================================================================================
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
---------------
COMMISSION FILE NUMBER 333-18117-01
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-2426091
------------------------------- -----------------
(State or other jurisdiction, (IRS Employer
incorporation or organization) Identification No.)
213 WASHINGTON STREET,
NEWARK, NEW JERSEY 07102
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 802-6000
----------------------------------------------------
(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
--- ---
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT: NONE.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF MARCH 31, 1997. COMMON STOCK, PAR VALUE OF $5 PER
SHARE: 400,000 SHARES OUTSTANDING.
================================================================================
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
1996 1995
---------- ----------
(000'S)
ASSETS
Fixed maturities - Available for sale $ 555,898 $ 513,433
Policy loans 113,918 98,194
Short term investments 17,002 45,308
---------- ----------
Total invested assets 686,818 656,935
---------- ----------
Cash 3,928 --
Deferred policy acquisition costs 106,965 96,031
Premiums due 401 344
Accrued investment income 12,908 11,579
Receivable from affiliates -- 3,616
Federal income tax receivable -- 69
Other assets 1,335 281
Separate Account assets 883,261 789,427
---------- ----------
TOTAL ASSETS $1,695,616 $1,558,282
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Future policy benefits and other policyholders' $ 100,663 $ 92,045
liabilities
Policyholders' account balances 375,448 375,193
Federal income tax payable 1,970 --
Deferred federal income tax payable 24,175 23,809
Payable to affiliate 6,059 5,375
Other liabilities 11,990 6,279
Separate Account liabilities 880,065 787,566
---------- ----------
TOTAL LIABILITIES 1,400,370 1,290,267
---------- ----------
CONTINGENCIES - NOTE 9
STOCKHOLDER'S EQUITY
Common Stock, $5 par value;
400,000 shares,
authorized; issued and
outstanding at December 31, 1996 and 1995 2,000 2,000
Paid-in-capital 125,000 125,000
Net unrealized investment gains (less deferred income 2,032 6,588
tax)
Retained earnings 166,214 134,427
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 295,246 268,015
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $1,695,616 $1,558,282
========== ==========
SEE NOTES TO THE FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
1996 1995 1994
----------------------------
(000'S)
REVENUES
Premiums $ 1,345 $ 1,042 $ 1,869
Policy charges and fee income 58,571 59,515 55,021
Net investment income 43,784 43,530 42,357
Realized investment gains(losses) 1,221 3,592 (8,310)
Other income 4,047 3,900 3,201
----------------------------
TOTAL REVENUES 108,968 111,579 94,138
----------------------------
BENEFITS AND EXPENSES
Policyholders' benefits 28,653 26,331 22,788
Interest credited to policyholders' account 20,069 21,364 22,151
balances
Other operating costs and expenses 12,848 21,881 23,716
----------------------------
TOTAL BENEFITS AND EXPENSES 61,570 69,576 68,655
----------------------------
Income before income tax provision 47,398 42,003 25,483
Income tax provision 15,611 15,002 9,483
----------------------------
NET INCOME $ 31,787 $ 27,001 $ 16,000
============================
SEE NOTES TO THE FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
--------------------------------
(000'S)
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 2,000 $ 2,000 $ 2,000
Issued during year -- -- --
--------------------------------
Balance, end of year 2,000 2,000 2,000
--------------------------------
PAID IN CAPITAL
Balance, beginning of year 125,000 125,000 125,000
Paid in during year -- -- --
--------------------------------
Balance, end of year 125,000 125,000 125,000
--------------------------------
NET UNREALIZED INVESTMENT GAINS (LESS DEFERRED
INCOME TAX)
Balance, beginning of year 6,588 -- --
Adoption of SFAS 115 -- (11,189) --
Net change in unrealized investment gains(losses) (4,556) 17,777 --
--------------------------------
Balance, end of year 2,032 6,588 --
--------------------------------
RETAINED EARNINGS
Balance, beginning of year 134,427 107,426 91,426
Net income 31,787 27,001 16,000
--------------------------------
Balance, end of year 166,214 134,427 107,426
--------------------------------
TOTAL STOCKHOLDER'S EQUITY $ 295,246 $ 268,015 $234,426
================================
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
---------------------------------
