DRAFT 9:12 AM 11/10/00
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 September 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 September 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.
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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 9
Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 15
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------- -------------- ------------- ------------
REVENUES:
Premium and fee income $ 4,540 $ 67 $ 14,390 $ 411
Net investment income 2,676 1,653 7,540 4,468
Realized gains (losses) on
Investments 0 0 296 (21)
------------- -------------- ------------- ------------
7,216 1,720 22,226 4,858
------------- -------------- ------------- ------------
BENEFITS AND EXPENSES:
Life and other policy 2,237 11 10,760 29
benefits
Increase in reserves 39 (631)
Interest paid or credited to
contractholders 1,736 1,208 5,136 3,302
General and administrative
expenses 535 238 2,164 717
------------- -------------- ------------- ------------
4,547 1,457 17,429 4,048
------------- -------------- ------------- ------------
INCOME BEFORE INCOME
TAXES 2,669 263 4,797 810
PROVISION FOR
INCOME TAXES:
Current 1,797 72 2,914 280
Deferred (714) 2 (955) 23
------------- -------------- ------------- ------------
1,083 74 1,959 303
------------- -------------- ------------- ------------
NET INCOME $ 1,586 $ 189 $ 2,838 $ 507
============= ============== ============= ============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
(Dollars in thousands except for share information)
-----------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
-------------- --------------
ASSETS (Unaudited)
------
INVESTMENTS:
Fixed maturies:
Held-to-maturity at amortized cost
(fair value $50,012 and $35,335) $ 50,785 $ 37,050
Available-for-sale, at fair value
(amortized cost $98,010 and $77,740) 95,885 74,149
Short-term investments, available-for-sale
(cost approximates fair value) 3,298 1,600
-------------- --------------
Total Investments 149,968 112,799
Cash 7,508 5,443
Reinsurance receivable 2,023 1,426
Deferred policy acquisition costs 2,125 1,702
Investment income due and accrued 1,742 1,204
Due from Parent Corporation 2,387 3,302
Uninsured claims receivable 4,694
Other assets 3,085 3,366
Premiums in course of collection 2,540 537
Deferred income taxes 2,428 2,050
Separate account assets 44,929 39,881
-------------- --------------
TOTAL ASSETS $ 223,429 $ 171,710
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 134,679 $ 93,434
Policy and contract claims 4,351 4,894
Policyholder's funds 41 93
GENERAL LIABILITIES:
Other liabilities 5,024 2,794
Separate account liabilities 44,929 39,881
-------------- --------------
Total Liabilities 189,024 141,096
-------------- --------------
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 loss (1,381) (2,334)
Retained earnings 4,686 1,848
-------------- --------------
Total Stockholder's Equity 34,405 30,614
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 223,429 $ 171,710
============== ==============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------
(Unaudited)
Nine Months Ended
September 30,
-----------------------------
2000 1999
------------- -------------
OPERATING ACTIVITIES:
Net income $ 2,838 $ 507
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investments (658) 46
Realized (gains) losses on disposal of investments (296) 21
Deferred income taxes (955) 23
Changes in assets and liabilities:
Accrued interest and other receivables (2,541) (479)
Policy benefit liabilities 4,531 3,816
Reinsurance receivable (597) (44)
Other, net (2,595) 4,421
------------- -------------
Net cash provided by (used in) operating (273) 8,311
activities
------------- -------------
INVESTING ACTIVITIES:
Proceeds from maturities and redemptions investments:
Fixed maturities:
Held-to-maturity 667 359
Available-for-sale 40,037 5,537
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,144) (16,000)
Available-for-sale (61,308) (16,633)
------------- -------------
Net cash used in investing activities (34,748) (26,737)
------------- -------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 36,171 4,305
Due to Parent Corporation 915 (1,926)
Capital contributions 16,000
------------- -------------
Net cash provided by financing activities 37,086 18,379
------------- -------------
NET INCREASE (DECREASE) IN CASH 2,065 (47)
CASH, BEGINNING OF YEAR 5,443 705
------------- -------------
CASH, END OF PERIOD $ 7,508 $ 658
============= =============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited) AND YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------------
[Dollars in thousands except for share information]
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Retained
----------------------------
Shares Amount Capital Loss Earnings Total
----------- ------------- ----------------- ------------- -------------
-------------
BALANCE, January 1, 1999 2,500 $ 2,500 $ 12,600 $ 717 $ 825 $ 16,642
=========== ============= ============= ================= ============= =============
Net income 1,023 1,023
Other comprehensive loss
Change in unrealized gains (losses) (3,051) (3,051)
-------------
Comprehensive income (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 2,838 2,838
Other comprehensive income
Change in unrealized gains (losses) 953 953
-------------
Comprehensive income 3,791
-------------
Capital contribution 0
----------- ------------- ------------- ----------------- ------------- -------------
BALANCE, SEPTEMBER 30, 2000 2,500 $ 2,500 $ 28,600 $ (1,381) $ 4,686 $ 34,405
=========== ============= ============= ================= ============= =============
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See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(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 accounting principles generally accepted in
the United States of America 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 nine months ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 2000.
