SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=========
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 333-16279
First Golden American Life Insurance Company of New York
(Exact name of registrant as specified in its charter)
New York 13-3919096
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
230 Park Avenue, Suite 966, New York, New York 10169-0999
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 973-9647
__________________________________________________________________________
Former name, former address and formal fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 200,000 shares of
Common Stock as of August 1, 1997.
NOTE: WHEREAS FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1)(a) AND (b) OF FORM 10Q,
THIS FORM IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT.
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Person for whom the Financial Information is given: First Golden American
Life Insurance Company
of New York
Condensed Statement of Income (Unaudited):
<TABLE>
<CAPTION>
For the Three
Months Ended
June 30, 1997
______________________
(Dollars in thousands)
<S> <C>
REVENUES:
Net investment income (net of expenses of $21) $415
______________________
Total revenues 415
INSURANCE BENEFITS AND EXPENSES:
Annuity benefits:
Interest credited 4
Underwriting, acquisition and insurance expenses:
Commissions 71
General expenses 199
Insurance taxes 9
Policy acquisition costs deferred (102)
Amortization of deferred policy acquisition costs 14
______________________
195
______________________
220
Income tax expense:
Current 44
Deferred 33
______________________
77
______________________
NET INCOME $143
======================
</TABLE>
See accompanying notes.
Condensed Statement of Income (Unaudited):
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30, 1997
______________________
(Dollars in thousands)
<S> <C>
REVENUES:
Net investment income (net of expenses of $32) $837
______________________
Total revenues 837
INSURANCE BENEFITS AND EXPENSES:
Annuity benefits:
Interest credited 4
Underwriting, acquisition and insurance expenses:
Commissions 71
General expenses 253
Insurance taxes 9
Policy acquisition costs deferred (102)
Amortization of deferred policy acquisition costs 14
______________________
249
______________________
588
Income tax expense:
Current 171
Deferred 35
______________________
206
______________________
NET INCOME $382
======================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
_____________ __________________
(Dollars in thousands,
except per share data)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (cost: 1997 - $24,247;
1996 - $24,373) $24,010 $24,220
Short-term investments 656 350
_____________ __________________
Total Investments 24,666 24,570
Cash and cash equivalents 1,373 5
Accrued investment income 347 338
Deferred policy acquisition costs 88 --
Current income taxes recoverable 89 --
Deferred income tax benefit 48 54
Property and equipment, less
allowances for depreciation
of $2 in 1997 69 --
Other assets 28 --
Separate account assets 72 --
_____________ __________________
TOTAL ASSETS $26,780 $24,967
============= ==================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
_____________ __________________
(Dollars in thousands,
except per share data)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liablities and accruals:
Future policy benefits:
Annuity products $1,379
Other liabilities 59 $1
Income taxes payable -- 23
Separate account liabilities 72 --
_____________ __________________
TOTAL LIABILITIES 1,510 24
Commitments and contingencies
Stockholder's equity:
Preferred stock, par value $5,000 per share,
authorized 6,000 shares -- --
Common stock, par value $10 per share,
authorized, issued and outstanding 200,000 2,000 2,000
Additional paid-in capital 23,000 23,000
Unrealized depreciation of fixed maturities (154) (99)
Retained earnings 424 42
_____________ __________________
TOTAL STOCKHOLDER'S EQUITY 25,270 24,943
_____________ __________________
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $26,780 $24,967
============= ==================
</TABLE>
See accompanying notes.
Condensed Statement of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30, 1997
______________________
(Dollars in thousands)
<S> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $251
INVESTING ACTIVITIES
Sales of fixed maturities 119
Short-term investments - net (306)
Purchase of property and equipment (71)
______________________
NET CASH USED IN INVESTMENT ACTIVITIES (258)
FINANCING ACTIVITIES
Receipts from investment contracts credited
to policyholder account balances 1,378
Net reallocations to Separate Account (3)
______________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,375
______________________
INCREASE IN CASH AND CASH EQUIVALENTS 1,368
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5
______________________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,373
======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes $283
</TABLE>
See accompanying notes.
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This form is being filed with the reduced disclosure format
specified in General Instruction H (1)(a) and (b) of Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. All adjustments were of a normal recurring
nature, unless otherwise noted in Management's Discussion and Analysis and
the Notes to Financial Statements. Operating results for the six months
ended June 30, 1997, are not necessarily indicative of the results that may
be expected for periods reported at December 31, 1997.
