UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition 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 No.)
125 Wolf Road, Albany, New York 12205
(Address of principal executive offices) (Zip Code)
(518) 437-1816
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of December 31, 1999, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was $0.
As of December 31, 1999, 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-K 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
Page
PART I
<TABLE>
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Item 1. Business........................................................................................
A. Organization and Corporate Structure...................................................
B. Business of the Company ...............................................................
C. Employee Benefits .....................................................................
D. Financial Services..................................................................................
E. Investments
F. Regulation.............................................................................
G. Ratings................................................................................
H. Miscellaneous..........................................................................
Item 2. Properties......................................................................................
Item 3. Legal Proceedings...............................................................................
Item 4. Submission of Matters to a Vote of Security Holders.............................................
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................................................
A. Equity Security Holders and Market Information.........................................
B. Dividends..............................................................................
Item 6. Selected Financial Data.........................................................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................
A. Company Results of Operations..........................................................
B. Employee Benefits Results of Operations................................................
C. Financial Services Results of Operations...............................................
D. Investments............................................................................
E. Liquidity and Capital Resources........................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................
Item 8. Financial Statements and Supplementary Data.....................................................
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................................................
PART III
Item 10. Directors and Executive Officers of the Registrant..............................................
A. Identification of Directors............................................................
B. Identification of Executive Officers...................................................
Item 11. Executive Compensation..........................................................................
A. Compensation of Executive Officers.....................................................
B. Compensation of Directors..............................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................
A. Security Ownership of Certain Beneficial Owners........................................
B. Security Ownership of Management.......................................................
Item 13. Certain Relationships and Related Transactions..................................................
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................
A. Index to Financial Statements..........................................................
B. Index to Exhibits......................................................................
C. Reports on Form 8-K....................................................................
</TABLE>
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS
A. ORGANIZATION AND CORPORATE STRUCTURE
First Great-West Life & Annuity Insurance Company (the "Company") is a stock
life insurance company organized under the laws of the State of New York in
1996.
The Company is a wholly-owned subsidiary of Great-West Life & Annuity Insurance
Company ("GWL&A"), a life insurance company domiciled in Colorado. GWL&A is a
wholly-owned subsidiary of GWL&A Financial Inc. ("GWL&A Financial"), a Delaware
holding company. GWL&A Financial is an indirect wholly-owned subsidiary of The
Great-West Life Assurance Company ("Great-West Life"), a Canadian life insurance
company. Great-West Life is a subsidiary of Great-West Lifeco Inc. ("Great-West
Lifeco"), a Canadian holding company. Great-West Lifeco is a subsidiary of Power
Financial Corporation ("Power Financial"), a Canadian holding company with
substantial interests in the financial services industry. Power Financial
Corporation is a subsidiary of Power Corporation of Canada ("Power
Corporation"), a Canadian holding and management company. Mr. Paul Desmarais,
through a group of private holding companies, which he controls, has voting
control of Power Corporation.
Shares of Great-West Lifeco, Power Financial and Power Corporation are traded
publicly in Canada.
B. BUSINESS OF THE COMPANY
The Company is authorized to engage in the sale of life insurance, annuities,
and accident and health insurance. The Company became licensed to do business in
New York and Iowa in 1997.
The Company operates in the following two business segments:
Employee Benefits - group life and health products
Financial Services - savings products for both public and non-profit
employers and individuals (including 401, 403(b), 408 and 457 plans),
and life insurance products for individuals and businesses
The Company was capitalized on April 4, 1997. The table that follows summarizes
premiums and deposits received during the years ended December 31, 1999 and
1998, and during the period April 4, 1997 through December 31, 1997. For further
information concerning the Company, see Item 6 (Selected Financial Data), and
Item 8 (Financial Statements and Supplementary Data). For commentary on the
information in the following table, see Item 7 (Management's Discussion and
Analysis of Financial Condition and Results of Operations).
<PAGE>
<TABLE>
Period from
April 4, 1997
to
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Thousands (1) 1999 1998 Dec. 31, 1997
---------------- ---------------- --------------------
Premiums and Fee Income
Employee Benefits
Group Life & Health $ 9,625 $ $
---------------- ---------------- --------------------
Total Employee Benefits 9,625
---------------- ---------------- --------------------
Financial Services
Savings 254 139 21
Individual Insurance (43) (61)
---------------- ---------------- --------------------
Total Financial Services 211 78 21
---------------- ---------------- --------------------
Fee Income $ 9,836 $ 78 $ 21
================ ================ ====================
Deposits for Investment-type
Contracts:
Financial Services $ 20,000 $ 62,528 $ 84
---------------- ---------------- --------------------
Total Investment-type
deposits $ 20,000 $ 62,528 $ 84
================ ================ ====================
Deposits to Separate
Accounts
Financial Services $ 9,389 $ 12,776 $ 9,121
---------------- ---------------- --------------------
Total Separate Accounts
Deposits $ 9,389 $ 12,776 $ 9,121
================ ================ ====================
</TABLE>
(1) All information in the above table and other tables herein is
derived from information that has been prepared in conformity
with generally accepted accounting principles, unless
otherwise indicated.
C. EMPLOYEE BENEFITS
1. Principal Products
The Employee Benefits segment of the Company provides a full range of employee
benefits products. The Company began operating in this segment as of December 1,
1999 by entering into an assumption reinsurance agreement with Anthem Health &
Life Insurance Company of New York ("AH&L NY"), to acquire a block of life and
health insurance business. The business primarily consists of administration
services only and stop loss policies. In 2000, the Company will commence writing
new employee benefits business.
The Company offers customers a variety of health plan options to help them
maximize the value of their employee benefits package. The majority of the
Company's health care business is self-funded, whereby the employer assumes all
or a significant portion of the risk. For companies with better than average
claims experience, this can result in significant health care savings.
The Company offers employers a total benefits solution - an integrated package
of group life and disability insurance, managed care programs, and flexible
spending accounts. Through integrated pricing, administration, funding, and
service, the Company helps employers provide cost-effective benefits that will
attract and retain quality employees, and at the same time, helps employees
reach their personal goals by offering benefit choices, along with information
needed to make appropriate choices. Many customers also find this integrated
approach appealing because their benefit plans are administered through a single
company with linked systems that provide on-line administration and account
access, for enhanced efficiency and simplified plan administration. The Company
intends to begin marketing 401(k) savings plans in 2000 to complement its group
life and health products.
The Company offers a choice of managed care products including Preferred
Provider Organization ("PPO") plans and Point of Service ("POS") plans. POS
plans require that a member enroll with a primary care physician who is
responsible for coordinating the member's health care. Members receive the
highest benefit coverage and the lowest out-of-pocket costs when they use their
primary care physician to coordinate their health care. Members can seek care
outside of the primary physician's direction, at a reduced level of benefits.
Some benefits may not be covered outside the in-network POS plan.
PPO plans offer members a greater choice of physicians and hospitals. Members do
not need to enroll with a primary care physician - they simply select a
contracted PPO provider at the time of the service to receive the highest level
of benefits. If members seek care outside of the PPO network, they receive a
lower level of benefits.
The Company offers Internal Revenue Code Section 125 plans which enable
participants to set aside pre-tax dollars to pay for unreimbursed medical
expenses and dependent care expenses. This creates tax efficiencies for both the
employer and its employees.
The Company offers group life insurance. Sales of group life insurance consist
principally of renewable term coverage, the amounts of which are usually linked
to individual employee wage levels. Group life insurance in force prior to
reinsurance ceded for the year ended December 31, 1999 totaled $1.1 million.
2. Method of Distribution
The Company distributes its products and services through affiliated sales
staff. Each sales office works with insurance brokers, agents, and consultants
in their local market.
3. Competition
The employee benefits industry is highly competitive. Over the past year, the
United States health care industry has experienced a number of mergers and
consolidations. A number of larger carriers dropped out of the group health
market entirely. Although there are still many different carriers in the
marketplace, it has become dominated by an increasingly smaller number of
carriers.
The highly competitive marketplace creates pricing pressures, which encourage
employers to seek competitive bids each year. Although most employers are
looking for affordably priced employee benefits products, they want to offer
product choices because employee needs differ. In many cases, it is more
cost-effective and efficient for an employer to contract with a carrier such as
the Company, which offers multiple product lines and centralized administration.
In addition to price, there are a number of other factors, which influence
employer decision-making. These factors include quality of service; scope,
cost-effectiveness and quality of provider networks; product responsiveness to
customers' needs; cost-containment services; and effectiveness of marketing and
sales.
