Form 485APOS Cg Variable Life Insurance Separate Account A

485APOS - Post-effective amendment [Rule 485(a)]

Published: 2003-05-23 16:09:44
Submitted: 2003-05-23
d485apos.htm CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A


ENT> 485APOS 1 d485apos.htm CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A

CG Variable Life Insurance Separate Account A

Table of Contents

Securities Act Registration No. 33-60967

 


 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT NO. 10

 

REGISTRATION STATEMENT

UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 2

 


 

CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A

(Exact Name of Registrant)

 

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

(Name of Depositor)

 


 

900 Cottage Grove Road, Bloomfield, Connecticut 06152

(203) 726-6000

(Address and Telephone Number of Depositor’s Principal Executive Offices)

 

Michael A. James, Esquire

Connecticut General Life Insurance Company

Two Liberty Place

48th Floor

Philadelphia, PA 19192

(Name and Address of Agent for Service)

 


 

Copy to:

 

Walter E. Heindl, Esquire

  

Michael Berenson, Esquire

Two Liberty Place

  

1111 Pennsylvania Avenue, N.W.

48th Floor

  

Washington, D.C. 20004

Philadelphia, PA 19192

  
 

 


 

Approximate date of proposed public offering:    May 27, 2003

 

INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS

(Title and Amount of Securities Being Registered)

 


 

An indefinite amount of the securities being offered by the Registration Statement is being registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. The initial registration fee of $500 has been paid with this declaration.

 

The registrant amends this Registration Statement of such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

 

It is proposed that this filing will become effective:

 

¨
immediately upon filing pursuant to paragraph (b) of Rule 485

¨
on May 1, 2002, pursuant to paragraph (b) of Rule 485

x
60 days after filing pursuant to paragraph (a) of Rule 485

 



Table of Contents

 

CONNECTICUT GENERAL LIFE

INSURANCE COMPANY

 

CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A

 

Home Office Location:

900 Cottage Grove Road

Hartford, Connecticut 06152

 

 

LOGO

 

CIGNA
Group Insurance

Life 
Ÿ
 Accident 
Ÿ
 Disability

 

Mailing Address:

CIGNA

Lehigh Valley Corporate Center

1455 Valley Center Parkway

Bethlehem, PA 18017

(800) 225-0646

 

THE GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICY

 

The Policy is a Group Variable Universal Life Insurance Policy.

 

The Policy is a Group Policy. It is a contract between us, Connecticut General Life Insurance Company, and a Group Policyholder, which may be an Employer, a Labor Union, a Trustee on behalf of an employer or labor union, or some other group permitted by law.

 

Eligible persons who enroll and are accepted will receive a Certificate of Insurance which describes their benefits under the Policy. Depending on the terms of a specific plan, Certificates of Insurance may also be available to the spouse of an employee or member.

 

Your Certificate may terminate if at any time you are no longer eligible. The Policy may allow your Certificate to stay in force in some cases, or you may be allowed to convert to an individual life insurance Policy.

 

We and the Group Policyholder reserve the right to change the terms of the Group Policy, or to terminate the Group Policy, subject to the requirements of state law.

 

 

This Prospectus describes the features of the Group Policies that we offer to Group Policyholders. The terms of the specific Group Policy offered to your employer or union will be set forth in a Detailed Brochure which will accompany or follow this Prospectus. These terms will also be included in your Certificate.

 

The Securities and Exchange Commission has not approved these securities or determined that this Prospectus is accurate or complete. Any statement to the contrary is a crime.

 

This Prospectus is valid and complete only when it is accompanied by the current prospectuses of each of the variable funds. Please read this with care. Please keep the prospectuses with your important papers for future reference.

 

This Prospectus is not an offer to sell, and does not solicit an offer to buy, a certificate under the policy in any state where the policy cannot legally be offered, or with respect to any person to whom the policy cannot legally be offered.

 

PROSPECTUS DATED MAY 27, 2003


Table of Contents

Table of Contents

 

Item

  

Page Number


  

1

  

2

  

3

  

5

  

5

  

8

  

8

  

9

  

9

  

9

  

9

  

9

  

10

  

10

  

12

  

13

  

15

  

17

  

19

  

20

  

22

  

23

  

24

  

26


Table of Contents

BENEFITS OF THE POLICY

 

Life Insurance

The Policy pays a life insurance benefit in the event of your death. Depending on the plan chosen by the Group Policyholder, the Policy may also provide the following benefits:

 

 
·
 
Availability of a Certificate insuring your spouse.

 

 
·
 
Term life insurance benefits on your spouse or dependent children.

 

 
·
 
Additional benefits for accidental death.

 

 
·
 
Payment of part of the life insurance benefit while you are living, in case of terminal illness.

 

 
·
 
Waiver of the cost of life insurance if you become totally disabled.

 

 
·
 
Other benefits permitted by law.

 

 

See pages 15-19 for a description of the Policy’s insurance benefits.

 

Cash Value

Depending on the amount of premium paid, the Policy builds Cash Value. You may obtain loans from us, using the Cash Value as security. You may also withdraw all or part of the Cash Value. Any Cash Value which has not been loaned or withdrawn is added to your life insurance coverage amount, and is part of the death benefit paid to your beneficiary.

 

 

See pages 19-20 for a description of the Policy’s Cash Value and loan features.

 

Flexible Premium Payments

The Policy provides for flexible premium payments. Your monthly premium must, when you first apply, be at least enough to cover your monthly insurance and expense charges. You may increase your premiums, or make lump sum premium payments, up to the limits permitted by the Internal Revenue Code for life insurance policies. If you have Cash Value, you may reduce premiums or stop them altogether, and monthly charges will be deducted from your Cash Value.

 

 

See pages 10-13 for a description of the Policy’s premium provisions.

 

Investment Choices

Your Cash Value may be invested in one or more Variable Funds, whose value depends on the investment performance of specific mutual funds, and which is not guaranteed by us. You may also invest all or part of your Cash Value in a Fixed Account, which earns interest at a rate set by us from time to time, and whose principal and interest are guaranteed by us. Within limits, you may make transfers between the various funds. See pages 5-8 for a brief description of the Policy’s available investment funds. More information concerning each investment fund is contained in the fund prospectus, which is attached to this prospectus.

 

Tax Benefits

You are generally not subject to tax on the Policy’s earnings until you withdraw Cash Value in excess of your premium payments. This is known as tax deferral. Earnings paid to your beneficiary as part of the death benefit are generally not subject to income tax.

 

 

See pages 22-23 for an explanation of tax provisions affecting the Policy.

 

1


Table of Contents

RISKS OF THE POLICY

 

Investment Performance

If you have invested all or part of your Cash Value in any of the Variable Funds, your Cash Value will depend on the investment performance of the Variable Funds. Neither the principal nor any rate of return is guaranteed. You may lose money.

 

 

See the attached Variable Fund prospectuses for information concerning the investment objectives and risks of each of the Variable Funds.

 

Suitability

Variable universal life insurance is designed for long-term financial planning. It is not suitable for short-term savings, and the Variable Funds may not be suitable for all investors. You should not purchase the Policy if you will need the premium payment in a short period of time, or if you do not need life insurance protection.

 

Termination

Your certificate may lapse (terminate) if the Cash Value is too low to support the monthly charges. You will receive a grace period during which you will be notified in writing that your certificate will terminate unless you pay additional premium. Unless your certificate’s Cash Value exceeds $250, your certificate may terminate if your employment terminates, or if your employer no longer sponsors the group policy. If your certificate terminates for these reasons, you have a right to convert to an individual fixed benefit life insurance policy. If your certificate’s Cash Value exceeds $250, or if we have agreed with your employer to make this option available in other cases, you may continue your certificate if your employment terminates. The monthly cost of insurance will increase.

 

 

See pages 13-14 for a description of the Policy’s termination, conversion and portability provisions.

 

Impact of Surrender Charges

 

Your cash surrender value may be reduced by surrender charges. See page 3.

 

Impact of Loans

Policy loans reduce your certificate’s Cash Value, and, accordingly, reduce the death benefit. In addition, if your certificate’s Cash Value is not enough to cover any part of monthly insurance expense charges that is not paid with current premium payments, your certificate will lapse (terminate). In addition, a portion of your Cash Value equal to the loan amount will be held in a Loan Account and will be credited with interest at 6%, which will affect (negatively or positively) your investment return.

 

Adverse Tax Consequences

If your premium payments exceed certain limits imposed by the Internal Revenue Code, your certificate will become a modified endowment contract. In that case, policy loans and withdrawals may result in current taxable income.

 

 

See pages 22-23 for an explanation of tax provisions affecting the Policy.

 

2


Table of Contents

Table of Fees and Charges.    The following tables describe the fees and expenses that you will pay when buying, owning and surrendering the Policy.

 

I.    Transaction Fees

This table describes the fees and expenses that you will pay at the time that you buy the Policy, surrender the Policy, or transfer cash value between Investment Options.

 

 
    

When Charged


    

Current Charge


    

Maximum Charge


Premium Charge

    

On all premium payments received

    

3.0%**

    

5.0%

Full or Partial Surrender

    

On all full or partial surrenders

    

$25.00**

    

$25.00**

Transfers Between Funds

    

On all transfers between Funds in excess of 12 transfers per Policy Year

    

$25.00**

    
 

Policy Loan Interest

    

Due on each Policy Anniversary

    

8.0% on amount loaned***

    

8.0% on amount loaned***


**
 
May be reduced or waived by agreement between us and the Group Policyholder. Surrender charges will not exceed 2% of the surrender amount.
***
 
Cash value equal to the policy loan amount will be transferred to the Loan Account and will be credited interest at a rate of 6.0%.

 

II.    Periodic Charges (Other Than Investment Fund Charges)

This table describes the fees and expenses that you will pay periodically during the time that you own the Policy, not including Portfolio fees and expenses.

 

 
    

When Charged


    

Representative Charge


    

Minimum and Maximum Charge


Monthly Life Insurance Charge (Employees and Spouses)**

    

Monthly, on or after the first day of the month

    

$1.96 per $10,000 of insurance (representative cost for 45 year old active employee nonsmoker, median rate among the Company’s Group Policies)

    

$1.80 to $1508.70 per $10,000 of insurance (based on age)

Monthly Life Insurance Charge (children)

    

Monthly, on or after the first day of the month

    

$0.10 per $1,000 of insurance, for all children insured

    

$0.10 to $0.20 per $1,000 of insurance for all children insured (maximum charge is not guaranteed)

Monthly Certificate Expense Charges

    

Monthly, on or after the first day of the month

    

$4.00 (may be waived or reduced by agreement with the Group Policyholder)

    

$0.00 to $6.00***

Daily Charges on Variable Fund Balances

    

Monthly, on or after the first day of the month

    

0.45% (annual rate)

    

0.0% to 0.90% (annual rate)


**
 
The rates vary by the Insured’s attained age, and (depending on the agreement with the Group Policyholder) on whether the Insured is a smoker or nonsmoker; and whether the Insured is an active employee under an inforce Group Policy, or is being direct billed either as a terminated employee or under a terminated Group Policy.

 

3


Table of Contents

 

Premium tables among Group Policies will depend on the risk characteristics of the employer, including industry, distribution of ages and sex, and prior claim experience. Information regarding current rates applicable to your age and status are available from the Group Policyholder or by calling our Customer Service Center at (800) 225-0646. Maximum rates applicable to each age are shown in this Prospectus on pages 11-12.

 

***
 
Maximum monthly charge is $5.00, for Certificates having no Cash Value, or Cash Value in excess of $10,000

 

 

III.    Investment Fund Charges

This table describes the fees charged by the Investment Funds for investment management and administrative expenses. Charges vary between the Investment Funds; specific information regarding the charges applicable to each Investment Fund is shown in the Fund prospectus.

 

 
    

When Charged


    

Minimum and Maximum


Expenses deducted from Investment Fund assets, including management fees, distribution and/or service

(12b-1) fees, and other expenses

    

Monthly, on or after the first day of the month

    

0.25% to 1.0% (annual rate)**


**
 
Annual rates do not take into account reductions in these charges due to expense reimbursement and fee waiver agreements between the Separate Accounts and the Investment Funds.

 

 

4


Table of Contents

RIGHT TO EXAMINE

 

When you receive your Certificate, you should read it with care. You may return your Certificate within 30 days after you receive it. The Certificate will be void as if it had never been issued. We will refund all premiums paid, without interest, minus any partial surrenders, and minus any loans and interest. Usually we will make this refund within 7 days of receiving your request. However, if premiums were paid by check, we may wait for the check to clear.

 

Any premiums will be held in the Fixed Account until three days after the end of this 30-day period. At that time, premiums will be allocated to the Funds as you have directed. Until that time, interest will be credited from the later of the effective date or the date the premium was received at our customer payment address.

 

This right may vary based on state law. This right shall not apply if your Certificate was issued to replace another Group Variable Universal Life Insurance Certificate we have issued through the Separate Account.

 

THE INVESTMENT FUNDS

 

 

Choosing Investment Funds

 

When you apply, you must choose to have your premiums allocated in any combination to one or more of the Variable Funds and/or the Fixed Account. These allocations must be in units of 5% and must total 100%.

 

You may change this allocation at any time free of charge. This change will be applied to premiums received no later than one week after our Customer Service Center receives notice.

 

We may require that all premiums be placed in the Fixed Account, if your Cash Value is less than $500, or if you have not chosen to make premium payments in excess of your monthly insurance and expense charge. We may also require that an amount of premium up to the current monthly insurance and expense charge be placed in the Fixed Account.

 

Transfers Between Funds

 

You may transfer all or part of your Cash Value between funds, as follows:

 

 
·
 
From any Variable Fund(s) to the Fixed Account.

 

 
·
 
From one Variable Fund to another Variable Fund.

 

 
·
 
From the Fixed Account to one or more Variable Funds.

 

Transfers from the Fixed Account to the Variable Funds are subject to these limits:

 

 
·
 
Transfers may only be made during the 30-day period after a Policy Anniversary (this date will be shown in your brochure, and in your Certificate).

 

 
·
 
Total value of transfers made during this 30-day period each year cannot exceed 25% of your Cash Value in the Fixed Account as of the Policy Anniversary.

 

 
·
 
We may place further limits on transfers from the Fixed Account at any time.

 

Transfers from any Variable Fund to the Fixed Account, or between Variable Funds, may be made at any time. Transfers may be subject to limits as to dollar amounts, and any limits imposed by the Variable Funds.

 

You may make up to 12 transfers during a Policy Year (the 12 month period beginning on a Policy Anniversary). We charge a fee of $25.00 for each transfer in excess of 12. We have the right to waive this fee in some cases.

 

To make a transfer, you must send a written request to our Customer Service Center (whose address will be shown in your Certificate). Your transfer will be effective as of the Valuation Day on which our Customer Service Center receives your request in good order.

 

Before you make a transfer, you should carefully consider:

 

 
·
 
Current market conditions.

 

 
·
 
Each Fund’s investment policies.

 

 
·
 
Related risks.

 

Please see the brief description of each Variable Fund below, and read the Prospectus of each Fund.

 

Telephone Transfers

 

You may make transfers by telephone, if you have given our Customer Service Center written approval to accept telephone transfers.

 

5


Table of Contents

 

To make a telephone transfer, you must call the Customer Service Center and provide the following information:

 

 
·
 
Your Certificate Number;

 

 
·
 
Your Social Security Number; and

 

 
·
 
Your Personal Identification Number (which will be provided when you authorize telephone transfers).

 

We will send you a written confirmation within 5 business days. We are not liable for any losses that result from unauthorized or fraudulent telephone transactions. We may be liable for these losses if we do not follow these procedures, which we believe are reasonable.

 

The Fixed Account

 

The Fixed Account is not part of the Separate Account. We guarantee the principal amount and any interest earned under the Fixed Account. We will credit interest at a rate we specify from time to time. This rate will never be less than 4%.

 

 

THE VARIABLE FUNDS

 

 

All Cash Value not placed in the Fixed Account must be invested in one or more of the Variable Funds, which are described below. Each of the Variable Funds buys shares of a portfolio of a trust or a corporation which is registered as an open-end, diversified management investment company under the Investment Company Act of 1940.

 

These funds are not the same as, and may not produce the same investment results as, publicly available mutual funds with similar names. Please read the Prospectus of each Variable Fund before investing cash value in the Fund.

 

TimesSquare VP Money Market Fund

 

The goal of this Fund is to provide as high a level of current income as is consistent with the preservation of capital and liquidity and the maintenance of a stable $1.00 per share net asset value. It invests in high quality, short term money market securities of different types. It stresses income, preservation of capital, and liquidity. It does not seek the higher yields or capital appreciation that more aggressive investments may provide. The Fund’s yield varies from day to day, and generally reflects current short-term interest rates and other market conditions. The $1.00 per share value is not guaranteed and you can lose money.

 

Fidelity VIP Investment Grade Bond Portfolio

 

This Fund seeks as high a level of current income as is consistent with the preservation of capital. Its principal investment strategies include:

 

 
·
 
Investing in U.S. dollar-denominated investment-grade bonds.

 

 
·
 
Managing the fund to have similar overall interest rate risk to the Lehman Brothers Aggregate Bond Index.