ORGANIZATION
First Golden American Life Insurance Company of New York ("First Golden or
the "Company"), a wholly-owned subsidiary of Golden American Life Insurance
Company ("Golden American" or the "Parent"), was incorporated on May 24,
1996. Golden American is a wholly-owned subsidiary of Equitable of Iowa
Companies. On December 17, 1996, Golden American provided capitalization in
the amount of $25,000,000 to First Golden. First Golden commenced investment
operations on December 17, 1996, and on January 2, 1997, First Golden became
licensed as a life insurance company under the laws of the State of New York.
First Golden received policy approvals on March 25, 1997 in the State of New
York. See Note 4 for further information regarding related party
transactions.
ACCOUNTING POLICIES
INVESTMENTS: The Company accounts for its investments under the Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Pursuant to SFAS No. 115, fixed
maturity securities are designated as either "available for sale", "held for
investment" or "trading". Sales of fixed maturities designated as "available
for sale" are not restricted by SFAS No. 115. Available for sale securities
are reported at fair value and unrealized gains and losses on these securities
are included directly in stockholder's equity after adjustment for related
changes in deferred policy acquisition costs, policy reserves and deferred
income taxes.
At June 30, 1997 and December 31, 1996, all of the Company's fixed maturity
securities are designated as available for sale although the Company is not
precluded from designating fixed maturity securities as held for investment
or trading at some future date. Securities that the company has the positive
intent and ability to hold to maturity are designated as "held for
investment". Held for investment securities are reported at cost adjusted
for amortization of premiums and discounts. Changes in the fair value of
these securities, except for declines that are other than temporary, are not
reflected in the Company's financial statements. Sales of securities
designated as held for investment are severely restricted by SFAS No. 115.
Securities that are bought and held principally for the purpose of selling
them in the near term are designated as trading securities. Unrealized gains
and losses on trading securities are included in current earnings. Transfers
of securities between categories are restricted and are recorded at fair
value at the time of the transfer. Securities that are determined to have a
decline in value that is other than temporary are written down to estimated
fair value which becomes the security's new cost basis by a charge to
realized losses in the Company's statement of income. Premiums and discounts
are amortized/accrued utilizing the scientific interest method which results
in a constant yield over the security's expected life. Amortization/accrual
of premiums and discounts on mortgage-backed securities incorporates a
prepayment assumption to estimate the securities' expected lives.
Short-term investments are carried at cost, adjusted for amortization of
premiums and accrual of discounts.
FAIR VALUES: Estimated fair values, as reported herein, of publicly-traded
fixed maturity securities are as reported by an independent pricing service.
Fair values of conventional mortgage-backed securities not actively traded in
a liquid market are estimated using a third-party pricing system. This
pricing system uses a matrix calculation assuming a spread over U.S. Treasury
bonds based upon the expected average lives of the securities. Fair values
of private placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Realized gains and losses are determined on the basis of
specific identification and average cost methods for manager initiated and
issuer initiated disposals, respectively.
CASH AND CASH EQUIVALENTS: For purposes of the statement of cash flows, the
Company considers all demand deposits and interest-bearing accounts not
related to the investment function to be cash equivalents. All interest-
bearing accounts classified as cash equivalents have original maturities of
three months or less.
DEFERRED POLICY ACQUISITION COSTS: Certain costs of acquiring new insurance
business, principally commissions and other expenses related to the
production of new business, have been deferred. Acquisition costs for
variable annuity products are being amortized generally in proportion to the
present value (using the assumed crediting rate) of expected future gross
profits. This amortization is adjusted retrospectively, or "unlocked", when
the Company revises its estimate of current or future gross profits to be
realized from a group of products. Deferred policy acquisition costs are
adjusted to reflect the pro forma impact of unrealized gains and losses on
fixed maturity securities the Company has designated as "available for sale"
under SFAS No. 115.
PROPERTY AND EQUIPMENT: Property and equipment, primarily office furniture
and equipment, are not considered to be significant to the Company's overall
operations. Property and equipment are reported at cost less allowances for
depreciation. Depreciation expense is computed primarily on the basis of the
straight-line method over the estimated useful lives of the assets.