(000'S)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,787 $ 27,001 $ 16,000
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders' 8,618 900 3,936
liabilities
General account policy fee income (9,963) (11,931) (7,744)
Interest credited to policyholders' account balances 20,069 21,364 22,151
Net decrease (increase) in Separate Accounts (1,335) 260 (310)
Net realized investment (gains)losses (1,221) (3,592) 8,310
Amortization and other non-cash items 8,908 (6,839) 3,778
Change in:
Accrued investment income (1,329) (317) (679)
Premiums due (57) 41 26
Receivable from affiliates 3,616 (1,789) (132)
Deferred policy acquisition costs (10,934) 9,074 4,727
Other assets (985) 1,287 2,759
Payable to affiliate 684 807 (3,798)
Federal income tax payable 1,970 8,328 (7,869)
Deferred federal income tax payable 366 3,460 (1,183)
Other liabilities 5,711 (304) 2,988
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 55,905 47,750 42,960
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity -- -- 705,888
Available for sale 901,775 553,681 --
Payments for the purchase of:
Fixed maturities:
Held to maturity -- -- (658,008)
Available for sale (956,483) (522,757) --
Policy loans (15,724) (12,917) (15,511)
Net proceeds (payments) of short term investments 28,306 (3,613) (12,095)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES (42,126) 14,394 20,274
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 16,754 18,348 22,336
Withdrawals (net of transfers to/from separate accounts) (26,605) (80,509) (85,590)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES (9,851) (62,161) (63,254)
---------------------------------
Net increase(decrease) in Cash 3,928 (17) (20)
Cash, beginning of year -- 17 37
---------------------------------
CASH , END OF YEAR $ 3,928 $ 0 $ 17
=================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 11,673 $ 7,900 $ 17,679
=================================
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
B-4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. GENERAL
Pruco Life Insurance Company of New Jersey (the Company), a stock life insurance
company domiciled in New Jersey, is an indirect subsidiary of The Prudential
Insurance Company of America (Prudential), a mutual life insurance company, and
a direct subsidiary of Pruco Life Insurance Company (Pruco Life), a stock life
insurance company domiciled in the state of Arizona. The Company markets
individual life insurance and annuities through Prudential's sales force.
B. BASIS OF PRESENTATION
The Financial Accounting Standards Board (FASB) issued Interpretation No. 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", as amended by Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts", effective for fiscal years beginning after December
15, 1995. Financial statements of mutual life insurance companies, and their
wholly owned stock life insurance subsidiaries, for periods beginning after
December 15, 1995 which are prepared on the basis of statutory accounting
practices will no longer be characterized as in conformity with generally
accepted accounting principles (GAAP). As a result, the Company has prepared its
1996 financial statements in accordance with all applicable GAAP pronouncements.
The 1995 and 1994 financial statements, which were previously prepared on the
statutory basis of accounting, have been restated in accordance with GAAP. The
cumulative effect of adopting GAAP as of January 1, 1994 was an increase in
retained earnings of $63.6 million. See Note 7 for a reconciliation of the
Company's surplus and net income determined in accordance with statutory
accounting practices with equity and net income determined on a GAAP basis.
On January 1, 1995, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expanded the use of fair value
accounting for those securities that a company does not have positive intent and
ability to hold to maturity. Implementation of this statement decreased
stockholder's equity by $11.2 million net of deferred income tax benefit of $6.3
million. In 1994 prior to the adoption of SFAS 115, all fixed maturities were
carried at amortized cost.
C. INVESTMENTS
Fixed Maturities - Where the Company may not have the positive intent to hold
fixed maturities until maturity, the securities are classified as "Available for
Sale." These securities are reported at market value based principally on their
quoted market prices. The associated unrealized gains and losses, net of income
taxes and deferred policy acquisition costs, are included as a component of
equity or if deemed to be other than temporary, are included as a realized loss.
