ITEM 1. BUSINESS
Valley Forge Life Insurance Company ("VFL" or "the Company") was incorporated under the laws of the Commonwealth of Pennsylvania on August 9, 1956 and began its operations on December 1, 1956. VFL is a wholly-owned subsidiary of Continental Assurance Company (Assurance). Assurance is a wholly-owned subsidiary of Continental Casualty Company (Casualty) which is wholly-owned by CNA Financial Corporation (CNA). Loews Corporation owns approximately 84% of the outstanding common stock of CNA.
Effective December 31, 1985, pursuant to a Reinsurance Pooling Agreement, VFL began ceding all of its business to its parent, Assurance. This business is then pooled with the business of Assurance, excluding Assurance's participating contracts and separate accounts, and 10% of the combined net pool is retroceded to VFL. This agreement was amended effective July 1, 1996, for the purpose of also excluding the separate accounts of VFL.
VFL sells a variety of individual and group insurance products. The individual insurance products consist primarily of term, universal life, and life insurance policies and individual annuities. Group insurance products include life, accident and health, consisting primarily of major medical and hospitalization and pension products.
Products developed in 1996 included a portfolio of variable products and new universal life products which are expected to be marketed in 1997. These products offer investors the option of allocating payments to one or more variable accounts or to a guaranteed income account or both. Payments allocated to the variable accounts will be invested in corresponding investment portfolios where the investment risk is borne by the investor while payments allocated to the guaranteed income account will earn a minimum guaranteed rate of interest for a specified period of time for annuity contracts and one year for life products.
COMPETITION
VFL is engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. The combined operations of VFL and Assurance compete for both producers and customers and Assurance and VFL must continuously allocate resources to refine and improve insurance products and services. There are approximately 1,770 companies selling life insurance (including health insurance and pension products) in the United States. The combined companies of VFL and Assurance rank as the twenty-second largest life insurance organization based on 1995 consolidated net written premiums.
REGULATION
VFL is subject to the laws of the Commonwealth of Pennsylvania governing insurance companies and to the regulations of the Pennsylvania Department of Insurance (the "Insurance Department"). Regulation by the Insurance Department includes periodic examination to determine, among other items, contract liabilities and reserves so that the Insurance Department may certify that these items are correct. VFL's books and accounts are subject to review by the Insurance Department at all times.
In addition, VFL is subject to regulation under the insurance laws of all jurisdictions in which it operates. The laws of the various jurisdictions establish supervisory agencies with broad administrative powers with respect to various matters, including licensing to transact business, overseeing trade practices, licensing agents, approving contract forms, establishing reserve requirements, fixing maximum interest rates on life insurance contract loans and minimum rates for accumulation of surrender values, prescribing the form and content of required financial statements and regulating the type and amounts of investments permitted.
Further, many states regulate affiliated groups of insurers, such as VFL and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of the transfer payments in relation to the financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business therein can be assessed as a result of the insolvencies of other insurers. The assessments are based on formulas, subject to prescribed limits, and are intended to fund the benefits and continuation of coverage for policyholders of the insolvent insurers. Most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own solvency.
Although the Federal government generally does not directly regulate the business of insurance, Federal initiatives often have an impact on the business in a variety of ways. Certain insurance products of VFL are subject to various Federal securities laws and regulations. In addition, current and proposed Federal measures that may significantly affect the insurance business include regulation of insurance company solvency, employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, tax law changes affecting the taxation of insurance companies and the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles.
After failing to enact the massive health reform introduced in 1994, Congress passed a health insurance reform bill in August of 1996 and the President signed it into law (P.L. 104-191) on August 21, 1996. The new law does little for Americans without health insurance but it will protect those who have health insurance from losing it. The 105th Congress is expected to consider additional incremental health care reform as it attempts to provide greater access and affordability to Americans. Among the bills that have been introduced this year are measures that would allow small businesses to band together to form association health plans to buy insurance; bar the use of clauses restricting what doctors can tell patients about treatment options; restructure the Medicare program; subsidize health insurance for uninsured children; and limit or prohibit underwriting on the basis of genetic information. We cannot predict if any of these proposals will be enacted or the extent to which they may affect the insurance industry.
REGULATION - (CONTINUED)
In recent years increased scrutiny of state regulated insurer solvency requirements by certain members of the U.S. Congress resulted in the National Association of Insurance Commissioners (NAIC) developing industry minimum Risk-Based Capital (RBC) requirements, establishing a formal state accreditation process designed to more closely regulate for solvency, minimizing the diversity of approved statutory accounting and actuarial practices, and increasing the annual statutory statement disclosure requirements.
The RBC formulas are designed to identify an insurer's minimum capital requirements based upon the inherent risks (e.g., asset default, credit and underwriting) of its operations. In addition to the minimum capital requirements, the RBC formula and related regulations identify various levels of capital adequacy and corresponding actions that the state insurance departments should initiate. The level of capital adequacy below which insurance departments would take action is defined as the Company Action Level. As of December 31, 1996, VFL has capital in excess of the Company Action Level.
CERTAIN AGREEMENTS
VFL is party to the Intercompany Pooling Agreement with Assurance which is discussed above and in the Notes to VFL's Financial Statements included herein. In addition, VFL is party to the CNA Intercompany Expense Agreement whereby expenses incurred by CNA and each of its subsidiaries are allocated to the appropriate company. All acquisition and underwriting expenses allocated to VFL are further subject to the Intercompany Pooling Agreement, so that acquisition and underwriting expenses recognized by VFL approximate ten percent of the combined acquisition and underwriting expenses of VFL and Assurance. For information regarding expenses pursuant to the CNA Intercompany Expense Agreement see Note 8 of the Notes to Financial Statements.
REINSURANCE
Information as to VFL's reinsurance business is set forth in Note 7 of the Financial Statements.
