
shall keep the Board of Directors fully informed, shall freely consult with them
concerning the business of the corporation, and shall perform such other duties
as may be assigned to him by the Board of Directors. They may sign, in the name
of the corporation, all authorized contracts, documents, checks, and bonds, or
other obligations.
Section 6. Vice President: Powers and Duties. In the absence of the Chief
Executive Officer and/or President, the Vice President (and if there be more
than one, then the First Vice President, and in his absence then the Second Vice
President, and so on) shall assume and exercise all the powers of the Chief
Executive Officer and/or President. The Vice President or Vice Presidents shall
perform such other duties and have such other powers as the Board of Directors
may prescribe.
Section 7. Secretary: Powers and Duties. The Secretary shall keep the
minutes of all meetings in the books proper for that purpose. He shall attend to
the giving and serving of all notices of the corporation. He may sign, if
authorized by the Board of Directors, in the name of the corporation all
authorized contracts, documents, checks, bonds, or other obligations, and he
shall affix the seal of the corporation thereto. He shall have charge of the
certificate books, stock books, and such other books and papers as the Board of
Directors may direct. He shall make all such corporate records available for
inspection as required by law.
Section 8. Assistant Secretary. The Board of Directors may appoint one or
more Assistant Secretaries who shall have such powers and perform such duties as
may be prescribed by the Board of Directors.
Section 9. Treasurer: Powers and Duties. The Treasurer shall have the
custody of all of the funds and securities of the corporation. He shall endorse
on behalf of the corporation, for collection, checks, notes, and other
obligations, and shall deposit the same to the credit of the corporation in such
bank or banks as the Board of Directors may designate. He shall sign all
receipts and vouchers for payments made to the corporation. He may sign in the
name of the corporation, if authorized by the Board of Directors, all authorized
contract, documents, checks, bonds, and other obligations. He shall keep books
of account of the financial business and affairs of the corporation, and shall
render a statement of his accounts and records to the Board of Directors or to
the stockholders at a meeting thereof whenever so required. He shall exhibit all
accounts and records to any director upon reasonable request. He shall make all
such records available for inspection as required by law.
Section 10. Assistant Treasurer. The Board of Directors may appoint one or
more Assistant Treasurers who shall have such powers and perform such duties as
may be prescribed by the Board of Directors.
ARTICLE IV
Contracts, Checks, Drafts, Bank Accounts, Etc.
Section 1. Contracts. Any contract or instrument necessary for the business
of the corporation may be signed by the Chief Executive Officer and/or President
or by any other officers thereunto authorized by the Board of Directors, or any
of the Board Members, and attested by the Secretary, who may affix thereto the
seal of the corporation.
Section 2. Bank Accounts. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies, or other depositories as the Board of Directors may select, or as may
be selected by any officer or officers, agent or agents, of the corporation to
whom such power may from time to time be delegated by the Board of Directors.
Section 3. Checks, Drafts, Etc. All checks, drafts, or orders for the
payment of money, and all notes and other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers, or
person or persons, as shall from time to time be authorized so to do by
resolution of the Board of Directors.
ARTICLE V
Shares and Their Transfer: Dividends
Section 1. Certificates of Stock. Certificates for the shares of the
respective classes of capital stock of the corporation shall be numbered in the
order of their issue, and shall be signed by the Chief Executive Officer and/or
President or the Vice President and by the Secretary or Treasurer, and the seal
of the corporation shall be thereunto affixed.
Section 2. Transfer of Stock. Transfers of the shares of the capital stock
of the corporation shall be made on the books of the corporation only by the
holder thereof or by his attorney thereunto authorized by a power of attorney
duly executed by the stockholder and filed with the Secretary of the
corporation, and on surrender of the certificate or certificates for such
shares. Every certificate surrendered to the corporation shall be marked
"Cancelled", and no new certificate shall be issued in exchange therefor until
the old certificate has been surrendered and cancelled. A person in whose name
shares of stock stand on the books of the corporation shall be deemed the sole
owner thereof as regards the corporation. The Board of Directors may, by
resolution, close the share transfer books of the corporation for a period not
exceeding ten (10) days before the holding of any annual or special meeting of
the shareholders. The Board of Directors may, by resolution, also close the
transfer books of the corporation for a period not exceeding ten (10) days
before payment of any dividends which may be declared upon the shares of the
corporation.