4. Reserves
For group term insurance products, policy reserve liabilities are equal to the
present value of future benefits and expenses less the present value of future
net premiums using best estimate assumptions for interest, mortality, and
expenses (including margins for adverse deviation). For disability waiver of
premium contracts, the policy reserves equal the present value of future
benefits and expenses using best estimate assumptions for interest, mortality,
and expenses (including margins for adverse deviation). Reserves for long-term
disability products are established for lives currently in payment status using
industry and Company morbidity factors, and interest rates based on Company
experience. In addition, reserves are held for lives that have not satisfied
their waiting period and for claims that have been incurred but not reported.
For medical, dental, and vision insurance products, reserves reflect the
ultimate cost of claims including, on an estimated basis, (i) claims that have
been reported but not settled, and (ii) claims that have been incurred but not
reported. Claim reserves are based upon factors derived from past experience.
Reserves also reflect retrospective experience rating that is done on certain
types of business.
Assumptions for mortality and morbidity experience are periodically reviewed
against published industry data and company experience.
The above mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, and pay expected death surrender requests.
5. Reinsurance
The Company seeks to limit its exposure on any single insured and to recover a
portion of benefits paid by ceding risks to other insurance enterprises under
excess coverage and coinsurance contracts. The maximum amount of group life
insurance retained on any one life is $250 thousand.
D. FINANCIAL SERVICES
1. Principal Products
The Financial Services segment primarily markets products to public and
not-for-profit employers and individuals and offers life insurance products to
individuals and businesses.
The Company's fixed annuity product is a Guarantee Period Fund, which was
established as a non-unitized Separate account in which the owner does not
participate in the performance of the assets. The assets accrue solely to the
benefit of the Company and any gain or loss in the Guarantee Period Fund is
borne entirely by the Company. Guarantee period durations of one to ten years
are currently being offered by the Company. Distributions from the amounts
allocated to a Guarantee Period Fund more than six months prior to the maturity
date results in a market value adjustment ("MVA"). The MVA reflects the
relationship as of the time of its calculation between the current U.S. Treasury
Strip ask side yield and the U.S. Treasury Strip ask side yield at the inception
of the contract.
The Company's variable annuity product offers 24 investment options. This
product provides the opportunity for contractholders to assume the risks of, and
receive all the benefits from, the investment of retirement assets. The variable
product assets are invested, as designated by the participant, in a separate
account which in turn invests in shares of underlying funds managed by selected
external fund managers.
The fixed annuity product generates earnings from the investment spreads on
guaranteed investment returns. The variable annuity product generates earnings
from the fees collected for mortality and expense risks associated with the
variable options.
The amount of annuities in-force is measured by account balances. At December
31, 1999, annuity account balances were $119 thousand for fixed annuities and
$39.9 million for variable annuities. At December 31, 1998, annuity account
balances were $92 thousand for fixed annuities and $23.8 million for variable
annuities.
During 1998, the Company began selling life insurance products in the Bank-Owned
Life Insurance ("BOLI") market. This interest-sensitive whole life product funds
post-retirement benefits for bank employees. BOLI deposits of $20.0 million were
received in 1999, representing $329.3 million of life insurance in-force.
2. Method of Distribution
The Company distributes its annuity products through Charles Schwab & Co., Inc.
pursuant to a distribution agreement. The Company's BOLI product is currently
marketed through one broker, Clark/Bardes, Inc.
3. Competition
The individual life and annuity insurance marketplace is highly competitive. The
Company's competitors include mutual fund companies, insurance companies, banks,
investment advisors and certain service and professional organizations. No one
competitor or small number of competitors is dominant. Competition focuses on
service, technology, cost, variety of investment options, investment
performance, product features, price and financial strength as indicated by
ratings issued by nationally recognized agencies. For more information on the
Company's ratings see Item 1(F) - Ratings.
4. Reserves
Reserves for interest-sensitive whole life products are equal to cumulative
deposits less withdrawals and charges plus credited interest. For all life
insurance contracts, reserves are established for claims that have been incurred
but not reported based on factors derived from past experience.
Reserves for investment contracts (deferred annuities and immediate annuities
without life contingent payouts) are equal to cumulative deposits plus credited
interest less withdrawals and other charges.
The above-mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, and pay expected death or retirement benefits or surrender requests.
5. Reinsurance
The Company seeks to limit its exposure to loss on any single insured and to
recover a portion of benefits paid by ceding risks to other insurance
enterprises under excess coverage and coinsurance contracts. The Company retains
a maximum of $250 thousand of coverage per individual life.
E. INVESTMENTS
GWL&A manages or administers the Company's general and separate accounts in
support of cash and liquidity requirements of the Company's insurance and
investment products. Invested assets under management at year-end 1999 totaled
$152.7 million, comprised of $112.8 million of general account assets and $39.9
million of separate account assets. Invested assets under management at year-end
1998 totaled $104.2 million, comprised of $80.4 million of general account
assets and $23.8 million of separate account assets.
The invested assets of the Company include a broad range of asset classes, such
as public and privately placed corporate bonds, government bonds and
mortgage-backed and asset-backed securities. The assets of the Company are
managed to reflect the underlying characteristics of related insurance products.
The assets of the Company are routinely monitored and evaluated in light of
current economic conditions, trends in capital markets and other factors. These
other factors include investment size, quality, concentration by industry and
other diversification considerations for fixed maturity investments.
F. REGULATION
1. Insurance Regulation
The Company must comply with the insurance laws of New York and Iowa. These laws
govern the admittance of assets, premium rating methodology, policy forms,
establishing reserve requirements and solvency standards, maximum interest rates
on life insurance policy loans and minimum rates for accumulation of surrender
values and the type, amounts and valuation of investments permitted.
The Company's operations and accounts are subject to examination by the New York
Insurance Department at specified intervals.
New York has substantially adopted into law the National Association of
Insurance Commissioners' risk-based capital rules and other financial ratios for
life insurance companies. Based on the Company's December 31, 1999 statutory
financial reports, the Company has risk-based capital well in excess of that
required; however, the Company did fall outside the usual range of some of the
ratios due to the start-up nature of its operations.
2. Insurance Holding Company Regulations
The Company is subject to and complies with insurance holding company
regulations in New York. These regulations contain certain restrictions and
reporting requirements for transactions between an insurer and its affiliates,
including the payments of dividends. They also regulate changes in control of an
insurance company.
3. Securities Law
The Company is subject to various levels of regulation under federal securities
laws. The Company's separate accounts and annuity products are registered under
the Investment Company Act of 1940 and the Securities Act of 1933.
4. Potential Legislation
United States legislation and administrative developments in various areas,
including pension regulation, financial services regulation, health care
legislation and the insurance industry could significantly and adversely affect
the Company in the future. Congress has from time to time considered legislation
relating to health care reform and managed care issues (including patients'
rights, privacy of medical records and managed care plan or enterprise
liability), changes in the deferral of taxation on the accretion of value within
certain annuities and life insurance products, changes in regulation for the
Employee Retirement Income Security Act of 1974, as amended, and changes as to
the availability of Section 401(k) for individual retirement accounts.
It is not possible to predict whether future legislation or regulation adversely
affecting the business of the Company will be enacted and, if enacted, the
extent to which such legislation or regulation will have an effect on the
Company and its competitors.
G. RATINGS
The Company is rated by a number of nationally recognized rating agencies. The
ratings represent the opinion of the rating agencies on the financial strength
of the Company and its ability to meet the obligations of its insurance
policies. The ratings take into account an agreement whereby GWL&A has
undertaken to provide the Company with certain financial support related to
maintaining required statutory surplus and liquidity.
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Rating Agency Measurement Rating
------------------------------------------- ------------------------------------- ------------------
A.M. Best Company Financial Condition and Operating AA+ *
Performance
Duff & Phelps Corporation Claims Paying Ability AAA *
Standard & Poor's Corporation Financial Strength AA **
Moody's Investors Service Financial Strength Aa3 ***
</TABLE>
* Highest ratings available.
** Third highest rating out of 21 rating categories. *** Fourth highest
rating out of 21 rating categories.
<PAGE>
H. MISCELLANEOUS
Significant BOLI deposits were received during 1999. Although the Company's BOLI
business is comprised of a few customers, which account for the majority of the
total deposits, the BOLI contracts allow for no more than 20% surrenders in any
given year.
The Company and GWL&A have an administration services agreement whereby GWL&A
administers, distributes, and underwrites business for the Company and
administers the Company's investment portfolio.
ITEM 2. PROPERTIES
The Company leases its home office in Albany, New York.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1999 to a vote of security
holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. EQUITY SECURITY HOLDERS AND MARKET INFORMATION
There is no established public trading market for the Company's common equity.
B. DIVIDENDS
The Company has not paid dividends on its common shares.