Policy Loans are stated primarily at unpaid principal balances.
Realized Investment Gains and Losses are reported based on specific
identification of the investments sold.
Short-term investments are fixed maturities that mature within one year, and are
reported at estimated fair value.
D. REVENUE RECOGNITION AND RELATED EXPENSES
Universal life contracts are long duration life insurance contracts that involve
significant mortality and morbidity risk with both fixed and guaranteed terms.
Investment contracts, such as deferred annuities, are long duration contracts
that do not subject the insurance enterprise to risks arising from policyholder
mortality or morbidity. Amounts received as payments for these contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist primarily of amounts assessed during the period against
policyholders' account balances for mortality charges, policy administration
fees and surrender charges. Policy benefits and claims that are charged to
expenses include benefit claims incurred in the period in excess of related
policyholders' account balances.
Premiums, policy benefits and claims from individual life policies and payout
annuities, generally are recognized in operations when due.
B-5
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions and other costs which vary with and are
primarily related to the production or acquisition of new business. Acquisition
costs related to universal life products and investment-type contracts are
deferred and amortized in proportion to total estimated gross profits arising
principally from investment results, mortality, expense margins and surrender
charges based on historical and anticipated future experience. As required,
amortization expense also includes the impact of revised estimates to expected
gross profits, which is the basis for amortizing deferred policy acquisition
costs. Amortization of deferred policy acquisition costs, including the impact
of revised estimates of gross profits, was $(2.2) million, $8.9 million, and
$11.0 million for the years ended December 31, 1996, 1995, and 1994,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect on the deferred policy acquisition asset that would
result from realization of unrealized investment gains(losses) is recognized
with an offset to unrealized investment gains(losses) in stockholder's equity.
F. FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Benefit reserve liabilities for payout annuities such as matured deferred
annuities and supplementary contracts represent the present values of estimated
future benefits payments and related expenses. Present values for matured
deferred annuity contracts are computed using interest rates ranging from 6.5%
to 8.75%. The mortality assumption for these contracts is the 83 IAM tables.
Reserves for supplementary contracts are stated at interest rates that vary from
7.25% to 8.25% using mortality and morbidity assumptions either from company
experience or various actuarial tables.
When liabilities for future policy benefits plus the present value of expected
future gross deposits are insufficient to provide expected future policy
benefits and expenses, unrecoverable deferred policy acquisition costs are
written off and thereafter, if required, a premium deficiency reserve is
established as a charge to income.
Policyholders' account balances for universal life and investment-type contracts
are equal to the policy account values. The policy account values represent an
accumulation of gross deposits plus interest credited less expense and mortality
charges and withdrawals.
Interest crediting rates on life insurance products range from 3.4% to 6.6%.
G. SEPARATE ACCOUNTS
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders. All Separate Account assets are carried at market value. Deposits
to all Separate Accounts are reported as increases in Separate Account
liabilities, which equal the Separate Account policy account fund values.
Charges assessed against policyholders' account balances for mortality, policy
administration and surrender charges are included in policy charges and fee
income. Mortality and expense risk charges are applied against the
policyholders' account balance. The Separate Account assets are legally
segregated and are not subject to claims that arise out of any other business of
the Company.
H. ESTIMATES
The preparation of financial statements 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.
B-6
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
2. FIXED MATURITIES
Gross unrealized gains and losses for securities, by major security type, are as
follows:
<TABLE>
<CAPTION>
DECEMBER, 31, 1996
- - ------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and $ 29,386 $ 1 $ 174 $ 29,213
agencies
Foreign government bonds 38,853 420 52 39,221
Corporate securities 483,439 5,108 1,133 487,414
Mortgage-backed securities 50 -- -- 50
- - ------------------------------------------------------------------------------------------------------
Total $551,728 $ 5,529 $1,359 $555,898
- - ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- - ------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and $ 81,806 $ 1,287 $ -- $ 83,093
agencies
Foreign government bonds 25,849 1,128 -- 26,977
Corporate securities 353,514 11,130 340 364,304
Mortgage-backed securities 36,872 2,192 5 39,059
- - ------------------------------------------------------------------------------------------------------
Total $498,041 $15,737 $ 345 $513,433
- - ------------------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, categorized by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may prepay obligations
with or without call or prepayment penalties.