EMPLOYEE RELATIONS
At December 31, 1996, VFL had no employees as it has contracted with Casualty for services provided by Casualty employees. Casualty has experienced satisfactory labor relations and has never had work stoppages due to labor disputes.
BUSINESS SEGMENTS
Information as to VFL's business segments is set forth in Note 10 of the Financial Statements.
INVESTMENTS
Information as to VFL's investments is set forth in Note 2 of the Financial Statements.
ITEM 2.
ITEM 2. PROPERTIES
VFL does not own or directly lease any office space. VFL reimburses Casualty for its proportionate share of office facilities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Reference is hereby made to Note 9 of the Notes to Financial Statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction J(2) (c) of Form 10-K.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION AND OFFICES HELD WITH REGISTRANT PRINCIPAL OCCUPATION NAME AGE DURING PAST FIVE YEARS
Dennis H. Chookaszian Chairman of the 53 Chairman of the Board and Board and Chief Chief Executive Officer of Executive Officer, the CNA Insurance Companies CNA Insurance since September 1992. Prior Companies and thereto, Mr. Chookaszian Director was President and Chief Operating Officer of the CNA Insurance Companies. Mr. Chookaszian has served as a Director of the Registrant since April 1978.
Philip L. Engel President, Director 56 President of the CNA Insurance Companies since September 1992. Prior thereto, Mr. Engel was Executive Vice President of the CNA Insurance Companies. Mr. Engel has served as a Director of Registrant since September 1992.
William J. Adamson, Senior Vice 44 Senior Vice President of Jr. President the CNA Insurance Companies since November 1995; Group Vice President of the CNA Insurance Companies from April 1993 through October 1995. Prior thereto, Mr. Adamson was Vice President of the CNA Insurance Companies from May 1987 through April 1993.
James P. Flood Senior Vice 46 Senior Vice President of President the CNA Insurance Companies since May 1995; Senior Vice President of The Continental Insurance Company from October 1992 through May 1995. Prior thereto, Mr. Flood was Vice President of The Continental Insurance Company from August 1991 through May 1995.
Michael C. Garner Senior Vice 44 Senior Vice President of President, Director the CNA Insurance Companies since September 1993. Prior thereto, Mr. Garner was a partner of Coopers and Lybrand LLP. Mr. Garner has served as a Director of the Registrant since October 1996.
Bernard L. Senior Vice 50 Senior Vice President of Hengesbaugh President the CNA Insurance Companies since November 1990.
Peter E. Jokiel Senior Vice 49 Senior Vice President and President, Chief Chief Financial Officer Financial Officer, since November 1990. Mr. Director Jokiel has served as a Director of the Registrant since July 1992.
Jonathan D. Kantor Senior Vice 41 Group Vice President of the President* CNA Insurance Companies since April 1994. Prior thereto, partner at the law firm of Shea & Gould. **
Donald M. Lowry Senior Vice 67 Senior Vice President, President, Secretary and General Secretary, General Counsel since August 1992. Counsel Prior thereto, Mr. Lowry was Senior Vice President and General Counsel of the CNA Insurance Companies.
Patricia L. Kubera Group Vice 41 Group Vice President and President, Controller of the CNA Controller, Insurance Companies since Director January 1993.Prior thereto, Ms. Kubera was Assistant Vice President of the CNA Insurance Companies. Ms. Kubera has served as a Director of the Registrant since November 1994.
Carolyn L. Murphy Senior Vice 52 Senior Vice President of President the CNA Insurance Companies since November 1990.
William H. Sharkey, Senior Vice 48 Senior Vice President of Jr. President, Director the CNA Insurance Companies since January 1994. Prior thereto, Mr. Sharkey was Senior Vice President of Cigna Healthcare from October 1991 through February 1994. Mr. Sharkey has served as a Director of the Registrant since November 1994.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
POSITION AND OFFICES HELD WITH REGISTRANT PRINCIPAL OCCUPATION NAME AGE DURING PAST FIVE YEARS
Adrian M. Tocklin Senior Vice 45 Senior Vice President of the President CNA Insurance Companies since May 1995; President of The Continental Insurance Company from June 1994 through May 1995; Executive Vice President of The Continental Insurance Company from August 1991 through June 1994. Prior thereto, Ms. Tocklin was Senior Vice President of The Continental Insurance Company.
Jae L. Wittlich Senior Vice 54 Senior Vice President of the President CNA Insurance Companies since November 1990.
David W. Wroe Senior Vice 50 Senior Vice President of the President CNA Insurance Companies since June 1996. Prior thereto, Mr. Wroe was President of Agency Management Systems from August 1991 through June 1996.
Officers are elected and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors.
*Mr. Kantor will succeed Donald Lowry as Senior Vice President, Secretary and General Counsel of the CNA Insurance Companies effective April 1, 1997.
**Shea & Gould declared bankruptcy in 1995.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) There is no established public trading market for VFL's common stock.
(b) CAC owns all of the common stock of VFL.
(c) VFL has declared no cash dividends on its common stock in 1995, 1996 or 1997 through the date of filing this Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
OMITTED PURSUANT TO GENERAL INSTRUCTION J (2) (A) OF FORM 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Valley Forge Life Insurance Company (VFL) is a wholly-owned subsidiary of Continental Assurance Company (Assurance). Assurance is a wholly-owned subsidiary of Continental Casualty Company (Casualty) which is wholly-owned by CNA Financial Corporation (CNA). Loews Corporation owns approximately 84% of the outstanding common stock of CNA.