FUTURE POLICY BENEFITS: Future policy benefits for fixed interest divisions
of the variable products are established utilizing the retrospective deposit
accounting method. Policy reserves represent the premiums received plus
accumulated interest, less mortality and administration charges.
SEPARATE ACCOUNT: Assets and liabilities of the separate account reported in
the accompanying balance sheets represent funds that are separately
administered principally for variable annuity contracts. Contractholders,
rather than the Company, bear the investment risk for variable products. At
the direction of the contractholders, the separate account invest the
premiums from the sale of variable annuity products in shares of specified
mutual funds. The assets and liabilities of the separate account are clearly
identified and segregated from other assets and liabilities of the Company.
The portion of the separate account assets applicable to variable annuity
contracts cannot be charged with liabilities arising out of any other
business the Company may conduct.
Variable separate account assets carried at fair value of the underlying
investments generally represent contractholder investment values maintained
in the accounts. Variable separate account liabilities represent account
balances for the variable annuity contracts invested in the separate account.
Net investment income and realized and unrealized capital gains and losses
related to separate account assets are not reflected in the accompanying
Condensed Statement of Income.
Product charges recorded by the Company from variable annuity products
consist of charges applicable to each contract for mortality and expense
risk, contract administration and surrender charges.
DEFERRED INCOME TAXES: Deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. Deferred tax
assets or liabilities are adjusted to reflect the pro-forma impact of
unrealized gains and losses on fixed maturity securities the Company has
designated as available for sale under SFAS No. 115. Changes in deferred tax
assets or liabilities resulting from this SFAS No. 115 adjustment are charged
or credited directly to stockholder's equity. Deferred income tax expenses
or credits reflected in the Company's Statement of Income are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
USE OF ESTIMATES: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 2 -- INVESTMENTS
INVESTMENT RESULTS
At June 30, 1997 and December 31, 1996, amortized cost, gross unrealized
gains and losses and estimated fair values of the Company's fixed maturity
securities, all of which are designated as available for sale, are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 30, 1997 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $4,752 ($60) $4,692
Other 396 (4) 392
Public utilities 984 (13) 971
Investment grade corporate 16,047 (173) 15,874
Below investment grade
corporate 2,068 $21 (8) 2,081
_______________________________________________
Total $24,247 $21 ($258) $24,010
===============================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $4,870 $1 ($36) $4,835
Other 396 -- (2) 394
Public utilities 983 -- (5) 978
Investment grade corporate 16,046 -- (120) 15,926
Below investment grade
corporate 2,078 15 (6) 2,087
_______________________________________________
Total $24,373 $16 ($169) $24,220
===============================================
</TABLE>
No fixed maturity securities were designated as held for investment at June
30, 1997 or December 31, 1996. Short-term investments with maturities of 30
days or less have been excluded from the above schedules. Amortized cost
approximates fair values for these securities.
Amortized cost and estimated fair value of fixed maturity securities
designated as available for sale, by contractual maturity, at June 30, 1997,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
June 30, 1997 Cost Value
_____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due after one year through five years $913 $908
Due after five years through ten years 18,582 18,410
_____________________________
19,495 19,318
Mortgage-backed securities 4,752 4,692
_____________________________
Total $24,247 $24,010
=============================
</TABLE>
During the six months ended June 30, 1997, the amortized cost basis of the
Company's fixed maturity portfolio was reduced by $119,000 as a result of
scheduled principal repayments.
INVESTMENT DIVERSIFICATIONS: The Company's investment policies related to
its investment portfolio require diversification by asset type, company and
industry and sets limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at June
30, 1997 and December 31, 1996. Fixed maturity investments included
investments in basic industrials (33%), financial companies (25%), various
government bonds and government or agency mortgage-backed securities (21% in
1997, 22% in 1996) and consumer products (10%).
NOTE 3 -- STOCKHOLDER'S EQUITY
First Golden is required to maintain a minimum total statutory-basis capital
and surplus of not less than $4,000,000 under the provisions of the insurance
laws of the State of New York in which it became licensed to sell life,
annuities and accident and health insurance on January 2, 1997. First
Golden's purpose is to sell insurance products in the State of New York.