DECEMBER 31, 1996
- - ---------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- - ---------------------------------------------------------------------------
AVAILABLE FOR SALE
Due in one year or less $ 43,723 $ 43,951
Due after one year through five years 444,883 448,048
Due after five years through ten years 57,989 58,586
Due after ten years 5,083 5,263
Mortgage-backed securities 50 50
- - ---------------------------------------------------------------------------
Total $551,728 $555,898
- - ---------------------------------------------------------------------------
Proceeds from the sale of fixed maturities during 1996, 1995, and 1994 were
$869.6 million, $535.3 million, and $672.8 million, respectively. Gross gains of
$5.2 million, $6.8 million, and $3.3 million and gross losses of $4.0 million,
$3.2 million, and $11.6 million were realized on those sales during 1996, 1995,
and 1994, respectively.
B-8
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
3. NET INVESTMENT INCOME
YEAR ENDED
DECEMBER 31,
Net investment income consists of: 1996 1995 1994
----------------------------------
Gross investment income (000'S)
<S> <C> <C> <C>
Fixed maturities $ 36,193 $ 36,861 $ 36,565
Policy loans 5,761 5,029 4,290
Short term investments 2,504 2,290 2,364
Other 28 51 44
----------------------------------
44,486 44,231 43,263
Investment expenses (702) (701) (906)
----------------------------------
Net investment income $ 43,784 $ 43,530 $ 42,357
==================================
4. INVESTMENT GAINS(LOSSES)
YEAR ENDED
DECEMBER 31,
1996 1995 1994
----------------------------------
(000'S)
Fixed maturities:
Realized investment gains $ 5,232 $ 6,785 $ 3,327
Realized investment losses (4,011) (3,193) (11,637)
----------------------------------
Realized investment gains(losses) $ 1,221 $ 3,592 ($ 8,310)
==================================
YEAR ENDED
DECEMBER 31,
1996 1995 1994
----------------------------------
(000'S)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of period $ 6,588 $ -- $ --
Net unrealized investment gains(losses) on fixed maturities (11,222) 32,875 --
Deferred income tax benefit(provision) 4,040 (11,835) --
Deferred policy acquisition costs (net of deferred income 2,626 (3,263) --
taxes)
----------------------------------
Net change in unrealized investment gains(losses) (4,556) 17,777 --
Adoption of SFAS 115 -- (11,189) --
----------------------------------
Net unrealized investment gains, end of period $ 2,032 $ 6,588 $ --
==================================
</TABLE>
B-9
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
5. FAIR VALUE INFORMATION
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies. Considerable judgment is
applied, as necessary, in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values.
The following methods and assumptions were used in calculating the fair values.
Fixed Maturities - Fair values for fixed maturities are based on quoted market
prices or estimates from independent pricing services.
Policy Loans - The estimated fair value is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan repayment.
Policyholders' Account Balances - Fair values for policyholders' account
balances are equal to the policy account values.
Short-term Investments - Fair values for short-term investments are based on
quoted market prices or estimates from independent pricing services.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(000'S)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities -- Available
for sale $555,898 $555,898 $513,433 $513,433
Policy loans 113,918 110,262 98,194 99,057
Short-term investments 17,002 17,002 45,308 45,308
Financial Liabilities:
Policyholders'
account balances $375,448 $375,448 $375,193 $375,193
</TABLE>
B-10
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
6. INCOME TAXES
The Company is a member of a group of affiliated companies which join in filing
a consolidated federal income tax return in addition to separate company state
and local tax returns. The Internal Revenue Code limits the amount of nonlife
insurance losses that may offset life insurance company taxable income.
