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 September 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 November 7, 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
September 30, 1997
______________________
(Dollars in thousands)
<S> <C>
REVENUES:
Annuity product charges $1
Net investment income 465
______________________
Total revenues 466
INSURANCE BENEFITS AND EXPENSES:
Annuity benefits:
Interest credited 32
Underwriting, acquisition and insurance expenses:
Commissions 108
General expenses 106
Insurance taxes 2
Policy acquisition costs deferred (94)
Amortization of deferred policy acquisition costs (10)
______________________
144
______________________
322
Income tax expense:
Current 59
Deferred 42
______________________
101
______________________
NET INCOME $221
======================
</TABLE>
See accompanying notes.
Condensed Statement of Income (Unaudited):
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30, 1997
______________________
(Dollars in thousands)
<S> <C>
REVENUES:
Annuity product charges $1
Net investment income 1,302
______________________
Total revenues 1,303
INSURANCE BENEFITS AND EXPENSES:
Annuity benefits:
Interest credited 36
Underwriting, acquisition and insurance expenses:
Commissions 179
General expenses 359
Insurance taxes 11
Policy acquisition costs deferred (196)
Amortization of deferred policy acquisition costs 4
______________________
393
______________________
910
Income tax expense:
Current 230
Deferred 77
______________________
307
______________________
NET INCOME $603
======================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
September 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 - $24,161;
1996 - $24,373) $24,440 $24,220
Short-term investments 908 350
__________________ __________________
Total Investments 25,348 24,570
Cash and cash equivalents 2,066 5
Accrued investment income 427 338
Deferred policy acquisition costs 185 --
Current income taxes recoverable 30 --
Deferred income tax benefit -- 54
Property and equipment, less
allowances for depreciation of
$4 in 1997 56 --
Other assets 3 --
Separate account assets 1,315 --
__________________ __________________
TOTAL ASSETS $29,430 $24,967
================== ==================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
September 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 $2,069
Other liabilities 52 $1
Income taxes payable 172 23
Separate account liabilities 1,315 --
__________________ _________________
TOTAL LIABILITIES 3,608 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 appreciation (depreciation)
of fixed maturities 177 (99)
Retained earnings 645 42
__________________ _________________
TOTAL STOCKHOLDER'S EQUITY 25,822 24,943
__________________ _________________
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $29,430 $24,967
================== =================
</TABLE>
See accompanying notes.
Condensed Statement of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30, 1997
______________________
(Dollars in thousands)
<S> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $445
INVESTING ACTIVITIES
Sales of fixed maturities 201
Short-term investments - net (558)
Purchase of property and equipment (60)
______________________
NET CASH USED IN INVESTMENT ACTIVITIES (417)
FINANCING ACTIVITIES
Receipts from investment contracts credited
to policyholder account balances 2,071
Return of policyholder account balances on
investment contracts (10)
Net reallocations to Separate Account (28)
______________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,033
______________________
INCREASE IN CASH AND CASH EQUIVALENTS 2,061
CASH AND CASH EQUIVALENTS AT BEGINNING 5
OF PERIOD
______________________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,066
======================
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 nine months ended
September 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 September 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, 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 invests 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 September 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
September 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 $4,671 $15 ($6) $4,680
Other 396 2 -- 398
Public utilities 984 13 -- 997
Investment grade corporate 16,047 201 -- 16,248
Below investment grade
corporate 2,063 54 -- 2,117
_______________________________________________
Total $24,161 $285 ($6) $24,440
===============================================
</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
September 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 September 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
September 30, 1997 Cost Value
_____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due after one year through five years $910 $913
Due after five years through ten years 18,580 18,847
_____________________________
19,490 19,760
Mortgage-backed securities 4,671 4,680
_____________________________
Total $24,161 $24,440
=============================
</TABLE>
During the nine months ended September 30, 1997, the amortized cost basis of
the Company's fixed maturity portfolio was reduced by $201,000 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
September 30, 1997 and December 31, 1996. Fixed maturity investments included
investments in basic industrials (33% in 1997 and 1996), financial companies
(25% in 1997 and 1996), various government bonds and government or agency
mortgage-backed securities (21% in 1997, 22% in 1996) and consumer products
(10% in 1997 and 1996).