First Golden received policy approvals to sell variable annuities in the
State of New York on March 25, 1997.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder unless a notice of
its intention to declare a dividend and the amount of the dividend has been
filed not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
the Company within thirty days after the filing should the superintendent
find that the financial condition of the Company does not warrant the
distribution.
NOTE 4 -- RELATED PARTY TRANSACTION
On December 17, 1996, Golden American contributed $25,000,000 to First
Golden, $2,000,000 in common stock (200,000 shares at $10 per share) and
$23,000,000 of additional capital.
All expenses related to the incorporation and licensing of First Golden
were incurred by its Parent.
The Company has service agreements with Golden American and Equitable Life
Insurance Company of Iowa ("Equitable Life", a wholly-owned subsidiary of
Equitable of Iowa Companies) in which Golden American and Equitable Life will
provide administrative and financial related services.
The Company has a service agreement with Directed Services, Inc. ("DSI", a
wholly-owned subsidiary of Equitable of Iowa Companies) under which it will
provide certain administrative services to DSI relating to customer accounts.
First Golden paid commissions to DSI totaling $71,000, in the second quarter
and first six months of 1997.
The Golden American board of directors has agreed by resolution to provide
funds as needed for the Company to maintain policyholders' surplus that meets
or exceeds the greater of: (1) the minimum capital adequacy standards to
maintain a level of capitalization necessary to meet A.M. Best Company's
guidelines or one level less than the one actually given to First Golden, or
(2) the New York State Insurance Department risk-based capital minimum
requirements as determined in accordance with New York statutory accounting
principles. No funds were transferred from Golden American in 1997.
NOTE 5 -- PENDING MERGER
On July 7, 1997, Equitable of Iowa Companies signed a definitive agreement
and plan of merger under which it will merge into PFHI Holdings, Inc., a
Delaware corporation, and will become a wholly-owned subsidiary of the ING
Groep N.V., a global financial services holding company based in The
Netherlands. Total consideration is approximately $2,200,000,000 in cash and
stock plus the assumption of approximately $400,000,000 in debt. The
transaction, which is subject to customary closing conditions and regulatory
approvals, is expected to close in the fourth quarter of 1997.
ACCOUNTING TREATMENT: The merger will be accounted for as a purchase
resulting in a new basis of accounting, reflecting estimated fair values for
assets and liabilities for Equitable of Iowa Companies and its subsidiaries
as of the date of the merger. The excess of the total acquisition cost over
the fair value of the net assets acquired will be recorded as goodwill.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
LITIGATION: The Company is not involved in any legal proceeding as of the
date of this report.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's condensed
results of operations. In addition, some analysis and information regarding
financial condition and liquidity and capital resources has also been
provided. This analysis should be read in conjunction with the condensed
financial statements and related notes which appear elsewhere in this report.
First Golden American Life Insurance Company of New York ("First Golden", or
the "Company"), a wholly-owned subsidiary of Golden American Life Insurance
Company ("Golden American" or the "Parent"), was incorporated on May 24,
1996. Golden American is a wholly-owned subsidiary of Equitable of Iowa
Companies. Equitable of Iowa Companies is a holding company for Equitable
Life Insurance Company of Iowa, USG Annuity & Life Company, Locust Street
Securities, Inc., Equitable of Iowa Securities Network, Inc., Equitable
American Insurance Company, Equitable Investment Services, Inc., Directed
Services, Inc. ("DSI") and Golden American. First Golden's primary purpose
is to offer insurance products in the State of New York. On January 2, 1997,
First Golden became licensed as a life insurance company in the State of New
York. First Golden is authorized to do business only in the State of New
York.
RESULTS OF OPERATIONS
_____________________
PREMIUMS
On March 25, 1997, First Golden received policy approvals in the State of New
York and began selling annuity products. The Company reported $1,444,000 in
variable annuity premiums during the second quarter.
REVENUES
Net investment income was $837,000 for the first six months of 1997.
EXPENSES
The Company reported total insurance benefits and expenses of $249,000 during
the first six months of 1997. Interest credited to annuity benefits was
$4,000 during the second quarter of 1997. General expenses were $253,000 for
the first six months of 1997. First Golden deferred $102,000 of expenses
associated with the sale of variable annuity contracts. These acquisition
costs are amortized in proportion to the expected gross profits.