Companies operating outside the United States are taxed under applicable foreign
statutes.
Pursuant to the tax allocation arrangement, total federal income tax expense is
determined on a separate company basis. Members with losses record tax benefits
to the extent such losses are recognized in the consolidated federal tax
provision.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes.
The components of income taxes are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
------------------------------
(000'S)
Current income tax provision:
Federal income tax $ 13,589 $ 13,868 $ 9,431
State and local income tax (907) 1,380 1,235
------------------------------
Total current income tax 12,682 15,248 10,666
Deferred income tax provision (benefit):
Federal income tax 2,848 (239) (1,150)
State and local income tax 81 (7) (33)
------------------------------
Total deferred income tax 2,929 (246) (1,183)
------------------------------
Total income tax provision $ 15,611 $ 15,002 $ 9,483
==============================
The income tax provision is different from the amount computed using the
expected federal income tax rate of 35% for the following reasons:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
---------------------------------
(000'S)
Expected federal income tax expense $ 16,589 $ 14,702 $ 8,919
State income taxes (826) 1,373 1,202
Other (152) (1,073) (638)
---------------------------------
Total income tax provision $ 15,611 $ 15,002 $ 9,483
=================================
B-11
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
The components of net deferred income taxes payable are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995
------- -------
DEFERRED INCOME TAX ASSETS (000'S)
Insurance liabilities $ 6,189 $ 6,966
Other -- 276
------- -------
Total deferred income tax assets $ 6,189 $ 7,242
------- -------
DEFERRED INCOME TAX LIABILITIES
Deferred acquisition costs $28,424 $25,322
Net investment gains 1,940 5,729
------- -------
Total deferred income tax liabilities 30,364 31,051
------- -------
Deferred federal income tax payable $24,175 $23,809
======= =======
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service is examining
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments.
B-12
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
7. STOCKHOLDER'S EQUITY RECONCILIATION
The reconciliation of statutory net income to GAAP net income, and statutory
surplus to GAAP equity as of December 31, 1996, 1995, and 1994 are as follows:
1996 1995 1994
---------------------------------
(000'S)
Statutory net income $ 24,774 $ 25,567 $ 16,309
Deferred acquisition costs 5,656 (2,589) (4,727)
Deferred premium 221 (58) 241
Insurance liabilities 1,154 4,366 4,614
Income taxes (2,883) 510 8,518
Interest maintenance reserve (765) 1,285 (10,327)
Separate accounts and other 3,630 (2,080) 1,372
---------------------------------
GAAP net income $ 31,787 $ 27,001 $ 16,000
=================================
Statutory surplus $ 216,019 $ 191,607 $ 163,066
Investment valuation 4,170 15,392 --
Deferred acquisition costs 106,965 96,031 105,105
Deferred premium (2,205) (2,426) (2,368)
Insurance liabilities (21,501) (25,062) (23,882)
Income taxes (21,829) (21,510) (13,015)
Asset valuation reserve and interest
maintenance reserve 13,598 13,966 5,512
Other 29 17 8
---------------------------------
GAAP stockholder's equity $ 295,246 $ 268,015 $ 234,426
=================================
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the New
York Insurance Law, and for determining whether its financial condition warrants
the payment of a dividend to its stockholders. No consideration is given by the
Department to financial statements prepared in accordance with generally
accepted accounting principles in making such determinations.
B-13
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DECEMBER 31, 1996, 1995, AND 1994
8. RELATED PARTY TRANSACTIONS
A. SERVICE AGREEMENTS
The Company, Prudential, Pruco Life, and Pruco Securities Corporation, an
indirect wholly-owned subsidiary of Prudential, operate under service and lease
agreements whereby services of officers and employees, supplies, use of
equipment and office space are provided. The net cost of these services
allocated to the Company were $12 million, $16 million, and $15 million for the
years ended December 31, 1996, 1995, and 1994, respectively.
