Financial Statements


SBL Variable Annuity Account I
Year Ended December 31, 2020
With Report of Independent Registered Public Accounting Firm

SBL Variable Annuity Account I

Financial Statements

Year Ended December 31, 2020




Contents

Report of Independent Registered Public Accounting Firm
1
   
Audited Financial Statements
 
   
Statements of Net Assets
Statements of Operations and Change in Net Assets
Notes to Financial Statements
1. Organization and Significant Accounting Policies
2. Variable Annuity Contract Charges
3. Summary of Unit Transactions
4. Financial Highlights
5. Subsequent Events
 
 3
4
6
6
8
9
10
11



Report of Independent Registered Public Accounting Firm

To the Board of Directors of Security Benefit Life Insurance Company and Contract Owners of SBL Variable Annuity Account I

Opinion on the Financial Statements

We have audited the accompanying statements of net assets of each of the subaccounts listed in the Appendix that comprise SBL Variable Annuity Account I (the Separate Account), as of December 31, 2020 and the related statements of operations and changes in net assets for each of the periods indicated in the Appendix, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each subaccount as of December 31, 2020, the results of its operations and changes in its net assets for each of the periods indicated in the Appendix, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Separate Account’s management. Our responsibility is to express an opinion on each of the subaccounts’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Separate Account in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the fund companies or their transfer agents, as applicable. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

We have served as the Separate Account’s auditor since 1981.

April 28, 2021
1



Appendix

Subaccounts comprising SBL Variable Annuity Account I

Subaccounts
Statements of operations and changes in net assets
Guggenheim Large Cap Value
For each of the two years in the period ended December 31, 2020
Guggenheim StylePlus Large Core
For each of the two years in the period ended December 31, 2020
Guggenheim StylePlus Mid Growth
For each of the two years in the period ended December 31, 2020
Guggenheim US Investment Grade Bond
For each of the two years in the period ended December 31, 2020

2

SBL Variable Annuity Account I
Statements of Net Assets
December 31, 2020

Subaccount
Number of Shares
Cost
Assets at Market Value
Total Assets
Uncollected Actuarial Risk Fee Payable
Net Assets
Units Outstanding
Unit Values
                 
Series B
      24,067
$    443,848
$    494,102
$    494,102
$       (11)
$    494,091
      24,037
$  20.53
Series E
     731,999
  15,895,049
  17,311,769
  17,311,769
     (6,283)
  17,305,486
     731,999
   23.65
Series I
     145,146
   6,109,685
   6,133,866
   6,133,866
     (2,325)
   6,131,541
     144,980
   42.26
Series U
       5,212
     219,771
     250,907
     250,907
        (77)
     250,830
       5,204
   48.14

The accompanying notes are an integral part of these financial statements.
3

SBL Variable Annuity Account I
Statements of Operations and Change in Net Assets
Years Ended December 31, 2020 and 2019, Except as Noted

   
Series B
   
Series E
   
Series I
 
Net assets as of December 31, 2018
 
$
432,067
   
$
15,581,310
   
$
6,266,765
 
Investment income (loss):
                       
Dividend distributions
   
9,442
     
251,835
     
102,468
 
  Investment Expenses:
                       
Mortality and expense risk and administrative charges
   
(3,288
)
   
(139,152
)
   
(52,193
)
Net investment income (loss)
   
6,154
     
112,683
     
50,275
 
Increase in net assets from operations:
                       
Capital gain distributions
   
-
     
28,097
     
392,195
 
Realized capital gain (loss) on investments
   
1,642
     
(74,996
)
   
34,402
 
Change in unrealized appreciation (depreciation)
   
7,056
     
4,258,522
     
759,449
 
Net gain (loss) on investments
   
8,698
     
4,211,623
     
1,186,046
 
Net increase in net assets from operations
   
14,852
     
4,324,306
     
1,236,321
 
Contract owner transactions:
                       
Variable annuity deposits
   
15,648
     
12,278
     
79,317
 
Terminations, withdrawals and annuity payments
   
(52,671
)
   
(2,361,450
)
   
(729,520
)
Transfers between subaccounts, net
   
-
     
(26,235
)
   
(44,884
)
Maintenance charges and mortality adjustments
   
1,835
     
37,261
     
17,562
 
Increase (decrease) in net assets from contract transactions
   
(35,188
)
   
(2,338,146
)
   
(677,525
)
Total increase (decrease) in net assets
   
(20,336
)
   