Amortization of deferred policy acquisition costs was $14,000 during the
second quarter of 1997. Commissions and insurance taxes during the second
quarter were $71,000 and $9,000, respectively.
NET INCOME
Net income was $382,000 for the first six months of 1997.
FINANCIAL CONDITION
___________________
INVESTMENTS
First Golden's assets are invested in accordance with applicable New York
laws. These laws govern the nature and the quality of investments that may
be made by life insurance companies and the percentage of their assets that
may be committed to any particular type of investment. In general, these
laws permit investments, within specified limits subject to certain
qualifications, in federal, state, and municipal obligations, corporate
bonds, preferred or common stocks, real estate mortgages, real estate and
certain other investments.
First Golden purchases investments in accordance with investment guidelines
that take into account investment quality, liquidity and diversification, and
invests primarily in investment grade securities. All of First Golden's
assets except for variable separate account assets are available to meet its
obligations under the Contracts.
The Company's total investment portfolio remained stable during the second
quarter of 1997 compared to December 31, 1996. All of the Company's
investments are carried at fair value in the Company's financial statements.
As such, the decline in the carrying value of the Company's investment
portfolio included changes in unrealized appreciation and depreciation of
fixed maturity securities as well as a slight decline in the cost basis of
these securities due to scheduled principal payments.
FIXED MATURITY SECURITIES: At June 30, 1997, the Company had fixed
maturities with an amortized cost of $24,247,000 and a market value of
$24,010,000. The ratings assigned by Standard & Poor's Corporation
("Standard & Poor's") to the individual securities in the Company's fixed
maturities portfolio (shown at amortized cost) include investment grade
securities comprising U.S. governments, agencies and AAA to BBB- corporates
($22,179,000 or 91.5%), and below investment grade securities BB+ to BB-
($2,068,000 or 8.5%).
The Company classifies 100% of its securities as available for sale. At June
30, 1997, fixed income securities with an amortized cost of $24,247,000 and
an estimated fair value of $24,010,000 were designated as available for sale.
Net unrealized depreciation on fixed maturity securities of $237,000 was
comprised of gross appreciation of $21,000 and gross depreciation of
$258,000. Net unrealized holding losses on these securities, net of
adjustments to deferred policy acquisition costs and deferred income taxes,
decreased stockholder's equity by $154,000 at June 30, 1997.
At June 30, 1997, the amortized cost value of the Company's total investment
in below investment grade securities was $2,068,000, or 7.9%, of the
Company's investment portfolio. The Company intends to purchase additional
below investment grade securities, but it does not expect the percentage of
its portfolio invested in below investment grade securities to exceed 10% of
its investment portfolio. At June 30, 1997, the yield at amortized cost on
the Company's below investment grade portfolio was 8.3% compared to 6.9% for
the Company's investment grade corporate bond portfolio. The Company
estimates the fair value of its below investment grade portfolio was
$2,081,000, or 100.6% of amortized cost value, at June 30, 1997.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other
creditors of the issuer. Also, issuers of below investment grade securities
usually have higher levels of debt and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are
investment grade issuers. The Company attempts to reduce the overall risk in
its below investment grade portfolio, as in all of its investments, through
careful credit analysis, strict investment policy guidelines, and
diversification by company and by industry.
The Company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability to
realize its carrying value on any investment has been impaired. For debt
securities, if impairment in value is determined to be other than temporary
(i.e. if it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the security), the cost
basis of the impaired security is written down to fair value, which becomes
the security's new cost basis. The amount of the write-down is included in
earnings as a realized loss. Future events may occur, or additional or
updated information may be received, which may necessitate future write-downs
of securities in the Company's portfolio. Significant write-downs in the
carrying value of investments could materially adversely affect the Company's
net income in future periods.
During the six months ended June 30, 1997, the amortized cost basis of the
Company's fixed maturity portfolio was reduced by $119,000 as a result of
scheduled principal repayments.
At June 30, 1997, no fixed maturity securities were deemed to have
impairments in value that are other than temporary. The Company's fixed
maturity investment portfolio had a combined yield at amortized cost of 6.9%
at June 30, 1997.