The operations, assets and liabilities of VFL and its parent, Assurance, are managed, to a large extent, on a combined basis. Effective December 31, 1985, pursuant to a Reinsurance Pooling Agreement, VFL began ceding all of its business to its parent, Assurance. This business is then pooled with the business of Assurance, excluding Assurance's participating contracts and separate accounts, and 10% of the combined net pool is retroceded to VFL. This agreement was amended effective July 1, 1996, for the purpose of also excluding the separate accounts of VFL.
VFL sells a variety of individual and group insurance products. The individual insurance products consist primarily of term, universal life, and life insurance policies and individual annuities. Group insurance products include life, accident and health, consisting primarily of major medical and hospitalization and pension products.
Products developed in 1996 included a portfolio of variable products and new universal life products which are expected to be marketed in 1997. These products will offer investors the option of allocating payments to one or more variable accounts or to a guaranteed income account or both. Payments allocated to the variable accounts will be invested in corresponding investment portfolios where the investment risk is borne by the investor while payments allocated to the guaranteed income account will earn a minimum guaranteed rate of interest for a specified period of time for annuity contracts and one year for life products.
RESULTS OF OPERATIONS:
The following table summarizes key components of VFL's operating results for each of the last three years.
VFL's revenues, excluding net realized investment gains/losses, were up 9.0% to $363.0 million for 1996 as compared to $333.0 million for 1995 and up 25.0% from $290.5 million for 1994. Premiums for 1996 were up 9.7% to $325.5 million as compared to $296.7 million for 1995 and up 23.8% from 1994 premiums of $263.0 million. The largest portion of this increase was due to the increase in group premiums, reflecting the growth in the Federal Employees Health Benefits Program. Individual premium increased primarily due to increased sales of VFL's Viaterm life product that was first introduced in late 1994.
VFL's investment income increased from $22.8 million in 1994 to $31.5 million in 1995 and decreased to $29.3 million in 1996. The decrease in 1996 is mainly due to the negative cash flow experienced in 1996 resulting in a reduction in the total investment portfolio.
VFL's net operating income excluding net realized investment gains/losses was $13.6 million for 1996, compared to $13.6 million and $10.4 million for 1995 and 1994, respectively.
Net realized investment gains, net of tax, amounted to $3.1 million in 1996, compared to $9.0 million in 1995 and losses of $2.9 million in 1994. Net realized investment gains for 1996 were primarily realized on sales of fixed maturities.
FINANCIAL CONDITION:
Assets totaled $1,947 million at December 31, 1996, an increase of 18.6% over 1995 and 34.6% over 1994. VFL's cash and invested assets of $452 million decreased by $53 million, or 10.5%, over the 1995 level of $505 million, and increased $12 million over the 1994 level of $440 million.
VFL's stockholder's equity was approximately $200 million at December 31, 1996, compared to $195 million and $156 million at December 31, 1995 and 1994, respectively. The increase in stockholder's equity in 1996 is due to net income of $16.7 million offset by a $12.6 million decrease in net unrealized investment gains. The increase in stockholder's equity in 1995 was primarily due to net income of $22.5 million which was partially offset by $4.5 million of net unrealized investment losses.
- -------------------------------------------------------------------------------- Statutory Stockholder's Surplus Assets * Equity * - -------------------------------------------------------------------------------- (In thousands of dollars)
December 31, 1996 $ 124,324 $ 1,947,296 $ 199,540 December 31, 1995 129,912 1,641,438 195,472 December 31, 1994 122,267 1,447,122 156,196 December 31, 1993 117,650 1,258,039 153,249 December 31, 1992 115,660 1,122,762 144,873 - -------------------------------------------------------------------------------- * In accordance with generally accepted accounting principles
INVESTMENTS:
The following table summarizes VFL's investments shown at cost or amortized cost for each of the last two years.
INVESTMENTS - (CONTINUED):
As mentioned previously, the operations, assets and liabilities of VFL and Assurance are, to a large extent, managed on a combined basis. The investment portfolio is managed to maximize after-tax investment return while minimizing credit risks with investments concentrated in high quality securities to support its insurance underwriting operations. The investment portfolios segregated for the purpose of supporting policy liabilities for universal life, annuities and other interest sensitive products are held by Assurance.
VFL has the capacity to hold its fixed maturity portfolio to maturity. However, securities may be sold as part of VFL's asset/liability strategies or to take advantage of investment opportunities generated by changing interest rates, tax and credit considerations, or other similar factors. Accordingly, the fixed maturity securities are classified as available-for-sale. See Note 2 of the Financial Statements for further information.
The investment portfolio consists primarily of high quality marketable fixed maturities, approximately 98% of which are rated as investment grade at both December 31, 1996 and 1995.
The following table summarizes the ratings of VFL's fixed maturity debt portfolio at carrying value (market): - -------------------------------------------------------------------------------- December 31 1996 % 1995 % - -------------------------------------------------------------------------------- (In thousands of dollars)
U.S. government and affiliated securities $115,926 36.1% $280,057 76.2% Other AAA rated 127,910 39.8 22,007 6.0 AA and A rated 33,913 10.6 39,337 10.7 BBB rated 38,272 11.9 18,124 4.9 Below investment grade 5,045 1.6 8,237 2.2 - -------------------------------------------------------------------------------- Total $321,066 100% $367,762 100 % ================================================================================
Included in VFL's fixed maturity securities at December 31, 1996, are $113 million of asset-backed securities, consisting of approximately 5% in U.S. government agency issued pass-through certificates, 89% in collateralized mortgage obligations (CMOs), and 6% in corporate asset-backed obligations. The majority of CMOs held are U.S. government agency issues, which are actively traded in liquid markets and are priced by broker-dealers.
VFL limits the risks associated with interest rate fluctuations and prepayments by concentrating its CMO investments in planned amortization classes with relatively short principal repayment windows. At December 31, 1996, the fair value of asset-backed securities was below the amortized cost by approximately $.1 million compared with unrealized gains of approximately $2.5 million at December 31, 1995. VFL has not invested in derivative financial instruments, including complex mortgage derivatives without readily ascertainable market prices, during the last three years nor does it have any investments in mortgage loans or real estate.