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 $108,000, in the third quarter
and $179,000 in the first nine 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 -- MERGER
TRANSACTION: On October 23, 1997, Equitable of Iowa Companies ("Equitable")
shareholders approved the Agreement and Plan of Merger ("Merger Agreement")
dated as of July 7, 1997, among Equitable, PFHI Holdings, Inc. ("PFHI"), and
ING Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable pursuant to the
Merger Agreement. PFHI is a wholly-owned subsidiary of ING, a global
financial services holding company based in The Netherlands. Equitable, an
Iowa corporation, in turn, owns all the outstanding capital stock of Equitable
Life Insurance Company of Iowa and Golden American Life Insurance Company and
their wholly-owned subsidiaries. Equitable also owns all the outstanding
capital stock of Locust Street Securities, Inc., Equitable Investment
Services, Inc., Directed Services, Inc., Equitable of Iowa Companies Capital
Trust, Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. In exchange for the outstanding capital stock of
Equitable, ING will pay total consideration of approximately $2,200,000,000 in
cash and stock plus the assumption of approximately $400,000,000 in debt
according to the Merger Agreement. As a result of the merger, Equitable of
Iowa Companies was merged into PFHI which was simultaneously renamed Equitable
of Iowa Companies, Inc.
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 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 $3,341,000 in
variable annuity premiums during the first nine months of 1997.
REVENUES
During the first nine months of 1997, there was $1,000 of annuity product
charges. Net investment income was $1,302,000 for the first nine months of
1997.
EXPENSES
The Company reported total insurance benefits and expenses of $393,000 during
the first nine months of 1997. Interest credited to annuity benefits totaled
$36,000 during the first nine months of 1997. Commissions, general expenses
and insurance taxes were $179,000, $359,000 and $11,000, respectively, for
the first nine months of 1997. First Golden deferred $196,000 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 totaled $4,000 during the first nine
months of 1997.
NET INCOME
Net income was $603,000 for the first nine 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 third
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.
The increase 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 decline in the cost basis of these securities due to
scheduled principal payments.
FIXED MATURITY SECURITIES: At September 30, 1997, the Company had fixed
maturities with an amortized cost of $24,161,000 and an estimated fair value
of $24,440,000. 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
($22,098,000 or 91.5%), and below investment grade securities BB+ to BB-
($2,063,000 or 8.5%).
The Company classifies 100% of its securities as available for sale. At
September 30, 1997, fixed income securities with an amortized cost of
$24,161,000 and an estimated fair value of $24,440,000 were designated as
available for sale. Net unrealized appreciation on fixed maturity securities
of $279,000 was comprised of gross appreciation of $285,000 and gross
depreciation of $6,000. Net unrealized holding losses on these securities,
net of adjustments to deferred policy acquisition costs and deferred income
taxes, increased stockholder's equity by $177,000 at September 30, 1997.
At September 30, 1997, the amortized cost value of the Company's total
investment in below investment grade securities was $2,063,000, or 7.6%, 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 September 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 $2,117,000, or 102.6% of amortized cost value, at September 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 nine months ended September 30, 1997, the amortized cost basis of
the Company's fixed maturity portfolio was reduced by $201,000 as a result of
scheduled principal repayments.
At September 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 6.8%
at September 30, 1997.
OTHER ASSETS
Accrued investment income increased $89,000 during the first nine months of
1997. Deferred policy acquisition costs ("DPAC") were $185,000 at September
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 September 30, 1997, the Company had $1,315,000 of separate account assets.