 

 
·
 
Allocating assets across different market sectors and maturities.

 

 
·
 
Analyzing a security’s structural features, current pricing and trading opportunities, and the credit quality of its issuer in selecting investments.

 

This Fund is subject to the following principal investment risks:

 

 
·
 
Interest rate changes.    Interest rate increases can cause the price of a debt security to decrease.

 

 
·
 
Foreign exposure.    Entities located in foreign countries can be affected by adverse political, regulatory, market or economic developments in those countries.

 

 
·
 
Prepayment.    The ability of an issuer of a debt security to repay principal prior to a security’s maturity can cause greater price volatility if interest rates change.

 

 
·
 
Issuer-specific changes.    The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently than the value of the market as a whole.

 

When you sell your investment of the Fund, they could be worth more or less than what you paid for them.

 

Fidelity VIP Asset Manager Portfolio

 

This Fund seeks high total return with reduced risk over the long term. It allocates its assets among stocks, bonds, and short-term instruments. Its principal investment strategies include:

 

 
·
 
Allocating the Fund’s assets among stocks, bonds, and short-term and money market instruments.

 

 
·
 
Maintaining a neutral mix over time of 50% of assets in stocks, 40% of assets in bonds, and 10% of assets in short-term and money market instruments.

 

 
·
 

Adjusting allocation among asset classes gradually within the following ranges: stock class (30%-70%),

 

6


Table of Contents
 

bond class (20%-60%), and short term/money market class (0%-50%).

 

 
·
 
Investing in domestic and foreign issuers.

 

 
·
 
Analyzing an issuer using fundamental and/or quantitative factors and evaluating each security’s current price relative to estimated long-term value in selecting investments.

 

This Fund is subject to the following principal investment risks:

 

 
·
 
Stock market volatility.    Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments.

 

 
·
 
Interest rate changes.    Interest rate increases can cause the price of a debt security to decrease.

 

 
·
 
Foreign exposure.    Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently than the U.S. market.

 

 
·
 
Prepayment.    The ability of an issuer of a debt security to repay principal prior to a security’s maturity can cause greater price volatility if interest rates change.

 

 
·
 
Issuer-specific changes.    The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently than the value of the market as a whole. Lower-quality debt securities (those of less than investment-grade quality) can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments.

 

When you sell your investments in the Fund, they could be worth more or less than what you paid for them.

 

TimesSquare VP S&P 500 Index Fund

 

This Fund seeks to match the total return of the S&P 500, reduced by fund expenses.

 

The S&P is made up of 500 common stocks, most of which trade on the New York Stock Exchange. The Fund’s composition may not always be identical to that of the S&P 500. Because it seeks to track, rather than exceed, the performance of the S&P 500, it is not managed in the same manner as other mutual funds. It should not be expected to achieve the potentially greater results that could be obtained by a fund that aggressively seeks growth.

 

 

“S&P 500” is a trademark of Standard & Poor’s Corporation which has been licensed for our use. This Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s, which makes no representation as to the advisability of investing in this Fund.

 

Fidelity VIP Equity-Income Portfolio

 

This Fund seeks a reasonable income. This Fund will also consider the potential for capital appreciation. The Fund seeks a yield which exceeds the composite yield on the securities comprising the S&P 500. Its principal investment strategies include:

 

 
·
 
Investing at least 65% of total assets in income-producing equity securities, which tends to lead to investments in large cap “value” stocks.

 

 
·
 
Potentially investing in other types of equity securities and debt securities, including lower-quality debt securities.

 

 
·
 
Investing in domestic and foreign issuers.

 

 
·
 
Using fundamental analysis of each issuer’s financial condition and industry position and market and economic conditions to select investments.

 

This Fund is subject to the following principal investment risks:

 

 
·
 
Stock market volatility.    Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments.

 

 
·
 
Interest rate changes.    Interest rate increases can cause the price of a debt security to decrease.

 

 
·
 
Foreign exposure.    Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently than the U.S. market.

 

 
·
 
Issuer-specific changes.    The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently than the value of the market as a whole. Lower-quality debt securities (those of less than investment-grade quality) can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments.

 

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Table of Contents

 

When you sell your investment of the Fund, they could be worth more or less than what you paid for them.

 

American Century VP Capital Appreciation

 

This Fund’s goal is capital growth. It will seek this by investing mainly in common stocks that are considered by the Fund managers to have better-than-average chances of appreciation. It may buy securities of U.S. and Foreign companies as well as other types of securities, such as domestic and foreign preferred stocks, convertible debt securities, notes, bonds and other debt securities.

 

Fidelity VIP Overseas Portfolio

 

This Fund seeks long-term growth of capital. Its principal investment strategies include:

 

 
·
 
Investing at least 65% of total assets in foreign securities.

 

 
·
 
Investing primarily in common stocks.

 

 
·
 
Allocating investments across countries and regions considering the size of the market in each country and region relative to the size of the international market as a whole.

 

 
·
 
Using fundamental analysis of each issuer’s financial condition and industry position and market and economic conditions to select investments.

 

This Fund is subject to the following principal investment risks:

 

 
·
 
Stock market volatility.    Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments.

 

 
·
 
Foreign exposure.    Foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently than the U.S. market.

 

 
·
 
Issuer-specific changes.    The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently than the value of the market as a whole.

 

When you sell your investments in the Fund, they could be worth more or less than what you paid for them.

 

 


 

FUND PERFORMANCE

 

This table shows actual effective annual rates of return for each of the Variable Funds for periods ending December 31, 2002. Please note that past rates of return does not necessarily show future performance.

 

This table takes into account each Variable Fund’s management fee and operating expenses. This table does not take into account mortality and expense charges, monthly insurance charges, or monthly certificate expense charges (see pages 9-12). These charges, if taken into account, would lower each Variable Fund’s performance.

 

Fund Name


  

1 Year


 
    

5 Years


 
    

10 Years


 
    

From Inception


 
    

Fund Inception Date


CIGNA Fixed Account

  

4.94

%

    

5.45

%

    

5.80

%

    

6.69

%

    

01/01/1988

TimesSquare VP Money Market Fund

  

1.41

%

    

4.22

%

    

n/a

 

    

4.46

%

    

03/01/1996

Fidelity VIP Investment Grade Bond Portfolio

  

10.34

%

    

7.74

%

    

7.29

%

    

8.00

%

    

12/05/1988

Fidelity VIP Asset Manager Portfolio

  

(8.73

%)

    

1.45

%

    

7.06

%

    

8.36

%

    

09/16/1986

TimesSquare VP S&P 500 Index Fund

  

(22.51

%)

    

(0.86

%)

    

8.30

%

    

9.25

%

    

05/23/1968

Fidelity Equity-Income Portfolio

  

(16.95

%)

    

0.31

%

    

9.79

%

    

10.03

%

    

10/09/1986

American Century VP Capital Appreciation

  

(21.20

%)

    

(0.10

%)

    

2.79

%

    

6.12

%

    

11/20/1987

Fidelity VIP Overseas Portfolio

  

(20.28

%)

    

(3.95

%)

    

4.70

%

    

4.24

%

    

01/28/1987

 


 

INVESTMENT RISK

 

We do not guarantee that the investment objective of any of the Funds will be met. You bear the complete investment risk for your Cash Value invested in any Variable Fund. Each of the Variable Funds involves investment risk, which varies greatly among the Variable Funds. You should read each Fund’s prospectus with care, and understand each Variable Fund’s risk, before making or changing your investment choices.

 

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Table of Contents

 

The shares of each Variable Fund are issued only in connection with qualified pension and profit sharing plans, variable life insurance policies, and variable annuity contracts. We do not believe there is any harm to Certificate owners that the shares are also held in connection with annuities and qualified plans. However, if a significant and irreconcilable conflict were to occur, a separate account might withdraw its entire investment in a Variable Fund. This might force the Variable Fund to sell its portfolio securities at unfavorable prices.

 

New Funds

 

We may, from time to time, make available additional Variable Funds for the Policies. We may set limits on investments in these Variable Funds.

 

Substitution or Elimination of Funds

 

We may eliminate any Variable Fund, or substitute another Variable Fund, if a Fund is no longer available for investment by the Separate Account, or if we believe further investment in that Variable Fund would not be appropriate. The SEC and state insurance departments must approve the change, and may impose requirements, including notice.

 

Fund Participation Agreements

 

We have entered into agreements with the Variable Funds to make the Variable Funds available under the
Policies. We provide services in connection with the shares of each Variable Fund held by the Separate Account. In some cases, we may be paid for these services.

 

Investment Advisers

 

The Investment Companies and their investment advisers are:

 

Fidelity VIP Equity-Income Portfolio and Fidelity VIP Overseas Portfolio are portfolios of the Variable Insurance Products Fund; and Fidelity VIP II Asset Manager Portfolio and Fidelity VIP Investment Grade Bond Portfolio are portfolios of the Variable Insurance Products Fund.

 

Fidelity Management & Research Company is the investment adviser to these Funds.

 

American Century VP Capital Appreciation is a portfolio of American Century Variable Portfolios, Inc.

 

American Century Investment Management, Inc. is the investment adviser to this Fund.

 

TimesSquare VP S&P 500 Index Fund and TimesSquare VP Money Market Fund are portfolios of CIGNA Variable Products Group.

 

TimeSquare Capital Management, Inc. is the investment adviser for these Funds.

 

 

ELIGIBILITY AND ENROLLMENT

 

Who is Eligible

 

The Policy is a Group Policy, which may be issued to an employer, a labor union, a trustee or some other group eligible under state law. Certificates under the Group Policy can be bought by employees or members who are in eligible classes set forth in the Group Policy.

 

Certificates may also be available to Retired Employees, and Spouses of employees or members. Details on who is

eligible will be shown in your brochure. The amounts of coverage that are available will be shown in the brochure.

 

 

We will not issue any Certificate to any person if we believe the Policy is not a suitable investment for that person.

 

Participation Requirements

 

We will not issue any Certificate unless a minimum number or percentage of eligible persons in the Group apply for insurance. These minimums will be set before Certificates are offered to employees or members.

 

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PREMIUM PAYMENTS

 

 

When you apply for a Certificate, you must choose:

 

 
·
 
How much premiums to pay;

 

 
·
 
How premiums are to be paid; and

 

 
·
 
How your premiums will be allocated to the Variable Funds and/or the Fixed Account.

 

Your monthly premium must, when you first apply, be at least enough to cover your monthly insurance and expense charges. The first premium is due on your Certificate’s effective date.

 

You may increase your premiums, or make lump-sum premium payments, up to the limits permitted by the Internal Revenue Code for life insurance policies. We will notify you if any premium payment would cause your Certificate to become a Modified Endowment Contract, as defined in Section 7702A of the Internal Revenue Code. Unless you agree in writing to permit your Certificate to become a Modified Endowment Contract, we reserve the right to refund any excess premium payment to preserve the status of your Certificate. See Tax Matters, page 22, for more information.

 

If you have Cash Value, you may reduce premiums or stop them altogether, and monthly charges will be deducted from your Cash Value. If at any time your Cash Value is less than the amount needed to pay monthly charges, your Certificate will lapse (terminate) after a grace period.

 

For employees, premiums are usually paid by payroll deduction. In other cases, including employees no longer actively at work, direct billing of premiums is available.

 

You may also make lump-sum premium payments, which must be at least $25. Unless we agree, if there is a loan outstanding, any lump-sum premium will first be used to repay the loan.

 

All premiums paid directly are deemed to be received when we actually receive the payment at our customer payment address.

 

Premiums paid by payroll deduction are deemed to be received when we confirm we have received a wire transfer to our Group Variable Universal Life premium account. We must, at least two business days before the wire transfer, receive the data we require to allocate premiums to individual Certificates. Please note that payroll deduction may involve delays because of reconciliation by the employer and coordination of payroll cycles with monthly premium due dates.

 

Section 7702 of the Internal Revenue Code limits the amount of premiums which can be paid under flexible premium life insurance policies (see Tax Matters, page 22, for more information). We may refuse to accept any premium if it would cause the Policy not to qualify as a life insurance policy under Section 7702. If a premium payment would cause your Certificate not to qualify as a life insurance policy, we may ask you to increase your coverage. We will ask you to provide proof of good health, at your expense, to qualify for this increase. If you do not apply to increase your coverage, or we do not approve your request, we will return any excess premiums without interest.

 

 

FEES AND CHARGES

 

Premium Charge

 

All premium payments are subject to a charge which covers state insurance premium taxes, and federal income taxes under Section 848 of the Internal Revenue Code (dealing with deferred acquisition costs). This charge will be stated in the Group Policy but will not be more than 5.00%.

 

We may choose to waive part of this charge equal to the state premium tax for any cash value received under a life insurance policy or certificate underwritten by us or one of our affiliates, which is assigned to us as part of an exchange of life insurance policies subject to Section 1035 of the Internal Revenue Code.

 

State premium taxes vary from state to state and range from 0.00% to 3.00%. A portion of the premium charge reflects an average of state premium taxes.

 

Monthly Insurance Charges

 

We will make a monthly deduction from your Cash Value for the cost of life insurance and any other benefits provided under the Group Policy. The cost of life insurance will depend on your age on your last birthday as of the last Policy Anniversary. The cost may also depend on whether you are a smoker. This cost may also include amounts to reimburse us for administrative expenses, agent commissions, and profit, but will never exceed the maximum rates shown in the tables below.

 

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Table of Contents

 

The monthly rates at the time you apply for insurance will be shown in the brochure. These rates may depend on the following risk factors:

 

 
·
 
The Group Policyholder’s industry.

 

 
·
 
The number of eligible persons.

 

 
·
 
The age, sex and occupation of the eligible persons.

 

 
·
 
The prior claims experience of group life insurance plans sponsored by the Group Policyholder.

 

 
·
 
Expenses of the Group Policy, including commissions to agents or brokers.

 

 
·
 
Our prior claims experience under the Group Policies.

 

 
·
 
Other factors which we believe affect our risk under the Group Policy.

 

 

We may change these rates from time to time. However, the monthly cost of life insurance (not including other benefits) will never exceed the maximum rates shown below. These guaranteed maximum rates are based on 150% of the 1980 Commissioners Standard Ordinary Male Mortality Tables, Age Last Birthday.

 

 
1.
 
If the Group Policy provides for the same rates for smokers and nonsmokers, the rates will not exceed these rates (based on attained age, per $10,000 per month):

 

 

Age


  

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


16

  

1.99

 

30

 

2.19

 

44

 

5.47

 

58

 

17.86

 

72

 

64.67

 

86

 

243.05

17

  

2.15

 

31

 

2.25

 

45

 

5.92

 

59

 

19.44

 

73

 

71.72

 

87

 

264.86

18

  

2.27

 

32

 

2.34

 

46

 

6.41

 

60

 

21.20

 

74

 

79.51

 

88

 

287.59

19

  

2.35

 

33

 

2.44

 

47

 

6.93

 

61

 

23.20

 

75

 

87.89

 

89

 

311.42

20

  

2.37

 

34

 

2.56

 

48

 

7.48

 

62

 

25.45

 

76

 

96.76

 

90

 

336.81

21

  

2.37

 

35

 

2.71

 

49

 

8.10

 

63

 

27.98

 

77

 

106.02

 

91

 

364.47

22

  

2.35

 

36

 

2.90

 

50

 

8.78

 

64

 

30.79

 

78

 

115.76

 

92

 

395.85

23

  

2.30

 

37

 

3.11

 

51

 

9.57

 

65

 

33.82

 

79

 

126.29

 

93

 

434.54

24

  

2.25

 

38

 

3.35

 

52

 

10.45

 

66

 

37.08

 

80

 

138.01

 

94

 

488.72

25

  

2.19

 

39

 

3.63

 

53

 

11.46

 

67

 

40.53

 

81

 

151.28

 

95

 

575.26

26

  

2.15

 

40

 

3.94

 

54

 

12.58

 

68

 

44.27

 

82

 

166.45

 

96

 

732.95

27

  

2.14

 

41

 

4.28

 

55

 

13.78

 

69

 

48.41

 

83

 

183.54

 

97

 

1061.50

28

  

2.12

 

42

 

4.64

 

56

 

15.06

 

70

 

53.10

 

84

 

202.21

 

98

 

1508.68

29

  

2.15

 

43

 

5.04

 

57

 

16.42

 

71

 

58.48

 

85

 

222.14

 

99

 

1508.68

 

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Table of Contents

 

 
2.
 