INVESTMENTS - (CONTINUED):
VFL's investments in fixed maturities are carried at a fair value of $321.1 million at December 31, 1996, compared with $367.8 million at December 31, 1995. At December 31, 1996, net unrealized losses on fixed maturity securities amounted to approximately $.4 million. This compares with net unrealized gains of approximately $20.4 million at December 31, 1995. The gross unrealized gains and losses for the fixed maturity securities portfolio at December 31, 1996, were $3.2 million and $3.6 million, respectively, compared to $20.4 million and $25 thousand, respectively, at December 31, 1995. Such fluctuations from year-to-year are primarily due to changes in interest rates.
VFL's investments in equity securities are carried at a fair value of $3.0 million at December 31, 1996, compared with $1.7 million at December 31, 1995. At December 31, 1996, net unrealized gains on equity securities amounted to approximately $1.9 million. This compares with net unrealized gains of approximately $.6 million at December 31, 1995. There were no unrealized losses on equity securities for the years ended December 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES:
The liquidity requirements of VFL have been met primarily by funds generated from operations. VFL's principal operating cash flow sources are premiums and investment income. The primary operating cash flow uses are payments for claims, policy benefits and operating expenses.
For the year ended December 31, 1996, VFL's operating activities generated net negative cash flows of approximately $43 million, compared with net positive cash flows of $21 million in 1995 and $75 million in 1994. The deterioration in cash flow in 1996 was caused by the significant acquisition and other first-year expenses related to the large volume of new business, as well as the delayed settlement of receivables from an affiliate. VFL believes that future liquidity needs will be met primarily by cash generated from operations. Net cash flows from operations are invested in marketable securities.
VFL's insurance ratings are pooled ratings with Assurance. The table below reflects ratings for VFL/Assurance as of December 31, 1996:
|--------------------------------------------------------------| | A.M Best Standard & Poor's Duff & Phelps | |--------------------------------------------------------------| | | | RATING A AA AA | |--------------------------------------------------------------|
ACCOUNTING STANDARDS:
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by the entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This Statement is effective for 1996 financial statements. This Statement did not have a significant impact on VFL.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation". This Statement establishes financial accounting and reporting standards for stock-based employee compensation plans. The requirements of this Statement is effective for 1996 financial statements. This Statement had no impact on VFL or CNA as the Companies have no compensation which qualifies.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This Statement has been amended and is now effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996 or 1997, depending on the type of transaction. This Statement will not have a significant impact on VFL.
Accounting Disclosure Rules and Practices
In January 1997, the Securities and Exchange Commission approved amendments to Regulation S-X, Regulation S-K, Regulation S-B, and various forms to clarify and expand existing disclosure requirements with respect to derivative financial instruments and derivative commodity instruments. The new rules would require enhanced descriptions in the footnotes to the financial statements of accounting policies for derivative financial instruments and derivative commodity instruments. They would also require disclosure outside the financial statements of qualitative and quantitative information about market risk related to derivative financial instruments, other financial instruments, and derivative commodity instruments. The requirement of these amendments are effective for 1997 financial statements. These amendments will not have a significant impact on VFL.
FORWARD-LOOKING STATEMENTS:
When included in this report, the words "expects," "intends," "anticipates," "estimates," and analogous expressions are intended to identify forward-looking statements. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, competition, changes in financial markets (credit, currency, commodities and stocks) changes in foreign, political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, judicial decisions and rulings, and various other matters, many of which are beyond VFL's control. These forward-looking statements speak only as of the date of this Report. VFL expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in VFL's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report..................................................18 Balance Sheet, December 31, 1996 and 1995.....................................19 Statement of Operations, three years ended December 31, 1996..................20 Statement of Stockholder's Equity, three years ended December 31, 1996........21 Statement of Cash Flows, three years ended December 31, 1996..................22 Notes to Financial Statements.................................................23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder Valley Forge Life Insurance Company
We have audited the accompanying balance sheets of Valley Forge Life Insurance Company (a wholly-owned subsidiary of Continental Assurance Company, which is a wholly-owned subsidiary of Continental Casualty Company, a wholly-owned subsidiary of CNA Financial Corporation, an affiliate of Loews Corporation) as of December 31, 1996 and 1995 and the related statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Valley Forge Life Insurance Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP Chicago, Illinois February 12, 1997
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Valley Forge Life Insurance Company (VFL) is a wholly-owned subsidiary of Continental Assurance Company (Assurance). Assurance is a wholly-owned subsidiary of Continental Casualty Company (Casualty) which is wholly-owned by CNA Financial Corporation (CNA). Loews Corporation owns approximately 84% of the outstanding common stock of CNA.
VFL sells a variety of individual and group insurance products. The individual insurance products consist primarily of term, universal life, and life insurance policies and individual annuities. Group insurance products include life, accident and health, consisting primarily of major medical and hospitalization and pension products.
Effective December 31, 1985, pursuant to a Reinsurance Pooling Agreement, VFL began ceding all of its business to its parent, Assurance. This business is then pooled with the business of Assurance, excluding Assurance's participating contracts and separate accounts, and 10% of the combined net pool is retroceded to VFL. This agreement was amended effective July 1, 1996, for the purpose of also excluding the separate accounts of VFL.
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts applicable to prior years have been reclassified to conform to classifications followed in 1996.
INSURANCE
Premium revenue-Revenues on universal life type contracts are comprised of contract charges and fees which are recognized over the coverage period. Accident and health insurance premiums are earned ratably over the terms of the policies after provision for estimated adjustments on retrospectively rated policies and deductions for ceded insurance. Other life insurance premiums are recognized as revenue when due, after deductions for ceded insurance.