1,986,160
     
558,796
 
Net assets as of December 31, 2019
 
$
411,731
   
$
17,567,470
   
$
6,825,561
 
Investment income (loss):
                       
Dividend distributions
   
10,561
     
129,630
     
178,428
 
  Investment Expenses:
                       
Mortality and expense risk and administrative charges
   
(3,560
)
   
(115,666
)
   
(42,498
)
Net investment income (loss)
   
7,001
     
13,964
     
135,930
 
Increase in net assets from operations:
                       
Capital gain distributions
   
10,153
     
1,348,970
     
233,982
 
Realized capital gain (loss) on investments
   
1,615
     
108,502
     
(36,261
)
Change in unrealized appreciation (depreciation)
   
39,608
     
1,084,157
     
(288,987
)
Net gain (loss) on investments
   
51,376
     
2,541,629
     
(91,266
)
Net increase in net assets from operations
   
58,377
     
2,555,593
     
44,664
 
Contract owner transactions:
                       
Variable annuity deposits
   
167
     
104,005
     
42,778
 
Terminations, withdrawals and annuity payments
   
(16,351
)
   
(2,776,471
)
   
(785,087
)
Transfers between subaccounts, net
   
40,167
     
(145,111
)
   
3,625
 
Maintenance charges and mortality adjustments
   
-
     
-
     
-
 
Increase (decrease) in net assets from contract transactions
   
23,983
     
(2,817,577
)
   
(738,684
)
Total increase (decrease) in net assets
   
82,360
     
(261,984
)
   
(694,020
)
Net assets as of December 31, 2020
 
$
494,091
   
$
17,305,486
   
$
6,131,541
 
                         
The accompanying notes are an integral part of these financial statements.
4

SBL Variable Annuity Account I
Statements of Operations and Change in Net Assets (continued)
Years Ended December 31, 2020 and 2019, Except as Noted

   
Series U
 
Net assets as of December 31, 2018
 
$
165,306
 
Investment income (loss):
       
Dividend distributions
   
2,089
 
  Investment Expenses:
       
Mortality and expense risk and administrative charges
   
(1,565
)
Net investment income (loss)
   
524
 
Increase in net assets from operations:
       
Capital gain distributions
   
2,122
 
Realized capital gain (loss) on investments
   
(1,180
)
Change in unrealized appreciation (depreciation)
   
48,752
 
Net gain (loss) on investments
   
49,694
 
Net increase in net assets from operations
   
50,218
 
Contract owner transactions:
       
Variable annuity deposits
   
-
 
Terminations, withdrawals and annuity payments
   
(16,585
)
Transfers between subaccounts, net
   
(3,151
)
Maintenance charges and mortality adjustments
   
-
 
Increase (decrease) in net assets from contract transactions
   
(19,736
)
Total increase (decrease) in net assets
   
30,482
 
Net assets as of December 31, 2019
 
$
195,788
 
Investment income (loss):
       
Dividend distributions
   
915
 
  Investment Expenses:
       
Mortality and expense risk and administrative charges
   
(1,571
)
Net investment income (loss)
   
(656
)
Increase in net assets from operations:
       
Capital gain distributions
   
30,807
 
Realized capital gain (loss) on investments
   
964
 
Change in unrealized appreciation (depreciation)
   
28,819
 
Net gain (loss) on investments
   
60,590
 
Net increase in net assets from operations
   
59,934
 
Contract owner transactions:
       
Variable annuity deposits
   
-
 
Terminations, withdrawals and annuity payments
   
(6,703
)
Transfers between subaccounts, net
   
1,811
 
Maintenance charges and mortality adjustments
   
-
 
Increase (decrease) in net assets from contract transactions
   
(4,892
)
Total increase (decrease) in net assets
   
55,042
 
Net assets as of December 31, 2020
 
$
250,830
 
         
The accompanying notes are an integral part of these financial statements.
5

SBL Variable Annuity Account I
Notes to Financial Statements
December 31, 2020

1. Organization and Significant Accounting Policies

SBL Variable Annuity Account I (the Account) is a deferred variable annuity contract offered by Security Benefit Life Insurance Company (SBL). The Account is an investment company as defined by Financial Accounting Standard Board (FASB) Accounting Standard Codification (ASC) 946. The Account follows the accounting guidance as outlined in ASC 946. Purchase payments for the Account are allocated to one or more of the subaccounts that comprise the Account.   The Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended.  As directed by the owners, amounts directed to each subaccount are invested in a designated mutual fund as follows:

Subaccount/Mutual Fund
Class
Investment Adviser
Sub-Adviser
       
Guggenheim Large Cap Value
A
Security Investors, LLC
 -
Guggenheim StylePlus Large Core
A
Security Investors, LLC
 -
Guggenheim StylePlus Mid Growth
A
Security Investors, LLC
 -
Guggenheim US Investment Grade Bond
A
Security Investors, LLC
 -

Four subaccounts are currently offered by the Account, all of which had activity.

