The following discussion highlights significant factors influencing the financial position and results of operations of Lincoln Benefit Life Company (referred to in this document as "we", "Lincoln Benefit", "our", "us" or the "Company"). It should be read in conjunction with the financial statements and related notes found under Part II Item 8 contained herein. We operate as a single segment entity, based on the manner in which we use financial information to evaluate performance and determine the allocation of resources.
A brief summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a complete summary of our significant accounting policies, see Note 2 of the financial statements.
OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"). Lincoln Benefit provides life insurance, retirement and investment products to individual customers. Our mission is to reinvent retirement and protection for the middle market consumer.
NET REALIZED CAPITAL LOSSES were $417 thousand, $1.3 million and $174 thousand in 2007, 2006 and 2005, respectively. The realized capital gains and losses for 2007, 2006 and 2005 were attributable to dispositions of fixed income securities. For further discussion of realized capital gains and losses see the Realized Capital Gains and Losses section of the MD&A.
As of December 31, 2007 and 2006, we did not have any fixed income securities categorized as problem, restructured or potential problem.
Under the terms of reinsurance agreements, all premiums and deposits, excluding variable annuity and life contract deposits allocated to separate accounts and those reinsured to non-affiliated reinsurers, are transferred to ALIC, which maintains the investment portfolios or reinsurance recoverables supporting our products. Payments of contractholder claims, benefits (including guaranteed minimum death benefits, guaranteed minimum income benefits, guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits), contract maturities, contract surrenders and withdrawals and certain operating costs (excluding investment-related expenses), are reimbursed by ALIC, under the terms of the reinsurance agreements. We continue to have primary liability as a direct insurer for risks reinsured. Our ability to meet liquidity demands is dependent on ALIC's and other reinsurers' ability to meet those obligations under the reinsurance programs.
The fair values of fixed income securities are based upon observable market quotations, observable market data or are derived from such quotations and observable market data. The fair value of privately placed fixed income securities is generally based on widely accepted pricing valuation models, which are developed internally. Short-term investments are highly liquid investments with maturities of one year or less whose carrying values are deemed to approximate fair value. The fair value of reinsurance recoverables on investment contracts is based on the fair value of the underlying annuity contract account liabilities, adjusted for credit risk. Separate accounts assets are carried in the Statements of Financial Position at fair value based on observable market prices.
As of December 31, 2007, reserves for variable annuity contracts and secondary guarantee liabilities related to death, income, accumulation and withdrawal benefits were $40 million, $27 million, $306 thousand and $(50) thousand, respectively. As of December 31, 2006, reserves for variable annuity contracts and secondary guarantee liabilities related to death, income, accumulation and withdrawal benefits were $28 million, $33 million, $(1) thousand and $(43) thousand, respectively.
The Company paid income taxes of $4.4 million and $4.8 million in 2007 and 2006, respectively, and received an income tax refund of $38 thousand in 2005.
Statutory net income for 2007, 2006, and 2005 was $9.1 million, $9.1 million and $8.8 million, respectively. Statutory capital and surplus was $282.9 million and $274.4 million as of December 31, 2007 and 2006, respectively.