Claim reserves-Claim reserves include provisions for reported claims in the course of settlement and estimates of unreported losses based upon past experience.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1. - (CONTINUED):
Future policy benefit reserves-Reserves for traditional life insurance products are computed based upon net level premium methods using actuarial assumptions as to interest rates, mortality, morbidity, withdrawals and expenses. Actuarial assumptions include a margin for adverse deviation and generally vary by plan, age at issue and policy duration. Interest rates range from 3% to 11%, and mortality, morbidity and withdrawal assumptions reflect VFL and industry experience prevailing at the time of issue. Expense estimates include the estimated effects of inflation and expenses beyond the premium paying period. Reserves for universal life-type contracts are established using the retrospective deposit method. Under this method, liabilities are equal to the account balances that accrue to the benefit of the policyholders. Interest crediting rates ranged from 5.6% to 6.6% for the three years ended December 31, 1996.
Reinsurance-In addition to the pooling agreement with Assurance, VFL also assumes and cedes insurance with other insurers and reinsurers and members of various reinsurance pools and associations. VFL utilizes reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposures on larger risks. The reinsurance coverages are tailored to the specific risk characteristics of each product line with VFL's retained amount varying by type of coverage. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability.
Deferred acquisition costs-Costs of acquiring insurance business which vary with and are primarily related to the production of such business are deferred. Such costs include commissions, premium taxes and certain underwriting and policy issuance costs. Acquisition costs are capitalized and amortized based on assumptions consistent with those used for computing policy benefit reserves. Acquisition costs on ordinary life business are amortized over their assumed premium paying periods. Universal life and annuity acquisition costs are amortized in proportion to the present value of the estimated gross profits over the products' assumed durations, which are regularly evaluated and adjusted as appropriate. Based on 1996 evaluations, the assumed interest rate spreads were adjusted, the effect of which was to reduce amortization by approximately $3 million.
INVESTMENTS
Valuation of investments-VFL classifies its fixed maturity securities (bonds and redeemable preferred stocks) and its equity securities as available-for-sale, and as such, they are carried at fair value. The amortized cost of fixed maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in investment income.
Policy loans are carried at unpaid balances. Short-term investments, which have an original maturity of one year or less, are carried at amortized cost which approximates market value. VFL has no real estate, mortgage loans or investments in derivative securities.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1. - (CONTINUED):
Investment gains and losses-All securities transactions are recorded on the trade date. Realized investment gains and losses are determined on the basis of the cost of the specific securities sold. Unrealized investment gains and losses on fixed maturity and equity securities are reflected as part of stockholder's equity, net of applicable deferred income taxes and participating policyholders' interest. Investments are written down to estimated fair values and losses are charged to income when a decline in value is considered to be other than temporary.
Securities sold under repurchase agreements-VFL has a securities lending program where securities are loaned to third parties, primarily major brokerage firms. Borrowers of these securities must maintain a deposit of 100% of the fair value of the securities if the collateral is cash, or 102% if the collateral is securities. Cash deposits from these transactions have been invested in short-term investments (primarily commercial paper). VFL continues to receive the interest on the loaned debt securities, as beneficial owner and, accordingly, the loaned debt securities are included in fixed maturity securities. The liabilities for securities sold subject to repurchase agreements are recorded at the contractual repurchase amounts. VFL had no securities on loan at December 31, 1996 or 1995.
INCOME TAXES
The provision for income taxes includes deferred taxes, resulting from temporary differences between the financial statement and tax return bases of assets and liabilities under the liability method. Such temporary differences primarily relate to insurance reserves, investment valuation differences, net unrealized investment gains/losses and deferred acquisition costs.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2. INVESTMENTS:
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2. - (CONTINUED):
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2. -(CONTINUED):
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2. - (CONTINUED):
Actual maturities may differ from contractual maturities because securities may be called or prepaid with or without call or prepayment penalties.
There are no investments (other than equity securities) that have not produced income for the years ended December 31, 1996 and 1995. There are no investments in a single issuer, other than the U.S. government, that when aggregated exceed 10% of stockholder's equity.
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Fair values are required to be disclosed for all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values may be based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair value. The estimates presented herein are subjective in nature and are not necessarily indicative of the amounts VFL could realize in the current market exchange. Any difference would not be expected to be material.
All nonfinancial instruments such as deferred acquisition costs, reinsurance receivables, deferred income taxes and insurance reserves, are excluded from fair value disclosure. Thus, the total fair value amounts cannot be aggregated to determine the underlying economic value of VFL.
The carrying amounts reported in the balance sheet approximate fair value for cash, short-term investments, premium and other insurance receivables, accrued investment income, and certain other assets and other liabilities because of their short-term nature. Accordingly, these financial instruments are not listed in the table below.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3. - (CONTINUED):
The carrying amounts and estimated fair values of VFL's other financial instrument assets and liabilities are listed below:
The following methods and assumptions were used by VFL in estimating its fair value amounts for financial instruments:
Fixed maturity securities and equity securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from independent pricing services or quoted market prices of comparable instruments.
The fair values for policy loans are estimated using discounted cash flow analyses at interest rates currently offered for similar loans to borrowers with comparable credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations.
Premium deposits and annuity contracts are valued based on cash surrender values and the outstanding fund balances.
NOTE 4. STATUTORY CAPITAL AND SURPLUS:
Statutory capital and surplus and net income for VFL are determined in accordance with accounting practices prescribed by the Pennsylvania Insurance Department. Prescribed statutory accounting practices are set forth in a variety of publications of the National Association of Insurance Commissioners as well as state laws, regulations, and general administrative rules. VFL has no material permitted accounting practices. VFL had a statutory net loss of $2.7 million, compared with net income of $8.9 million and $5.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. The statutory net loss for 1996 is primarily due to the increase in sales of individual life and annuity products. Costs related to these sales are charged immediately to income for statutory reporting purposes; under GAAP, such costs are capitalized and amortized to income over the duration of these
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4. - (CONTINUED):
contracts. Statutory capital and surplus for VFL was $124.3 million and $129.9 million at December 31, 1996 and 1995, respectively.