Section 3. Lost, Destroyed and Mutilated Certificates. The holder of any
stock of the corporation shall immediately notify the corporation of any loss,
destruction or mutilation of the certificate thereof, and the Board of Directors
may in its discretion cause a new certificate or certificates to be issued to
him upon the surrender of the mutilated certificates or, in case of loss or
destruction of the certificate, upon satisfactory proof of such loss or
destruction, and, if the Board shall so require, upon the delivery to the
corporation of a bond in such form and amount and with such surety or sureties
as the Board may require.
Section 4. Dividends. The Board of Directors shall have the power to
authorize dividends to the maximum and fullest extent permitted by Title 10,
Chapter 6, Article 4, Section 10-640, et seq. of the Arizona Revised Statues
ARTICLE VI
Indemnification
Subject to the further provisions hereof, the corporation shall indemnify
any and all of its existing and former directors, officers, employees, and
agents to the fullest extent permissible pursuant to Title 10, Chapter 8,
Article 5, Section 10-850, et seq.
ARTICLE VII
Seal
The corporate seal of the corporation shall be circular in form with the
name of the corporation and the state and year of incorporation appearing
therein.
ARTICLE VIII
Amendments
The stockholders or the Board of Directors may amend or change the bylaws
of the corporation at any annual, regular or special meeting when the notice or
waiver of notice of the meeting contains the amendments or changes proposed.
ARTICLE IX
Committees
Section 1. Committees of Directors. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate an executive committee and one (1) or more other committees, each
consisting of one or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. A committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:
(a) authorize distributions;
(b) approve or submit to shareholders any action that requires the
shareholders' approval under this chapter;
(c) fill vacancies on the board of directors or on any of its committees;
(d) amend articles of incorporation pursuant to section 10-002;
(e) adopt, amend or repeal bylaws;
(f) approval a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the board of directors;
(h) authorize or approve the issuance, sale or contract for sale of shares
or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except that the board of
directors may authorize a committee or an executive officer of the
corporation to do so within limits specifically prescribed by the
board of directors;
(i) fix the compensation of directors for serving on the board or any
committee of the board of directors.
The Board of Directors, with or without cause, may dissolve any such
committee or remove any member thereof at any time. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed by
laws. Section 2. Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article II of these bylaws, Section 4 (place of meetings), Section
6 (regular meetings and notice), Section 7 (special meetings and notice),
Section 8 (waiver of notice of meeting), Section 9 (quorum), and Section 12
(action without a meeting), with such changes in the context of those bylaws as
are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE X
Miscellaneous
Section 1.
(a) As used in this Article:
(i) "acted properly" as to any employee shall mean that such person
(A) acted in good faith;
(B) acted in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the corporation;
and
(C) with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
itself, create a presumption that the person did not act properly.
(ii) "covered person" shall mean an Indemnitee (as defined below) or
an Employee Indemnitee (as defined below).
(iii)"Employee Indemnitee" shall mean any non-officer employee of the
corporation (but not subsidiaries of the corporation).
(iv) "expenses" shall include attorneys' fees and expenses and any
attorneys' fees and expenses of establishing a right to
indemnification under this Section.
(v) "Indemnitee" shall mean any person who is or was:
(A) a director or officer of the Corporation and/or any
subsidiary;
(B) a trustee or a fiduciary under any employee pension, profit
sharing, welfare or similar plan or trust of the Corporation
and/or any subsidiary; or
(C) serving at the request of the Corporation as a director or
officer of or in a similar capacity in another corporation,
partnership, joint venture, trust or other enterprise,
(which shall, for the purpose of this Section be deemed to
include not-for-profit or for-profit entities of any type),
whether acting in such capacity or in any other capacity
including, without limitation, as a trustee or fiduciary
under any employee pension, profit sharing, welfare or
similar plan of trust.
(vi) "proceeding" shall mean any threatened, pending or completed
action or proceeding, whether civil or criminal, and whether
judicial, legislative or administrative and shall include
investigative action by any person or body.
(vii)"subsidiary" shall mean a corporation, 50% or more of the shares
of which at the time outstanding having voting power for the
election of directors are owned directly or indirectly by the
Company or by one or more subsidiaries or by the Company and one
or more subsidiaries.
(b) The Corporation shall indemnify any Indemnitee to the
fullest extent permitted under law (as the same now or
thereafter exists), who was or is a party or is threatened
to be made a party to any proceeding by reason of the fact
that such person is or was an Indemnitee against
liabilities, expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her.
(c) The Corporation shall indemnify any Employee Indemnitee who
was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or
was an employee against liabilities, expenses, judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such proceeding if
such person acted properly.