If the Group Policy provides for different rates for smokers and nonsmokers, the rates for nonsmokers will not exceed these rates (based on attained age, per $10,000 per month):

 

Age


  

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


16

  

1.80

 

30

 

1.80

 

44

 

3.85

 

58

 

13.47

 

72

 

56.30

 

86

 

229.11

17

  

1.92

 

31

 

1.84

 

45

 

4.15

 

59

 

14.89

 

73

 

62.85

 

87

 

251.08

18

  

2.01

 

32

 

1.87

 

46

 

4.49

 

60

 

16.47

 

74

 

70.23

 

88

 

274.01

19

  

2.07

 

33

 

1.94

 

47

 

4.87

 

61

 

18.22

 

75

 

78.33

 

89

 

297.98

20

  

2.10

 

34

 

2.01

 

48

 

5.26

 

62

 

20.21

 

76

 

86.88

 

90

 

323.32

21

  

2.09

 

35

 

2.10

 

49

 

5.68

 

63

 

22.45

 

77

 

95.91

 

91

 

350.22

22

  

2.06

 

36

 

2.21

 

50

 

6.15

 

64

 

24.99

 

78

 

105.34

 

92

 

380.00

23

  

2.01

 

37

 

2.35

 

51

 

6.70

 

65

 

27.79

 

79

 

115.44

 

93

 

414.73

24

  

1.96

 

38

 

2.50

 

52

 

7.33

 

66

 

30.84

 

80

 

126.61

 

94

 

460.55

25

  

1.90

 

39

 

2.67

 

53

 

8.08

 

67

 

34.12

 

81

 

139.18

 

95

 

529.23

26

  

1.85

 

40

 

2.86

 

54

 

8.93

 

68

 

37.65

 

82

 

153.57

 

96

 

647.36

27

  

1.82

 

41

 

3.09

 

55

 

9.90

 

69

 

41.46

 

83

 

170.06

 

97

 

885.25

28

  

1.80

 

42

 

3.31

 

56

 

10.98

 

70

 

45.73

 

84

 

188.34

 

98

 

1473.40

29

  

1.80

 

43

 

3.58

 

57

 

12.16

 

71

 

50.63

 

85

 

208.14

 

99

 

1508.68

 

 

 
3.
 
If the Group Policy provides for different rates for smokers and nonsmokers, the rates for smokers will not exceed these rates (based on attained age, per $10,000 per month):

 

Age


  

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


 

Age


 

Rate


16

  

2.35

 

30

 

2.62

 

44

 

7.16

 

58

 

24.16

 

72

 

78.42

 

86

 

259.07

17

  

2.56

 

31

 

2.70

 

45

 

7.86

 

59

 

26.07

 

73

 

86.07

 

87

 

279.08

18

  

2.71

 

32

 

2.80

 

46

 

8.56

 

60

 

28.21

 

74

 

94.51

 

88

 

299.20

19

  

2.81

 

33

 

2.94

 

47

 

9.33

 

61

 

30.63

 

75

 

103.50

 

89

 

319.44

20

  

2.89

 

34

 

3.09

 

48

 

10.14

 

62

 

33.33

 

76

 

113.44

 

90

 

340.09

21

  

2.91

 

35

 

3.29

 

49

 

11.03

 

63

 

36.49

 

77

 

123.66

 

91

 

364.81

22

  

2.89

 

36

 

3.51

 

50

 

12.02

 

64

 

39.95

 

78

 

134.04

 

92

 

392.00

23

  

2.82

 

37

 

3.81

 

51

 

13.12

 

65

 

43.71

 

79

 

144.93

 

93

 

423.51

24

  

2.76

 

38

 

4.13

 

52

 

14.36

 

66

 

47.62

 

80

 

156.75

 

94

 

465.41

25

  

2.67

 

39

 

4.50

 

53

 

15.77

 

67

 

51.69

 

81

 

169.90

 

95

 

529.23

26

  

2.60

 

40

 

4.94

 

54

 

17.30

 

68

 

55.89

 

82

 

184.77

 

96

 

647.36

27

  

2.56

 

41

 

5.43

 

55

 

18.92

 

69

 

60.60

 

83

 

201.61

 

97

 

885.25

28

  

2.55

 

42

 

5.95

 

56

 

20.63

 

70

 

65.82

 

84

 

219.94

 

98

 

1473.40

29

  

2.57

 

43

 

6.54

 

57

 

22.39

 

71

 

71.70

 

85

 

239.24

 

99

 

1508.68

 

Monthly charges for insurance are due on the first day of each month. Charges will be deducted on or after the due date. This date may vary from month to month. Unless we have required that an amount of premium equal to these charges be placed in the Fixed Account, we will deduct these charges from each Fund and the Fixed Account in proportion to the balance of each Fund and the Fixed Account.

 

 

Monthly Certificate Expense Charges

 

We will make a monthly deduction from your Cash Value for a Certificate administrative charge. This charge covers the cost of premium billing and collection, Certificate value calculation, transaction processing, periodic reports and other expenses.

 

This charge will vary depending on the Group Policyholder, including the number of eligible persons and the expected costs of administering the Certificates under the Group Policy.

 

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We may change the monthly administrative charge. However, this charge will not exceed:

 

 
·
 
$6.00 per month, for Certificates having Cash Value (net of loans) of more than zero but not more than $10,000.

 

 
·
 
$5.00 per month, for Certificates having no Cash Value, or having Cash Value (net of loans) of more than $10,000.

 

Monthly administrative charges are due on the first day of each month. Charges will be deducted on or after the due date. This date may vary from month to month. Unless we have required that an amount of premium equal to these charges be placed in the Fixed Account, we will deduct these charges from each Fund and the Fixed Account in proportion to the balance of each Fund and the Fixed Account.

 

Daily Charges on Fund Balances

 

We make a daily charge on Fund balances to cover mortality and expense risks. This charge is currently 0.45% per year. We may change this charge from time to time, but it will never be more than 0.90% per year.

 

This charge pays us for the risks that:

 

 
·
 
The group insured will, on average, live for shorter periods of time than we estimated.

 

 
·
 
The cost of issuing and administering Certificates may be more than we estimated.

 

We assume the risk that the actual costs and assumed risks will be more or less than this charge.

 

Each Fund makes a daily charge for management fees. These charges will affect the investment results for the Fund. These charges are shown above under FUND EXPENSES.

 

Transaction Fees

 

A fee of $25.00 (or 2% of the amount of the surrender, if less) is charged for the following transactions:

 

 
·
 
A full surrender of your Certificate.

 

 
·
 
A partial surrender of your Certificate.

 

 
·
 
Each transfer of Cash Value between Funds, in excess of 12 transfers per Policy Year.

 

We may waive this fee in some cases. This will depend on the nature of the Group, including the number of insured persons and the expected costs of administering the Group Policy.

 

TERMINATION, REINSTATEMENT AND CONVERSION

 

Termination of the Group Policy

 

Either we or the Group Policyholder may terminate the Group Policy at any time on 60 days’ written notice to the other. We may agree with the Group Policyholder that the Group Policy may not be terminated for a minimum period of time.

 

We may agree with the Group Policyholder to change the terms of the Group Policy. We may also change insurance and expense charges at any time. This will be subject to the limits shown in this Prospectus.

 

If the Group Policy is terminated, your coverage will end, except where the Group Policy provides for PORTABILITY (described below).

 

Termination of Employment or Membership

 

Coverage under the Group Policy is only available to employees or members who are in an eligible class described in the Group Policy. If you are no longer in an eligible class, your coverage will end, except where the Group Policy provides for PORTABILITY (described below).

 

Portability

 

If you have more than $250.00 of Cash Value (net of any loans), you may choose to keep your Certificate in force if the Group Policy is terminated, or if you are no longer in an eligible class.

 

The Group Policy may also provide that Certificates may be kept in force if you are no longer eligible for these reasons:

 

 
·
 
Retirement.

 

 
·
 
Leave of absence.

 

 
·
 
Termination of employment.

 

If the Group Policy permits issuing Certificates to spouses of employees or members, the Group Policy may also provide that Certificates may be kept in force if your spouse is no longer eligible for these reasons:

 

 
·
 
Termination of your employment.

 

 
·
 
Your death.

 

 
·
 
Divorce.

 

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Table of Contents

 

The Group Policy may also provide that Certificates may be kept in force if the Group Policy is terminated. This will not apply to persons who are eligible to be insured under a replacement group policy.

 

Monthly insurance and administrative charges may be higher for persons who choose to keep their Certificates in force under these provisions. These charges will not, however, be higher than the guaranteed maximum charges shown in this Prospectus.

 

Conversion Privilege

 

If your Certificate terminates for any reason other than lapse or surrender, and if you are not eligible to keep your Certificate in force under the above portability provisions, then you may obtain an individual life insurance policy.

 

This converted life insurance policy will:

 

 
·
 
Be on a form of life insurance we are then offering to persons of your age, in the amount for which you are applying.

 

 
·
 
Not be term life insurance.

 

 
·
 
Not include disability waiver of premium or other extra benefits.

 

The amount of converted life insurance will not exceed the lesser of:

 

 
·
 
Your life insurance coverage amount under the Group Policy, minus any group life insurance for which you become eligible within 31 days of termination.

 

 
·
 
$10,000, if you convert because the Group Policy is terminated, or amended so that you are no longer eligible.

 

If your coverage ends because the Group Policy is terminated, or amended so that you are no longer eligible, you may not convert unless you have been insured under the Group Policy for at least three years.

 

To convert, you must apply to our Customer Service Center within 31 days of termination, and pay the required premium. You do not need to provide proof of good health.

 

Full Surrenders

 

You may surrender your Certificate at any time by returning the Certificate, with a written and signed request for a full surrender, to our Customer Service Center. We will pay
your Cash Value, as of the Valuation Day on which the surrender is received in good order, minus:

 

 
·
 
A surrender charge of $25.00, or 2% of the cash value if less, during the first 20 Policy Years.

 

 
·
 
Any outstanding policy loan balance.

 

You may also make a partial surrender (see partial surrenders on page 19 for details).

 

Lapse

 

If there is not enough Cash Value to cover a monthly insurance or administrative charge, your Certificate will terminate (lapse), unless you make a payment within the grace period provided in the Group Policy. We will notify you at least 61 days before the end of the grace period.

 

If you allocate your premium payments to one or more of the Variable Funds, it is possible that your cash value at the time we deduct monthly charges will not be enough to cover monthly insurance and expense charges if shares in the Variable Funds decline in value after your premium is received. Unless you have sufficient Cash Value, you may be required to pay additional premium to keep your insurance in force.

 

Reinstatement

 

If your Certificate lapses, you may apply to have it reinstated at any time up to three years after the date of lapse. We may require you to provide proof of good health at your expense. We may also require you to pay insurance and expense charges for two months prior to the date of reinstatement. Also, if you had a Certificate loan in force on the date of lapse, you must pay loan interest from the date of lapse.

 

Reinstatement will be effective when we approve your application and any proof of good health and receive the required payment. This effective date will apply for purposes of the suicide and incontestability provisions of the Group Policy.

 

If your coverage lapses while you are on a leave of absence covered by the Family and Medical Leave Act, or Uniformed Services Employment and Re-employment Rights Act, you may reinstate your Certificate within 31 days of your return to work, without providing proof of good health.

 

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Table of Contents

 

LIFE INSURANCE BENEFITS

 

 

When you apply, you must choose an amount of life insurance coverage as follows. The choices will depend on the terms of the Group Policy, as agreed to by the Group Policyholder, and are subject to the following:

 

 
·
 
The coverage amount will be a multiple of your annual compensation.

 

 
·
 
The coverage amount will not be less than $10,000.

 

 
·
 
The coverage amount will not be more than the lesser of 10 times your annual compensation, or a fixed amount.

 

 
·
 
Amounts and choices may be limited by state law.

 

Guaranteed Issue Amounts

 

If you apply for insurance during the open enrollment period, we and the Group Policyholder may allow you (and your family members, if eligible) to buy a certain amount of life insurance coverage (the guaranteed issue amount) without answering health questions or providing proof of good health.

 

The open enrollment period will be agreed to by us and the Group Policyholder and will be at least 31 days.

 

Proof of Good Health

 

You will be required to provide proof of good health:

 

 
·
 
If you apply for more life insurance than the Guaranteed Issue Amount.

 

 
·
 
If you apply for an increase in your life insurance coverage amount.

 

 
·
 
If you apply for insurance after the end of the open enrollment period.

 

Effective Date of Coverage

 

If you apply during the open enrollment period, the coverage you apply for (up to the Guaranteed Issue Amount) will begin on the later of:

 

 
·
 
The date you become eligible; and

 

 
·
 
The date your application is received at our Customer Service Center.

 

Coverage will not begin until we approve your application and proof of good health, in these cases:

 

 
·
 
Any amount of coverage that exceeds the Guaranteed Issue Amount.

 

 
·
 
Any request to increase your amount of coverage.

 

 
·
 
Any application not received within 31 days after you first become eligible.

 

If you are not actively at work on the date your coverage would otherwise begin, your coverage will not begin until the date you return to work.

 

If your spouse is disabled, or if your spouse or child is confined in a hospital or confined at home under medical care, that person’s coverage will not begin until that person is no longer disabled or the confinement ends.

 

If coverage is delayed more than 90 days due to these conditions, you will need to make a new application and provide proof of good health.

 

Changing the Coverage Amount

 

You may change your life insurance coverage amount by making a request in writing to our Customer Service Center.

 

You must provide proof of good health to increase life insurance coverage, except in these cases:

 

 
·
 
Increases under the Automatic Increase Option, if provided for in the Group Policy.

 

 
·
 
If the Group Policy provides, an increase of one times your annual compensation made within 31 days of a qualifying Life Status Change, as defined in the Group Policy.

 

You may also decrease your life insurance coverage amount. You may not decrease the coverage amount below $10,000 (or a lower amount, if required by state law). You may not decrease your coverage amount below the lowest amount which will meet the definition of a Life Insurance Policy under Section 7702 of the Internal Revenue Code (See tax matters, page 22).

 

Automatic Increase Feature

 

If the Group Policy provides an Automatic Increase Feature, and if you choose this feature, your life insurance coverage will be increased on each Policy Anniversary to reflect increases in your compensation since the last Policy Anniversary.

 

You do not need to provide proof of good health. There may be limits on the amount or percentage of any increase. This feature will terminate if you change your coverage amount to an amount which is not a multiple of your compensation.

 

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Table of Contents

 

The cost of this feature, if provided by the Group Policy, is included in the Applicable Monthly Insurance Charge.

 

Life Insurance Death Benefit

 

If you die, we will pay a life insurance benefit to your beneficiary. This benefit will be the total of:

 

 
·
 
Your life insurance coverage amount.

 

 
·
 
Your Cash Value, as of the date of death.

 

The life insurance benefit will be reduced by any Accelerated Payment Benefit that has been paid. Any outstanding loans, including loan interest, and premiums due, will also reduce the life insurance benefit we will pay.

 

We will pay the death benefit in a lump sum within 7 days after we receive, at our Customer Service Center, due proof of death and other information to confirm that the claim is covered. Payment may be delayed if:

 

 
·
 
The proper beneficiary cannot be identified or located.

 

 
·
 
The beneficiary is a minor or not able to give a valid release.

 

 
·
 
The Certificate is being contested due to misstatements on the application, or other valid reasons.

 

 
·
 
A release needs to be received from any tax authority.

 

 
·
 
Any other reason that would prevent timely payment of the benefit. Interest will be paid if we believe it is required by state law.

 

The life insurance benefit will never be less than the minimum amounts shown in the Table below. If the amount shown in the table below is more than the total of your life insurance coverage amount and your Cash Value, we may do any of the following:

 

 
·
 
Require you to increase your life insurance coverage amount, and provide proof of good health.

 

 
·
 
Require you to surrender some of your Cash Value.

 

 
·
 
Refuse to take premium payments.

 

 

 
 

Percent

 
 
 

Percent

 
 
 

Percent

 
 
 

Percent

 
 
 

Percent

 
 
  

Percent

Age
at
Death


 

of
Cash
Value


 

Age
at
Death


 

of
Cash
Value


 

Age
at
Death


 

of
Cash
Value


 

Age
at
Death


 

of
Cash
Value


 

Age
at
Death


 

of
Cash
Value


 

Age
at
Death


  

of
Cash
Value


0-40

 

250%

 

47

 

203%

 

54

 

157%

 

61

 

128%

 

68

 

117%

 

75-90

  

105%

41

 

243%

 

48

 

197%

 

55

 

150%

 

62

 

126%

 

69

 

116%

 

91

  

104%

42

 

236%

 

49

 

191%

 

56

 

146%

 

63

 

124%

 

70

 

115%

 

92

  

103%

43

 

229%

 

50

 

185%

 

57

 

142%

 

64

 

122%

 

71

 

113%

 

93

  

102%

44

 

222%

 

51

 

178%

 

58

 

138%

 

65

 

120%

 

72

 

111%

 

94

  

101%

45

 

215%

 

52

 

171%

 

59

 

134%

 

66

 

119%

 

73

 

109%

 

95-99

  

100%

46

 

209%

 

53

 

164%

 

60

 

130%

 

67

 

118%

 

74

 

107%

 
 
  
 

 

Misstatement of Age

 

If a person’s age has not been correctly reported, all benefits will be adjusted to equal the benefits that would have been provided, based on the person’s correct age and the amount of insurance charges paid.

 

Suicide

 

If you commit suicide within two years of the effective date of your Certificate, the death benefit will not be paid. Instead, we will refund all premiums that were paid, minus:

 

 
·
 
Any Policy loan amount; and

 

 
·
 
Any partial surrender payments made.

 

The Beneficiary

 

The life insurance death benefit is paid to your beneficiary. You must choose a beneficiary when you apply for a Certificate.