The payment of dividends by VFL to Assurance without prior approval of the Pennsylvania Insurance Department is limited to formula amounts. As of December 31, 1996, approximately $12.4 million was not subject to prior Insurance Department approval.
NOTE 5. BENEFIT PLANS:
PENSION PLAN
VFL has no employees as it has contracted with Casualty for services provided by Casualty employees. As Casualty is a wholly-owned subsidiary of CNA, all Casualty employees are covered by CNA's Benefit Plans. The plans are discussed below.
CNA has several noncontributory pension plans covering all full-time employees age 21 or over who have completed at least one year of service. VFL is included in the CNA Employees' Retirement Plan. Plan benefits are based on years of credited service and the employee's highest sixty consecutive months of compensation.
CNA's funding policy is to make contributions in accordance with applicable governmental regulatory requirements. The assets of the plan are invested primarily in U.S. government securities with the balance in short-term investments, common stocks and other fixed income securities.
Effective January 1, 1996, the retirement plans redefined compensation to include base pay, overtime and bonuses. This amendment generated an unrecognized prior service cost of $20.2 million for CNA.
The funded status is determined using assumptions at the end of the year. Pension cost is determined using assumptions at the beginning of the year.
Net periodic pension cost allocated to VFL was $3.6 million, $1.7 million and $1.1 million for the years ended December 31, 1996, 1995 and 1994, respectively.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5. - (CONTINUED):
The following table sets forth the Plans' funded status and amounts recognized in CNA's consolidated financial statements at December 31, 1996, 1995 and 1994.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5. - (CONTINUED):
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
CNA provides certain health and dental care benefits for eligible retirees, through age 64, and provides life insurance and reimbursement of Medicare Part B premiums for all eligible retired persons. CNA funds benefit costs principally on the basis of current benefit payments.
Net periodic postretirement benefit cost allocated to VFL was $1.3 million, $.7 million and $.6 million for the years ended December 31, 1996, 1995 and 1994, respectively.
The following table sets forth the amounts recognized in CNA's consolidated financial statements at December 31, 1996, 1995 and 1994.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5. - (CONTINUED):
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 12% in 1996, declining 1% per year to an ultimate rate of 5% in 2002. The health care cost trend rate assumption has a significant effect on the amount of the benefit obligation and periodic cost reported. An increase in the assumed health care cost trend rate of 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by $24.2 million and the aggregate net periodic postretirement benefit cost for 1996 by $3.1 million.
SAVINGS PLAN
VFL is included in the CNA Employees' Savings Plan which is a contributory plan that allows employees to make regular contributions of up to 6% of their salary. CNA contributes an additional amount equal to 70% of the employee's regular contribution. Employees may also make an additional contribution of up to 10% of their salaries for which there is no additional contribution by CNA. CNA contributions allocated to and expensed by VFL for the Savings Plan were $1.0 million, $.7 million and $.5 million for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 6. INCOME TAXES:
VFL is taxed under the provisions of the Internal Revenue Code, as applicable to life insurance companies, and is included in the consolidated Federal income tax return with CNA and its eligible subsidiaries (CNA Tax Group), which in turn is consolidated in the Loews Federal income tax return. The Federal income tax provision of VFL is computed as if VFL were filing its own separate return.
VFL maintains a special tax memorandum account designated as the "Shareholder's Surplus Account". Dividends from this account may be distributed to the shareholder without resulting in any additional tax. At December 31, 1996, the amount in the Shareholder's Surplus Account was $100 million. Another tax memorandum account, defined as the "Policyholders' Surplus Account," totaled $5 million at December 31, 1996. No further additions to this account are allowed. Amounts accumulated in the Policyholders' Surplus Account are subject to income tax if distributed to the shareholder. VFL has not provided for such a tax as VFL has no plans for such a distribution.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of VFL's deferred tax assets and liabilities as of December 31, 1996 and 1995 are shown in the table below.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6. - (CONTINUED):
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES - ------------------------------------------------------------------------------ December 31 1996 1995 - ------------------------------------------------------------------------------ (In thousands of dollars)
Insurance reserves $ 17,166 $ 15,900 Deferred acquisition costs (22,078) (14,382) Investment valuation 5,411 2,518 Net unrealized gains (530) (7,342) Receivables (646) 661 Other, net 989 (546) - ------------------------------------------------------------------------------ TOTAL DEFERRED TAX ASSETS (LIABILITIES) $ 312 $ (3,191) ==============================================================================
At December 31, 1996, gross deferred tax assets and liabilities amounted to $24.9 million and $24.6 million, respectively. Gross deferred tax assets and liabilities, at December 31, 1995, amounted to $20.1 million and $23.3 million, respectively.
VFL has not established a valuation reserve at December 31, 1996 as it believes that all deferred tax assets are fully realizable. VFL has had a history of profitability and anticipates future taxable income sufficient to support its deferred tax balances at December 31, 1996, including but not limited to the reversal of existing temporary differences and the implementation of tax planning strategies, if needed.