Under New York law, the Company cannot distribute any dividend unless a notice
of its intention to declare such dividend and the amount thereof has been filed
with the New York Superintendent of Insurance not less than thirty days in
advance of such proposed declaration. The Superintendent may disapprove of such
distribution by giving written notice to the Company within thirty days after
such filing that he finds that the financial condition of the Company does not
warrant such distribution.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain financial data of the Company. This
summary has been derived in part from, and should be read in conjunction with,
the consolidated financial statements of the Company included in Item 8
(Financial Statements and Supplementary Data).
<TABLE>
For the Period
from April 4,
1997 (inception)
through
(Dollars in Thousands) For the years ended December 31, December 31
------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
INCOME STATEMENT DATA
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Premium and fee income $ 9,836 $ 78 $ 21
Net investment income 6,278 3,367 243
Realized investment gains (6) 74
------------------- ------------------- --------------------
------------------- ------------------- --------------------
Total Revenues 16,108 3,519 264
------------------- ------------------- --------------------
------------------- ------------------- --------------------
Total benefits and expenses 14,444 2,124 213
Income tax expense 641 603 18
------------------- ------------------- --------------------
Net Income $ 1,023 $ 792 $ 33
=================== =================== ====================
BALANCE SHEET DATA
Investment assets $ 112,799 $ 80,353 $ 5,381
Separate account assets 39,881 23,836 9,045
Total assets 171,710 107,095 16,154
Total policyholder liabilities 98,421 64,445 84
Total stockholder's equity 30,614 16,642 6,538
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements. Forward-looking statements
are statements not based on historical information and which relate to future
operations, strategies, financial results or other developments. In particular,
statements using verbs such as "expect," "anticipate," "believe" or words of
similar import generally involve forward-looking statements. Without limiting
the foregoing, forward-looking statements include statements which represent the
Company's beliefs concerning future or projected levels of sales of the
Company's products, investment spreads or yields, or the earnings or
profitability of the Company's activities. Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and unforeseeable
events or developments, some of which may be national in scope, such as general
economic conditions and interest rates, some of which may be related to the
insurance industry generally, such as pricing competition, regulatory
developments and industry consolidation, and others of which may relate to the
Company specifically, such as credit, volatility and other risks associated with
the Company's investment portfolio, and other factors. Readers are also directed
to consider other risks and uncertainties discussed in documents filed by the
Company with the Securities and Exchange Commission.
Management's discussion and analysis of financial condition and results of
operations of the Company for the years ended 1999 and 1998 follows.
A. COMPANY RESULTS OF OPERATIONS
1. Consolidated Results
The Company's consolidated net income increased $231 thousand in 1999 when
compared to the year ended December 31, 1998, reflecting net income in the
Employee Benefits segment during 1999, offset by a decrease in the Financial
Services segment. The Employee Benefits segment contributed $446 thousand to the
improved consolidated results compared to the Financial Services segment, which
recorded a $215 thousand decrease. Of total consolidated net income in 1999 and
1998, the Employee Benefits segment contributed 44% and 0%, respectively, while
the Financial Services segment contributed 56% and 100%, respectively.
The Employee Benefits segment began operations in 1999 by entering into an
assumption reinsurance agreement on December 1, 1999 with AH&L NY to acquire a
block of life and health insurance premium. The subsequent operations resulting
from this agreement resulted in net income of $446 thousand being recorded in
1999.
The Financial Services net income decreased in 1999 primarily due to realized
losses on fixed maturities in 1999 of $6 thousand compared to realized gains in
1998 of $74 thousand and a strengthening of BOLI reserves by $300 thousand.
The Company's consolidated net income increased $759 thousand in 1998 when
compared to the year ended December 31, 1997. During 1998 the Company received
approval from the New York Department of Insurance to market its BOLI product.
The growth in net income in 1998 was primarily due to higher investment income
resulting from BOLI sales as well as a capital infusion from GWL&A of $8.6
million in December 1998. The Company's operations during the period April 4,
1997 (inception) to December 31, 1997 were focused on obtaining a New York
insurance license (which occurred May 1997), and preliminary marketing
activities.
In 1999 total revenues increased $12.6 million to $16.1 million when compared to
the year ended December 31, 1998. The growth in revenues in 1999 was comprised
of increased premium and fee income of $9.8 million, increased net investment
income of $2.9 million and decreased realized gain on investments of $0.1
million. In 1998 total revenues increased $3.2 million to $3.5 million when
compared to the year ended December 31, 1997. The growth in revenues in 1998 was
comprised of increased net investment income of $3.1 million and increased
realized gains on investments of $0.1 million.
The increased premium and fee income in 1999 was comprised of growth in Employee
Benefits and Financial Services premium and fee income of $9.6 million and $0.2
million, respectively.
Net investment income grew to $6.3 million and $3.4 million in 1999 and 1998,
respectively, from $243 thousand in 1997, primarily due to BOLI sales as well as
capital infusions from GWL&A of $16 million and $8.6 million in 1999 and 1998,
respectively. The growth in both years was in the Financial Services segment.
Realized investment income from fixed maturities decreased from a realized
investment gain of $74 thousand in 1998 to a realized investment loss of $6
thousand in 1999. There were no realized investment gains in 1997. The increase
in interest rates in 1999 contributed to fixed maturity losses, while the
decrease in interest rates in 1998 resulted in gains on sales of fixed
maturities.
Total benefits and expenses increased $12.3 million in 1999 when compared to the
year ended December 31, 1998. The Employee Benefits segments contributed $8.9
million of the increase in 1999 compared to the Financial Services segment,
which contributed $3.4 million. The increase in total benefits and expenses was
$1.9 million in 1998. The increase in Employee Benefits in 1999 reflects the
impact of operating in a new segment. The increase in Financial Services in both
years related to higher interest credits on BOLI account balances and increased
operating expenses associated with growth in the Company's business.
Income tax expense increased $38 thousand in 1999 when compared to the year
ended December 31, 1998. Income tax expense increased $585 thousand in 1998 when
compared to the year ended December 31, 1997. The increase in income tax expense
in 1999 reflected higher net earnings. The increase in income tax expense from
1997 to 1998 reflected higher earnings in 1998 as well as state income taxes.
The Company's effective tax rate was 38.5% in 1999 compared to 43.2% in 1998,
due to lower state income taxes in 1999. The Company's effective tax rate was
43.2% in 1998 compared to 35% in 1997, due to the inclusion of state income
taxes in 1998.
In evaluating its results of operations, the Company also considers net changes
in deposits received for investment-type contracts and deposits to separate
accounts.
Deposits for investment-type contracts decreased $42.5 million in 1999 when
compared to the year ended December 31, 1998, primarily due to BOLI deposits of
$62.5 million in 1998 compared to $20.0 million in 1999. Deposits for
investment-type contracts increased $62.4 million in 1998 when compared to the
year ended December 31, 1997, which represents the BOLI deposits of $62.5
million in 1998. BOLI sales are single premium and very large in nature, and
therefore, can vary from year to year.
Deposits for separate accounts decreased $3.4 million in 1999 when compared to
the year ended December 31, 1998. Deposits for separate accounts increased $3.7
million in 1998 when compared to the year ended December 31, 1997.
<PAGE>
2. Other Matters
On October 6, 1999, GWL&A entered into an agreement with Allmerica Financial
Corporation ("Allmerica") to acquire Allmerica's group life and health insurance
business on March 1, 2000. The Allmerica policies resident in the State of New
York are 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.
B. EMPLOYEE BENEFITS RESULTS OF OPERATIONS
As discussed above, on December 1, 1999, the Employee Benefits segment entered
into a reinsurance transaction with AH&L NY. The results below reflect the
operations for the Employee Benefits segment for the month of December:
<TABLE>
For the Period
from April 4,
1997 (inception)
through
(Thousands) For the years ended December 31, December 31
------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
INCOME STATEMENT DATA
<S> <C> <C>
Premium and fee income $ 9,625 $ $
Net investment income
Realized investment gains
------------------- ------------------- --------------------
------------------- ------------------- --------------------
Total Revenues 9,625
------------------- ------------------- --------------------
------------------- ------------------- --------------------
Policyholder benefits 8,378
Operating expenses 506
------------------- ------------------- --------------------
Total benefits and expenses 8,884
------------------- ------------------- --------------------
Income from operations 741
Income tax expense 295
------------------- ------------------- --------------------
Net Income $ 446 $ $
=================== =================== ====================
</TABLE>
In 2000, the Company will build upon the acquisition of the AH&L NY business
though new sales and the addition of the Allmerica group life and health
business beginning March 1, 2000. The Company also intends to market 401(k)
savings plans to customers to complete the overall product offering in the
Employee Benefits segment.
