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 ended March 31, 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
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Commission file number
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FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
New York 93-1225432
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(State or other jurisdiction of incorporation
(I.R.S. Employer Identification Number)
or organization)
125 Wolf Road, Albany, New York 12205
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(Address of principal executive offices)
(Zip Code)
[518] 437-1816
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(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
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As of March 31, 2000, 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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13
TABLE OF CONTENTS
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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 Proceedings 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 12
</TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
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(Unaudited)
Three Months Ended
March 31,
------------------------------
2000 1999
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REVENUES:
Premium and fee income $ 5,135 $ 345
Net investment income 2,292 1,286
Realized gains (losses) on investments 97 (21)
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7,524 1,610
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BENEFITS AND EXPENSES:
Life and other benefits 4,844
Change in reserves (956)
Interest paid or credited to contractholders 1,194 1,190
General and administrative expenses 1,054 368
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6,136 1,558
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INCOME BEFORE INCOME TAXES 1,388 52
PROVISION FOR INCOME TAXES:
Current 467 280
Deferred 102 (258)
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569 22
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NET INCOME $ 819 $ 30
============== ==============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
(Dollars in Thousands)
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March 31, December
31,
2000 1999
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ASSETS (Unaudited)
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INVESTMENTS:
Fixed maturies:
Held-to-maturity at amortized cost
(fair value $49,242 and $35,335) $ 50,750 $ 37,050
Available-for-sale, at fair value
(amortized cost $96,794 and $77,740) 94,267 74,149
Short-term investments, available-for-sale
(cost approximates fair value) 1,399 1,600
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Total Investments 146,416 112,799
Cash 10,284 5,443
Reinsurance receivable 1,993 1,426
Deferred policy acquisition costs 1,664 1,702
Investment income due and accrued 1,716 1,204
Due from Parent Corporation 2,424 3,302
Other assets 2,487 3,366
Premiums in course of collection 1,329 537
Deferred income taxes 1,576 2,050
Separate account assets 44,438 39,881
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TOTAL ASSETS $ 214,327 $ 171,710
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 94,335 $ 93,434
Policy and contract claims 2,577 4,894
Policyholder's funds 172 93
GENERAL LIABILITIES:
Other liabilities 40,680 2,794
Separate account liabilities 44,438 39,881
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Total Liabilities 182,202 141,096
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STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value, 10,000 shares
authorized,
2,500 shares issued and outstanding 2,500 2,500
Additional paid-in capital 28,600 28,600
Accumulated other comprehensive income (loss) (1,642) (2,334)
Retained earnings 2,667 1,848
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Total Stockholder's Equity 32,215 30,614
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 214,327 $ 171,710
============ ============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
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(Unaudited)
Three Months Ended
March 31,
-------------------------
2000 1999
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OPERATING ACTIVITIES:
Net income $ 819 $ 30
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investments (6) 14
Realized (gains) losses on disposal of (97) 21
investments
Deferred income taxes 102 (258)
Changes in assets and liabilities:
Accrued interest and other receivables (1,304) (40)
Life insurance and annuity reserves (2,285) 1,383
Reinsurance recoverable (567) (26)
Other, net 38,881 1,698
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Net cash provided by (used in) 35,543 2,822
operating activities
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INVESTING ACTIVITIES:
Proceeds from maturities and redemptions
investments:
Fixed maturities:
Held-to-maturity 457 216
Available-for-sale 23,101 5,215
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,144)
Available-for-sale (41,863) (4,435)
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Net cash provided by (used in) (32,449) 996
investing activities
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FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 869 4,557
Due to Parent Corporation 878 (2,460)
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Net cash provided by (used in) 1,747 2,097
financing activities
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NET INCREASE (DECREASE) IN CASH 4,841 5,915
CASH, BEGINNING OF YEAR 5,443 705
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CASH, END OF PERIOD $ 10,284 $ 6,620
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See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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(Amounts in Thousands)
(Unaudited)
1. BASIS OF PRESENTATION
First Great-West Life & Annuity Insurance Company (the Company) is a
wholly-owned subsidiary of Great-West Life & Annuity Insurance Company
(the Parent Corporation or GWL&A). 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 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.