 

You may change the beneficiary at any time prior to your death. Unless the existing beneficiary is an irrevocable beneficiary, you do not need the beneficiary’s consent. The change must be in writing, must be signed by you (or by the Owner, if you have assigned your Certificate), must be in a form acceptable to us, and must be recorded by our Customer Service Center. A change of beneficiary will be effective on the date it was signed. However, the change will not affect any payment we make or action we take before the change is recorded.

 

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Unless you direct otherwise:

 

 
·
 
If a beneficiary dies before you, that beneficiary’s share will be paid to the other beneficiaries.

 

 
·
 
If you choose more than one beneficiary, the beneficiaries will be paid equal shares.

 

If you have not chosen a beneficiary, or if there is no beneficiary alive when you die, we will pay:

 

 
·
 
Your spouse, if living.

 

 
·
 
If not, in equal shares to your living children.

 

 
·
 
If there are none, in equal shares to your living parents.

 

 
·
 
If there are none, in equal shares to your living brothers and sisters.

 

 
·
 
If there are none, to your estate.

 

 

ADDITIONAL BENEFIT OPTIONS

 

The benefit options below are available as options for the Group Policyholder. Depending on the plan chosen by the Group Policyholder, these benefits may be available or may be included in the Certificates available to you. There may be an additional charge for these benefits.

 

Accidental Death, Dismemberment and Injury

 

The Group Policy may include one of three Accident Benefit Riders. These riders pay an additional benefit for death or certain injuries that are caused by an accident, and from no other cause, within 90 days of the accident, and while coverage is in force.

 

The three options are:

 

 
1.
 
An additional death benefit equal to the life insurance coverage amount.

 

 
2.
 
The above, plus a benefit (equal to a percentage of the life insurance coverage amount) for loss of a hand, loss of a foot, total loss of sight in an eye, or loss of the thumb and index finger of the same hand.

 

 
3.
 
The above, plus a benefit (equal to a percentage of the life insurance coverage amount) for total loss of speech, total loss of hearing, paraplegia, hemiplegia or quadriplegia.

 

If an accident results in more than one loss, the additional benefit will not be more than the life insurance coverage amount. The Group Policy may provide that this benefit is available to your family members as well.

 

This benefit is subject to Exclusions which are contained in the Certificate, and which will be described in the brochure.

 

The cost of this feature, if provided by the Group Policy, is included in the Applicable Monthly Insurance Charge.

 

Waiver of Cost of Insurance Due to Disability

 

The Group Policy may provide that some charges will not be deducted if you become totally disabled before reaching age 60, and remain totally disabled for the number of months (at least six but not more than 12) required by the Group Policy.

 

If the Group Policy provides this benefit, these charges will not be deducted:

 

 
·
 
Your monthly charge for life insurance.

 

 
·
 
Your monthly Certificate administrative fee.

 

 
·
 
Any premiums for term life insurance on your spouse or children. (You may not add child life insurance after you have become disabled.)

 

Any of these charges deducted after you became totally disabled will be refunded. These charges WILL continue to be deducted:

 

 
·
 
Any charges on account of premiums paid after you become disabled.

 

 
·
 
Any charges under a Certificate issued to your spouse.

 

 
·
 
Any charge for additional benefits.

 

You must provide proof that you are totally disabled:

 

 
·
 
Not more than 12 months after you first become disabled.

 

 
·
 
After that, whenever we ask for proof, but not more than once a year after two years.

 

We must also receive proof that you were totally disabled through the date of your death, within 12 months of your death.

 

You will be deemed totally disabled if you cannot do any work for wage or profit, due to sickness or injury.

 

You may not increase your life insurance coverage amount while charges are being waived.

 

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Waiver of charges will end if:

 

 
·
 
You reach age 65.

 

 
·
 
You fail to provide proof of disability when we request.

 

 
·
 
You surrender your Certificate.

 

The cost of this feature, if provided by the Group Policy, is included in the Applicable Monthly Insurance Charge.

 

Paid-Up Life Insurance

 

The Group Policy may allow you to use all or part of your Cash Value (less any loan amount, including loan interest) to buy paid-up life insurance under a separate policy. The premium for paid-up life insurance will be based on the guaranteed maximum cost of insurance under the Group Policy, and the minimum guaranteed rate of interest for the Fixed Account.

 

You do not need to provide proof of good health. Your life insurance coverage amount under the Group Policy will be reduced by the amount of paid-up life insurance you buy.

 

Accelerated Payment Benefits

 

The Group Policy may provide for one or more of the following three options:

 

 
1.
 
A lump sum benefit equal to the percentage stated in the Group Policy of your life insurance coverage amount, if you become Terminally Ill. At least two physicians (not affiliated with each other) must certify that you are expected to live less than 12 months. We may require other medical proof that you are terminally ill.

 

 
2.
 
A benefit for confinement in a Nursing Care or Custodial Care Facility. To receive this benefit, you must:

 

 
·
 
Have an IMPAIRMENT, as defined in the Group Policy (this generally means the inability to perform two or more defined activities of daily living, or disability due to Alzheimer’s Disease or similar conditions).

 

 
·
 
Be confined for at least 90 days in a Nursing Care or Custodial Care Facility, as defined in the Group Policy.

 

 
·
 
Provide certification by two physicians (not affiliated with each other) that you are expected to need confinement for the rest of your life.

 

This benefit will be paid either as:

 

 
·
 
A lump sum benefit equal to the percentage stated in the Group Policy of your life insurance coverage amount; or

 

 
·
 
Monthly payments which total the lump sum benefit percentage provided in the Group Policy.

 

 
3.
 
A lump sum benefit equal to the percentage stated in the Group Policy of your life insurance coverage amount, if you are diagnosed with one or more of the following Specified Diseases, as defined in the Group Policy:

 

 
·
 
Life threatening cancer.

 

 
·
 
Heart attack.

 

 
·
 
Kidney failure.

 

 
·
 
Stroke.

 

 
·
 
Organ transplants.

 

 
·
 
Acquired Immune Deficiency Syndrome (AIDS).

 

A physician must certify the diagnosis. We may require other medical proof.

 

Only one of these three benefits may be claimed. This benefit will end when one of the benefits is paid. Your life insurance coverage amount will be reduced by the amount of this benefit paid. Monthly insurance charges will still be payable based on the life insurance coverage amount before the reduction.

 

The cost of this feature, if provided by the Group Policy, is included in the Applicable Monthly Insurance Charge.

 

Seat Belt Benefit

 

The Group Policy may provide for an extra benefit of 10% of your life insurance coverage amount (but not more than $10,000) if you die as a result of an accident while driving or riding in a private passenger car and properly wearing your seat belt. Proper use of the seat belt must be certified in the official accident report.

 

The cost of this feature, if provided by the Group Policy, is included in the Applicable Monthly Insurance Charge.

 

Life Insurance for Family Members

 

The Group Policy may include life insurance coverage options for your spouse and dependent children. These options may include:

 

 
·
 
The option for your spouse to buy his or her own variable life insurance Certificate (including the right to build Cash Value in the Variable Funds and/or the Fixed Account).

 

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·
 
The option for you to buy term life insurance coverage on your spouse.

 

 
·
 
The option for you to buy term life insurance coverage on your dependent children.

 

Eligibility requirements for children will be set forth in the Group Policy, and may include:

 

 
·
 
Age limits (including a higher age limit for full time students or handicapped children).

 

 
·
 
A requirement that the child be unmarried.

 

 
·
 
A requirement that the child be dependent.

 

Life insurance coverage for spouses will be subject to these limits:

 

 
·
 
Coverage may not exceed three times your annual compensation.

 

 
·
 
Coverage may not exceed $100,000.

 

 
·
 
Coverage may be subject to lower limits under state law.

 

Term life insurance coverage on a spouse or dependent child will end when:

 

 
·
 
The spouse or child is no longer eligible.

 

 
·
 
Your Certificate terminates.

 

 
·
 
You choose to terminate the coverage.

 

 
·
 
A spouse or child chooses to buy a variable life insurance Certificate (if permitted by the Group Policy).

 

 

CASH VALUE FEATURES

 

 

How Your Certificate is Valued

 

Your Cash Value consists of the total value invested in all of the Variable Funds and in the Fixed Account.

 

When premiums are allocated to one of the Variable Funds, Units of the Variable Fund are Bought at the Unit Value of the Variable Fund as of the current Valuation Day.

 

When monthly deductions, surrenders and transfers are made, or when transaction fees are charged, Units of the Variable Fund are Sold at the Unit Value of the Variable Fund as of the current Valuation Day.

 

Valuation Day means any day on which trading on the New York Stock Exchange is open, other than any day on which the Exchange is restricted, or a day on which the SEC has determined that an emergency exists which prevents valuing or trading securities. We reserve the right to provide that any day which is a scheduled office closing holiday for our Customer Service Center will not be a Valuation Day. All valuations shall be made as of the close of trading on a Valuation Day (currently 4:00 p.m., Eastern Time). The Friday after Thanksgiving is the only scheduled office closing holiday on which the New York Stock Exchange is open.

 

The Unit Value of each Variable Fund will increase or decrease based on the investment performance of the Variable Fund. The Unit Value as of each Valuation Day is equal to the Unit Value as of the last Valuation Day, multiplied by the Investment Factor, which measures the Variable Fund’s investment performance (net of expenses) since the last Valuation Day.

 

The Investment Factor as of each Valuation Day is figured as follows:

 

 
1.
 
The Net Asset Value per share of the Variable Fund as of the Valuation Day; plus

 

 
2.
 
The per-share amount of any distribution declared by the Variable Fund, if the “ex-dividend” date is after the last Valuation Day (and we will reinvest any distribution in shares of the Variable Fund); minus

 

 
3.
 
The per-share amount of any taxes imposed on the Separate Account since the last Valuation Day; minus

 

 
4.
 
The Daily Charge on Fund Balances for mortality and expense risks, multiplied by the number of days since the last Valuation Day; divided by

 

 
5.
 
The Net Asset Value per share of the Variable Fund as of the last prior Valuation Day.

 

As of each Valuation Day, your Cash Value invested in each Variable Fund equals the number of Units multiplied by the Unit Value.

 

Your Cash Value in the Fixed Account as of each day is figured as follows:

 

 
1.
 
Cash Value in the Fixed Account as of the previous day; plus

 

 
2.
 
Interest at the current interest rate on the above; plus

 

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Table of Contents

 

 
3.
 
Transfers into, and premiums allocated to, the Fixed Account since the previous day; minus

 

 
4.
 
Charges deducted from the Fixed Account, and transfers and surrenders from the Fixed Account, since the previous day.

 

Your Cash Value in the Fixed Account is guaranteed. However, there is no guarantee that the Cash Value in the Variable Funds will equal or exceed the premiums allocated to the Variable Funds.

 

We will provide you, at least annually, with a report which shows:

 

 
·
 
The number of Units of each Variable Fund credited to your Certificate.

 

 
·
 
The current Unit Value for each Variable Fund.

 

 
·
 
The Cash Value in each Variable Fund.

 

 
·
 
The Cash Value in the Fixed Account.

 

 
·
 
The amount of any outstanding loans.

 

You may obtain this information daily from our Customer Service Center.

 

Policy Loans

 

You may obtain a loan from us at any time. Each loan must be for at least $250.00. The total of all loans may not exceed 90% of your Cash Value. We will require you to sign a loan agreement which assigns your Certificate to us as security for the loan.

 

We will charge Interest on the loan at an annual rate of 8%. Payment of interest is due on each Policy Anniversary, or when your Certificate is terminated or surrendered. If you do not pay interest within 30 days of the Policy Anniversary, we will add it to the loan, as of the Policy Anniversary.

 

When you obtain a loan, or when interest is added to your loan, we will withdraw Cash Value equal to the amount loaned from your Cash Value and place it in a special Loan Account. Unless you direct otherwise in writing, we will make
these withdrawals from each Variable Fund in which your Cash Value is invested, and from the Fixed Account, in proportion to the balance of each Fund and the Fixed Account. We will credit interest to this Loan Account at an effective annual rate of at least 6%.

 

If your Certificate terminates for any reason, including surrender, lapse, death or termination of the Group Policy, we will use the amount in the Loan Account to repay the loan. If the amount of the loan is greater than the value of the Loan Account, we will reduce the death benefit or surrender amount by the difference.

 

When you repay all or part of any loan, we will transfer the amount of the repayment from the Loan Account to the Variable Funds and the Fixed Account, based on the premium allocation percentage then in force.

 

A loan, whether or not it is repaid, will affect the death benefit and the Cash value. This is because the investment results of the Variable Funds and the Fixed Account only apply to the non-loaned part of the Cash Value. The longer a loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the Variable Funds or the Fixed Account while the loan is outstanding, this effect could be favorable or unfavorable.

 

Partial Surrenders

 

You may make a partial surrender of your Cash Value at any time by making a written request to our Customer Service Center. The amount of the partial surrender may not be more than 90% of your Cash Value (net of any loan amount), and may not be less than $250.00. A $25.00 transaction fee will be charged, or 2% of the amount of the partial surrender if less, for partial surrenders during the first 20 Policy Years.

 

Unless we agree otherwise, we will deduct the amount surrendered and the transaction charge from each Fund and the Fixed Account in proportion to the balance of each Fund and the Fixed Account.

 

A partial surrender will not reduce your life insurance coverage amount. Since it reduces your Cash Value, however, it will reduce the death benefit.

 

 

OTHER IMPORTANT PROVISIONS

 

Deferral of Payment

 

We may defer the payment of any amount from a Variable Fund:

 

 
·
 
When the New York Stock Exchange is closed;

 

 
·
 
When required by the Securities and Exchange Commission.

 

 

We may defer the payment of any amount surrendered from the Fixed Account for up to six months. If required by law, we will pay interest.

 

Fixed Benefit Policy Exchange

 

If required by state law, you may exchange your Certificate for a certificate under a fixed benefit Group

 

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Table of Contents

Universal Life Insurance Policy, within 18 months of your Certificate effective date. This certificate will bear the same effective date as your Certificate under this Policy. If available, the certificate will include any additional benefits provided to you under your Certificate under this Policy. Your Certificate’s Cash Value as of the date of the exchange will be transferred to the fixed benefit certificate.

 

Assignment

 

You may transfer, as a gift, all of your rights under your Certificate to any other person, while you are living, by making a written assignment, in a form acceptable to us. The person to whom you assign your Certificate will become the owner of the Certificate, and will have the power to exercise all rights and receive all benefits provided by the Certificate.

 

We will not be bound by any assignment until we receive and record it at our Customer Service Center. We are not responsible for the validity of any assignment. We may refuse to record any assignment where we believe:

 

 
·
 
The assignment would not be permitted by law; or

 

 
·
 
The assignment would increase our duties or risks.

 

Misrepresentations

 

We issue Certificates in reliance on the statements you make in your application, and on any proof of good health that you provide. We may rescind your Certificate, to the extent permitted by law, if the information on which we relied is incorrect.

 

No statement will be used to rescind your Certificate or deny a claim, unless you die within two years of your Certificate effective date.

 

If your life insurance coverage amount was increased, or if your Certificate was reinstated, no statement will be used to contest the increase or the reinstatement, unless you die within two years of the effective date of the increase or reinstatement.

 

State Variations

 

The terms of the Policy may vary from state to state, due to the requirements of state law.

 

Nonparticipating Policies

 

The Group Policy is a nonparticipating policy, and is not entitled to share in our surplus or profits.

 

Dollar Cost Averaging

 

If you have Cash Value of at least $3,000 in the TimesSquare VP Money Market Fund, you may choose to take part in this program. Under this program, Cash Value is
reallocated between the Variable Funds every month. This may reduce the impact of market fluctuations, when compared to making reallocations less frequently. Since the same dollar amount is transferred each month, more Units of each Variable Fund are bought if the Unit Value is low, and fewer are bought if the Unit Value is high. As a result, over the long term, a lower average cost per unit may be obtained. This plan allows you to take advantage of market fluctuations, while reducing the risk of short term price fluctuations. However, it does not guarantee a profit, or protect against a loss in declining markets.

 

To elect this program, you must request a Dollar Cost Averaging Election Form and return it to our Customer Service Center. This program will begin with the first month after your completed form is received, as long as you have at least $3,000 in the TimesSquare VP Money Market Fund.

 

All Dollar Cost Averaging transfers will take place as of the first Valuation Day of each month. The minimum amount of any transfer is $250.00. There is no charge for this program. However, each transfer counts toward the 12 free transfers between Funds each Policy Year. A fee will be charged for each extra transfer. We may charge a fee for this service in the future.

 

Dollar Cost Averaging will end when:

 

 
·
 
The number of transfers requested have taken place.

 

 
·
 
There is not enough Cash Value in the TimesSquare VP Money Market Fund to make a scheduled transfer.

 

 
·
 
We receive your written request to terminate the program.

 

VOTING RIGHTS

 

Shareholders of the Variable Funds may have the right to vote those shares at meetings of shareholders of the Funds. While we are the owner of the shares in the Separate Account, we will cast our vote as we are directed by the owners of Certificates.

 

We will do this because we believe it is required by current law. We may, however, vote the shares in our own right, if at any time we believe it is permitted by law.