OTHER ASSETS
Accrued investment income increased $9,000 during the first six months of
1997. Deferred policy acquisition costs ("DPAC") were $88,000 at June 30,
1997. DPAC represents certain deferred costs of acquiring new insurance
business, principally commissions and other expenses related to the
production of new business. These costs are amortized generally in
proportion to the present value (using the assumed crediting rate) of
expected gross profits.
At June 30, 1997, the Company had $72,000 of separate account assets. At
June 30, 1997, the Company had total assets of $26,780,000, an increase of
7.3% over total assets at December 31, 1996.
LIABILITIES
At June 30, 1997, future policy benefits of $1,379,000 were established
utilizing the retrospective deposit accounting method. Policy reserves
represent the premiums received plus accumulated interest less mortality and
administration charges.
At June 30, 1997, the Company had $72,000 of separate account liabilities.
The Company's total liabilities increased $1,486,000, or 6,452.6%, during the
first six months of 1997 and totaled $1,510,000 at June 30, 1997. The
increase is primarily the result of an increase in future policy benefits,
separate account liabilities and other liabilities. Liabilities will
continue to show significant growth as the Company increases its sales of
variable annuities.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The liquidity requirements of the Company are met by cash flow from
investment income. The Company primarily uses funds for the payment of
annuity benefits, commissions, operating expenses and the purchase of new
investments. Additional sources of future cash flows will include maturities
of fixed maturity investments.
First Golden's principal office is located at 230 Park Avenue, Suite 966, New
York, New York 10169, where certain of the Company's records are maintained.
The 2,568 square feet of office space is leased for a five year term.
On December 17, 1996, Golden American made capital contributions to First
Golden of $25,000,000. Of this amount, $2,000,000 represented 200,000 shares
of common stock with a par value of $10.00 per share. The remaining
$23,000,000 was contributed as additional paid-in capital. First Golden
believes it will be able to fund the capital and surplus required for
projected new business from existing statutory capital and surplus as well as
future surplus contributions from its Parent. First Golden expects to
continue to receive capital contributions from Golden American if necessary.
The Golden American board of directors has agreed by resolution to provide
funds as needed for the Company to maintain policyholders' surplus that meets
or exceeds the greater of: (1) the minimum capital adequacy standards to
maintain a level of capitalization necessary to meet A.M. Best Company's
guidelines or one level less than the one actually given to First Golden, or
(2) the New York State Insurance Department risk-based capital minimum
requirements as determined in accordance with New York statutory accounting
principles. No funds were transferred from Golden American in 1997.
First Golden is required to maintain a minimum capital and surplus of not
less than $4,000,000 under the provisions of the insurance laws of the State
of New York in which it became licensed to sell insurance products on January
2, 1997.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder unless a notice of
its intention to declare a dividend and the amount of the dividend has been
filed not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
the Company within thirty days after the filing should the superintendent
find that the financial condition of the Company does not warrant the
distribution.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify
inadequately capitalized insurance companies based upon the type and mixture
of risks inherent in the Company's operations. The formula includes
components for asset risk, liability risk, interest rate exposure and other
factors. As its insurance license was approved on January 2, 1997, the
Company intends to comply with these requirements in 1997 and expects its
total adjusted capital to exceed levels which require regulatory action.
SEGMENT INFORMATION
First Golden's operations will consist of one business segment, the sale of
insurance products. First Golden anticipates it will not be dependent upon
any single customer but anticipates three broker/dealers will account for a
significant portion of its sales volume in 1997. All premiums will be
received from consumers in the State of New York.
REINSURANCE
The Company intends to reinsure its mortality risk associated with the
contract's guaranteed death benefit with one or more appropriately licensed
insurance companies.
YEAR 2000 PROJECT
The Company has studied its computer software and hardware to determine its
exposure to the change of the century date issue (year 2000 date problem).
The only system affected by this issue is a system maintained by an
affiliated subsidiary who will incur the related costs.
PENDING MERGER
On July 7, 1997, Equitable of Iowa Companies signed a definitive agreement
and plan of merger under which it will merge into PFHI Holdings, Inc., a
Delaware corporation, and will become a wholly-owned subsidiary of the ING
Groep N.V., a global financial services holding company based in The
Netherlands. Total consideration is approximately $2,200,000,000 in cash and
stock plus the assumption of approximately $400,000,000 in debt. The
transaction, which is subject to customary closing conditions and regulatory
approvals, is expected to close during the fourth quarter of 1997.