However, in the opinion of management, these statements include all normal
recurring adjustments necessary for a fair presentation of the results.
These financial statements should be read in conjunction with the audited
financial statements and the accompanying notes included in the Company's
latest annual report on Form 10-K, as amended, for the year ended December
31, 1999.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 2000.
2. OTHER
On October 6, 1999, the Parent entered into an agreement (the Agreement)
with Allmerica Financial Corporation ("Allmerica") to acquire Allmerica's
group life and health insurance business on March 1, 2000. The policies
resident in the State of New York have been assigned to the Company as
part of the Agreement. This business primarily consists of administrative
services only and stop loss policies. The in-force business is expected to
be underwritten and retained by the Company upon each policy renewal date.
The purchase price is based on a percentage of the premium and
administrative fees in-force at March 1, 2000, and March 1, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended
March 31,
------------------------------
Operating Summary (Thousands) 2000 1999
----------------------------------------- -------------- -------------
Premiums and fee income $ 5,135 $ 345
Net investment income 2,292 1,286
Realized gains (losses) on investments 97 (21)
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Total Revenues 7,524 1,335
Total benefits and expenses 6,136 1,558
Income tax expense 569 22
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Net income $ 819 $ 30
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Deposits for investment-type contracts $ 350 $ 4,725
Deposits to separate accounts 2,001 2,473
March 31, December 31,
Balance Sheet (Thousands) 2000 1999
---------------------------------------- -------------- --------------
Investment assets $ 146,416 $ 112,799
Separate account assets 44,438 39,881
Total assets 214,327 171,710
Total policy benefit liabilities 97,084 98,421
Total stockholder's equity 32,125 30,614
GENERAL
The following discussion addresses the financial condition of the Company
as of March 31, 2000, compared with December 31, 1999, and its results of
operations for the three months ended March 31, 2000, 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, 1999 to which the
reader is directed for additional information.
RESULTS OF OPERATIONS
The Company's net income increased $789 thousand for the first three
months of 2000 when compared to the first three months of 1999. This
increase was primarily due to the increase in the group health and life
business related to the December 1999 purchase of Alta Health and Life
Insurance Company ("Alta").
The Company received a capital contribution of $16 million during the
second half of 1999. The capital contribution resulted in a large increase
in invested assets in the second half of 1999, which in turn increased net
investment income throughout the second half of 1999 and the first quarter
of 2000.
Premium and fee income increased $4.8 million for the first three months
of 2000 when compared to the first three months of 1999, which is due to
increased premiums and fees related to the group health and life business
purchased from Alta in December 1999.
Net investment income increased $1.0 million, primarily due to an increase
in invested assets related to BOLI, as well as a capital infusion from
GWL&A of $16 million in June 1999.
The Company had a realized investment gain of $97 thousand during the
first three months of 2000. The gain was the result of the sale of
available-for-sale securities of $22.9 million.
Total benefits and expenses have increased primarily due the additional
group health and life business related to the purchase of Alta. Expenses
have also increased as the Company incurred additional costs to administer
the group health and life business.