<PAGE>
C. FINANCIAL SERVICES RESULTS OF OPERATIONS
The following is a summary of certain financial data of the Financial Services
segment:
<TABLE>
(Thousands) Years Ended December 31,
-------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT 1999 1998 1997
-------------- ------------ -------------
DATA
Premium and fee income $ 211 $ 78 $ 21
Net investment income 6,278 3,367 243
Realized investment gains (losses) (6) 74
-------------- ------------ -------------
Total Revenues 6,483 3,519 264
Policyholder benefits 4,600 1,737 0
Operating expenses 960 387 213
-------------- ------------ -------------
Total benefits and expenses 5,560 2,124 213
-------------- ------------ -------------
Income from operations 923 1,395 51
Income tax expense 346 603 18
-------------- ------------ -------------
Net Income $ 577 $ 792 $ 33
============== ============ =============
Deposits for investment-type
Contracts $ 20,000 $ 62,528 $ 84
Deposits to separate accounts 9,389 12,776 9,121
</TABLE>
During 1999, the Financial Services segment experienced increased net investment
income and increased total benefits and expenses.
Net income for Financial Services decreased $215 thousand in 1999 and increased
$759 thousand in 1998. The decrease in 1999 was due primarily to higher benefits
related to BOLI products and realized losses on fixed maturities in 1999
compared to realized gains in 1998. The improvement in earnings in 1998
reflected higher earnings from an increased asset base, an increase in
investment margins, and larger realized gains on fixed maturities.
Premium and fee income increased $133 thousand in 1999 compared to an increase
of $57 thousand in 1998. The increase in 1999 was driven by higher fee income
related to growth in the separate accounts.
Deposits for investment type contracts included BOLI deposits of $20.0 million
in 1999 compared to $62.5 million in 1998. The large BOLI deposits in the prior
year were attributable to one large transaction of $50.0 million. The nature of
this type of product leads to large fluctuations from year to year.
Deposits for separate accounts decreased $3.4 million in 1999 to $9.4 million.
In 1998 the deposits for separate accounts increased $3.7 million to $12.8
million. The separate account assets have increased by $16.0 million and $14.8
million in 1999 and 1998, respectively, due to the strength of the equity
markets in the United States and new deposits.
Net investment income increased $2.9 million in 1999 compared to $3.1 million in
1998 primarily due to BOLI sales as well as capital infusions from GWL&A of $16
million and $8.6 million in 1999 and 1998, respectively.
Total benefits and expenses increased $3.4 million in 1999 compared to $1.9
million in 1998 primarily due to higher interest credits on BOLI balances and
increased operating expenses.
In 2000, the Company will focus on improving its Internet capability in the
annuity markets.
D. 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.
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.
A summary of the Company's general account invested assets follows:
<TABLE>
(Dollars in Thousands) 1999 1998
----------------- ------------------
<S> <C> <C>
Fixed maturities, available for sale, at fair value $ 74,149 $ 65,154
Fixed maturities, held-to-maturity, at amortized cost 37,050 14,500
Short-term investments 1,600 699
----------------- ------------------
Total invested assets $ 112,799 $ 80,353
================= ==================
</TABLE>
Fixed maturity investments include public and privately placed corporate bonds,
government bonds and mortgage-backed and asset-backed securities. Private
placement investments, which are primarily in the held-to-maturity category, are
generally less marketable than publicly traded assets, yet they typically offer
covenant protection which allows the Company, if necessary, to take appropriate
action to protect its investment. The Company believes that the cost of the
additional monitoring and analysis required by private placements is more than
offset by their enhanced yield.
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:
<PAGE>
<TABLE>
<S> <C> <C>
Credit Rating 1998 1998
-------------
----------------- ----------------
AAA 57.4% 62.7%
AA 11.2 6.5
A 10.1 13.1
BBB 21.3 17.7
----------------- ----------------
TOTAL 100.0% 100.0%
================= ================
</TABLE>
E. LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that are dependent upon the
principal product lines currently offered. 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 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 $7.0 million and $1.4 million as of December 31, 1999
and December 31, 1998, respectively.
As discussed above, the Company and GWL&A have an agreement whereby GWL&A has
undertaken to provide the Company with certain financial support related to
maintaining required statutory surplus and liquidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk facing the Company is exposure to rising interest rates.
To manage interest rate risk, the Company invests in assets that are suited to
the products that it sells. For products with uncertain timing of benefit
payments such as life insurance, the Company invests in fixed income assets with
expected cash flows that are earlier than the expected timing of the benefit
payments. The Company can then react to changing interest rates as these assets
mature for reinvestment.
The Company has estimated the possible effects of interest rate changes at
December 31, 1999. If interest rates increased by 100 basis points (1%), the
fair value of the fixed income assets would decrease by approximately $5.6
million. This calculation used projected asset cash flows, discounted back to
December 31, 1999. The cash flow projections are shown in the table below. The
table shows cash flows rather than expected maturity dates because many of the
Company's assets have substantial expected principal payments prior to the final
maturity date. The fair value shown in the table below was calculated using spot
discount interest rates that varied by the year in which the cash flow was
expected to be received. These spot rates in the benchmark calculation ranged
from 5.25% to 6.93%.
<PAGE>
<TABLE>
Projected Cash Flows by Calendar Year ($ millions)
There- Undiscounted Fair
2000 2001 2002 2003 2004 after Total Value
-------- --------- --------- --------- --------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Benchmark 13 8 8 9 10 112 160 97.5
Interest Rates
up 1% 13 8 8 9 9 115 162 91.9
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are the Company's Financial Statements for the years ended
December 31, 1999 and 1998 and the Independent Auditors' Report thereon.
<PAGE>
First Great-West Life & Annuity Insurance Company
(A wholly-owned subsidiary of
Great-West Life & Annuity Insurance Company)
-------------------------------------------
Financial Statements for the Years Ended December 31,
1999, 1998, and for the period from April 4, 1997
(Inception) to December 31, 1997 and Independent
Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
First Great-West Life & Annuity Insurance Company:
We have audited the accompanying balance sheets of First Great-West Life &
Annuity Insurance Company (a wholly-owned subsidiary of Great-West Life &
Annuity Insurance Company) as of December 31, 1999 and 1998, and the related
statements of income, stockholder's equity, and cash flows for the years then
ended and for the period from April 4, 1997 (Inception) to December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of First Great-West Life & Annuity Insurance
Company as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended and for the period from April 7, 1997
(Inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 31, 2000
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
===========================================================================================================================
[Dollars in thousands except for share information]
<S> <C> <C>
ASSETS 1999 1998
- ------
----------------- -----------------
INVESTMENTS:
Fixed maturities:
Held-to-maturity, at amortized cost
(fair value $35,335 and $15,044) $ 37,050 $ 14,500
Available-for-sale, at fair value
(amortized cost $77,740 and $63,321) 74,149 65,154
Short-term investments, available-for-sale (cost
approximates fair value) 1,600 699
----------------- -----------------
Total Investments 112,799 80,353
Cash 5,443 705
Reinsurance receivable 1,426 123
Deferred policy acquisition costs 1,702 381
Investment income due and accrued 1,204 695
Other assets 3,366 19
Premiums in course of collection 537
Deferred income taxes 2,050 983
Due from Parent Corporation 3,302
Separate account assets 39,881 23,836
----------------- -----------------
TOTAL ASSETS $ 171,710 $ 107,095
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
POLICY BENEFIT LIABILITIES:
Policy reserves $ 93,434 $ 64,320
Policy and contract claims 4,894 125
Policyholder funds 93
GENERAL LIABILITIES:
Due to Parent Corporation 2,077
Other liabilities 2,794 95
Separate account liabilities 39,881 23,836
----------------- -----------------
Total Liabilities 141,096 90,453
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
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 12,600
Accumulated other comprehensive income (loss) (2,334) 717
Retained earnings 1,848 825
----------------- -----------------
Total Stockholder's Equity 30,614 16,642
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 171,710 $ 107,095
================= =================
See notes to financial statements.