The merger will be accounted for as a purchase resulting in a new basis of
accounting, reflecting estimated fair values for assets and liabilities for
Equitable of Iowa Companies and its subsidiaries as of the date of the
merger. The excess of the total acquisition cost over the fair value of the
net assets acquired will be recorded as goodwill.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statements contained herein or in any other oral or
written statement by the Company or any of its officers, directors or
employees is qualified by the fact that actual results of the Company may
differ materially from such statement due to the following important factors,
among other risks and uncertainties inherent in the Company's business:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Company to sell its products, the market value
of the Company's investments and the lapse rate of the Company's
policies, notwithstanding product design features intended to enhance
persistency of the Company's products.
2. Changes in the federal income tax laws and regulations which may affect
the relative tax advantages of the Company's products.
3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Company's products.
4. Increasing competition in the sale of the Company's products.
5. Other factors affecting the performance of the Company, including, but
not limited to, market conduct claims and other litigation, insurance
industry insolvencies, investment performance of the underlying
portfolios of the variable products, variable product design and sales
volume by significant sellers of the Company's variable products.
PART II. OTHER INFORMATION
Items 2-4. CHANGES IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES AND
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information called for by items 2 through 4 of this part is
omitted pursuant to General Instruction H (2)(b) of Form 10-Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth
in the Exhibit Index which immediately precedes such exhibits
and is hereby incorporated by reference herein.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
DATE: August 13, 1997 FIRST GOLDEN AMERICAN LIFE INSURANCE
COMPANY OF NEW YORK
By/s/ Mary Bea Wilkinson
_________________________________
Senior Vice President and Treasurer
(Chief Financial Officer)
By/s/ David A. Terwilliger
_________________________________
Assistant Treasurer
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1997
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of First Golden American Life Insurance
Company of New York (incorporated by reference from the
registrant's exhibit 3(i) to Form S-1 Amendment No. 1 dated March
18, 1997 (File No. 333-16279))
(b) By-laws of First Golden American Life Insurance Company of New York
(incorporated by reference from the registrant's exhibit 3(ii) to
Form S-1 Amendment No. 1 dated March 18, 1997 (File No. 333-16279))
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity Contract
(incorporated by reference from the registrant's exhibit 4(a) to
Form S-1 Amendment No. 1 dated March 18, 1997 (File No. 333-16279))
(b) Individual Deferred Combination Variable and Fixed Annuity
Application (incorporated by reference from the registrant's
exhibit 4(b) to Form S-1 Amendment No. 1 dated March 18, 1997
(File No. 333-16279))
10 MATERIAL CONTRACTS
(a) Services Agreement, dated November 8, 1996, between Directed
Services, Inc. and First Golden American Life Insurance Company of
New York (incorporated by reference from the registrant's exhibit
10(a) to Form S-1 Amendment No. 1 dated March 18, 1997
(File No. 333-16279))
(b) Administrative Services Agreement, dated November 8, 1996, between
First Golden American Life Insurance Company of New York and Golden
American Life Insurance Company (incorporated by reference from the
registrant's exhibit 10(b) to Form S-1 Amendment No. 1 dated March
18, 1997 (File No. 333-16279))
(c) Form of Administrative Services Agreement between First Golden
American Life Insurance Company of New York and Equitable Life
Insurance Company of Iowa (incorporated by reference from the
registrant's exhibit 10(c) to Form S-1 Amendment No. 1 dated March
18, 1997 (File No. 333-16279))
(d) Form of Custodial Agreement between Registrant and The Bank of New
York (incorporated by reference from the registrant's exhibit 10(d)
to Form S-1 Amendment No. 1 dated March 18, 1997
(File No. 333-16279))
(e) Form of Participation Agreement between: Depositor and the
Travelers Series Fund Inc.; Depositor and the Smith Barney Series
Fund Inc.; Depositor and the Smith Barney Concert Allocation Series
Inc. (incorporated by reference from the registrant's exhibit 10(e)
to Form S-1 Amendment No. 1 dated March 18, 1997
(File No. 333-16279))
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING ONLY)
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
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<PERIOD-START> JAN-01-1997
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