SEGMENT RESULTS
Employee Benefits
On December 1, 1999, the Employee Benefits segment entered into an
assumption reinsurance transaction with Alta. The results below reflect
the operations for the Employee Benefits segment for the first quarter of
2000:
Three Months Ended March 31,
--------------------------------
Operating Summary (Thousands) 2000 1999
---------------------------------------- --------------- ---------------
Premium and fee income $ 5,051 $
Net investment income 546
Realized investment gains (losses) 0
--------------------------------
Total revenues 5,597
Total benefits and expenses 4,568
Income tax expenses 422
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Net income $ 607 $
=============== ===============
Financial Services
The following is a summary of certain financial data of the Financial
Services segment:
Three Months Ended March 31,
--------------------------------
Operating Summary (Thousands) 2000 1999
---------------------------------------- --------------- ---------------
Premium and fee income $ 84 $ 345
Net investment income 1,746 1,286
Realized investment gains (losses) 97 (21)
--------------------------------
Total revenues 1,927 1,610
Total benefits and expenses 1,568 1,558
Income tax expenses 147 22
--------------- ---------------
Net income $ 212 $ 30
=============== ===============
Deposits for investment type contracts 350 4,725
Deposits to separate accounts 2,001 2,473
Net Income for Financial Services increased $182 thousand for the first
three months of 2000 when compared to the first three months of 1999. The
increase was primarily due to the interest on surplus and realized bond
gains.
Premium and fee income for Financial Services decreased $261 thousand for
the first three months of 2000 when compared to the first three months of
1999. The decrease was primarily related to Bank Owned Life Insurance
("BOLI") products. The nature of this type of product can lead to large
fluctuations from period to period.
Net Investment income increased $460 thousand for the first three months
of 2000 when compared to the first three months of 1999. The increase was
due to an increase in invested assets as well as a capital infusion from
the Parent in the second half of 1999.
Deposits for investment type contracts decreased for the first three
months of 2000 when compared to the first three months of 1999. The
decrease was due to a decrease in sales of BOLI products. The nature of
this type of product can lead to large fluctuations from period to period.
GENERAL ACCOUNT INVESTMENTS
The Company's primary investment objective is to acquire assets whose
durations and cash flows reflect the characteristics of the Company's
liabilities, while meeting industry, size, issuer, and geographic
diversification standards. Formal liquidity and credit quality parameters
have also been established. One of the Company's primary objectives is to
ensure that its fixed maturity portfolio is maintained at a high average
quality, so as to limit credit risk. If not externally rated, the
securities are rated by the Company on a basis intended to be similar to
that of the rating agencies.
The distribution of the fixed maturity portfolio (both available-for-sale
and held-to-maturity) by credit rating is summarized as follows:
March 31, December 31,
Credit Rating 2000 1999
------------------------------- ---------------- ----------------
AAA 61.9% 57.4%
AA 14.2% 11.2%
A 7.6% 10.1%
BBB 16.3% 21.3%
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TOTAL 100.0% 100.0%
================ ================
The Company follows rigorous procedures to control interest rate risk and
observes strict asset and liability matching guidelines. These guidelines
are designed to ensure that even in changing interest rate environments,
the Company's assets will always be able to meet the cash flow and income
requirements of its liabilities. Through dynamic modeling, using
state-of-the-art software to analyze the effects of a wide range of
possible market changes upon investments and policyholder benefits, the
Company ensures that its investment portfolio is appropriately structured
to fulfill financial obligations to its policyholders.
During the three months ended March 31, 2000, net unrealized gains on
fixed maturities included in stockholders' equity, which is net of
policyholder-related amounts and deferred income taxes, increased surplus
by $692 thousand.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that are dependent
upon the principal product lines. Life insurance and pension plan reserves
are primarily long-term liabilities. Life insurance and pension plan
reserve requirements are usually stable and predictable, and are supported
primarily by long-term, fixed income investments.
Generally, the Company has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio. Liquidity for
the Company is strong, as evidenced by significant amounts of short-term
investments and cash, which totaled $11.7 million and $7.0 million as of
March 31, 2000 and December 31, 1999, respectively.
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 Number Title Page
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27 Financial Data Schedule 13
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the first
quarter of 2000.
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: May 15, 2000 BY: /s/ Glen R. Derback
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Glen R. Derback, Vice President and Treasurer
(Duly authorized officer & chief accounting Officer)
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FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
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<NAME> FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
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