2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities - A replacement of
FASB Statement No. 125", which revises the standards for accounting for
securitizations and other transfers of financial assets and collateral
and requires certain disclosures. Statement No. 140 will be effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Management does not
anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements," which provides guidance with respect to revenue
recognition issues and disclosures. As amended by SAB No. 101B, the
Company is required to implement the provisions of SAB No. 101 no later
than the fourth quarter of the fiscal year ending December 30, 2000.
Management does not believe SAB No. 101 will have a material impact on
its financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which was effective for
all fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133", which delays the effective date of Statement No. 133 for one
year, to fiscal years beginning after June 15, 2000. The Company has not
completed its evaluation of the impact of this Statement, and therefore
the Company is unable to disclose the impact that the adoption of
Statement No. 133 will have on the Company's financial statements.
3. OTHER
On October 6, 1999, the Parent Corporation 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 Nine Months
Ended Ended
September 30, September 30,
----------------------- -----------------------
Operating Summary (Thousands) 2000 1999 2000 1999
---------- ---------- ---------- -----------
Premiums and fee income $ 4,540 $ 67 $ 14,390 $ 411
Net investment income 2,676 1,653 7,540 4,468
Realized gains (losses) on
Investments 296 (21)
---------- ---------- ---------- -----------
Total revenues 7,216 1,720 22,226 4,858
Total benefits and expenses 4,547 1,457 17,429 4,048
Income tax expense 1,083 74 1,959 303
---------- ---------- ---------- -----------
Net income $ 1,586 $ 189 $ 2,838 $ 507
========== ========== ========== ===========
Deposits for investment-type
Contracts $ 36,100 $ $ 36,264 $ 4,725
Deposits to separate accounts 2,743 1,855 6,866 8,345
September 30, December 31,
Balance Sheet (Thousands) 2000 1999
----------------- ------------------
Investment assets $ 149,968 $ 112,799
Separate account assets 44,929 39,881
Total assets 223,429 171,710
Total policyholder liabilities 139,071 98,421
Total stockholder's equity 34,405 30,614
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GENERAL
The following discussion addresses the financial condition of the
Company as of September 30, 2000, compared with December 31, 1999, and
its results of operations for the three and nine months ended September
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, as
amended, 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 $1.4 million and $2.3 million for the
third quarter and nine months of 2000 when compared to the third quarter
and nine months of 1999. This increase was primarily due to the increase
in the group health and life business related to the December 1999
assumption 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 $4.5 million and $14.0 million for the
third quarter and nine months of 2000 when compared to the third quarter
and nine months of 1999. The increases are due to increased premiums and
fees related to the group health and life business assumed from Anthem
New York in December 1999.
Net investment income increased $1.0 million and $3.1 million for the
third quarter and nine months of 2000 when compared to the third quarter
and nine months of 1999. The increase for the third 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 nine months of 2000.