(d) The Company shall indemnify any Employee Indemnitee who was
or is a party or is threatened to be made a party to any
proceeding by or in the right of the Company to procure a
judgment in its favor by reason of the fact that such person
is or was an employee against amounts paid in settlement and
against expenses actually and reasonably incurred by him or
her in connection with the defense or settlement of such
proceeding if he or she acted properly, except that no
indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance
of his or her duty to the Corporation unless and only to the
extent that the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication or liability but in view of all the
circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which
such court shall deem proper.
(e) Expense incurred in defending a proceeding shall be paid by
the Corporation to or on behalf of a covered person in
advance of the final disposition of such proceeding if the
Corporation shall have received an undertaking by or on
behalf of such person to repay such amounts unless it shall
ultimately be determined that he or she is entitled to be
indemnified by the Corporation as authorized in this
Section.
(f) Any indemnification or advance under this Section (unless
ordered by a court) shall be made by the Company only as
authorized in the specific proceeding upon a determination
that indemnification or advancement to a covered person is
proper in the circumstances. Such determination shall be
made:
(i) by the Board of Directors, by a majority vote of a
quorum consisting of directors who were not made
parties to such proceedings, or
(ii) if such a quorum is not obtainable, or, even if
obtainable and a quorum of disinterested directors so
directs, by independent legal counsel in a written
opinion, or
(iii)in the absence of a determination made under (i) or
(ii), by the stockholders.
(g) The Corporation shall indemnify or advance funds to any
Indemnitee described in Section (a)(v)(C), only after such
person shall have sought indemnification or an advance from
the corporation, partnership, joint venture, trust or other
enterprise in which he or she was serving at the Company's
request, shall have failed to receive such indemnification
or advance and shall have assigned irrevocably to the
Corporation any right to receive indemnification which he or
she might be entitled to assert against such other
corporation, partnership, joint venture, trust or other
enterprise.
(h) The indemnification provided to a covered person by this
Section:
(i) shall not be deemed exclusive of any other rights to
which such person may be entitled by law or under any
articles of incorporation, bylaw agreement, vote of
shareholders or disinterested directors or otherwise;
(ii) shall inure to the benefit of the legal representatives
of such person or his or her estate, whether such
representatives are court appointed or otherwise
designated, and to the benefit of the heirs of such
person; and
(iii)shall be contract right between the Corporation and
each such person who serves in any such capacity at any
time while this Section 1 of Article VII is in effect,
and any repeal or modification of this Section shall
not affect any rights or obligations then existing with
respect to any state of facts or any proceedings then
existing.
(i) The indemnifications and advances provided to a covered
person by this Section shall extend to and include claims
for such payments arising out of any proceeding commenced or
based on actions of such person taken prior to the effective
date of this Section; provided that payment of such claims
had not been agreed to or denied by the Corporation at the
effective date.
(j) The Corporation shall have power to purchase and maintain
insurance on behalf of any covered person against any
liability asserted against him or her and incurred by him or
her as a covered person or arising out of his or her status
of such, whether or not the Corporation would have the power
to indemnify him or her against such liability under the
provisions of this Section. The Corporation shall also have
power to purchase and maintain insurance to indemnify the
Corporation for any obligation which it may incur as a
result of the indemnification of covered persons under the
provisions of this Section.
(k) The invalidity or unenforceability of any provision in this
Section shall not affect the validity or enforceability of
the remaining provisions of this Section.
Section 2. The Fiscal year of the Corporation shall begin in each year on
the first day of January, and end on the thirty-first day of the December
following.
Section 3. The common seal of the Corporation shall be circular in form and
shall contain the name of the Company and the words: "CORPORATE SEAL" and
"ARIZONA".
Section 4. These Bylaws may be amended or repealed by the vote of a
majority of the Directors present at any meeting at which a quorum is present.
SEAL Filed this day of , 19
-------- ---------------------- ------
<PAGE>
CERTIFICATION OF BYLAWS
I, Michael J. Velotta, the duly elected and acting Secretary of Northbrook
Life Insurance Company, an Arizona corporation, hereby certify that annexed
hereto are true, correct, complete and current copies of the duly adopted Bylaws
of the Corporation.
IN WITNESS WHEREOF, I have executed this Certification this ____ day of
January, 1999.
---------------------------------
Michael J. Velotta, Secretary
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT DECEMBER 31, 1998; STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 STATEMENTS OF SHAREHOLDER'S EQUITY FOR THE
YEAR ENDED DECEMBER 31, 1998; AND STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> NORTHBROOK LIFE INSURANCE COMPANY
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