At September 30, 1997, the Company had total assets of $29,430,000, an
increase of 17.9% over total assets at December 31, 1996.
LIABILITIES
At September 30, 1997, future policy benefits of $2,069,000 were established
utilizing the retrospective deposit accounting method. Policy reserves
represent the premiums received plus accumulated interest less mortality and
administration charges.
At September 30, 1997, the Company had $1,315,000 of separate account
liabilities.
The Company's total liabilities increased $3,584,000, or 15,562.3%, during
the first nine months of 1997 and totaled $3,608,000 at September 30, 1997.
The increase is primarily the result of an increase in future policy benefits,
separate account liabilities, income taxes payable 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 affiliate
who will incur the related costs.
MERGER
On October 23, 1997, Equitable of Iowa Companies ("Equitable") shareholders
approved the Agreement and Plan of Merger ("Merger Agreement") dated as of
July 7, 1996, between Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep
N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired
all of the outstanding capital stock of Equitable pursuant to the Merger
Agreement. PFHI is a wholly-owned subsidiary of ING, a global financial
services holding company based in The Netherlands. Equitable, an Iowa
corporation, in turn, owns all the outstanding capital stock of Equitable
Life Insurance Company of Iowa and Golden American Life Insurance Company and
their wholly-owned subsidiaries. Equitable also owns all the outstanding
capital stock of Locust Street Securities, Inc., Equitable Investment
Services, Inc., Directed Services, Inc., Equitable of Iowa Companies Capital
Trust, Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. In exchange for the outstanding capital stock of
Equitable, ING will pay total consideration of approximately $2,200,000,000
in cash and stock plus the assumption of approximately $400,000,000 in debt
according to the Merger Agreement. As a result of the merger, Equitable of
Iowa Companies was merged into PFHI which was simultaneously renamed Equitable
of Iowa Companies, Inc.
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 and its subsidiaries as of the date of the merger. The excess of
the total acquisition cost over the fair value of the new 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: November 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
Nine Months ended September 30, 1997
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
2 PLAN OF ACQUISITION
(a) Agreement and Plan of Merger dated July 7, 1997, among ING Groep
N.V.,PFHI Holdings, Inc., and Equitable (incorporated by reference
from Exhibit 2 in Equitable's Form 8-K filed July 11, 1997
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of First Golden American Life Insurance
Company of New York ("Registrant")(incorporated by reference from
Exhibit 3(i) to Amendment No. 1 to Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission ("the SEC") on or about March 18, 1997
(File No. 333-16279))
(b) By-laws of First Golden American Life Insurance Company of New York
(incorporated by reference from Exhibit 3(ii) to Amendment No. 1 to
Registrant's Registration Statement on Form S-1 filed with the SEC
on or about 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 Exhibit 4(a) to Amendment No. 1 to
Registrant's Registration Statement on Form S-1 filed with the SEC
on or about March 18, 1997 (File No. 333-16279))
(b) Individual Deferred Combination Variable and Fixed Annuity
Application (incorporated by reference from Exhibit 4(b) to
Amendment No. 1 to Registrant's Registration Statement on Form S-1
filed with the SEC on or about 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 Exhibit 10(a) to Amendment
No. 1 to Registrant's Registration Statement on Form S-1 filed with
the SEC on or about 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
Exhibit 10(b) to Amendment No. 1 to Registrant's Registration
Statement on Form S-1 filed with the SEC on or about 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 Exhibit
10(c) to Amendment No. 1 to Registrant's Registration Statement on
Form S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
(d) Form of Custodial Agreement between Registrant and The Bank of New
York (incorporated by reference from Exhibit 10(d) to Amendment
No. 1 to Registrant's Registration Statement on Form S-1 filed with
the SEC on or about March 18, 1997 (File No. 333-16279))
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1997
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
(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 Exhibit 10(e) to Amendment
No. 1 to Registrant's Registration Statement on Form S-1 filed with
the SEC on or about 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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