 

You will receive any appropriate Proxy Materials and reports. We will request your instructions at least 14 days prior to the shareholder meeting.

 

We will vote ALL the shares of a Variable Fund owned by the Separate Account (or abstain from voting) pro rata, based on the written instructions we receive from Certificate owners. Your voting share will be based on your pro rata number of Units invested in a particular Variable Fund. This

 

21


Table of Contents

will be figured as of the record date set by the Variable Fund, which will not be more than 60 days before the meeting. Your voting share will be figured separately for each Variable Fund in which you have invested Cash Value. We will vote on the basis of fractional shares, if necessary.

 

The Variable Funds do not hold regular meetings of shareholders.

 

We may disregard voting instructions received from Certificate owners, if we are required to do so by state insurance regulators. This may be required if the vote would change the investment objectives of the Variable Fund:

 

 
·
 
In a way prohibited by state insurance law; or

 

 
·
 
In a way that would harm the Separate Account; or

 

 
·
 
In a way that would result in overly speculative or unsound investments.

 

This may also be required if the vote is to approve or disapprove an investment advisory contract for the Variable Fund.

 

If for any reason we do disregard voting instructions from Certificate owners, we will include the reasons for this action in the next annual report to Certificate owners.

 

TAX MATTERS

 

 

Below is a brief summary of federal tax issues affecting the Group Policy. This summary is based on current federal tax law and regulations, and may be subject to change if there are any changes in those laws and regulations. This is a general summary and should not be relied on as tax advice. For specific advice, please consult a qualified tax advisor.

 

All Section references below are to the Internal Revenue Code of 1986, as amended.

 

Qualification as a Life Insurance Policy

 

Section 7702 provides that if certain tests are met, a Policy will be treated as a life insurance contract for federal tax purposes. We will monitor compliance with these tests. As a result, the following federal income tax rules should apply:

 

 
·
 
Death Benefits should be excluded from the beneficiary’s income under Section 101(a). This includes any CASH VALUE that is paid as part of the death benefit. This also includes any benefit for accidental death.

 

 
·
 
Increases in Cash Value should not be subject to income tax until it is withdrawn, or until the Certificate terminates.

 

 
·
 
Surrenders of Cash Value should be subject to income tax only to the extent that the total amount received is greater than the total amount of premiums you have paid for the Certificate. See Section 72(e).

 

 
·
 
Policy Loan proceeds should not be subject to tax. However, if your Certificate LAPSES while a policy loan is outstanding, you will be subject to income tax to the extent that your Certificate’s Cash Value (including the loan amount) is greater than the total premiums paid.

 

 
·
 
Amounts that you receive while you are Terminally Ill may be excluded from your income under Section 101(g).

 

 
·
 
Benefits for Accidental Injuries should be excluded from your income under Section 105(c).

 

 
·
 
Any other benefit which you receive due to Injury Or Sickness may be excluded from your income under Section 104(a)(3), unless premiums were paid by your employer and not included in your income. See IRS Regulations, Section 1.72-15.

 

Modified Endowment Contracts

 

Section 7702A imposes different rules on policies where the total premiums paid during the first 7 years are more than the premiums that would have been required for the policy’s benefits to be paid-up after seven equal annual premiums. These policies are known as Modified Endowment Contracts.

 

If, under this test, a Certificate is a Modified Endowment Contract, these special rules apply:

 

 
·
 
Any partial surrender or loan proceeds (including loan proceeds from another lender to whom you have assigned the Certificate as collateral) is subject to income tax to the extent your Certificate’s Cash Value is greater than the total premiums paid for your Certificate.

 

 
·
 
Any amount that is subject to income tax under the rule above will also be subject to a 10% penalty tax, unless you (or your assignee, if you have assigned your Certificate) are over age 59
 1
/
2
or are disabled.

 

If your Certificate is not a Modified Endowment Contract based on the premiums and life insurance coverage amount when it is issued, we will monitor your premium payments.

 

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We will notify you if, as a result of premium payments or coverage changes, it appears your Certificate will become a Modified Endowment Contract. Unless you notify us in writing that you are willing to allow your Certificate to become a Modified Endowment Contract, we may refuse any coverage change or refund any excess premiums to prevent the Certificate from becoming a Modified Endowment Contract.

 

Interest on Policy Loans

 

Interest paid on loans for personal purposes is not deductible. While interest paid on loans for business purposes may be deductible, there are strict limits on deducting interest on life insurance policy loans for business purposes. See Section 264. You should consult a qualified tax advisor before taking a policy loan for business purposes.

 

Alternative Minimum Tax

 

If a Certificate is owned by a corporation, then the Alternative Minimum Tax imposed by Section 55 may apply to:

 

 
·
 
All or part of increases in Cash Value.

 

 
·
 
Death benefits.

 

 
·
 
Other distributions.

 

See Section 56(c)(1) and Section 56(g)(4)(B).

 

Diversification Requirements

 

Section 817(h) provides that a variable life insurance policy will not enjoy the favorable tax treatment of a life insurance policy unless the investments of the Separate Account are adequately diversified. We believe that the Separate Account meets these requirements.

 

In 1986, the IRS stated that it might issue guidelines that would cause a policy to fail to meet these requirements if the Certificate owner has too much control over the Variable Fund investments. The IRS has not issued any guidelines and we do not expect that any such guidelines would adversely affect the policies. If the IRS issues regulations limiting the number of Variable Funds, transfers among funds, etc., we will take
whatever steps we can so that the Policies would continue to qualify for favorable income tax treatment as life insurance policies.

 

Taxation of the Company

 

We are taxed as a life insurance company under the Internal Revenue Code. Since the Separate Account is a part of the insurance company, it is not taxed separately as a regulated investment company under Subchapter M.

 

We do not expect to incur any federal income tax liability that would be chargeable to the Separate Account. As a result, we do not impose a charge on the Separate Account for federal income taxes. We may impose a charge if at any time we believe that the Separate Account will incur any federal income taxes.

 

We may also incur state and local taxes, other than premium taxes. At present, we are paying these taxes, and not charging them to Certificate holders, as they are not significant. We may, however, impose charges on account of these taxes if they increase.

 

Premium Taxes and Deferred Acquisition Costs

 

In general, all premiums (including lump sum premiums) paid for life insurance policies are subject to premium tax under state law. These taxes range from 0.0% to 3.0%.

 

We are also subject to federal income tax under Section 848 on account of deferred acquisition costs.

 

We will recover all or part of these taxes through the PREMIUM CHARGE (see page 10). Part of these taxes may also be recovered through other charges (such as the monthly cost of insurance).

 

Other Tax Considerations

 

All or part of Policy benefits may also be subject to federal estate and gift taxes, as well as state and local income, estate and inheritance taxes. Policy benefits may also be subject to foreign taxes, if you are subject to foreign taxes. You should consult a qualified tax advisor for advice concerning the tax consequences of buying a Certificate or making transactions under it.

 

THE INSURANCE COMPANY

 

 

Connecticut General Life Insurance Company is a stock life insurance company, incorporated in Connecticut in 1865. Our Home Office mailing address is Hartford, Connecticut 06152; telephone (860) 726-6000. We are licensed to sell group and individual life and health insurance and annuity
contracts in all states, the District of Columbia, Puerto Rico and certain foreign countries. We are an indirect wholly-owned subsidiary of CIGNA Corporation, Philadelphia, Pennsylvania, and have other affiliates and subsidiaries which are also in the business of insurance.

 

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The Policies are sold by independent insurance brokers, general agents, and registered representatives of broker-dealers who are members of the National Association of Securities Dealers, Inc. (“NASD”).

 

The Separate Account

 

We established CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A (THE SEPARATE ACCOUNT) on May 22, 1995 for the purpose of holding shares of the Funds which support your Cash Value. Under Connecticut law, the income, gains or losses of the Separate Account are credited to policyholders without regard to our other income, gains or losses. The Separate Account is protected against claims of our other creditors, to the extent of our obligations to variable life insurance policyholders funded by the Separate Account. The result is that the investment performance of Certificates invested in the Funds depend on the investment performance of the Funds—and not on the results of our other businesses and investments.

 

The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 and meets the definition of a “separate account.” The SEC does not supervise the Separate Account or our management or investments. We do not guarantee the investment performance of the Separate Account, or of Policies whose Cash Values are invested in the Separate Account.

 

We have other separate accounts which are registered with the SEC as Unit Investment Trusts, for the purpose of funding our variable annuity contracts and other variable life insurance contracts.

 

We own all the assets of the Separate Account, which we hold as custodian for the benefit of policyholders whose Cash Values are invested in the Separate Account. All of our obligations under the Policies are our general corporate obligations.

 

We may take the following actions with respect to the Separate Account. We will take these actions only as permitted by applicable laws, including obtaining any required regulatory approval.

 

 
·
 
Add, combine, or remove any Fund.

 

 
·
 
Create new separate accounts.

 

 
·
 
Combine the Separate Account with one or more other separate accounts.

 

 
·
 
Operate the Separate Account as a management investment company under the Investment Company Act of 1940, or in any other form permitted by law.

 

 
·
 
Terminate the registration of the Separate Account under the Investment Company Act of 1940.

 

 
·
 
Use a committee to manage the Separate Account.

 

 
·
 
Transfer assets in any Fund to another Fund, to other separate accounts, or to our general account.

 

 
·
 
Take any actions required to comply with the Investment Company Act of 1940, or to obtain and continue any exemptions from that Act.

 

Financial Ratings

 

We are rated by independent financial rating services, including Moody’s, Standard & Poor’s, Duff & Phelps and A. M. Best Company. These ratings are intended to reflect our financial strength or claims-paying ability. They are not based on the investment results or financial strength of the Separate Account. We may advertise these ratings from time to time. We may also advertise comparisons of currently taxable and tax deferred investments, based on selected tax brackets, or discuss other investments and general economic conditions.

 

 

OTHER MATTERS

 

 

Agreements with Group Policyholders

 

We may agree with the Group Policyholder to make changes in the terms of the Group Policy. These changes may include, for example:

 

 
·
 
Agreeing to specific fees and charges. In no case will these fees or charges be more than the maximum amounts shown in this Prospectus.

 

 
·
 
Agreeing to waive specific fees and charges, in all cases, or only if certain conditions are met.

 

 
·
 
Extending the time periods for exercising certain rights under the Group Policy.

 

 
·
 
Agreeing to limit the conditions under which proof of good health will be required to buy or increase life insurance coverage.

 

 
·
 
Setting forth eligibility requirements for employees or members and their family members.

 

 
·
 
Other changes permitted by law.

 

24


Table of Contents

 

You will be given information concerning the specific terms of your employer’s or union’s Group Policy.

 

Distribution of Policies

 

The Policies will be sold by persons who are licensed as insurance agents or brokers in the state where the Policy is sold. These agents and brokers will be registered representatives of broker-dealers who are registered under the Securities Exchange Act of 1934 and who are members of the National Association of Securities Dealers (“NASD”).

 

The Policies will be distributed by our principal underwriter, CIGNA Financial Services, Inc., 900 Cottage Grove Road, Hartford, CT 06152. CIGNA Financial Services, Inc. is a Delaware corporation organized in 1995. It is the principal underwriter for our other registered Separate Accounts.

 

We may pay commissions to agents and brokers in connection with the sale of the Policies. These commissions will not be more than 20% of premium payments during the first policy year, and not more than 15% of premium payments after that. We may also pay commissions based on Cash Value balances. All commissions will be recovered through the other charges under the Policy.

 

State Regulation

 

We are subject to insurance laws and regulations of Connecticut, our home state, as well as those of other states where we do business. Each year, we file an annual statement with insurance departments that cover our operations for the prior year, and our financial condition at the end of the prior year.

 

State regulation includes periodic review by regulators to determine our contract liabilities and reserves so the insurance department may certify that those items are correct. Our books and accounts are subject to insurance department review at any time, and includes a full examination of our operations at least every five years by the National Association of Insurance Commissioners.

 

This regulation does not involve any supervision of our management or investment practices or policies.

 

A blanket bond for $10 million covers all of our officers and employees.

 

Reports to Certificate Owners

 

We will provide you with an annual statement which will show:

 

 
·
 
Your current life insurance coverage amount.

 

 
·
 
Your current death benefit.

 

 
·
 
Your current Cash Value.

 

 
·
 
Your Cash Value after policy loans are taken into account.

 

 
·
 
Premiums paid since the last report.

 

 
·
 
Monthly charges deducted since the last report.

 

 
·
 
Loan activity and interest since the last report.

 

 
·
 
The amount of Cash Value in each Variable Fund, and in the Fixed Account.

 

We will also provide you with an annual report including a financial statement for the Separate Account.

 

We will also provide you with a statement of significant transactions, such as:

 

 
·
 
Changes in life insurance coverage amount.

 

 
·
 
Changes in allocations of premium payments to the Variable Funds and/or the Fixed Account.

 

 
·
 
Transfers among the Variable Funds, or between the Variable Funds and the Fixed Account.

 

 
·
 
Loans and loan repayments.

 

 
·
 
Termination and reinstatement.

 

Legal Proceedings

 

Neither we nor our Separate Account are involved in, or aware of, any material lawsuits or administrative proceedings, other than ordinary routine litigation that is incidental to our business.

 

CIGNA Financial Services, Inc., the principal underwriter, is not a party to any material lawsuits of any kind.

 

Experts

 

Actuarial opinions regarding the Policies have been provided by Mindy Giraldo, FSA, MAAA, and are contained in the opinion filed as an exhibit to our Registration Statement, on Ms. Giraldo’s authority as an expert in actuarial matters.

 

Legal matters involving the federal securities laws have been reviewed by Morgan, Lewis & Bockius, LLP, Washington D.C.

 

Legal matters related to the Policies have been reviewed by Michael A. James, Chief Counsel, CIGNA Group Insurance, Philadelphia, PA 19192, in the opinion filed as an exhibit to our Registration Statement, given on his authority as an expert in these matters.

 

25


Table of Contents

The consolidated financial statements as of December 31, 2001 and 2002, and for each of the years included in this Prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of PricewaterhouseCoopers LLP as experts in auditing and accounting.

 

Registration Statement

 

We have filed a Registration Statement with the Securities and Exchange Commission under the Securities Act of 1933, with respect to the Group Policies. This prospectus
does not contain all the information in the Registration Statement (as amended), and its exhibits. You should refer to the Registration Statement for more information.

 

The statements in this Prospectus about the Policy are a summary of the Policy. The complete terms of the Policy are contained in the Policy which was filed with the Registration Statement, and the specific terms of the Policy issued to a particular Group Policy will be contained in that Group Policy, which can be inspected at the Group Policyholder’s offices.

 

 

ILLUSTRATIONS

 

A personalized illustration can be obtained from our Customer Service Center by calling 1-800-225-0646.

 

26


Table of Contents

For contractowners wanting to request an Statement of Additional Information or personalized illustrations, free of charge, call 1-800-225-0646. Information about the Registrant (including the Statement of Information) can be reviewed and copied at the Securities and Exchange Commission’s Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling the Commission at (202) 942-8090. Reports and other information about the Registrant are available on the Commission’s Internet Site at http://sec.report and copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,  DC 20549-0102.

 

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

 

Connecticut General Life Insurance Company

  

2

CG Variable Life Separate Account A

  

2

Underwriters

  

3

Financial Statements

  

5

 

The date of this SAI is May 27, 2003.

 

 

File No. 811-07317

 


Table of Contents

STATEMENT OF ADDITIONAL INFORMATION

 

GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICY

 

Issued by:

Connecticut General Life Insurance Company

CG Variable Life Insurance Separate Account A

900 Cottage Grove Road

Hartford, Connecticut 06152

Telephone Number: 1-800-225-0646

 

This Statement of Additional Information (SAI) is not a prospectus. It should be read in conjunction with the prospectus, dated May 27, 2003, for the Group Variable Universal Life Insurance Policies issued by Connecticut General Life Insurance Company through its CG Variable Life Separate Account A (Separate Account).

 

For a free copy of the prospectus:

 

 
Call:
 
1-800-225-0646

 

 
Or write:
 
Connecticut General Life Insurance Company

Lehigh Valley Corporate Center

1455 Valley Center Parkway

Bethlehem, PA 18017

 

Or contact your financial representative

 

TABLE OF CONTENTS

 

Connecticut General Life Insurance Company

  

2

CG Variable Life Separate Account A

  

2

Underwriters

  

3

Financial Statements

  

5

 

The date of this SAI is May 27, 2003.

 

1


Table of Contents

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

 

Connecticut General Life Insurance Company is a stock life insurance company, incorporated in Connecticut in 1865. Our home office mailing address is Hartford, Connecticut 06152; telephone (860) 726-6000. We are licensed to sell group insurance and annuity contracts in all states, the District of Columbia, Puerto Rico and certain foreign countries. We are an indirect wholly-owned subsidiary of CIGNA Corporation, Philadelphia, Pennsylvania, and have other affiliates and subsidiaries which are also in the business of insurance.

 

The Policies are sold by independent insurance brokers, general agents, and registered representatives of broker-dealers who are members of the National Association of Securities Dealers, Inc. (NASD).