Significant components of VFL's income tax provision are as follows:
PROVISION FOR INCOME TAX - ------------------------------------------------------------------------------ Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------ (In thousands of dollars)
Current tax (expense) benefit on: Ordinary income $ (2,217) $ (7,417) $ (5,603) Realized investment gains (losses) (3,502) (4,330) 1,326 - ------------------------------------------------------------------------------ Total current tax expense (5,719) (11,747) (4,277) - ------------------------------------------------------------------------------ Deferred tax (expense) benefit on: Ordinary income (loss) (5,141) 41 (78) Realized investment gains (losses) 1,832 (494) 250 - ------------------------------------------------------------------------------ Total deferred tax (expense) benefit (3,309) (453) 172 - ------------------------------------------------------------------------------ TOTAL INCOME TAX EXPENSE $ (9,028) $(12,200) $ (4,105) ==============================================================================
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6. - (CONTINUED):
A reconciliation of the expected income tax resulting from the use of statutory tax rates to the effective income tax expense follows:
NOTE 7. REINSURANCE:
The effects of reinsurance on premium revenues are shown in the following schedule:
In the table above, the majority of Life premium revenue is from long duration type contracts, while the Accident and Health premium revenue is generally short duration.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7. - (CONTINUED):
Transactions with Assurance, as part of the pooling agreement (see Note 1), are reflected in the above table. Premium revenues ceded to non-affiliated companies were $43.0 million, $9.9 million and $7.5 million for the years ended December 31, 1996, 1995 and 1994, respectively. Additionally, insurance claims and policyholders' benefits recoveries from non-affiliated companies were $7.0 million, $6.1 million and $3.0 million for the years ended December 31, 1996, 1995 and 1994, respectively.
The ceding of insurance does not discharge primary liability of the original insurer. VFL's placement of reinsurance with non-affiliated carriers entails careful review of the nature of the contract and a thorough assessment of the reinsurers' credit quality and claim settlement performance.
Reinsurance receivables reflected on the balance sheet are recoverables from reinsurers related to insurance reserves. Balances due from Assurance pursuant to the pooling agreement comprise most of these balances which were approximately $1.3 billion and $1.1 billion at December 31, 1996 and 1995, respectively.
The impact of reinsurance, including transactions with Assurance, on life insurance in force is shown in the following schedule:
- --------------------------------------------------------------------------------
Life Insurance in Force Assumed/Net ---------------------------------------- Direct Assumed Ceded Net % - -------------------------------------------------------------------------------- (In thousands of dollars)
December 31, 1996 $ 108,126 $ 22,085 $ 109,873 $ 20,338 108.6% December 31, 1995 57,138 16,996 58,442 15,692 108.3 December 31, 1994 22,933 13,215 24,112 12,036 109.8 ================================================================================
NOTE 8. RELATED PARTIES:
As discussed in Note 1, VFL is party to a pooling agreement with its parent, Assurance. In addition, VFL is party to the CNA Intercompany Expense Agreement whereby expenses incurred by CNA and each of its subsidiaries are allocated to the appropriate company. All acquisition and underwriting expenses allocated to VFL are further subject to the Intercompany Pooling Agreement, so that acquisition and underwriting expenses recognized by VFL approximate ten percent of the combined acquisition and underwriting expenses of VFL and Assurance. Pursuant to the foregoing agreements, VFL recorded amortization of deferred acquisition costs and other operating expenses totaling $37 million, $41 million and $37 million for 1996, 1995 and 1994, respectively. Expenses of VFL exclude $12.3 million, $5.5 million and $4.1 million of general and administrative expenses incurred by VFL and allocated to CNA for the years ended December 31, 1996, 1995 and 1994, respectively. VFL had a $67.5 million affiliated receivable at December 31, 1996 and a $4.9 million affiliated receivable at December 31, 1995 for net cash settlements due from Assurance in the normal course of operations related to pooling and general expense reimbursements. There are no interest charges on intercompany receivables and payables.
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 9. LEGAL:
VFL is party to litigation arising in the ordinary course of business. The outcome of this litigation will not, in the opinion of management, materially affect the results of operations or equity of VFL.
NOTE 10. BUSINESS SEGMENTS:
- ----------------------------------------------------------------------------- Year Ended December 31 1996 1995 1994 - ----------------------------------------------------------------------------- (In thousands of dollars)
REVENUES Individual $ 70,208 $ 69,577 $ 52,812 Group 292,807 263,388 237,716 Realized gains (losses) 4,771 13,783 (4,502) - ----------------------------------------------------------------------------- Total $ 367,786 $ 346,748 $ 286,026 =============================================================================
INCOME BEFORE INCOME TAX Individual $ 12,752 $ 8,611 $ 4,794 Group 8,224 12,316 11,295 Realized gains (losses) 4,771 13,783 (4,502) - ----------------------------------------------------------------------------- Total $ 25,747 $ 34,710 $ 11,587 =============================================================================
NET INCOME Individual $ 8,209 $ 5,597 $ 3,119 Group 5,409 7,954 7,289 Realized gains (losses) 3,101 8,959 (2,926) - ----------------------------------------------------------------------------- Total $ 16,719 $ 22,510 $ 7,482 =============================================================================
ASSETS Individual $ 665,000 $ 786,918 $ 686,754 Group 1,282,296 854,520 760,368 - ----------------------------------------------------------------------------- Total $ 1,947,296 $1,641,438 $ 1,447,122 =============================================================================
Assets and investment income are allocated to business segments based on cash flows after attribution of separately identifiable assets. Income taxes have been allocated on the basis of taxable operating income of the respective segments.
Group revenues include $210.1 million, $187.0 million and $179.4 million for the years ended December 31, 1996, 1995 and 1994, respectively, under contracts covering U.S. government employees and their dependents.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OMITTED PURSUANT TO GENERAL INSTRUCTION J (2) (C) OF FORM 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
OMITTED PURSUANT TO GENERAL INSTRUCTION J (2) (C) OF FORM 10-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OMITTED PURSUANT TO GENERAL INSTRUCTION J (2) (C) OF FORM 10-K.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OMITTED PURSUANT TO GENERAL INSTRUCTION J (2) (C) OF FORM 10-K.