Under applicable insurance law, the assets and liabilities of the Account are clearly identified and distinguished from SBL’s other assets and liabilities. The portion of the Account’s assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business SBL may conduct.
6

SBL Variable Annuity Account I
Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies (continued)

Investment Valuation

Investments in mutual fund shares are carried in the statements of net assets at market value (net asset value of the underlying mutual fund).  Investment transactions are accounted for on the trade date.  Realized capital gains and losses on sales of investments are determined based on the average cost of investments sold.  The difference between cost and current market value of investments owned on the day of measurement is recorded as unrealized appreciation or depreciation of investments.

The cost of investment purchases and proceeds from investments sold for the year ended December 31, 2020, were as follows:

Subaccount
Cost of Purchases
Proceeds from Sales
     
Series B
$     60,974
$     19,845
Series E
   1,586,070
   3,044,323
Series I
     453,009
     823,291
Series U
      33,535
       8,291

Market Risk

Each subaccount invests in shares of a single underlying fund.  The investment performance of each subaccount will reflect the investment performance of the underlying fund less separate account expenses. There is no assurance that the investment objective of any underlying fund will be met.  A fund calculates a daily net asset value per share (“NAV”) which is based on the market value of its investment portfolio. The amount of risk varies significantly between subaccounts. Due to the level of risk associated with certain investment portfolios, it is at least reasonably possible that changes in the values of investment portfolios will occur in the near term and that such changes could materially affect contractholders’ investments in the funds and the amounts reported in the statements of net assets. The contractholder assumes all of the investment performance risk for the subaccounts selected.

Annuity Assets

Annuity Assets relate to contracts that have matured and are in the payout stage. Such assets are computed on the basis of published mortality tables using assumed interest rates that will provide assets as prescribed by law. In cases where the payout option selected is life contingent, SBL periodically recalculates the required annuity assets, and any resulting adjustment is either charged or credited to SBL and not to the Account.

The annuity assets for December 31, 2020 by subaccount are as follows:

Subaccount
Annuity Assets
   
Series B
$      8,793
Series E
     155,449
Series I
     127,245

Reinvestment of Dividends

Dividend and capital gain distributions paid by the mutual funds to the Account are reinvested in additional shares of each respective fund. Dividend income and capital gain distributions are recorded as income on the ex-dividend date.

Federal Income Taxes

The operations of the Account are included in the federal income tax return of SBL, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, SBL does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under contracts. Based on this,
7

SBL Variable Annuity Account I
Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies (continued)

no charge is being made currently to the Account for federal income taxes. SBL will review periodically the status of this policy in the event of changes in the tax law.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

As the economic and regulatory environment continues to evolve related to COVID-19, we cannot reasonably estimate the length or severity of this event or the impact to Separate Account performance and financial results. However, in general, a deterioration in general economic and business conditions can have a negative impact on individual unit values and could cause a net decrease in net assets resulting from operations of the separate account.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). 

The Account invests in shares of open-end mutual funds, which process contractholders directed purchases, sales and transfers on a daily basis at the funds’ computed net asset values (NAVs).  The fair value of the Account’s assets is based on the NAVs of mutual funds, which are obtained from the custodians and reflect the fair values of the mutual fund investments.  The NAV is calculated daily and is based on the fair values of the underlying securities.

Because the fund provides liquidity for the investments through purchases and redemptions at NAV, this may represent the fair value of the investment in the fund.  That is, for an open-ended mutual fund, the fair value of an investment in the fund would not be expected to be higher than the amount that a new investor would be required to spend in order to directly invest in the mutual fund. Similarly, the hypothetical seller of the investment would not be expected to accept less in proceeds than it could receive by directly redeeming its investment with the fund.