 

CG VARIABLE LIFE SEPARATE ACCOUNT A

 

We established the CG Variable Life Insurance Separate Account A (the Separate Account) on May 22, 1995 for the purpose of holding shares of the Funds which support your Cash Value. Under Connecticut law, the income, gains or losses of the Separate Account are credited to policyholders without regard to our other income, gains or losses. The Separate Account is protected against claims of our other creditors, to the extent of our obligations to variable life insurance policyholders funded by the Separate Account. The result is that the investment performance of Certificates invested in the Funds depends on the investment performance of the Funds—and not on the results of our other businesses and investments.

 

The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 and meets the definition of a “separate account.” The SEC does not supervise the Separate Account or our management or investments. We do not guarantee the investment performance of the Separate Account, or of Certificates whose Cash Values are invested in the Separate Account. We have other separate accounts which are registered with the SEC as Unit Investment Trusts, for the purpose of funding our variable annuity contracts and other variable life insurance contracts.

 

We own all the assets of the Separate Account, which we hold as custodian for the benefit of policyholders whose Cash Values are invested in the Separate Account. All of our obligations under the Policies are our general corporate obligations.

 

We may take the following actions with respect to the Separate Account. We will take these actions only as permitted by applicable laws, including obtaining any required regulatory approval.

 

 
·
 
Add, combine, or remove any Fund.

 

 
·
 
Create new separate accounts.

 

 
·
 
Combine the Separate Account with one or more other separate accounts.

 

 
·
 
Operate the Separate Account as a management investment company under the Investment Company Act of 1940, or in any other form permitted by law.

 

 
·
 
Terminate the registration of the Separate Account under the Investment Company Act of 1940.

 

 
·
 
Use a committee to manage the Separate Account.

 

 
·
 
Transfer assets in any Fund to another Fund, to other separate accounts, or to our general account.

 

 
·
 
Take any actions required to comply with the Investment Company Act of 1940, or to obtain and continue any exemptions from that Act.

 

 

2


Table of Contents

 

UNDERWRITERS

 

The Policies will be sold by persons who are licensed as insurance agents or brokers in the state where the Policy is sold. These agents and brokers will be registered representatives of broker-dealers who are Registered under the Securities Exchange Act of 1934 and who are members of the National Association of Securities Dealers (“NASD”).

 

The Policies will be distributed by our principal underwriter, CIGNA Financial Services, Inc., 900 Cottage Grove Road, Hartford, CT 06152. CIGNA Financial Services, Inc. is a Delaware corporation organized in 1995. It is the principal underwriter for our other registered Separate Accounts.

 

We may pay commissions to agents and brokers in connection with the sale of the Policies. These commissions will not be more than 20% of premium payments during the first policy year, and not more than 15% of premium payments after that. We may also pay commissions based on Cash Value balances. All commissions will be recovered through the other charges under the Policy. No commissions have been paid to CIGNA Financial Services, Inc. in the last three years.

 

3


Table of Contents

Consent of Independent Accountants

 

We consent to the inclusion, in this Post-Effective Amendment No. 10 to the Registration Statement under the Securities Act of 1933, as amended, filed on Form N-6 (File No. 33-60967), for the CG Variable Life Insurance Separate Account A, of the following reports:

 

 
1.
 
Our report dated February 6, 2003 on our audits of the consolidated financial statements of Connecticut General Life Insurance Company as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002.

 

 
2.
 
Our report dated April 30, 2003 on our audits of the financial statements of the CG Variable Life Insurance Separate Account A as of December 31, 2002 and for each of the three years in the period ended December 31, 2002.

 

We also consent to the reference to our Firm under the caption “Experts.”

 

/S/    PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania

 

April 30, 2003

 

 

4


Table of Contents

 

 

 

CONNECTICUT GENERAL LIFE

INSURANCE COMPANY

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2002

 

 

 

5


Table of Contents

 

Report of Independent Accountants

 

To the Board of Directors and Shareholder of

Connecticut General Life Insurance Company:

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income and changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Connecticut General Life Insurance Company and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” effective January 1, 2002.

 

/S/ PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania

 

February 6, 2003

 

6


Table of Contents

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF INCOME

 

 
  

For the years ended December 31,


 
 
  

2002


 
    

2001


 
    

2000


 
 
  

(In millions)

 

Revenues

  
 
 
 
    
 
 
 
    
 
 
 

Premiums and fees

  

$

8,343

 

    

$

7,469

 

    

$

7,072

 

Net investment income

  

 

2,366

 

    

 

2,441

 

    

 

2,395

 

Other revenues

  

 

616

 

    

 

465

 

    

 

110

 

Realized investment losses

  

 

(155

)

    

 

(225

)

    

 

(11

)

 
  



    



    



Total revenues

  

 

11,170

 

    

 

10,150

 

    

 

9,566

 

 
  



    



    



Benefits, Losses and Expenses

  
 
 
 
    
 
 
 
    
 
 
 

Benefits, losses and settlement expenses

  

 

8,409

 

    

 

6,380

 

    

 

6,296

 

Policy acquisition expenses

  

 

126

 

    

 

63

 

    

 

56

 

Other operating expenses

  

 

3,346

 

    

 

2,653

 

    

 

2,211

 

 
  



    



    



Total benefits, losses and expenses

  

 

11,881

 

    

 

9,096

 

    

 

8,563

 

 
  



    



    



Income (Loss) before Income Taxes (Benefits)

  

 

(711

)

    

 

1,054

 

    

 

1,003

 

 
  



    



    



Income taxes (benefits):

  
 
 
 
    
 
 
 
    
 
 
 

Current

  

 

(244

)

    

 

7

 

    

 

484

 

Deferred

  

 

(19

)

    

 

339

 

    

 

(164

)

 
  



    



    



Total taxes (benefits)

  

 

(263

)

    

 

346

 

    

 

320

 

 
  



    



    



Net Income (Loss)

  

$

(448

)

    

$

708

 

    

$

683

 

 
  



    



    



Net Income (Loss) Excluding Goodwill Amortization in 2001 and 2000 (Note 2)

  

$

(448

)

    

$

727

 

    

$

702

 

 
  



    



    



 

The accompanying Notes to the Financial Statements are an integral part of these statements.

 

7


Table of Contents

 

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

 

CONSOLIDATED BALANCE SHEETS

 

 
  

As of December 31,


 
  

2002


    

2001


 
  

(In millions)

Assets

  
 
 
 
    
 
 
    
 
 
 
    
 
 

Investments:

  
 
 
 
    
 
 
    
 
 
 
    
 
 

Fixed maturities, at fair value (amortized cost, $22,041; $18,700)

  
 
 
 
    

$

23,649

    
 
 
 
    

$

19,351

Equity securities, at fair value (cost, $48; $51)

  
 
 
 
    

 

52

    
 
 
 
    

 

54

Mortgage loans

  
 
 
 
    

 

7,974

    
 
 
 
    

 

9,077

Policy loans

  
 
 
 
    

 

2,401

    
 
 
 
    

 

2,770

Real estate

  
 
 
 
    

 

244

    
 
 
 
    

 

412

Other long-term investments

  
 
 
 
    

 

675

    
 
 
 
    

 

1,008

Short-term investments

  
 
 
 
    

 

45

    
 
 
 
    

 

206

 
  
 
 
 
    


    
 
 
 
    


Total investments

  
 
 
 
    

 

35,040

    
 
 
 
    

 

32,878

Cash and cash equivalents

  
 
 
 
    

 

870

    
 
 
 
    

 

738

Accrued investment income

  
 
 
 
    

 

443

    
 
 
 
    

 

456

Premiums, accounts and notes receivable

  
 
 
 
    

 

1,951

    
 
 
 
    

 

1,346

Reinsurance recoverables

  
 
 
 
    

 

6,870

    
 
 
 
    

 

7,096

Deferred policy acquisition costs

  
 
 
 
    

 

269

    
 
 
 
    

 

260

Property and equipment

  
 
 
 
    

 

942

    
 
 
 
    

 

810

Deferred income taxes

  
 
 
 
    

 

574

    
 
 
 
    

 

663

Goodwill

  
 
 
 
    

 

645

    
 
 
 
    

 

645

Other assets, including other intangibles

  
 
 
 
    

 

253

    
 
 
 
    

 

314

Separate account assets

  
 
 
 
    

 

30,359

    
 
 
 
    

 

35,217

 
  
 
 
 
    


    
 
 
 
    


Total assets

  
 
 
 
    

$

78,216

    
 
 
 
    

$

80,423

 
  
 
 
 
    


    
 
 
 
    


Liabilities

  
 
 
 
    
 
 
    
 
 
 
    
 
 

Contractholder deposit funds

  
 
 
 
    

$

29,333

    
 
 
 
    

$

28,955

Future policy benefits

  
 
 
 
    

 

8,984

    
 
 
 
    

 

7,806

Unpaid claims and claim expenses

  
 
 
 
    

 

1,915

    
 
 
 
    

 

1,646

Unearned premiums

  
 
 
 
    

 

124

    
 
 
 
    

 

110

 
  
 
 
 
    


    
 
 
 
    


Total insurance and contractholder liabilities

  
 
 
 
    

 

40,356

    
 
 
 
    

 

38,517

Accounts payable, accrued expenses and other liabilities

  
 
 
 
    

 

3,166

    
 
 
 
    

 

2,637

Separate account liabilities

  
 
 
 
    

 

30,359

    
 
 
 
    

 

35,217

 
  
 
 
 
    


    
 
 
 
    


Total liabilities

  
 
 
 
    

 

73,881

    
 
 
 
    

 

76,371

 
  
 
 
 
    


    
 
 
 
    


Contingencies — Note 17

  
 
 
 
    
 
 
    
 
 
 
    
 
 

Shareholder’s Equity

  
 
 
 
    
 
 
    
 
 
 
    
 
 

Common stock (5,978 shares issued and outstanding)

  
 
 
 
    

 

30

    
 
 
 
    

 

30

Additional paid-in capital

  
 
 
 
    

 

1,983

    
 
 
 
    

 

1,133

Net unrealized appreciation, fixed maturities

  

$

350

 

    
 
 
    

$

135

 

    
 
 

Net unrealized depreciation, equity securities

  

 

(8

)

    
 
 
    

 

(24

)

    
 
 

Net unrealized appreciation, derivatives

  

 

5

 

    
 
 
    

 

9

 

    
 
 

Net translation of foreign currencies

  

 

(1

)

    
 
 
    

 

(5

)

    
 
 
 
  



    
 
 
    



    
 
 

Accumulated other comprehensive income

  
 
 
 
    

 

346

    
 
 
 
    

 

115

Retained earnings

  
 
 
 
    

 

1,976

    
 
 
 
    

 

2,774

 
  
 
 
 
    


    
 
 
 
    


Total shareholder’s equity

  
 
 
 
    

 

4,335

    
 
 
 
    

 

4,052

 
  
 
 
 
    


    
 
 
 
    


Total liabilities and shareholder’s equity

  
 
 
 
    

$

78,216

    
 
 
 
    

$

80,423

 
  
 
 
 
    


    
 
 
 
    


 

The accompanying Notes to the Financial Statements are an integral part of these statements.

 

8


Table of Contents

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

AND CHANGES IN SHAREHOLDER’S EQUITY

 

 
    

For the years ended December 31,


 
 
    

2002


 
    

2001


 
    

2000


 
 
    

Comprehensive Income


 
    

Shareholder’s Equity


 
    

Comprehensive Income


 
    

Shareholder’s Equity


 
    

Comprehensive Income


 
    

Shareholder’s Equity


 
 
    

(In millions)

 

Common Stock, end of year

    
 
 
 
    

$

30

 

    
 
 
 
    

$

30

 

    
 
 
 
    

$

30

 

 
    



    



    



    



    



    



Additional Paid-In Capital, beginning of year

    
 
 
 
    

 

1,133

 

    
 
 
 
    

 

1,124

 

    
 
 
 
    

 

1,120

 

Capital contributed by parent

    
 
 
 
    

 

850

 

    
 
 
 
    

 

9

 

    
 
 
 
    

 

4

 

 
    



    



    



    



    



    



Additional Paid-In Capital, end of year

    
 
 
 
    

 

1,983

 

    
 
 
 
    

 

1,133

 

    
 
 
 
    

 

1,124

 

 
    



    



    



    



    



    



Accumulated Other Comprehensive Income, beginning of year

    
 
 
 
    

 

115

 

    
 
 
 
    

 

34

 

    
 
 
 
    

 

(44

)

Net unrealized appreciation, fixed maturities

    

$

215

 

    

 

215

 

    

$

82

 

    

 

82

 

    

$

81

 

    

 

81

 

Net unrealized appreciation (depreciation), equity securities

    

 

16

 

    

 

16

 

    

 

(3

)

    

 

(3

)

    

 

(4

)

    

 

(4

)

 
    



    



    



    



    



    



Net unrealized appreciation on securities

    

 

231

 

    
 
 
 
    

 

79

 

    
 
 
 
    

 

77

 

    
 
 
 

Net unrealized appreciation (depreciation), derivatives

    

 

(4

)

    

 

(4

)

    

 

9

 

    

 

9

 

    

 

 

    

 

 

Net translation of foreign currencies

    

 

4

 

    

 

4

 

    

 

(7

)

    

 

(7

)

    

 

1

 

    

 

1

 

 
    



    



    



    



    



    



Other comprehensive income

    

 

231

 

    
 
 
 
    

 

81

 

    
 
 
 
    

 

78

 

    
 
 
 
 
    



    



    



    



    



    



Accumulated Other Comprehensive Income, end of year

    
 
 
 
    

 

346

 

    
 
 
 
    

 

115

 

    
 
 
 
    

 

34

 

 
    



    



    



    



    



    



Retained Earnings, beginning of year

    
 
 
 
    

 

2,774

 

    
 
 
 
    

 

2,474

 

    
 
 
 
    

 

2,373

 

Net income (loss)

    

 

(448

)

    

 

(448

)

    

 

708

 

    

 

708

 

    

 

683

 

    

 

683

 

Dividends declared

    
 
 
 
    

 

(350

)

    
 
 
 
    

 

(408

)

    
 
 
 
    

 

(582

)

 
    



    



    



    



    



    



Retained Earnings, end of year

    
 
 
 
    

 

1,976

 

    
 
 
 
    

 

2,774

 

    
 
 
 
    

 

2,474

 

 
    



    



    



    



    



    



Total Comprehensive Income (Loss) and Shareholder’s Equity

    

$

(217

)

    

$

4,335

 

    

$

789

 

    

$

4,052

 

    

$

761

 

    

$

3,662

 

 
    



    



    



    



    



    



 

The accompanying Notes to the Financial Statements are an integral part of these statements.

 

9


Table of Contents

 

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 
  

For the years ended December 31,


 
 
  

2002


 
    

2001


 
    

2000


 
 
  

(In millions)

 

Cash Flows from Operating Activities

  
 
 
 
    
 
 
 
    
 
 
 

Net income (loss)

  

$

(448

)

    

$

708

 

    

$

683

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

  
 
 
 
    
 
 
 
    
 
 
 

Insurance liabilities

  

 

1,317

 

    

 

(217

)

    

 

224

 

Reinsurance recoverables

  

 

178

 

    

 

91

 

    

 

(202

)

Deferred policy acquisition costs

  

 

(8

)

    

 

(28

)

    

 

(25

)

Premiums, accounts and notes receivable

  

 

(23

)

    

 

(84

)

    

 

(107

)

Accounts payable, accrued expenses and other liabilities, including current income taxes

  

 

(412

)

    

 

60

 

    

 

65

 

Deferred income taxes

  

 

(19

)

    

 

339

 

    

 

(164

)

Realized investment losses

  

 

155

 

    

 

225

 

    

 

11

 

Depreciation and amortization

  

 

155

 

    

 

153

 

    

 

132

 

Gains on sales of businesses

  

 

(73

)

    

 

(201

)

    

 

(99

)

Other assets

  

 

(33

)

    

 

55

 

    

 

14

 

Other, net

  

 

(65

)

    

 

(76

)

    

 

(158

)

 
  



    



    



Net cash provided by operating activities

  

 

724

 

    

 

1,025

 

    

 

374

 

 
  



    



    



Cash Flows from Investing Activities

  
 
 
 
    
 
 
 
    
 
 
 

Proceeds from investments sold:

  
 
 
 
    
 
 
 
    
 
 
 

Fixed maturities

  

 

3,275

 

    

 

1,792

 

    

 

2,120

 

Mortgage loans

  

 

1,249

 

    

 

579

 

    

 

332

 

Equity securities

  

 

11

 

    

 

6

 

    

 

17

 

Other (primarily short-term investments)

  

 

9,607

 

    

 

6,599

 

    

 

6,804

 

Investment maturities and repayments:

  
 
 
 
    
 
 
 
    
 
 
 

Fixed maturities

  

 

1,756

 

    

 

1,989

 

    

 

1,871

 

Mortgage loans

  

 

849

 

    

 

550

 

    

 

882

 

Investments purchased:

  
 
 
 
    
 
 
 
    
 
 
 

Fixed maturities

  

 

(8,327

)

    

 

(5,054

)

    

 

(4,542

)

Mortgage loans

  

 

(965

)

    

 

(1,310

)

    

 

(1,352

)

Equity securities

  

 

(3

)

    

 

(1

)

    

 

(111

)

Other (primarily short-term investments)

  

 

(8,512

)

    

 

(6,877

)

    

 

(6,735

)

Proceeds on sale of business, net

  

 

 

    

 

 

    

 

45

 

Property and equipment, net

  

 

(278

)

    

 

(348

)

    

 

(222

)

 
  



    



    



Net cash used in investing activities

  

 

(1,338

)

    

 

(2,075

)

    

 

(891

)

 
  



    



    



Cash Flows from Financing Activities

  
 
 
 
    
 
 
 
    
 
 
 

Deposits and interest credited to contractholder deposit

  

 

8,468

 

    

 

8,536

 

    

 

8,765

 

Withdrawals and benefit payments from contractholder

  

 

(8,222

)

    

 

(6,964

)

    

 

(7,642

)

Dividends paid to parent

  

 

(350

)

    

 

(408

)

    

 

(582

)

Capital Contribution

  

 

850

 

    

 

2

 

    

 

4

 

Repayment of long term debt

  

 

 

    

 

 

    

 

(42

)

 
  



    



    



Net cash provided by financing activities

  

 

746

 

    

 

1,166

 

    

 

503

 

 
  



    



    



Net increase (decrease) in cash and cash equivalents

  

 

132

 

    

 

116

 

    

 

(14

)

 
  



    



    



Cash and cash equivalents, beginning of year

  

 

738

 

    

 

622

 

    

 

636

 

 
  



    



    



Cash and cash equivalents, end of year

  

$

870

 

    

$

738

 

    

$

622

 

 
  



    



    



Supplemental Disclosure of Cash Information:

  
 
 
 
    
 
 
 
    
 
 
 

Income taxes paid, net of refunds

  

$

215

 

    

$

132

 

    

$

435

 

Interest paid

  

$

 

    

$

 

    

$

2

 

 

The accompanying Notes to the Financial Statements are an integral part of these statements.