PART IV
ITEM 14.
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS.
A listing of all financial statements filed as part of this Annual Report on Form 10-K is included on page 17 in ITEM 8.
(A) (2) FINANCIAL STATEMENT SCHEDULES. PAGE ----------------------------- ---- Schedule III Supplementary Insurance Information............. 43 Schedule V Valuation and Qualifying Accounts and Reserves.. 44
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the Financial Statements or notes thereto.
(A) (3) EXHIBITS.
3 (i) Articles of Incorporation are incorporated herein by reference to exhibit number 6 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
3 (ii) Bylaws are incorporated herein by reference to exhibit number 6 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (a) Form of Flexible Premium Deferred Variable Annuity Contract is incorporated herein by reference to exhibit number 4 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (b) Form of Qualified Plan Endorsement to Flexible Premium Deferred Variable Annuity Contract is incorporated herein by reference to exhibit number 4 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (c) Form of IRA Endorsement to Flexible Premium Deferred Variable Annuity Contract is incorporated herein by reference to exhibit number 4 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (d) Form of Nursing Home Confinement, Terminal Medical Condition, Total Disability Endorsement to Flexible Premium Deferred Variable Annuity Contract is incorporated herein by reference to exhibit number 4 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (e) Policy Application is incorporated herein by reference to exhibit number 5 to the Form N-4EL Registration Statement filed with the Securities and Exchange Commission on February 20, 1996 (File No. 333-1087).
4 (f) Form of Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 29, 1996 (File No. 333-2093).
(A) (3) EXHIBITS - (CONTINUED):
4 (g) Form of Index Rider to Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 29, 1996 (File No. 333-2093).
4 (h) Form of Qualified Plan Rider to Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 29, 1996 (File No. 333-2093).
4 (i) Form of Individual Retirement Annuity Rider to Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 29, 1996 (File No. 333-2093).
4 (j) Form of Nursing Home Confinement/Terminal Medical Condition Rider to Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 29, 1996 (File No. 333-2093).
4 (k) Form of Group Contract and Individual Certificate to Single Premium Deferred Modified Guaranteed Annuity Certificate is incorporated herein by reference to exhibit number 4 filed with Pre-Effective Amendment No. 1 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on October 17, 1996 (File No. 333-2093).
4 (l) Specimen of Individual Flexible Premium Variable and Fixed Life Insurance Policy is incorporated herein by reference to the initial filing of the Form S-6 Registration Statement filed with the Securities and Exchange Commission on March 25, 1996 (File No. 333-01949).
4 (m) Form of Waiver of Monthly Deduction Rider to Individual Flexible Premium Variable and Fixed Life Insurance Policy is incorporated herein by reference to the initial filing of the Form S-6 Registration Statement filed with the Securities and Exchange Commission on March 25, 1996 (File No. 333-01949).
4 (n) Form of Term Insurance on Spouse Rider to Individual Flexible Premium Variable and Fixed Life Insurance Policy is incorporated herein by reference to the initial filing of the Form S-6 Registration Statement filed with the Securities and Exchange Commission on March 25, 1996 (File No. 333-01949).
4 (o) Form of Term Insurance on Children Rider to Individual Flexible Premium Variable and Fixed Life Insurance Policy is incorporated herein by reference to the initial filing of the Form S-6 Registration Statement filed with the Securities and Exchange Commission on March 25, 1996 (File No. 333-01949).
10 (a) Form of Participation Agreement between the Company and Insurance Series is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
10 (b) Form of Participation Agreement between the Company and Variable Insurance Products Fund is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
(A) (3) EXHIBITS - (CONTINUED)
10 (c) Form of Participation Agreement between the Company and The Alger American Fund is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
10 (d) Form of Participation Agreement between the Company and MFS Variable Insurance Trust is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
10 (e) Form of Participation Agreement between the Company and SoGen Variable Funds, Inc. is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
10 (f) Form of Participation Agreement between the Company and Van Eck Worldwide Insurance Trust is incorporated herein by reference to exhibit number 8 to the Form N-4EL/A Registration Statement filed with the Securities and Exchange Commission on August 30, 1996 (File No. 333-1087).
10 (g) CNA Inter-Company Expense Agreement is incorporated herein by reference to exhibit number 10G to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on September 3, 1996 (File No. 333-1083).
10 (h) Amendment to the CNA Inter-Company Expense Agreement is incorporated herein by reference to exhibit number 10H to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on September 3, 1996 (File No. 333-1083).
10 (i) Reinsurance Pooling Agreement is incorporated herein by reference to exhibit number 10I to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on September 3, 1996 (File No. 333-1083).
10 (j) Amendment to the Reinsurance Pooling Agreement is incorporated herein by reference to exhibit number 10J to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on September 3, 1996 (File No. 333-1083).
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Valley Forge Life Insurance Company
By S/DENNIS H. CHOOKASZIAN ------------------------------------------- Dennis H. Chookaszian Chairman of the Board and Chief Executive Officer
By S/PETER E. JOKIEL -------------------------------------------- Peter E. Jokiel Director, Senior Vice President and Chief Financial Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 28th day of March, 1997.
SIGNATURE TITLE
S/DENNIS H. CHOOKASZIAN Chairman of the Board and - ------------------------ Chief Executive Officer Dennis H. Chookaszian
S/PHILIP L. ENGEL Director - ------------------------ Philip L. Engel
S/MICHAEL C. GARNER Director - ------------------------ Michael C. Garner
S/PETER E. JOKIEL Chief Financial Officer - ------------------------ and Director Peter E. Jokiel
S/PATRICIA L. KUBERA Director - ------------------------ Patricia L. Kubera
S/WILLIAM H. SHARKEY, JR. Director - ------------------------- William H. Sharkey, Jr.