2. Variable Annuity Contract Charges

Mortality and Expense Risk Charge: Mortality and expense risks assumed by SBL are compensated for by a fee equivalent to an annual rate of 0.795% of the net asset value of each contract, of which 0.675% is for assuming mortality risks and the remainder is for assuming expense risks.  During the accumulation period, the mortality and expense risk fee is assessed daily and accrued as a liability to the contract. The accrued mortality and expense risk fee will be deducted from cash dividends and other cash distributions by the fund to the Account, or to the extent accrued and unpaid, from the value of any accumulation units surrendered by the owner or participant.  The deduction is based on the daily value of the Account, and equivalent to 0.795% on an annual basis.  These charges are presented as expenses on the statements of changes in net assets under Mortality and expense risk and administrative charges line item.
 
Premium Tax Charge: When applicable, an amount for state premium taxes is deducted as provided by pertinent state law either from purchase payments or from the amount applied to effect an annuity at the time annuity payments commence.
 
8

SBL Variable Annuity Account I
Notes to Financial Statements (continued)

3. Summary of Unit Transactions

The changes in units outstanding for the periods December 31, 2020 and 2019, were as follows:

   
2020
     
2019
 
     
Net
     
Net
 
Units
Units
Increase
 
Units
Units
Increase
Subaccount
Issued
Redeemed
(Decrease)
 
Issued
Redeemed
(Decrease)
               
Series B
       3,055
     (1,000)
      2,055
 
       1,364
     (2,929)
     (1,565)
Series E
      67,138
   (132,228)
    (65,090)
 
      14,880
   (120,217)
   (105,337)
Series I
      10,898
    (20,604)
     (9,706)
 
      13,294
    (18,055)
     (4,761)
Series U
         699
       (177)
        522
 
         133
       (574)
       (441)

9

SBL Variable Annuity Account I
Notes to Financial Statements (continued)

4. Financial Highlights

A summary of units outstanding, unit values, net assets, expense ratios, investment income ratios and total return ratios for each of the five years in the period ended December 31, 2020, were as follows:

Subaccount
Units
Unit
Values
($) (4)
Net
Assets ($)
Investment
Income
Ratios
(%) (1)
Expense
Ratios
(%) (2)
Total
Returns
(%) (3)(4)
             
Series B
       
2020
     24,037
      20.53
     494,091
     0.02
    0.795
    9.67
2019
     21,982
      18.72
     411,731
     2.24
    0.795
    2.02
2018
     23,547
      18.35
     432,067
     2.47
    0.795
   (1.61)
2017
     25,783
      18.65
     482,800
     3.19
    0.795
    2.98
2016
     27,597
      18.11
     501,326
     3.48
    0.795
    1.34
Series E
       
2020
    731,999
      23.65
  17,305,486
     0.01
    0.795
    7.70
2019
    797,089
      21.96
  17,567,470
     1.52
    0.795
   27.60
2018
    902,426
      17.21
  15,581,310
     1.25
    0.795
  (24.19)
2017
    843,699
      22.70
  19,198,556
     0.94
    0.795
    2.71
2016
    816,657
      22.10
  18,058,002
     0.75
    0.795
    9.95
Series I
       
2020
    144,980
      42.26
   6,131,541
     0.03
    0.795
   (4.28)
2019
    154,686
      44.15
   6,825,561
     1.57
    0.795
   12.69
2018
    159,447
      39.18
   6,266,765
     0.79
    0.795
  (15.40)
2017
    168,587
      46.31
   7,823,262
     1.05
    0.795
    6.51
2016
    172,570
      43.48
   7,506,303
     1.39
    0.795
   15.67
Series U
       
2020
      5,204
      48.14
     250,830
     0.00
    0.795
   15.20
2019
      4,682
      41.79
     195,788
     1.16
    0.795
   29.58
2018
      5,123
      32.25
     165,306
     0.92
    0.795
  (27.76)
2017
      4,251
      44.64
     189,780
     0.39
    0.795
    9.98
2016
      6,910
      40.59
     280,904
     0.58
    0.795
    7.52

(1) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. Average net assets is a simple average of net assets and will not reflect offsetting changes in net assets occurring within a year. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccount invests.

10

SBL Variable Annuity Account I
Notes to Financial Statements (continued)

4. Financial Highlights (continued)

(2)  These ratios represent the annualized contract expenses of the Account, consisting primarily of mortality and expense charges, for each period indicated.  The ratios include only those expenses that result in a direct reduction to the unit values.  Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

(3) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.  The total return is calculated for the period indicated or from the inception date through the end of the reporting period.

(4) Unit value information is calculated on a daily basis regardless of whether or not the subaccount has contractholders.

5. Subsequent Events

The Account has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no items require recognition or disclosure.
11