 

10


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS

 

Note 1 — Description of Business

 

Connecticut General Life Insurance Company and its subsidiaries provide employee benefits offered through the workplace, including group life and health insurance, retirement products and services and investment management. Connecticut General operates throughout the United States and in selected international locations. Connecticut General is an indirect wholly owned subsidiary of CIGNA Corporation (CIGNA).

 

Note 2 — Summary of Significant Accounting Policies

 

A.    Basis of Presentation

 

The consolidated financial statements include the accounts of Connecticut General and all significant subsidiaries, which are collectively referred to as “Connecticut General”. Intercompany transactions and accounts have been eliminated in consolidation.

 

These consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States. Amounts recorded in the financial statements reflect management’s estimates and assumptions about medical costs, investment valuation, interest rates and other factors. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates.

 

Certain reclassifications have been made to prior years’ amounts to conform to the 2002 presentation.

 

B.    Recent Accounting Pronouncements

 

Consolidation.    In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” that provides criteria for consolidating certain entities based on majority ownership of expected losses or residual returns and must be implemented by July 1, 2003. Connecticut General is currently evaluating the potential effects on its consolidated financial statements of implementing this guidance. It is possible that Connecticut General could record additional assets and liabilities of up to the following approximate amounts: real estate joint venture assets and liabilities of $500 million each, including $400 million of liabilities for which there is no recourse to Connecticut General; and separate trust arrangement assets and nonrecourse liabilities of $190 million each. In the unlikely event that all of the underlying assets of these entities had no value and all other owners failed to meet their obligations, Connecticut General estimates that its maximum exposure to loss would approximate $325 million, primarily representing the net carrying value of Connecticut General’s investments in these entities at December 31, 2002. However, Connecticut General expects to recover the recorded amounts of investments in these entities.

 

Goodwill and other intangible assets.    As of January 1, 2002, Connecticut General adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 eliminates the practice of amortizing goodwill through periodic charges to earnings and establishes a new methodology for reporting and measuring goodwill and other intangible assets.

 

In accordance with the standard, Connecticut General ceased goodwill amortization on January 1, 2002. Although goodwill is no longer amortized, SFAS No. 142 requires goodwill to be evaluated for impairment at least annually, and written down through earnings when impaired. At implementation, Connecticut General’s evaluation of its goodwill, based on discounted cash flow analyses, resulted in no impairment loss. Connecticut General’s annual evaluation of its goodwill during 2002 also resulted in no impairment loss.

 

For comparative purposes, net income excluding goodwill amortization was $727 million for the year ended December 31, 2001 and $702 million for the year ended December 31, 2000. Goodwill amortization is attributable to the Employee Health Care, Life and Disability Benefits segment.

 

Impairment of long-lived assets.    As of January 1, 2002, Connecticut General adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and reclassified real estate of $90 million to “held and used” from “held for sale”. Adoption of SFAS No. 144 did not have a material effect on Connecticut General’s consolidated financial statements. See Note 2(D) for further information regarding the accounting treatment of Connecticut General’s real estate investments.

 

11


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

Derivative instruments and hedging activities.    As of January 1, 2001, Connecticut General implemented SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” At implementation, SFAS No. 133 had an immaterial effect on Connecticut General’s consolidated financial statements. Additional information regarding SFAS No. 133 and the nature and accounting treatment of Connecticut General’s derivative financial instruments is included in Note 7(G).

 

C.    Financial Instruments

 

In the normal course of business, Connecticut General enters into transactions involving various types of financial instruments. These financial instruments include:

 

 
·
 
various investments (such as fixed maturities and equity securities); and

 

 
·
 
off-balance-sheet instruments (such as investment and certain loan commitments and financial guarantees).

 

These instruments may change in value due to interest rate and market fluctuations, and most also have credit risk. Connecticut General evaluates and monitors each financial instrument individually and, when management considers it appropriate, uses a derivative instrument or obtains collateral or another form of security to minimize risk of loss.

 

Most financial instruments that are subject to fair value disclosure requirements (such as fixed maturities and equity securities) are carried in the financial statements at amounts that approximate fair value. The following table shows the fair values and carrying values of Connecticut General’s financial instruments not carried at fair value, at the end of 2002 and 2001:

 

 
  

2002

    

2001

 
  

Fair Value


    

Carrying Value


    

Fair Value


    

Carrying Value


 
  

(In millions)

Mortgage loans

  

$

8,789

    

$

7,974

    

$

9,552

    

$

9,077

Contractholder deposit funds, excluding universal life products

  

$

20,863

    

$

20,225

    

$

19,374

    

$

18,984

 

Fair values of off-balance-sheet financial instruments were not material.

 

Fair values of financial instruments are based on quoted market prices when available. When market prices are not available, management estimates fair value based on discounted cash flow analyses, which use current interest rates for similar financial instruments with comparable terms and credit quality. Management estimates the fair value of liabilities for contractholder deposit funds using the amount payable on demand and, for those deposit funds not payable on demand, using discounted cash flow analyses. In many cases, the estimated fair value of a financial instrument may differ significantly from the amount that could be realized if the instrument were sold immediately.

 

D.    Investments

 

Connecticut General’s accounting policies for investment assets are discussed below.

 

Fixed maturities and mortgage loans.    Investments in fixed maturities include bonds, mortgage- and other asset-backed securities and redeemable preferred stocks. These investments are classified as available for sale and are carried at fair value. Fixed maturities are considered impaired, and amortized cost is written down to fair value through earnings, when management expects a decline in value to persist (i.e. the decline is “other than temporary”).

 

Mortgage loans are carried at unpaid principal balances. Impaired loans are carried at the lower of unpaid principal or fair value of the underlying collateral. Connecticut General estimates the fair value of the underlying collateral primarily using internal appraisals. Mortgage loans are considered impaired when it is probable that Connecticut General will not collect amounts due according to the terms of the loan agreement.

 

When an investment is current, Connecticut General recognizes interest income when it is earned. Connecticut General stops recognizing interest income on fixed maturities and mortgage loans when they are delinquent or have been restructured as to terms (interest rate or maturity date). Net investment income on these investments is only recognized when interest payments are actually received.

 

12


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

Real estate.    Investment real estate can be “held and used” or “held for sale” and is typically obtained through the foreclosure of mortgage loans. As of January 1, 2002, Connecticut General adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and accounts for real estate as follows:

 

 
·
 
Real estate “held and used” is expected to be held longer than one year and includes real estate acquired through the foreclosure of mortgage loans. Connecticut General carries real estate held and used at depreciated cost less any write-downs to fair value due to impairment and assesses impairment when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally calculated using the straight-line method based on the estimated useful life of the particular real estate asset.

 

 
·
 
Real estate is “held for sale” when a buyer’s investigation is completed, a deposit has been received and the sale is expected to be completed within the next year. Real estate held for sale is carried at the lower of carrying value or current fair value, less estimated costs to sell, and is not depreciated. Valuation reserves reflect any changes in fair value.

 

 
·
 
Connecticut General uses several methods to determine the fair value of real estate, but relies primarily on discounted cash flow analyses and, in some cases, third party appraisals.

 

Real estate acquired through the foreclosure of mortgage loans prior to implementation of SFAS No. 144 was generally classified as “held for sale.”

 

At the time of foreclosure, properties are reclassified from mortgage loans to real estate. Connecticut General rehabilitates, re-leases and sells foreclosed properties. This process usually takes from two to four years unless management considers a near-term sale preferable.

 

Equity securities and short-term investments.    Connecticut General classifies equity securities and short-term investments as available for sale and carries them at fair value, which for short-term investments approximates cost. Equity securities include common and non-redeemable preferred stocks. Equity securities are considered impaired, and the cost basis is written down to fair value through earnings, when management expects a decline in value to persist.

 

Policy loans.    Policy loans are carried at unpaid principal balances.

 

Other long-term investments.    Other long-term investments include assets in the separate accounts in excess of separate account liabilities (see Note 2(K)). These assets are carried at fair value. Investments in unconsolidated entities in which Connecticut General has significant influence are carried at cost plus Connecticut General’s ownership percentage of reported income or loss. These entities include partnerships and limited liability companies holding real estate and securities.

 

Investment gains and losses.    Realized investment gains and losses result from sales, investment asset write-downs and changes in valuation reserves, and are based on specifically identified assets. Connecticut General’s net income does not include gains and losses on investment assets related to experience-rated pension policyholders’ contracts (policyholder share) because these amounts generally accrue to the policyholders.

 

Unrealized gains and losses on investments carried at fair value are included in accumulated other comprehensive income, net of policyholder share and deferred income taxes.

 

Derivative financial instruments.    Note 7(G) discusses Connecticut General’s accounting policies for derivative financial instruments.

 

E.    Cash and Cash Equivalents

 

Cash equivalents consist of short-term investments that will mature in three months or less from the time of purchase.

 

13


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

F.    Reinsurance Recoverables

 

Reinsurance recoverables are estimates of amounts that Connecticut General will receive from reinsurers and are recorded net of amounts management believes will not be received.

 

G.    Deferred Policy Acquisition Costs

 

Acquisition costs consist of incentive payments, commissions, premium taxes, and other costs that Connecticut General incurs to acquire new business. Depending on the product line they relate to, Connecticut General records acquisition costs in different ways. Acquisition costs for:

 

 
·
 
Contractholder deposit funds and universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the expected lives of the contracts.

 

 
·
 
Annuity and other individual life insurance and group health indemnity products are deferred and amortized, generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.

 

 
·
 
Other products are expensed as incurred.

 

Management estimates the present value of future revenues less expected payments on products that carry deferred policy acquisition costs. If that estimate is less than the deferred costs, Connecticut General reduces deferred policy acquisition costs and records an expense.

 

H.    Property and Equipment

 

Property and equipment is carried at cost less accumulated depreciation. When applicable, cost includes interest, real estate taxes and other costs incurred during construction. Also included in this category is internal-use software that is acquired, developed or modified, solely to meet Connecticut General’s internal needs, with no plan to market externally. Costs directly related to obtaining, developing or upgrading internal-use software are capitalized. Unamortized internal-use software costs were $466 million at December 31, 2002, and $328 million at December 31, 2001.

 

Most of the unamortized internal-use software costs relate to Connecticut General’s health care business, which is currently engaged in a multi-year project to convert to newly designed systems and processes to support business growth and service to customers. Connecticut General has incurred total costs for this project of approximately $960 million from 1999 through 2002, of which $415 million has been capitalized and $545 million has been expensed as incurred. Accumulated amortization of capitalized amounts for this project was $15 million at December 31, 2002.

 

Capitalized costs for this multi-year project are amortized over a 7.5 year period. The amounts of amortization will increase as additional members are migrated to the new systems.

 

For other capitalized costs, Connecticut General calculates depreciation and amortization principally using the straight-line method based on the estimated useful life of each asset.

 

Accumulated depreciation and amortization was $827 million at December 31, 2002 and $718 million at December 31, 2001.

 

As explained in Note 16, Connecticut General allocates a portion of amounts expensed or amortized to its affiliates.

 

I.    Goodwill

 

Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. Connecticut General adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” and ceased goodwill amortization as of January 1, 2002. Connecticut General evaluates goodwill for impairment annually based on discounted cash flow analyses and writes it down through earnings when impaired.

 

14


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

J.    Other Assets, including Other Intangibles

 

Other assets consist primarily of various insurance-related assets. Connecticut General’s other intangible assets are primarily purchased customer lists and provider contracts. Connecticut General amortizes other intangibles on a straight-line basis over periods ranging from six to eleven years. Management revises amortization periods if it believes there has been a change in the length of time that an intangible will continue to have value. The gross carrying value of Connecticut General’s other intangible assets was $27 million at December 31, 2002 and 2001. The accumulated amortization was $17 million at December 31, 2002 and $15 million at December 31, 2001.

 

K.    Separate Accounts

 

Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment objectives, including assets and liabilities of separate trust arrangements for the benefit of purchasers of certain investment products. The assets of these accounts are legally segregated and are not subject to claims that arise out of any of Connecticut General’s other businesses. These accounts are carried at fair value. The investment income, gains and losses of these accounts generally accrue to the contractholders and are not included in Connecticut General’s revenues and expenses, except for fees earned for asset management services that are reported in premiums and fees.

 

L.    Contractholder Deposit Funds

 

Liabilities for contractholder deposit funds include deposits received from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges, policyholder share of unrealized appreciation or depreciation on investment assets and, for universal life fund balances, mortality charges.

 

M.    Unpaid Claims and Claim Expenses

 

Liabilities for unpaid claims and claim expenses are estimates of payments to be made under health coverages for reported claims and for losses incurred but not yet reported. Management develops these estimates using actuarial methods based upon historical data for payment patterns, cost trends, product mix, seasonality, utilization of health care services and other relevant factors. When estimates change, Connecticut General records the adjustment in benefits, losses and settlement expenses in the period in which the change in estimate is identified.

 

N.    Future Policy Benefits

 

Future policy benefits are liabilities for estimated future obligations under traditional life and health policies and annuity products currently in force. These obligations are estimated using actuarial methods and primarily consist of reserves for life and disability insurance benefits, group annuity contracts and certain specialty life reinsurance contracts.

 

Obligations for life and disability insurance policies represent benefits to be paid to policyholders, net of future premiums to be received. Obligations for guaranteed cost annuities represent fixed monthly benefits to be paid to a group of individuals over their remaining lives. These obligations are estimated based on assumptions as to premiums, interest rates, mortality, morbidity and surrenders, allowing for adverse deviation. Mortality, morbidity and surrender assumptions are based on either Connecticut General’s own experience or actuarial tables. Interest rate assumptions are based on management’s judgement considering Connecticut General’s experience and future expectations, and range from 2% to 10%, generally declining over the first 20 years.

 

Certain specialty life reinsurance contracts guarantee a minimum death benefit under variable annuities issued by other insurance companies. These obligations represent the guaranteed death benefit in excess of the annuitant’s account values (based on underlying equity and bond mutual fund investments.) These obligations are estimated based on assumptions and other considerations for lapse, partial surrenders, mortality, interest rates, market volatility and investment returns and premiums, consistent with the requirements of generally accepted accounting principles when a premium deficiency exists. Lapse, partial surrenders, mortality, interest rates and volatility are based on management’s judgement considering Connecticut General’s experience and future expectations. The results of futures contracts are reflected in the liability calculation as a component of investment returns.

 

15


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

See Note 3 for additional information.

 

O.    Unearned Premiums

 

Premiums for group life, accident and health insurance are recognized as revenue on a pro rata basis over the contract period. The unrecognized portion of these premiums is recorded as unearned premiums.

 

P.    Other Liabilities

 

Other liabilities consist principally of postretirement and postemployment benefits and various insurance-related liabilities, including amounts related to reinsurance contracts and insurance-related assessments that management can reasonably estimate. Other liabilities also include the loss position of certain derivatives. (See Note 7(G)).

 

Q.    Translation of Foreign Currencies

 

Connecticut General generally conducts its international business through foreign branches that maintain assets and liabilities in local currencies, which are generally their functional currencies. Connecticut General uses exchange rates as of the balance sheet date to translate assets and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in accumulated other comprehensive income. Connecticut General uses average exchange rates during the year to translate revenues and expenses into U.S. dollars.

