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 June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 333-25269
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 incorporation or organization)
(I.R.S. Employer Identification 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, 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.
<PAGE>
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
Statements of Stockholder's Equity 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 14
</TABLE>
<PAGE>
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)
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Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ------------ ------------ ------------
REVENUES:
Premium and fee income $ 4,715 $ (1) $ 9,850 $ 344
Net investment income 2,572 1,529 4,864 2,815
Realized gains (losses) on 199 296 (21)
investments
----------- ------------ ------------ ------------
7,486 1,528 15,010 3,138
BENEFITS AND EXPENSES:
Life and other policy benefits 3,679 18 8,523 18
Change in reserves 286 (670)
Interest paid or credited to
contractholders 2,206 904 3,400 2,094
General and administrative expenses 575 111 1,629 479
----------- ------------ ------------ ------------
6,746 1,033 12,882 2,591
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 740 495 2,128 547
PROVISION FOR INCOME TAXES:
Current 650 (72) 1,117 208
Deferred (343) 279 (241) 21
----------- ------------ ------------ ------------
307 207 876 229
----------- ------------ ------------ ------------
NET INCOME $ 433 $ 288 $ 1,252 $ 318
=========== ============ ============ ============
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See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
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(Dollars in Thousands)
-----------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
-------------- --------------
ASSETS (Unaudited)
------
INVESTMENTS:
Fixed maturies:
Held-to-maturity at amortized cost
(fair value $49,066 and $35,335) $ 50,781 $ 37,050
Available-for-sale, at fair value
(amortized cost $97,244 and $77,740) 93,362 74,149
Short-term investments, available-for-sale
(cost approximates fair value) 3,127 1,600
-------------- --------------
Total Investments 147,270 112,799
Cash 7,657 5,443
Reinsurance receivable 2,086 1,426
Deferred policy acquisition costs 1,582 1,702
Investment income due and accrued 1,418 1,204
Due from Parent Corporation 874 3,302
Other assets 2,386 3,366
Premiums in course of collection 2,006 537
Deferred income taxes 2,394 2,050
Separate account assets 44,048 39,881
-------------- --------------
TOTAL ASSETS $ 211,721 $ 171,710
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 96,816 $ 93,434
Policy and contract claims 3,621 4,894
Policyholder's funds 78 93
GENERAL LIABILITIES:
Other liabilities 35,480 2,794
Separate account liabilities 44,048 39,881
-------------- --------------
Total Liabilities 180,043 141,096
-------------- --------------
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) (2,522) (2,334)
Retained earnings 3,100 1,848
-------------- --------------
Total Stockholder's Equity 31,678 30,614
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 211,721 $ 171,710
============== ==============
</TABLE>
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
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(Unaudited)
Six Months Ended
June 30,
-----------------------------
2000 1999
------------- -------------
OPERATING ACTIVITIES:
Net income $ 1,252 $ 318
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investments (283) 28
Realized (gains) losses on disposal of investments (296) 21
Deferred income taxes (242) 21
Changes in assets and liabilities:
Accrued interest and other receivables (1,683) (142)
Policy benefit liabilities 680 2,202
Reinsurance recoverable (660) (101)
Other, net 33,771 (1,046)
------------- -------------
Net cash provided by (used in) operating 32,539 1,301
activities
------------- -------------
INVESTING ACTIVITIES:
Proceeds from maturities and redemptions investments:
Fixed maturities:
Held-to-maturity 547 273
Available-for-sale 39,768 5,372
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,144) (16,000)
Available-for-sale (60,353) (9,436)
------------- -------------
Net cash provided by (used in) investing (34,182) (19,791)
activities
------------- -------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 1,429 4,743
Due to Parent Corporation 2,428 (2,113)
Capital Contributions 16,000
------------- -------------
Net cash provided by (used in) financing 3,857 18,630
activities
------------- -------------
NET INCREASE (DECREASE) IN CASH 2,214 140
CASH, BEGINNING OF YEAR 5,443 705
------------- -------------
CASH, END OF PERIOD $ 7,657 $ 845
============= =============