</TABLE>
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE
=================================================================================================================================
PERIOD FROM APRIL 4, 1997 (INCEPTION) TO DECEMBER 31, 1997 [Dollars in
thousands]
1999 1998 1997
---------------- ----------------- -----------------
REVENUES:
<S> <C> <C> <C>
Premiums and fee income $ 9,836 $ 78 $ 21
Net investment income 6,278 3,367 243
Net realized gains (losses) on investments (6) 74
---------------- ----------------- -----------------
16,108 3,519 264
---------------- ----------------- -----------------
BENEFITS AND EXPENSES:
Life and other policy benefits 4,391 50
Increase in reserves 4,003
Interest paid or credited to
Contractholders 4,584 1,687
General and administrative expenses 1,466 387 213
---------------- ----------------- -----------------
14,444 2,124 213
---------------- ----------------- -----------------
INCOME BEFORE INCOME TAXES 1,664 1,395 51
PROVISION FOR INCOME TAXES:
Current 65 1,920 71
Deferred 576 (1,317) (53)
---------------- ----------------- -----------------
641 603 18
---------------- ----------------- -----------------
NET INCOME $ 1,023 $ 792 $ 33
================ ================= =================
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
=====================================================================================================
FROM APRIL 4, 1997 (INCEPTION) TO DECEMBER 31, 1997 [Dollars in thousands except
for share information]
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income (Loss) Earnings Total
------------- ------------- ------------- --------------- ------------- -------------
Capital contributions 2,500 $ 2,500 $ 4,000 $ $ $ 6,500
Net income 33 33
Other comprehensive income 5 5
-------------
Comprehensive income 38
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 2,500 2,500 4,000 5 33 6,538
Net income 792 792
Other comprehensive income 712 712
-------------
Comprehensive income 1,504
-------------
Capital contribution 8,600 8,600
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,500 2,500 12,600 717 825 16,642
Net income 1,023 1,023
Other comprehensive income (3,051) (3,051)
(loss)
-------------
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
============= ============= ============= =============== ============= =============
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
=======================================================================================================
FROM APRIL 4, 1997 (INCEPTION) TO DECEMBER 31, 1997
[Dollars in thousands]
1999 1998 1997
-------------- -------------- --------------
OPERATING ACTIVITIES:
Net income $ 1,023 $ 792 $ 33
Adjustments to reconcile net income to net cash
Provided by operating activities
Amortization of investments 59 12 (19)
Realized losses (gains) on sale of investments 6 (74)
Deferred income taxes 576 (1,317) (53)
Changes in assets and liabilities:
Accrued interest and other receivables (1,046) (671) (24)
Policy benefit liabilities 13,389 1,859
Reinsurance receivable (1,303) (123)
Other, net (1,145) (1,361) 326
-------------- -------------- --------------
Net cash (used in) provided
by operating activities 11,559 (883) 263
-------------- -------------- --------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and redemptions of investments:
Fixed maturities:
Held-to-maturity 447
Available-for-sale 15,683 73,340
Purchases of investments:
Fixed maturities:
Held-to-maturity (23,000) (14,500)
Available-for-sale (31,066) (131,924) (5,354)
-------------- -------------- --------------
Net cash used in investing activities (37,936) (73,084) (5,354)
-------------- -------------- --------------
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
================================================================================================================
FROM APRIL 4, 1997 (INCEPTION) TO DECEMBER 31, 1997
[Dollars in thousands]
1999 1998 1997
-------------- -------------- --------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 20,494 62,502 84
Due to Parent Corporation (5,379) 1,922 155
Capital contributions 16,000 8,600 6,500
-------------- -------------- --------------
Net cash provided by financing activities 31,115 73,024 6,739
-------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH 4,738 (943) 1,648
CASH, BEGINNING OF PERIOD 705 1,648 0
-------------- -------------- --------------
CASH, END OF PERIOD $ 5,443 $ 705 $ 1,648
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid (received) during the year for:
Income taxes $ (1,073) $ 2,390 $ 0
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
=============================================================================
FROM APRIL 4, 1997 (INCEPTION) TO DECEMBER 31, 1997 [Dollars in thousands except
for share information]
1. ORGANIZATION
Organization - 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, through a $6,000 cash investment
from the Parent Corporation for 2,000 shares of common stock. On
December 29, 1997, the Company issued an additional 500 shares of
common stock to the Parent Corporation for $500. The Company was
licensed as an insurance company in the State of New York on May 28,
1997. The Company does business in New York through two business
segments.
Basis of Presentation - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash - Cash includes only amounts in demand deposit accounts.
Investments - Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and ability
to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost unless fair value is less than cost and the
decline is deemed to be other than temporary, in which case they are
written down to fair value and a new cost basis is established.
Fixed maturities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the net unrealized gains and losses reported as accumulated
other comprehensive income (loss) in stockholder's equity.
<PAGE>
The amortized cost of fixed maturities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums and
accretion of discounts using the effective interest method over the
estimated life of the related bonds. Such amortization is included in
net investment income. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net realized gains
(losses) on investments.
Short-term investments include securities purchased with initial
maturities of one year or less and are carried at amortized cost. The
Company considers short-term investments to be available-for-sale and
amortized cost approximates fair value.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
primarily consist of sales commissions related to the production of new
and renewal business, have been deferred to the extent recoverable.
Deferred costs associated with the annuity products are being amortized
over the life of the contracts in proportion to the emergence of gross
profits. Retrospective adjustments of these amounts are made when the
Company revises its estimates of current or future gross profits.
Deferred costs associated with traditional life insurance are amortized
over the premium paying period of the related policies in proportion to
premium revenues recognized. Amortization of deferred policy
acquisition costs was $112, $0, and $0 in 1999, 1998, and 1997,
respectively.
Separate Accounts - Separate account assets and related liabilities are
carried at fair value. The Company's separate accounts invest in shares
of various external mutual funds. Investment income and realized
capital gains and losses of the separate accounts accrue directly to
the contractholders and, therefore, are not included in the Company's
statements of income. Revenues to the Company from the separate
accounts consist of contract maintenance fees, administration fees, and
mortality and expense risk charges.
Due to/from Parent Corporation - Due to/from Parent Corporation
includes amounts due on demand.
Policy Reserves - Life insurance reserves of $93,315 and $64,228 at
December 31, 1999 and 1998 are computed on the basis of estimated
mortality, investment yield, withdrawals, future maintenance and
settlement expenses, and retrospective experience rating premium
refunds. Annuity contract reserves without life contingencies of $119
and $92 are carried at contractholders' account value at December 31,
1999 and 1998, respectively.
<PAGE>
Reinsurance - Policy reserves ceded to other insurance companies are
carried as a reinsurance receivable on the balance sheet. The cost of
reinsurance related to long-duration contracts is accounted for over
the life of the underlying reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Policy and Contract Claims - Policy and contract claims include
provisions for reported life and health claims in process of
settlement, valued in accordance with the terms of the related policies
and contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Recognition of Premium Income and Expenses - Life insurance premiums
are recognized when due. Revenues for annuity and other contracts
without significant life contingencies are recognized as received. They
consist of contract charges for the cost of insurance, contract
administration, and surrender fees that have been assessed against the
contract account balance during the period. Fee income is derived
primarily from assets under management, consisting of contract
maintenance fees, administration fees and mortality and expense risk
charges, and is recognized when due. Benefits and expenses on policies
with life contingencies impact income by means of the provision for
future policy benefit reserves, resulting in recognition of profits
over the life of the contracts.
Income Taxes - Income taxes are recorded using the asset and liability
approach, which requires, among other provisions, the recognition of
deferred tax assets and liabilities for expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, all expected future events (other than the enactments or
changes in the tax laws or rules) are considered.
Regulatory Requirements - In accordance with the requirements of the
State of New York, the Company must demonstrate adequate capital. At
December 31, 1999, the Company was in compliance with the requirement.
The Company is also required to maintain an investment deposit in the
amount of $5,000 in cash or investment certificates with the New York
Insurance Commissioner for the protection of policyholders in the event
the Company is unable to satisfactorily meet its contractual
obligations. A United States Treasury obligation, whose cost
approximates market value, was designated to meet this requirement at
December 31, 1999.
<PAGE>
3. RELATED-PARTY TRANSACTIONS
The Company and the Parent Corporation have service agreements whereby
the Parent Corporation administers, distributes, and underwrites
business for the Company and administers the Company's investment
portfolio and the Company provides certain services for the Parent
Corporation. The amounts recorded are based upon management's best
estimate of actual costs incurred and resources expended based upon
number of policies and/or certificates in force. These transactions are
summarized as follows:
<TABLE>
Years Ended
December 31,
--------------------------------------------
1999 1998 1997
====================================================== ------------ ------------ ------------
Investment management expense
======================================================
<S> <C> <C> <C>
(included in net investment income) $ 96 $ 47 $ 4
======================================================
Administrative services
======================================================
(included in operating expenses) (28) (48) (15)
======================================================
==================================================================================================================================
</TABLE>
The Company and the Parent Corporation have an agreement whereby the
Parent Corporation provides certain financial support related to
maintaining adequate regulatory surplus and liquidity.
4. REINSURANCE
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of
benefits paid by ceding risks to other insurance enterprises under
excess coverage and co-insurance contracts. The Company retains 100% of
the first $50 of coverage per individual life and has a maximum
retention of $250 per individual life. Life insurance policies are
first reinsured to the Parent Corporation up to a maximum of $1,250 of
coverage per individual life. Any excess amount is reinsured to a third
party.
Reinsurance contracts do not relieve the Company from its obligations
to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company; consequently, allowances are
established for amounts deemed uncollectible. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. At December 31, 1999
and 1998, the reinsurance receivable had a carrying value of $1,426 and
$123, respectively.