B. PENSION PLANS
The Company is an indirect wholly-owned subsidiary of Prudential which sponsors
several defined benefit pension plans that cover substantially all of its
employees. Benefits are generally based on career average earnings and credited
length of service. Prudential's funding policy is to contribute annually the
amount necessary to satisfy the Internal Revenue Service contribution
guidelines.
No pension expense for contributions to the plan was allocated to the Company in
1996, 1995, or 1994 because the plan was subject to the full funding limitation
under the Internal Revenue Code.
C. POSTRETIREMENT LIFE AND HEALTH BENEFITS
Prudential also sponsors certain life insurance and health care benefits for its
retired employees. Substantially all employees may become eligible to receive a
benefit if they retire after age 55 with at least 10 years of service.
Prudential elected to amortize its obligation over twenty years. A provision for
contributions to the postretirement fund is included in the net cost of services
allocated to the Company discussed above for the years ended December 31, 1996,
1995, and 1994.
D. REINSURANCE
The Company currently has one reinsurance agreement in place with Prudential
(the reinsurer). This contract is a yearly renewable term agreement in which the
Company may offer and the reinsurer may accept reinsurance on any life in excess
of the Company's maximum limit of retention of $2.5 million. The Company is not
relieved of its primary obligation to the policyholder as a result of this
reinsurance transaction. This agreement had no material effect on net income for
the years ended December 31, 1996, 1995, and 1994.
9. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
10. DIVIDENDS
The Company is subject to New Jersey law which limits the amount of dividends
that insurance companies may pay to stockholders. The maximum dividend which may
be paid in any twelve month period without prior approval of the New Jersey
Commissioner of Insurance is limited to the greater of 10% of surplus as of
December 31 of the preceding year or the net gain from operations of the
preceding calendar year. Cash dividends may only be paid out of surplus derived
from realized net profits. Based on these limitations and the Company's surplus
position at December 31, 1996, the Company would be permitted a maximum of $25
million in dividend distributions in 1997, all of which could be paid in cash,
without approval from The State of New Jersey Department of Insurance.
B-14
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Pruco Life Insurance Company of New Jersey
In our opinion, the accompanying statement of financial position and the related
statements of operations, of stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of Pruco Life Insurance
Company of New Jersey at December 31, 1996, and the results of its operations
and its cash flows for the year in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/
PRICE WATERHOUSE LLP
New York, New York
April 11, 1997
B-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company of New Jersey
Newark, New Jersey
We have audited the accompanying statement of financial position of Pruco Life
Insurance Company of New Jersey as of December 31, 1995, and the related
statements of operations, stockholder's equity and cash flows for the years
ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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, the accompanying financial statements presents fairly, in all
material respects, the financial position of Pruco Life Insurance Company of New
Jersey as of December 31, 1995, and the results of operations and cash flows for
the years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company has
retroactively adopted all applicable generally accepted accounting principles
relating to stock life insurance subsidiaries of mutual life insurance companies
and has changed, as of January 1, 1995, the method of accounting for fixed
maturity investments.
/s/
Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-16
<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.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
By: /s/ ESTHER H. MILNES
--------------------------------
ESTHER H. MILNES
PRESIDENT
Date: April 24, 1997
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- - --------------------------------- Chairman of the Board April 24, 1997
WILLIAM F. YELVERTON
*
- - --------------------------------- Vice Chairman of the Board and Director April 24, 1997
I. EDWARD PRICE
*
- - --------------------------------- President and Director April 24, 1997
ESTHER H. MILNES
*
- - --------------------------------- Vice President and Comptroller April 24, 1997
LINDA S. DOUGHERTY and Chief Accounting Officer
*
- - --------------------------------- Director April 24, 1997
WILLIAM M. BETHKE
*
- - --------------------------------- Director April 24, 1997
IRA J. KLEINMAN
*
- - --------------------------------- Director April 24, 1997
MENDEL A. MELZER
</TABLE>
* By: /s/ THOMAS C. CASTANO
--------------------------------
THOMAS C. CASTANO
(ATTORNEY-IN-FACT)