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See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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==============================================================================================
[Dollars in thousands except for share information]
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income (Loss) Earnings Total
------------- ------------- ------------- ----------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,500 2,500 12,600 717 825 16,642
Net income 1,023 1,023
Other comprehensive income (loss) (3,051) (3,051)
-------------
Comprehensive income (loss) (2,028)
-------------
Capital contribution 16,000 16,000
------------- ------------- ------------- ----------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 2,500 $ 2,500 $ 28,600 $ (2,334) $ 1,848 $ 30,614
------------- ------------- ------------- ----------------- ------------- -------------
Net income 1,252 1,252
Other comprehensive loss
Change in unrealized gains/(losses (188) (188)
Comprehensive income 1,064
------------- ------------- ------------- ----------------- ------------- -------------
BALANCE, JUNE 30, 2000 2,500 $ 2,500 $ 28,600 $ (2,522) $ 3,100 $ 31,678
============= ============= ============= ================= ============= =============
</TABLE>
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(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 six months ended June 30, 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
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Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
Operating Summary
(Thousands) 2000 1999 2000 1999
-------------------------------- ------------ ------------ ----------- -----------
Premiums and fee income $ 4,715 $ (1) $ 9,850 $ 344
Net investment income 2,572 1,529 4,864 2,815
Realized gains (losses) on
investments 199 296 (21)
------------ ------------ ----------- -----------
Total Revenues 7,486 1,528 15,010 3,138
Total benefits and expenses 6,746 1,033 12,882 2,591
Income tax expense 307 207 876 229
------------ ------------ ----------- -----------
Net income $ 433 $ 288 $ 1,252 $ 318
============ ============ =========== ===========
Deposits for investment-type
contracts $ - - $ - - $ 163 $ 4,725
Deposits to separate
accounts 2,122 4,017 4,123 6,490
June 30, December 31,
Balance Sheet (Thousands) 2000 1999
----------------------------------------------- ----------------- -----------------
Investment assets $ 147,270 $ 112,799
Separate account assets 44,048 39,881
Total assets 211,721 171,710
Total policy benefit liabilities 100,515 98,421
Total stockholder's equity 31,678 30,614
</TABLE>
GENERAL
The following discussion addresses the financial condition of the
Company as of June 30, 2000, compared with December 31, 1999, and its
results of operations for the three months and six months ended June 30,
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 $145 thousand and $934 thousand for
the second quarter and first six months of 2000 when compared to the
second quarter and first six 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 business from Anthem Health & Life Insurance
Company of New York ("Anthem New York") and to the growth and further
development of the Company.
Premium and fee income increased $4.7 million and $9.5 million for the
second quarter and first six months of 2000 when compared to the second
quarter and first six months of 1999. The increase for the second
quarter and year to date are due to increased premiums and fees related
to the group health and life business purchased from Anthem New York in
December 1999.
Net investment income increased $1.0 million and $2.0 million for the
second quarter and first six months of 2000 when compared to the second
quarter and first six months of 1999. The increase for the second
quarter and year to date are due to an increase in invested assets
related to Bank Owned Life Insurance ("BOLI"), as well as a capital
infusion from GWL&A of $16 million in June 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 six months of 2000.
The Company had a realized investment gain of $199 thousand and $296
thousand for the second quarter and first six months of 2000. The gain
for the second quarter was the result of the sale of available-for-sale
securities of $11.0 million. The year to date gain is also due to the
sale of available-for-sale securities but at more favorable interest
rates compared to interest rates during the same period in 1999.
The increase in benefits and expenses during the second quarter and the
first six months of 2000 is primarily due to the additional group health
and life business related to the purchase from Anthem New York in
December 1999. Expenses have also increased as the Company incurred
additional costs to administer the group health and life business.
Total Assets and Liabilities increased $40 million or 23% when compared
to year ended December 31, 1999. The increase is attributable to new
BOLI business.
