FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period June 30, 1998
ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period to
from
Commission file number
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (Exact name
of registrant as specified in its charter)
New York 93-1225432
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
125 Wolf Road, Albany, New York 12205 (Address
of principal executive offices)
(Zip Code)
[518] 437-1816
(Registrant's telephone number, including area code)
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
As of June 30, 1998, 2,500 shares of the registrant's common stock were
outstanding, all of which were owned by the registrant's parent company.
NOTE: This Form 10-Q is filed by the registrant only as a consequence of
the sale by the registrant of a market value adjusted annuity product.
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TABLE OF CONTENTS
Page
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Statements of Income 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceeding 9
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 10
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
- -------------------------------------------------------------------------------
(Unaudited) Three Period Six Months
Months From
Ended April 4, Ended
1997
June 30, [Inception] June 30,
to
1998 June 30, 1998
1997
----------- ----------- -----------
REVENUES:
Premium and fee income $ 31 $ $ 55
Net investment income 713 77 798
Realized (losses) on investments (16) (16)
----------- ----------- -----------
728 77 837
----------- ----------- -----------
BENEFITS AND EXPENSES:
Life & other policy benefits 45 45
Interest paid or credited to 91 92
contractholders
General and administrative expenses 39 13 129
----------- ----------- -----------
175 13 266
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 553 64 571
PROVISION FOR INCOME TAXES:
Current 1,212 22 1,239
Deferred (979) (998)
----------- ----------- -----------
233 22 241
----------- ----------- -----------
NET INCOME $ 320 $ 42 $ 330
=========== =========== ===========
See notes to financial statements.
-3-
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
June 30, December
31,
ASSETS 1998 1997
- ------
------------ ------------
(Unaudited)
INVESTMENTS:
Fixed maturities, available-for-sale, at fair $ 54,206 $ 4,995
value
(amortized cost $53,598 and $4,987)
Short-term investments, available-for-sale 18,345 386
(cost approximates fair value)
------------ ------------
Total Investments 72,551 5,381
Cash 5,299 1,648
Deferred policy acquisition costs 610
Investment income due and accrued 333 24
Due from Parent Corporation 65
Other assets 10 6
Deferred income taxes 922 50
Separate account assets 18,061 9,045
------------ ------------
TOTAL ASSETS $ 97,851 $ 16,154
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 50,150 $ 84
Policy and contract claims 45
GENERAL LIABILITIES:
Due to Parent Corporation 155
Other liabilities 13,894 332
Separate account liabilities 18,061 9,045
------------ ------------
Total Liabilities 82,150 9,616
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value,
2,500 shares authorized, issued and 2,500 2,500
outstanding
Additional paid-in capital 12,600 4,000
Accumulated other comprehensive income 238 5
Retained earnings 363 33
------------ ------------
Total Stockholder's Equity 15,701 6,538
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 97,851 $ 16,154
============ ============
See notes to financial statements.
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<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
(Unaudited) Six Months Period
From
Ended April 4,
1997
June 30, [Inception]
to
1998 June 30,
1997
----------- -----------
OPERATING ACTIVITIES:
Net income $ 330 $ 42
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investments (16) (5)
Realized losses on disposal of investments 16
Deferred income taxes (997)
Changes in assets and liabilities:
Accrued interest and other receivables (309) (23)
Life insurance and annuity reserves 137
Other, net 12,713 23
----------- -----------
Net cash provided by operating 11,874 37
activities
----------- -----------
INVESTING ACTIVITIES:
Proceeds from maturities and redemptions of fixed
maturity
investments available-for-sale 67,973
Purchases of fixed maturity investments (134,550) (4,968)
available-for-sale
----------- -----------
Net cash used in investing activities (66,577) (4,968)
----------- -----------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 49,974
Due to Parent Corporation (220) 15
Capital contributions 8,600 6,000
----------- -----------
Net cash provided by financing 58,354 6,015
activities
----------- -----------
NET INCREASE IN CASH 3,651 1,084
CASH, BEGINNING OF YEAR 1,648 0
----------- -----------
CASH, END OF PERIOD $ 5,299 $ 1,084
=========== ===========
See notes to financial statements.
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<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(Amounts in Thousands)
(Unaudited)
1. GENERAL
First Great-West Life & Annuity Insurance Company (the Company) is a
wholly-owned subsidiary of Great-West Life & Annuity Insurance Company
(the Parent Corporation). The Company was incorporated as a stock life
insurance company in the State of New York and was capitalized on April 4,
1997. The Company was licensed as an insurance company in the State of New
York on May 28, 1997.
The financial statements and related notes of First Great-West Life &
Annuity Insurance Company (the Company) have been prepared in accordance
with generally accepted accounting principles applicable to interim
financial reporting and do not include all of the information and
footnotes required for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1997. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
On June 19, 1998 the Company received an additional paid-in-capital
contribution of $8,600.
2. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
This Statement establishes new rules for reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or shareholders'
equity. This Statement requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and for Hedging Activities". This Statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This Statement requires
that all derivative financial instruments be recorded on the balance sheet
at fair value. If the derivative is not designated as a hedging instrument
changes in fair value are to be recognized in earnings in the period of
change. If certain conditions are met, a derivative may be designated as a
hedge, in which case the accounting for a change in fair value will depend
on the specific exposure being hedged. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999, and earlier
adoption is encouraged. The Company has not adopted this Statement as of
June 30, 1998. Management estimates the effect of the change will not have
a material affect on the Company's financial statements.
During the three and six months ended June 30, 1998, total other
comprehensive income amounted to $2 and $233, respectively.
- 6 -
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Six Months Period From
Ended April 4,
1997
June 30, [Inception]
to
Operating Summary (Thousands) 1998 June 30,
1997
------------ ------------
Premiums and fee income $ 55 $
Net investment income 798 77
Realized (losses) on (16)
investments
------------ ------------
Total Revenues 837 77
Total benefits and expenses 266 13
Income tax expense 241 22
------------
============
Net income $ 330 $ 42
============ ============
June 30, December
31,
Balance Sheet (Thousands) 1998 1997
------------ ------------
Investment assets $ 72,551 $ 5,381
Separate account assets 18,061 9,045
Total assets 97,851 16,154
Total policyholder liabilities 82,150 9,616
Total shareholder's equity 15,701 6,538
The following discussion addresses the financial condition of the Company
as of June 30, 1998, compared with December 31, 1997, and its results of
operations for the quarter and six months ended June 30, 1998, compared
with the same periods last year. The discussion should be read in
conjunction with the Management's Discussion and Analysis section included
in the Company's report on Form 10-K for the year-ended December 31, 1997
to which the reader is directed for additional information.
During the six months ended June 30, 1998 the Company sold one $50 million
single premium Bank-owned Life Insurance (BOLI) policy. The remainder of
the sales have been individual variable annuites sold through a marketing
agreement with Charles Schwab & Co. The contributions received for the
variable annuities included in the Separate Account are over $7.6 million.
There were no sales of fixed income annuities without significant life
contingencies during the six months ended June 30, 1998. The net income of
$330 thousand reflects fees associated with variable business, investment
income on surplus less the operating expenses associated with the new
operations.
In the months ahead, the Company will continue to focus its efforts on new
sales while continuing to develop other products for submission to the New
York Department of Insurance for approval.
- 7 -
<PAGE>
General Account Investments - The Company's investment strategies and
portfolios are intended to match the duration of the related liabilities
and provide sufficient cash flow to meet obligations while maintaining a
competitive rate of return. The duration of these investments is
monitored, and investment purchases and sales are executed with the
objective of having adequate funds available to satisfy the Company's
maturing liabilities.
It is management's philosophy that the portfolio of fixed maturities be of
high quality. The fixed maturities in the Company's portfolio are
generally rated by external rating agencies, and if not externally rated,
are rated by the Company on a basis believed to be similar to that used by
rating agencies. The credit rating on the fixed maturity portfolio at June
30, 1998 is AAA.
During the six months ended June 30, 1998, net unrealized gains on fixed
maturities included in stockholders' equity, which is net of
policyholder-related amounts and deferred income taxes, increased surplus
by $233 resulting in accumulated other comprehensive income of $238.
Liquidity and Capital Resources - Liquidity for the Company has remained
strong as evidenced by significant amounts of cash. Generally, the Company
has met its operating requirements by maintaining appropriate levels of
liquidity in its investment portfolio.
The Company's capital resources represent funds available for long-term
business commitments and primarily consist of stockholder's equity.
Capital resources provide protection for policyholders and the financial
strength to support the underwriting of insurance risks, and allow for
continued business growth. The amount of capital resources that may be
needed is determined by the Company's senior management and Board of
Directors, as well as by regulatory requirements. The allocation of
resources to new long-term business commitments is designed to achieve an
attractive return, tempered by considerations of risk and the need to
support the Company's existing business.
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<PAGE>
Part II OTHER INFORMATION
Item 1 Legal Proceedings
There are no material pending legal proceedings to which the Company
is a party or of which any of their property is the subject.
Item 6 Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit Title Page
Number
------------- ------------------ ------------
27 Financial Data 11
Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the second
quarter of 1998.
- 9 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
DATE: BY:
/s/
------------------------ ------------------------------------------
Glen R. Derback, Vice President &
Treasurer
(Duly authorized officer & chief
accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27 Financial Data Schedule
First Great-West Life & Annuity Insurance Company as of and for the period ended
June 30, 1998 (000s)
- --------------------------------------------------------------------------------
</LEGEND>
<CIK> 0001036213
<NAME> First Great-West Life & Annuity Insurance Company
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