Total reinsurance premiums ceded to the Parent Corporation in 1999,
1998, and 1997 were $43, $61, and $0, respectively.
<PAGE>
On December 1, 1999, the Company entered into an assumption reinsurance
agreement with Anthem Health & Life Insurance Company of New York (AH&L
NY), to acquire a block of life and health insurance business. The
Company also agreed to the assignment of a coinsurance agreement
between the Parent and AH&L NY on certain policies that would not be
transferred to the Company via assumption reinsurance. The business
primarily consists of administration services only and stop loss
policies. The Company assumed $7,904 of policy reserves and
miscellaneous assets and liabilities in exchange for equal
consideration from AH&L NY and the Parent.
The following schedule details life insurance in force and life and
accident/health premiums:
<PAGE>
<TABLE>
Ceded Assumed Percentage
Primarily to Primarily of Amount
Gross the Other from Other Net Assumed
Amount Companies Companies Amount to Net
--------------- --------------- -------------- ----------------- ----------------
December 31, 1999:
Life insurance in force:
<S> <C> <C> <C> <C> <C>
Individual $ 329,346 $ 125,222 $ 173,773 $ 377,897 46.0%
Group 1,075,000 1,075,000 0.0%
--------------- --------------- -------------- -----------------
Total $ 1,404,346 $ 125,222 $ 173,773 $ 1,452,897
=============== =============== ============== =================
Premium Income:
Life insurance $ 685 $ 57 $ 93 $ 721 12.9%
Accident/health 9,471 1,064 23 8,430 0.3%
--------------- --------------- -------------- -----------------
Total $ 10,156 $ 1,121 $ 116 $ 9,151
=============== =============== ============== =================
December 31, 1998:
Life insurance in force:
Individual $ 251,792 $ 173,773 $ $ 78,019 0.0%
Group 0.0%
--------------- --------------- -------------- -----------------
Total $ 251,792 $ 173,773 $ $ 78,019
=============== =============== ============== =================
Premium Income:
Life insurance $ $ $ $ 0.0%
Accident/health 61 0.0%
--------------- --------------- -------------- -----------------
Total $ $ 61 $ $ (61)
=============== =============== ============== =================
<PAGE>
5. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1999 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
------------ ------------- ------------- ------------- ------------
Held-to-Maturity:
Corporate bonds $ 30,050 $ $ 1,717 $ 28,333 $ 30,050
Public utilities 7,000 2 7,002 7,000
------------ ------------- ------------- ------------- ------------
$ 37,050 $ 2 $ 1,717 $ 35,335 $ 37,050
============ ============= ============= ============= ============
Available-for-Sale:
U.S. Treasury Securities
and obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations $ 17,918 $ $ 630 $ 17,288 $ 17,288
Other 4,999 5 4,994 4,994
Collateralized mortgage
obligations 19,952 1,371 18,581 18,581
Corporate bonds 34,871 1,585 33,286 33,286
------------ ------------- ------------- ------------- ------------
$ 77,740 $ $ 3,591 $ 74,149 $ 74,149
============ ============= ============= ============= ============
Fixed maturities owned at December 31, 1998 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
------------ ------------- ------------- ------------- ------------
Held-to-Maturity:
Corporate bonds $ 14,500 $ 544 $ $ 15,044 $ 14,500
------------ ------------- ------------- ------------- ------------
$ 14,500 $ 544 $ $ 15,044 $ 14,500
============ ============= ============= ============= ============
Available-for-Sale:
U.S. Treasury Securities
and obligations of U.S.
Government Agencies:
Collateralized mortgage
Obligations $ 17,963 $ 1,063 $ $ 19,026 $ 19,026
Other 4,999 59 5,058 5,058
Collateralized mortgage
Obligations 19,956 331 20,287 20,287
Corporate bonds 20,403 380 20,783 20,783
------------ ------------- ------------- ------------- ------------
$ 63,321 $ 1,833 $ $ 65,154 $ 65,154
============ ============= ============= ============= ============
</TABLE>
The collateralized mortgage obligations consist primarily of sequential
and planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fifteen years.
Prepayments on all mortgage-backed securities are monitored monthly and
amortization of the premium and/or the accretion of the discount
associated with the purchase of such securities is adjusted by such
prepayments.
See Note 6 for additional information on policies regarding estimated
fair value of fixed maturities.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1999, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
Held-to-Maturity Available-for-Sale
---------------------------- ----------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 260 $ 247 $ 4,999 $ 4,994
Due after one year through five years 1,952 1,851
Due after five years through ten years 15,770 15,233 15,007 13,982
Due after ten years 7,302 6,817 10,000 9,920
Mortgage-backed securities 37,870 35,869
Asset-backed securities 11,766 11,187 9,864 9,384
------------ ------------ ------------ ------------
$ 37,050 $ 35,335 $ 77,740 $ 74,149
============ ============ ============ ============
Proceeds from sales of securities available-for-sale were $15,158,
$68,109, and $0 during 1999, 1998, and 1997, respectively. The realized
gains on such sales totaled $15, $201, and $0 for 1999, 1998, and 1997,
respectively. The realized losses totaled $21, $127, and $0 for 1999,
1998, and 1997, respectively.
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
December 31,
------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
ASSETS:
Fixed maturities and short-term
Investments $ 112,799 $ 111,084 $ 80,353 $ 80,897
LIABILITIES:
Annuity contract reserves without
life contingencies 119 119 92 92
</TABLE>
The estimated fair values of financial instruments have been determined
using available information and appropriate valuation methodologies.
However, considerable judgement is required to interpret market data to
develop estimates of fair value. Accordingly, the estimates presented
are not necessarily indicative of the amounts the Company could realize
in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The estimated fair value of fixed maturities that are publicly traded
are obtained from an independent pricing service. To determine fair
value for fixed maturities not actively traded, the Company utilized
discounted cash flows calculated at current market rates on investments
of similar quality and term.
The fair value of annuity contract reserves without life contingencies
are estimated by discounting the cash flows to maturity of the
contracts, utilizing current credited rates for similar products.
The carrying amounts for receivables and liabilities reported in the
balance sheet approximate fair value due to their short-term nature.
7. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
<TABLE>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Federal tax rate 35.0 % 35.0 % 35.0 %
Change in tax rate resulting from:
State taxes 4.6 6.8
Other (1.1) 1.4
------------- ------------- -------------
Total 38.5 % 43.2 % 35.0 %
============= ============= =============
Temporary differences, which give rise to the deferred tax assets and
liabilities as of December 31, 1999, and 1998 are as follows:
1999 1998
--------------------------- ---------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Asset Liability Asset Liability
----------- ------------ ------------ -----------
Policy reserves $ 128 $ $ $ 175
Deferred policy
Acquisition costs 596 134
Deferred acquisition
cost proxy tax 1,312 1,720
Investment assets 1,254 642
State taxes 48 214
----------- ------------ ------------ -----------
Total deferred taxes $ 2,694 $ 644 $ 1,934 $ 951
=========== ============ ============ ===========
Amounts related to investment assets above include $(1,256) and $642
related to the unrealized gains (losses) on the Company's fixed
maturities available-for-sale at December 31, 1999, and 1998,
respectively. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset will be
realized.
8. COMPREHENSIVE INCOME
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 stockholder's
equity. This Statement requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income (loss).
Other comprehensive income (loss) at December 31, 1999 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------------- ----------------- ----------------
Unrealized gains on securities:
Unrealized holding gains
Arising during the period $ (5,425) $ 1,900 $ (3,525)
----------------- ----------------- ----------------
Net unrealized gains (5,425) 1,900 (3,525)
Reserve and DAC adjustment 729 (255) 474
----------------- ----------------- ----------------
Other comprehensive income (loss) $ (4,696) $ 1,645 $ (3,051)
================= ================= ================
Other comprehensive income at December 31, 1998 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------------- ----------------- ----------------
Unrealized gains on securities:
Unrealized holding gains
Arising during the period $ 1,826 $ (639) $ 1,187
----------------- ----------------- ----------------
Net unrealized gains 1,826 (639) 1,187
Reserve and DAC adjustment (730) 255 (475)
----------------- ----------------- ----------------
Other comprehensive income $ 1,096 $ (384) $ 712
================= ================= ================
<PAGE>
Other comprehensive income at December 31, 1997 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------------- ----------------- ----------------
Unrealized gains on securities:
Unrealized holding gains
Arising during the period $ 8 $ (3) $ 5
----------------- ----------------- ----------------
Net unrealized gains 8 (3) 5
----------------- ----------------- ----------------
Other comprehensive income $ 8 $ (3) $ 5
================= ================= ================
9. SEGMENT INFORMATION
During 1999, the Company had two reportable segments: Employee Benefits
and Financial Services. During 1998 and 1997, the Company had only one
reportable segment, Financial Services. The Employee Benefits segment
markets group life and health and 401(k) products to small and
mid-sized corporate employers. The Financial Services segment primarily
markets products to public and not-for-profit employers and individuals
and offers life insurance products to individuals and businesses. In
both 1998 and 1999, large dollar bank-owned life insurance policies
were sold to a limited number of customers. Accordingly, these
transactions account for the majority of the investment assets and
reserves, and significantly impact the results of operations, of this
segment.