SEGMENT RESULTS
Employee Benefits
On December 1, 1999, the Company entered into an assumption reinsurance
transaction with Anthem New York. The results below reflect the
operations for the Employee Benefits segment for the second quarter and
first six months of 2000:
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Three Months Ended Six Months Ended
Operating Summary June 30, June 30,
-------------------------- --------------------------
(Thousands) 2000 1999 2000 1999
----------------------------- ----------- ----------- ----------- ------------
Premium and fee income $ 4,521 $ $ 9,573 $
Net investment income 14 560
Realized investment
gains (losses)
----------- ----------- ----------- ------------
Total revenues 4,535 10,133
Total benefits
and expenses 4,114 6 8,681 6
Income tax expenses 134 2 556 2
----------- ----------- ----------- ------------
Net income (loss) $ 287 $ (8) $ 896 $ (8)
=========== =========== =========== ============
</TABLE>
Operations for the Employee Benefits segment had an overall increase for
the second quarter and first six months of 2000 when compared to the
second quarter and first six months of 1999. The increases are due to
the group health and life business related to the December 1999 purchase
of Anthem New York.
Financial Services
The following is a summary of certain financial data of the Financial
Services segment:
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Three Months Ended Six Months Ended
Operating Summary June 30, June 30,
-------------------------- -------------------------
(Thousands) 2000 1999 2000 1999
----------------------------- ----------- ----------- ----------- ------------
Premium and fee income $ 194 $ (1) $ 277 $ 344
Net investment income 2,558 1,529 4,304 2,815
Realized investment
gains (losses) 199 296 (21)
----------- ----------- ----------- ------------
Total revenues 2,951 1,528 4,877 3,138
Total benefits
and expenses 2,632 1,027 4,201 2,585
Income tax expenses 173 205 320 227
----------- ----------- ----------- ------------
Net income $ 146 $ 296 $ 356 $ 326
=========== =========== =========== ============
Deposits for investment
type contracts 163 4,725
Deposits to separate
Accounts 2,122 4,017 4,123 6,490
</TABLE>
Net Income for Financial Services increased (decreased) $(150) thousand
and $30 thousand for the second quarter and the first six months of 2000
when compared to the second quarter and the first six months of 1999.
The decrease was primarily due to the increase in operating expenses
related to the selling of the segment's variable annuity products. The
increase was primarily due to the interest on surplus and realized bond
gains.
Premium and fee income for Financial Services increased (decreased) $195
thousand and $(67) for the second quarter and the first six months of
2000 when compared to the second quarter and the first six months of
1999. The increase was primarily related to an increase in premiums from
the segment's variable annuity product. The decrease was primarily
related to BOLI products. The nature of this type of product can lead to
large fluctuations from period to period.
Net Investment income increased $1.0 million and $1.5 million for the
second quarter and the first six months of 2000 when compared to the
second quarter and the first six months of 1999. The increases were due
to an increase in invested assets as well as a capital infusion of $16
million from the Parent in the second half of 1999.
Deposits for investment type contracts decreased for the second quarter
and the first six months of 2000 when compared to the second quarter and
the first six months of 1999. The decreases were 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:
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June 30, December 31,
Credit Rating 2000 1999
------------------------------------- ------------------- -------------------
AAA 58.8% 57.4%
AA 14.2% 11.2%
A 7.5% 10.1%
BBB 16.2% 21.3%
BB and Below 3.3% 0.0%
------------------- -------------------
TOTAL 100.0% 100.0%
=================== ===================
</TABLE>
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 six months ended June 30, 2000, net unrealized losses on
fixed maturities included in stockholders' equity, which is net of
policyholder-related amounts and deferred income taxes, decreased
surplus by $188 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 $10.8 million and $7.0
million as of June 30, 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
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(a) Index to Exhibits
Exhibit Number Title Page
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27 Financial Data Schedule 15
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(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the second
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: August 10, 2000 BY: /s/ Glen R. Derback
-------------- -----------------------------------------------------
Glen R. Derback, Vice President and Treasurer
(Duly authorized officer & chief accounting Officer)