The Company recorded a realized investment gain of $296 thousand in the
first nine months of 2000 compared to the loss of $21 thousand during
the same period of 1999. The year to date gain is due to the sale of
available-for-sale securities at more favorable interest rates than
interest rates during the same period in 1999.
The increase in benefits and expenses during the third quarter and the
first nine months of 2000 is primarily due to the additional group
health and life business related to the assumption 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 $51.7 million or 30% when
compared to year ended December 31, 1999. The increase is primarily
attributable to 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 third quarter and
first nine months of 2000:
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Three Months Ended Nine Months Ended
Operating Summary September 30, September 30,
----------------------- -----------------------
(Thousands) 2000 1999 2000 1999
-------------------------------- ---------- --------- ---------- ---------
Premium and fee income $ 4,446 $ $ 14,018 $
Net investment income 238 711
Realized investment
gains (losses)
---------- --------- ---------- ---------
Total revenues 4,684 14,729
Total benefits and expenses 2,396 22 11,078 29
Income tax expenses 935 (14) 1,491 (12)
---------- --------- ---------- ---------
Net income (loss) $ 1,353 $ (8) $ 2,160 $ (17)
========== ========= ========== =========
Operation for the Employee Benefits segment had an overall increase for
the third quarter and first nine months of 2000 when compared to the
same periods in 1999. The increases are due to the group life and health
business related to the December 1999 assumption of Anthem New York.
Financial Services
The following is a summary of certain financial data of the Financial
Services segment:
Three Months Ended Nine Months Ended
Operating Summary September 30, September 30,
----------------------- -----------------------
(Thousands) 2000 1999 2000 1999
-------------------------------- ---------- --------- ---------- ---------
Premium and fee income $ 94 $ 67 $ 372 $ 411
Net investment income 2,438 1,653 6,829 4,468
Realized investment
gains (losses) 296 (21)
---------- --------- ---------- ---------
Total revenues 2,532 1,720 7,497 4,858
Total benefits and expenses 2,151 1,435 6,351 4,019
Income tax expenses 148 88 468 315
---------- --------- ---------- ---------
Net income (loss) $ 233 $ 197 $ 678 $ 524
========== ========= ========== =========
Deposits for investment
type contracts 36,100 36,264 4,725
Deposits to separate
Accounts 2,743 1,855 6,866 8,345
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Net income for Financial Services increased $36 thousand and $154
thousand for the third quarter and the first nine months of 2000 when
compared to the third quarter and the first nine months of 1999. The
third quarter increase was primarily due to increased fee income related
to the segments variable annuity products. The year to date increase was
primarily due to the interest on surplus and realized bond gains.
Premium and fee income for Financial Services increased (decreased) $27
thousand and $(39) thousand for the third quarter and the first nine
months of 2000 when compared to the third quarter and the first nine
months of 1999. The increase was primarily related to an increase in
fees from the segment's variable annuity product. The decrease was
primarily related to a decrease in the segment's life insurance
premiums.
Net investment income increased $785 thousand and $2.4 million for the
third quarter and the first nine months of 2000 when compared to the
third quarter and the first nine 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 Corporation in the second quarter of 1999.
Deposits for investment type contracts increased $36.1 million and $31.5
million for the third quarter and the first nine months of 2000 when
compared to the third quarter and the first nine months of 1999. The
increases were due to an increase in the sales of the Company's 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:
September 30, December 31,
Credit Rating 2000 1999
----------------------------- ------------------- -------------------
AAA 62.36% 57.4%
AA 14.12% 11.2%
A 7.38% 10.1%
BBB 16.14% 21.3%
------------------- -------------------
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 nine months ended September 30, 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 $953 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 September 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
(a) Index to Exhibits
Exhibit
Number Title Page
---------------- ----------------------------------- -----------
27 Financial Data Schedule 16
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the third 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
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DATE: November 10, 2000 BY:/s/ Glen R. Derback
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Glen R. Derback, Vice President and Treasurer
(Duly authorized officer and chief accounting officer)
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