The accounting policies of the segments are the same as those described
in Note 2. The Company evaluates performance based on profit or loss
from operations after income taxes.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately, as
each segment has unique distribution channels.
The Company's operations are not materially dependent on one or a few
customers, brokers, or agents.
<PAGE>
Summarized segment financial information for the year ended and as of
December 31, 1999 was as follows:
Operations: Employee Financial Total
Benefits Services U.S.
----------------- ----------------- ----------------
Revenue:
Premium and fee income $ 9,625 $ 211 $ 9,836
Net investment income 6,278 6,278
Realized investment gains (losses) (6) (6)
----------------- ----------------- ----------------
Total revenue 9,625 6,483 16,108
Benefits and Expenses:
Benefits 8,378 4,600 12,978
Operating expenses 505 961 1,466
----------------- ----------------- ----------------
Total benefits and 8,883 5,561 14,444
expenses
Net operating income
before
Income taxes 741 923 1,664
Income taxes 295 346 641
----------------- ----------------- ----------------
Net income $ 446 $ 577 $ 1,023
================= ================= ================
Assets: Employee Financial Total
Benefits Services U.S.
----------------- ----------------- ----------------
Investment assets $ $ 112,799 $ 112,799
Other assets 7,851 11,179 19,030
Separate account assets 39,881 39,881
----------------- ----------------- ----------------
Total assets $ 7,851 $ 163,859 $ 171,710
================= ================= ================
10. COMMITMENTS AND CONTINGENCIES
On October 6, 1999, the Parent entered into a purchase and
sale 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, as defined in the Agreement, will be based on
a percentage of the amount in-force at March 1, 2000
contingent on the persistency of the block of business through
March 2001. Management does not expect the purchase price to
have a material impact on the Company's consolidated financial
statements.
<PAGE>
11. DIVIDEND RESTRICTIONS
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31 are as follows (unaudited):
1999 1998 1997
================================================== -------------- -------------- --------------
(Unaudited)
==================================================
Net income (loss) $ 1,407 $ (2,182) $ (19)
==================================================
Capital and surplus 29,494 12,808 6,469
==================================================
</TABLE>
As an insurance company domiciled in the State of New York, the Company
is required to maintain a minimum of $6,000 of capital and surplus. In
addition, the maximum amount of dividends, which can be paid to
stockholders, is subject to restrictions relating to statutory surplus
and statutory adjusted net investment income. The Company should be
able to pay dividends of $2,949 in 2000. The Company paid no dividends
in 1999 and 1998. Dividends are paid as determined by the Board of
Directors.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Company's independent accountants or resulting
disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. IDENTIFICATION OF DIRECTORS
<TABLE>
Served as
Director Principal Occupation(s)
<S> <C> <C> <C> <C> <C> <C>
Director Age From For Last Five Years
Marcia D. Alazraki 58 1996 Partner, Kalkines, Arky, Zall & Bernstein LLP
(a law firm) since January, 1998; previously
Counsel, Simpson Thacher & Bartlett (a law
firm)
James Balog (1) 71 1997 Company Director
James W. Burns, O.C. 70 1997 Chairman of the Boards of Great-West Lifeco,
Great-West Life, London Insurance Group Inc.
and London Life Insurance Company; Deputy
Chairman, Power Corporation
Paul Desmarais, Jr. 45 1997 Chairman and Co-Chief Executive Officer,
Power Corporation; Chairman, Power Financial
Robert Gratton 56 1997 Chairman of the Board of GWL&A; President and
Chief Executive Officer, Power Financial
N. Berne Hart (1) 70 1997 Company Director
<PAGE>
Served as
Director Principal Occupation(s)
Director Age From For Last Five Years
Stuart Z. Katz 57 1997 Partner, Fried, Frank, Harris, Shriver &
Jacobson (a law firm)
William T. McCallum 57 1997 Chairman, President and Chief Executive
Officer of the Company; President and Chief
Executive Officer, GWL&A; President and Chief
Executive Officer, United States Operations,
Great-West Life
Brian E. Walsh (1) 46 1997 Co-Founder and Managing Partner, Veritas
Capital Management, LLC (a merchant banking
company) since September 1997; previously
Partner, Trinity L.P. (an investment company)
from January 1996; previously Managing
Director and Co-Head, Global Investment Bank,
Bankers Trust Company (an
investment/commercial bank)
</TABLE>
(1) Member of the Audit Committee
Unless otherwise indicated, all of the directors have been engaged for not less
than five years in their present principal occupations or in another executive
capacity with the companies or firms identified.
Directors are elected annually to serve until the following annual meeting of
shareholders.
The following lists directorships held by the directors of the Company, on
companies whose securities are traded publicly in the United States or that are
investment companies registered under the Investment Company Act of 1940.
J. Balog Transatlantic Holdings
.........Phoenix Investment Partners
P. Desmarais, Jr. Rhodia S.A.
<PAGE>
<TABLE>
B. IDENTIFICATION OF EXECUTIVE OFFICERS
Served
as
Executive
Officer Principal Occupation(s)
Executive Officer Age From For Last Five Years
----------------------------------- ------- --------------- -----------------------------------------------
<S> <C> <C>
William T. McCallum Chairman, 57 1997 Chairman, President and Chief Executive
President and Chief Executive Officer of the Company; President and Chief
Officer Executive Officer, GWL&A; President and
Chief Executive Officer, United States
Operations, Great-West Life
Mitchell T.G. Graye 44 1997 Executive Vice President and Chief Financial
Executive Vice President and Officer of the Company and GWL&A; Executive
Chief Financial Officer Vice President and Chief Financial Officer,
United States, Great-West Life
James D. Motz 50 1997 Executive Vice President, Employee Benefits
Executive Vice President, of the Company, GWL&A and Great-West Life
Employee Benefits
Douglas L. Wooden 43 1997 Executive Vice President, Financial Services
Executive Vice President, of the Company, GWL&A and
Financial Services Great-West Life
<PAGE>
Served
as
Executive
Officer Principal Occupation(s)
Executive Officer Age From For Last Five Years
John T. Hughes 63 1997 Senior Vice President, Chief Investment
Senior Vice President, Officer of the Company and GWL&A; Senior Vice
Chief Investment Officer President, Chief Investment Officer, United
States, Great-West Life
D. Craig Lennox 52 1997 Senior Vice President, General Counsel and
Senior Vice President, General Secretary of the Company and GWL&A; Senior
Counsel and Secretary Vice President and Chief U.S. Legal Officer,
Great-West Life
Steve H. Miller 47 1997 Senior Vice President, Employee Benefits
Senior Vice President, Employee Sales of the Company, GWL&A and Great-West
Benefits Sales Life
Martin Rosenbaum 47 1997 Senior Vice President, Employee Benefits of
Senior Vice President, Employee the Company, GWL&A and Great-West Life
Benefits
Gregory E. Seller 46 1997 Senior Vice President, Government Markets of
Senior Vice President, Government the Company, GWL&A and Great-West Life
Markets
Robert K. Shaw 44 1997 Senior Vice President, Individual Markets of
Senior Vice President, Individual the Company, GWL&A and Great-West Life
Markets
</TABLE>
Unless otherwise indicated, all of the executive officers have been engaged for
not less than five years in their present principal occupations or in another
executive capacity with the companies or firms identified.
The appointments of executive officers are confirmed annually.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
A. COMPENSATION OF EXECUTIVE OFFICERS
The executive officers of the Company are not compensated for their services to
the Company. They are compensated as executive officers of GWL&A.
B. COMPENSATION OF DIRECTORS
For each director of the Company who is not also a director of GWL&A, Great-West
Life or Great-West Lifeco, the Company pays an annual fee of $10,000. For each
director of the Company who is also a director of GWL&A, Great-West Life or
Great-West Lifeco, the Company pays an annual fee of $5,000. The Company pays
each director a meeting fee of $1,000 for each meeting of the Board of Directors
or a committee thereof attended. In addition, all directors are reimbursed for
incidental expenses. The above amounts are paid in the currency of the country
of residence of the director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information, as of March 1, 2000, concerning
beneficial ownership of the voting securities of the Company by entities and
persons who beneficially own more than 5% of the voting securities of the
Company. The determinations of "beneficial ownership" of voting securities are
based upon Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This rule provides that securities will be deemed to be
"beneficially owned" where a person has, either solely or in conjunction with
others, (1) the power to vote or to direct the voting of securities and/or the
power to dispose or to direct the disposition of, the securities or (2) the
right to acquire any such power within 60 days after the date such "beneficial
ownership" is determined.