 

R.    Premiums and Fees, Revenues and Related Expenses

 

Premiums for group life, accident and health insurance coverages are recognized as revenue on a pro rata basis over the contract period. Benefits, losses and settlement expenses are recognized when incurred.

 

Premiums for individual life insurance and individual and group annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits, losses and settlement expenses are matched with premiums.

 

Revenue for investment-related products is recognized as follows:

 

 
·
 
Net investment income on assets supporting investment-related products is recognized as earned.

 

 
·
 
Contract fees, which are based upon related administrative expenses, are assessed against the customer’s fund balance ratably over the contract year.

 

Benefit expenses for investment-related products consist primarily of income credited to policyholders in accordance with contract provisions.

 

Revenue for universal life products is recognized as follows:

 

 
·
 
Net investment income on assets supporting universal life products is recognized as earned.

 

 
·
 
Fees for mortality are recognized ratably over the policy year.

 

 
·
 
Administration fees are recognized as services are provided.

 

 
·
 
Surrender charges are recognized as earned.

 

Benefit expenses for universal life products consist of benefit claims in excess of policyholder account balances. Expenses are recognized when claims are filed, and income is credited in accordance with contract provisions.

 

Contract fees and expenses for administrative services only programs and pharmacy programs and services are recognized as services are provided.

 

16


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

S.    Participating Business

 

Connecticut General’s participating life insurance policies entitle policyholders to earn dividends that represent a portion of the earnings of Connecticut General. Participating insurance accounted for approximately 6% of Connecticut General’s total life insurance in force at the end of 2002, 7% at the end of 2001 and 8% at the end of 2000.

 

T.    Income Taxes

 

Connecticut General and its domestic subsidiaries are included in the consolidated United States federal income tax return filed by CIGNA. The provision for federal income tax is calculated as if Connecticut General were filing a separate federal income tax return. Connecticut General generally recognizes deferred income taxes when assets and liabilities have different values for financial statement and tax reporting purposes. Note 11 contains detailed information about Connecticut General’s income taxes.

 

Note 3 — Charges for the Run-off Reinsurance Operations

 

A.    Losses on Specialty Life Reinsurance Contracts

 

In 2002, Connecticut General recognized an after-tax charge of $720 million ($1.1 billion pre-tax) to strengthen reserves related to certain specialty life reinsurance contracts and the adoption of a program to substantially reduce equity market risks related to these contracts.

 

Connecticut General’s reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured a guaranteed minimum death benefit under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. Death benefits under the annuity contracts reinsured by Connecticut General are determined using various methods.

 

The majority of Connecticut General’s exposure arises under annuities that guarantee that the benefit received at death will be no less than the highest historical account value of the related mutual fund investments on an annuitant’s contract anniversary date. Under this type of death benefit, Connecticut General is liable to the extent the highest historical anniversary account value exceeds the fair value of the related mutual fund investments at the time of an annuitant’s death. Other annuity designs that Connecticut General reinsured guarantee that the benefit received at death will be no less than net deposits paid into the contract accumulated at a specified rate or net deposits paid into the contract. In periods of declining equity markets and in periods of flat equity markets following a decline, Connecticut General’s liabilities for these guaranteed minimum death benefits increase.

 

As a result of equity market declines and volatility in 2002, Connecticut General evaluated alternatives for addressing the exposures associated with these reinsurance contracts, considering the possibility of continued depressed equity market conditions, the potential effects of further market declines and the impact on future earnings and capital. As a result of this evaluation, Connecticut General implemented a program to substantially reduce the equity market exposures of this business by selling exchange-traded futures contracts and, potentially, other instruments, which are expected to rise in value as the equity market declines and decline in value as the equity market rises.

 

The purpose of this program is to substantially reduce the adverse effects of potential future stock market declines on Connecticut General’s liabilities for certain reinsurance contracts, as increases in liabilities under the reinsurance contracts from a declining market will be substantially offset by gains on the futures contracts. A consequence of this program is that it also substantially reduces the positive effects of potential future equity market increases, as reductions in liabilities under these contracts from improved equity market conditions will be substantially offset by losses on the futures contracts.

 

In order to achieve the objective of this program, Connecticut General expects to adjust its futures contract position and possibly enter into other positions over time to reflect changing equity market levels and changes in the investment mix of the underlying variable annuity investments.

 

The $720 million after-tax charge consists of:

 

 
·
 

$620 million after-tax, principally reflecting the reduction in assumed future equity market returns as a result of implementing the program and, to a lesser extent, changes to the policy lapse, mortality, market volatility and interest rate

 

17


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

assumptions used in estimating the liabilities for these contracts. Connecticut General determines liabilities under the reinsurance contracts using an assumption for expected future performance of equity markets. A consequence of implementing the program is, effectively, a reduction in the assumption for expected future performance of equity markets, as the futures contracts essentially eliminate the opportunity to achieve previously expected market returns; and

 

 
·
 
$100 million after-tax reflecting deterioration in equity markets that occurred in the third quarter of 2002 (prior to implementation of the program).

 

Connecticut General recorded a pre-tax gain of $87 million in 2002 in other revenues to reflect the increase in fair values of futures contracts since the inception of the program. A corresponding expense reflecting the increase in liabilities for the specialty life reinsurance contracts is included in benefits, losses and settlement expenses.

 

Connecticut General had reserves for these liabilities of approximately $1.4 billion as of December 31, 2002, and approximately $300 million as of December 31, 2001.

 

Management estimates reserves for variable annuity death benefit exposure based on assumptions and other considerations, including lapse, partial surrender, mortality, interest rates and volatility. These are based on Connecticut General’s experience and future expectations. Connecticut General monitors actual experience to update these reserve estimates as necessary.

 

Lapse refers to the full surrender of an annuity prior to an annuitant’s death. Volatility refers to market volatility that affects the costs of the program adopted by Connecticut General to reduce equity market risks associated with these liabilities.

 

Partial surrender refers to the fact that most annuitants have the ability to withdraw substantially all of their mutual fund investments while retaining any available death benefit coverage in effect at the time of the withdrawal. A very small percentage of annuitants have elected partial surrenders to date. An increase in Connecticut General’s liabilities for variable annuity death benefits due to partial surrenders would depend on many factors, including financial market conditions prior to surrender and annuitant behavior.

 

The determination of reserves for variable annuity death benefits requires Connecticut General to make critical accounting estimates. Management believes the current assumptions and other considerations used to estimate reserves for these liabilities are appropriate. However, if actual experience differs from the assumptions and other considerations (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating these reserves, the resulting change could have a material adverse effect on Connecticut General’s consolidated results of operations, and in certain situations, could have a material adverse effect on Connecticut General’s financial condition.

 

As of December 31, 2002, the aggregate fair value of the underlying mutual fund investments was approximately $50 billion. The death benefit coverage in force as of that date (representing the amount that Connecticut General would have to pay if all 1.5 million annuitants had died on that date) was approximately $23.4 billion. The death benefit coverage in force represents the excess of the guaranteed benefit amount over the fair value of the underlying mutual fund investments. The notional amount of the futures contract positions held by Connecticut General at December 31, 2002, was $2.2 billion.

 

During 2000, Connecticut General recorded after-tax charges for the run-off reinsurance business totaling $86 million as follows:

 

 
·
 
a charge of $84 million to strengthen reserves, following a review of reserve assumptions for specialty life reinsurance contracts that guarantee certain minimum death benefits based on unfavorable changes in variable annuity account values. These values are derived from underlying equity and bond mutual fund investments as more fully discussed above;

 

 
·
 
a charge of $2 million for restructuring costs (principally severance).

 

B.    Other Reinsurance Charges

 

Connecticut General also recognized an after-tax charge of $143 million ($220 million pre-tax) in 2002 for Unicover and other run-off reinsurance exposures. For further information on these charges, see Note 13.

 

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

Note 4 — Dispositions

 

Connecticut General conducts regular strategic and financial reviews of its businesses to ensure that its capital is used effectively. As a result of these reviews, Connecticut General may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

 

A.    Sale of Portions of U.S. Life Reinsurance Business

 

As of June 1, 2000, Connecticut General sold its U.S. individual life, group life and accidental death reinsurance business for cash proceeds of approximately $170 million. The sale generated an after-tax gain of approximately $85 million, but recognition of that gain was deferred because the sale was structured as an indemnity reinsurance arrangement.

 

During 2002 and 2001, the acquirer entered into agreements with most of the reinsured parties, relieving Connecticut General of any remaining obligations to those parties. As a result, Connecticut General accelerated the recognition of $3 million after-tax of the deferred gain in 2002 and $69 million after-tax in 2001. In addition to the accelerated gain recognition, Connecticut General recognized less than $1 million after-tax of the deferred gain in the Run-off Reinsurance Operations segment in 2002, compared with $9 million after-tax in 2001. The remaining deferred gain as of December 31, 2002, was approximately $1 million after-tax.

 

Connecticut General has placed its remaining reinsurance businesses (including its accident, domestic health, international life and health, and specialty life reinsurance businesses) into run-off and has stopped underwriting new reinsurance business. See also Notes 3 and 13 for further discussions related to the Run-off Reinsurance Operations segment.

 

B.    Sale of Individual Life Insurance and Annuity Business

 

In 1998, Connecticut General sold its individual life insurance and annuity business for cash proceeds of $1.4 billion. The sale generated an after-tax gain of approximately $770 million, the majority of which was deferred and is recognized at the rate that earnings from the sold business would have been expected to emerge (primarily over 15 years on a declining basis). Connecticut General recognized $48 million after-tax of the deferred gain in 2002, $52 million after-tax in 2001 and $57 million after-tax in 2000. The remaining deferred gain as of December 31, 2002, was $283 million after-tax.

 

Note 5 — Events of September 11, 2001

 

As a result of claims arising from the events of September 11, 2001, Connecticut General recorded after-tax charges of $5 million in 2001. These charges, which are net of reinsurance, primarily related to life insurance claims. During the fourth quarter of 2002, Connecticut General revised its estimate of liabilities associated with the events of September 11, 2001, and recognized an after-tax credit of $2 million in the Run-Off Reinsurance Operations segment.

 

Note 6 — Restructuring Program

 

A.    Fourth Quarter 2002 Program

 

In the fourth quarter of 2002, Connecticut General adopted a restructuring program primarily to realign the organizational structure and operations of its health care business. As a result, Connecticut General recognized in operating expenses an after-tax charge of $74 million ($114 million pre-tax) in the Employee Health Care, Life and Disability Benefits segment. The after-tax charge consisted of $56 million of severance costs ($87 million pre-tax) and $19 million in real estate costs ($29 million pre-tax) related to vacating certain leased facilities. These amounts were partially offset by a reduction in costs of $1 million after-tax ($2 million pre-tax) for other postretirement benefits for employees terminated in 2002. This benefit cost reduction will continue in 2003 as additional employees are terminated, aggregating approximately $5 million after-tax ($8 million pre-tax).

 

The severance charge reflected the expected reduction of approximately 2,870 employees. As part of the plan, Connecticut General expects to hire approximately 450 employees to support newly consolidated operations, thereby resulting in a net reduction of approximately 2,420 employees under this program. As of December 31, 2002, approximately 480 employees had been terminated under the program. As of December 31, 2002, Connecticut General had paid $2 million related to severance under this program.

 

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

Connecticut General expects this restructuring program to be substantially completed by year-end 2003. The table below shows Connecticut General’s restructuring activity (pre-tax) related to severance and real estate for this program:

 

 
  

Severance


 
    

Real Estate


    

Total Charge


 
 
  

No. of Employees


 
    

Cost


 
    
    
 
  

(Dollars in millions)

 

Fourth quarter 2002 Charge

  

2,870

 

    

$

87

 

    

$

29

    

$

116

 

Fourth quarter 2002 activity:

  
 
 
    
 
 
 
    
 
 
    
 
 
 

Employees

  

(480

)

    

 

(2

)

    
 
 
    

 

(2

)

Lease costs

  
 
 
    
 
 
 
    

 

—  

    

 

—  

 

 
  


    



    


    



Balance as of December 31, 2002

  

2,390

 

    

$

85

 

    

$

29

    

$

114

 

 
  


    



    


    



 

B.  Fourth Quarter 2001 Program

 

In the fourth quarter of 2001, Connecticut General adopted a restructuring program primarily to consolidate existing health service centers into regional service centers. As a result, Connecticut General recognized in operating expenses an after-tax charge of $26 million ($40 million pre-tax) in the Employee Health Care, Life and Disability Benefits Segment. The after-tax charge consisted of $13 million of severance costs ($20 million pre-tax) and $13 million in real estate costs ($20 million pre-tax) relating to vacating certain leased facilities.

 

The severance charge reflected the expected reduction of approximately 1,250 employees. As a result of the consolidation of health service centers, Connecticut General hired approximately 440 employees, thereby resulting in a net reduction of approximately 810 employees under this program. As of December 31, 2002, 1,150 employees had been terminated under the program (970 employees were terminated in 2002). The real estate charges consisted of approximately $15 million pre-tax related to vacating leased facilities, which are cash obligations pertaining to non-cancelable lease obligations and lease termination penalties. The charge also included approximately $5 million pre-tax of non-cash asset write-downs. As of December 31, 2002, Connecticut General paid $18 million related to severance and vacating leased facilities under this program ($15 million was paid in 2002).

 

The restructuring program was substantially completed in the fourth quarter of 2002. The table below indicates Connecticut General’s restructuring activity (pre-tax) for this program:

 

 
  

Severance


 
    
 
 
    
 
 
 
  

No. of Employees


 
    

Cost


 
    

Real Estate


 
    

Total Charge


 
 
  

(Dollars in millions)

 

Fourth quarter 2001 charge

  

1,250

 

    

$

20

 

    

$

20

 

    

$

40

 

Fourth quarter 2001 activity:

  
 
 
    
 
 
 
    
 
 
 
    
 
 
 

Employees

  

(180

)

    

 

(2

)

    
 
 
 
    

 

(2

)

Lease costs

  
 
 
    
 
 
 
    

 

(1

)

    

 

(1

)

Asset write-downs

  
 
 
    
 
 
 
    

 

(5

)

    

 

(5

)

 
  


    



    



    



Balance as of December 31, 2001

  

1,070

 

    

$

18

 

    

$

14

 

    

$

32

 

2002 activity:

  
 
 
    
 
 
 
    
 
 
 
    
 
 
 

Employees

  

(970

)

    

 

(15

)

    
 
 
 
    

 

(15

)

Lease costs

  
 
 
    
 
 
 
    

 

—  

 

    

 

—  

 

Adjustment of remaining balance

  
 
 
    

 

3

 

    

 

(3

)

    

 

—  

 

 
  


    



    



    



Balance as of December 31, 2002

  

100

 

    

$

6

 

    

$

11

 

    

$

17

 

 
  


    



    



    



 

Note 7 — Investments

 

Connecticut General’s investments, as recorded on the balance sheet, include policyholder share. Policyholder share includes the investment assets related to both experience-rated pension policyholder contracts. See Note 9(B) for discussion on the investment gains and losses associated with policyholder share.

 

20


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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

 

 

A.  Fixed Maturities

 

The amortized cost and fair value by contractual maturity periods for fixed maturities, including policyholder share, were as follows at December 31, 2002:

 

 
  

Amortized Cost


    

Fair Value


 
  

(In millions)

Due in one year or less

  

$

803

    

$

838

Due after one year through five years

  

 

6,490

    

 

6,833

Due after five years through ten years

  

 

6,351

    

 

6,842

Due after ten years

  

 

3,371

    

 

3,897

Mortgage—and other asset-backed securities

  

 

5,026

    

 

5,239

 
  


    


Total

  

$

22,041

    

$

23,649

 
  


    


 

Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations, with or without penalties. Also, in some cases Connecticut General may extend maturity dates.

 

Gross unrealized appreciation (depreciation) on fixed maturities, including policyholder share, by type of issuer was as follows:

 

 
  

December 31, 2002


 
  

Amortized Cost


    

Unrealized Appreciation


    

Unrealized Depreciation


 
    

Fair Value


 
  

(In millions)

Federal government and agency

  

$

790

    

$

249

    

$

 

    

$

1,039

State and local government

  

 

165

    

 

20

    

 

 

    

 

185

Foreign government

  

 

295

    

 

41

    

 

 

    

 

336

Corporate

  

 

15,765

    

 

1,265

    

 

(180

)

    

 

16,850

Federal agency mortgage-backed

  

 

987

    

 

31

    

 

 

    

 

1,018

Other mortgage-backed

  

 

1,996

    

 

100

    

 

(5

)

    

 

2,091

Other asset-backed

  

 

2,043

    

 

132

    

 

(45

)

    

 

2,130

 
  


    


    



    


Total

  

$

22,041

    

$

1,838

    

$

(230

)

    

$

23,649

 
  


    


    



    


 
  

December 31, 2001


 
  

Amortized Cost


    

Unrealized Appreciation


    

Unrealized Depreciation


 
    

Fair Value


 
  

(In millions)

Federal government and agency

  

$

610

    

$

168

    

$

 

    

$

778

State and local government

  

 

160

    

 

9

    

 

(1

)