(1) 100% of the Company's 2,500 outstanding common shares are owned by Great
West Life & Annuity Insurance Company, 8515 East Orchard Road, Englewood,
Colorado 80111.
(2) 100% of the outstanding common shares of Great-West Life & Annuity
Insurance Company's are owned by GWL&A Financial Inc., 8515 East Orchard
Road, Englewood, Colorado 80111.
(3) 100% of the outstanding common shares of GWL&A Financial Inc. are owned by
GWL&A Financial (Nova Scotia) Co., Suite 800, 1959 Upper Water Street,
Halifax, Nova Scotia, Canada B3J 2X2.
(4) 100% of the outstanding common shares of GWL&A Financial (Nova Scotia) Co.
are owned by The Great-West Life Assurance Company, 100 Osborne Street
North, Winnipeg, Manitoba, Canada R3C 3A5.
(5) 100% of the outstanding common shares of The Great-West Life Assurance
Company are owned by Great-West Lifeco Inc., 100 Osborne Street North,
Winnipeg, Manitoba, Canada R3C 3A5.
(6) 81.2% of the outstanding common shares of Great-West Lifeco Inc. are
controlled by Power Financial Corporation, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
(7) 67.4% of the outstanding common shares of Power Financial Corporation are
owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(8) 100% of the outstanding common shares of 171263 Canada Inc. are owned by
2795957 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
(9) 100% of the outstanding common shares of 2795957 Canada Inc. are owned by
Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(10) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3,
through a group of private holding companies, which he controls, has voting
control of Power Corporation of Canada.
As a result of the chain of ownership described in paragraphs (1) through (10)
above, each of the entities and persons listed in paragraphs (1) through (10)
would be considered under Rule 13d-3 of the Exchange Act to be a "beneficial
owner" of 100% of the outstanding voting securities of the Company.
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets out the number of equity securities, and
exercisable options (including options which will become exercisable
within 60 days) for equity securities, of the Company or any of its
parents or subsidiaries, beneficially owned, as of February 1, 1999, by
(i) the directors of the Company; and (ii) the directors and executive
officers of the Company as a group.
<PAGE>
<TABLE>
- ------------------------------ -------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Great-West Lifeco Power Financial Power Corporation of
Inc. Corporation Canada
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
(1) (2) (3)
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
Directors
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
M.D. Alazraki - - -
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
J. Balog - - -
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
J. W. Burns 153,659 8,000 400,640
200,000 options
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
P. Desmarais, Jr. 43,659 - 1,448,000
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
R. Gratton 330,000 310,000 5,000
5,280,000 options 300,000 options
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
N.B. Hart - - -
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
S.Z. Katz - - -
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
W.T. McCallum 82,800 80,000 -
360,000 options
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
B.E. Walsh - - -
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
Directors and Executive
Officers as a Group
- ------------------------------ -------------------- --------------------- -----------------------
- ------------------------------ -------------------- --------------------- -----------------------
725,549 628,000 1,853,640
896,800 options 5,526,000 options 500,000 options
- ------------------------------ -------------------- --------------------- -----------------------
(1) All holdings are common shares, or where indicated, exercisable options for common shares, of Great-West Lifeco Inc.
(2) All holdings are common shares, or where indicated, exercisable options for common shares, of Power Financial Corporation.
(3) All holdings are subordinate voting shares, or where indicated, exercisable options for subordinate voting shares, of Power
Corporation of Canada.
</TABLE>
The number of common shares and exercisable options for common shares of Power
Financial Corporation held by R. Gratton represents 1.6% of the total number of
common shares and exercisable options for common shares of Power Financial
Corporation outstanding. The number of common shares and exercisable options for
common shares of Power Financial Corporation held by the directors and executive
officers as a group represents 1.7% of the total number of common shares and
exercisable options for common shares of Power Financial Corporation
outstanding. The number of subordinate voting shares and exercisable options for
subordinate voting shares of Power Corporation of Canada held by the directors
and executive officers as a group represents 1.0 % of the total number of
subordinate voting shares and exercisable options for subordinate voting shares
of Power Corporation of Canada outstanding. None of the remaining holdings set
out above exceed 1% of the total number of shares and exercisable options for
shares of the class outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
M.D. Alazraki, a director of the Company, is an attorney with a law firm, which
provided legal services to the Company. In 1999, the amount of such services was
approximately $115,088.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The documents identified below are filed as a part of this report:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Page
---------------
A. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report On Financial Statements for the years
ended December 31, 1999 and 1998
Balance Sheets as of December 31, 1999 and 1998
Statement of Income for the years ended December 31, 1999 and
1998
State of Stockholder's Equity for the years ended December 31,
1999 and 1998
Statement of Cash Flows for the years ended December 31, 1999
and 1998
Notes to Financial Statements for the years ended December 31,
1999 and 1998
All schedules and separate financial statements of the Registrant are omitted
because they are not applicable, or not required, or because the required
information is included in the financial statements or notes thereto.
<PAGE>
B. INDEX TO EXHIBITS
Exhibit
Number Title Page
3(i) Restated Charter of First Great-West Life & Annuity Insurance
Company
Filed as Exhibit 3(i) to Registrant's Form 10-K for
the year ended December 31, 1997 and incorporated
herein by reference.
3(ii) Bylaws of First Great-West Life & Annuity Insurance Company
Filed as Exhibit 3(ii) to Registrant's Form 10-K
for the year ended December 31, 1997 and
incorporated herein by reference.
<PAGE>
Material Contracts
10.1 - Distribution Agreement between First Great-West Life & Annuity
Insurance Company and Charles Schwab & Co., Inc.
Filed as Exhibit 10.1 to Registrant's Form 10-K
for the year ended December 31, 1997 and
incorporated herein by reference.
10.2 - Administration Services Agreement between First Great-West Life
& Annuity Insurance Company and Great-West Life & Annuity
Insurance Company
Filed as Exhibit 10.2 to Registrant's Form 10-K for
the year ended December 31, 1997 and incorporated
herein by reference.
10.3 - Financial Support Agreement between First Great-West Life &
Annuity Insurance Company and Great-West Life & Annuity
Insurance Company
Filed as Exhibit 10.3 to Registrant's Form 10-K for
the year ended December 31, 1997 and incorporated
herein by reference.
24 Directors' Powers of Attorney
Filed as Exhibit 24 to Registrant's Form 10-K for
the year ended December 31, 1997 and incorporated
herein by reference.
27 Financial Data Schedule
</TABLE>
C. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By: /s/ W.T. McCallum
William T. McCallum
Chairman, President and Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ William T. McCallum March 30, 2000
- -------------------------
William T. McCallum
Chairman, President and Chief Executive Officer
and a Director
/s/ Mitchell T.G. Graye March 30, 2000
- -------------------------
Mitchell T.G. Graye
Executive Vice President and Chief Financial Officer
/s/ Glen R. Derback March 30, 2000
- ---------------------
Glen R. Derback
Vice President and Treasurer
<PAGE>
Signature and Title Date
/s/ Marcia D. Alazraki * March 30, 2000
- ------------------------
Marcia D. Alazraki, Director
/s/ James Balog * March 30, 2000
- -----------------
James Balog, Director
/s/ James W. Burns * March 30, 2000
- --------------------
James W. Burns, Director
/s/ Paul Desmarais, Jr. * March 30, 2000
- -------------------------
Paul Desmarais, Jr., Director
/s/ Robert Gratton * March 30, 2000
- --------------------
Robert Gratton, Director
/s/ N. Berne Hart * March 30, 2000
- -------------------
N. Berne Hart, Director
/s/ Stuart Z. Katz * March 30, 2000
- --------------------
Stuart Z. Katz, Director
/s/ Brian E. Walsh * March 30, 2000
- --------------------
Brian E. Walsh, Director
* By: /s/ D. Craig Lennox March 30, 2000
---------------------
D. Craig Lennox
Attorney-in-fact pursuant to filed Powers of Attorney.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
FDS FOR FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
</LEGEND>
<CIK> 0001036213
<NAME> First GWLA
<MULTIPLIER> 1,000
<CURRENCY> us dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> dec-31-2000
<PERIOD-START> jan-01-1999
<PERIOD-END> dec-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 74149
<DEBT-CARRYING-VALUE> 37050
<DEBT-MARKET-VALUE> 35335
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 112799
<CASH> 5443
<RECOVER-REINSURE> 1426
<DEFERRED-ACQUISITION> 1702
<TOTAL-ASSETS> 171710
<POLICY-LOSSES> 98421
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2500
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9836
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