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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-18053
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 Identification No.)
incorporation or organization)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 802-2859
----------------------------------------------------
(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 November 16, 1998. Common stock, par value of $5
per share: 400,000 shares outstanding.
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<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
ITEM 1. (UNAUDITED) FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION -
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 3
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME -
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 4
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY -
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997 5
STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE PAGE 15
2
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value
(amortized cost, 1998: $551,178; 1997: $585,109) $ 564,904 $ 592,361
Policy loans 137,374 127,306
Short-term investments 85,141 52,464
----------- -----------
Total investments 787,419 772,131
Cash 6,891 3
Deferred policy acquisition costs 104,774 101,625
Accrued investment income 12,559 14,075
Other assets 8,174 4,037
Separate Account assets 1,272,659 1,110,561
----------- -----------
TOTAL ASSETS $ 2,192,476 $ 2,002,432
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 409,280 $ 402,601
Future policy benefits and other policyholder liabilities 88,657 85,220
Cash collateral for loaned securities 29,863 33,663
Income taxes payable 14,216 16,266
Deferred income tax liability 23,197 22,188
Affiliated notes payable 7,000 --
Payable to affiliates 3,620 4,307
Other liabilities 14,634 13,800
Separate Account liabilities 1,264,461 1,108,994
----------- -----------
TOTAL LIABILITIES 1,854,928 1,687,039
----------- -----------
CONTINGENCIES (SEE NOTE 5)
STOCKHOLDER'S EQUITY
Common stock, $5 par value; 400,000 shares, authorized;
issued and outstanding at September 30, 1998 and
December 31, 1997 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 203,610 185,437
Accumulated other comprehensive income 6,938 2,956
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 337,548 315,393
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,192,476 $ 2,002,432
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ------------------
REVENUES
<S> <C> <C> <C> <C>
Premiums $ 599 $ 708 $ 70 $ 318
Policy charges and fee income 39,451 39,846 14,828 13,055
Net investment income 35,680 34,304 11,584 12,828
Realized investment gains, net 7,176 1,328 5,353 882
Other income 4,251 3,408 1,586 1,480
--------------------- ---------------------
TOTAL REVENUES 87,157 79,594 33,421 28,563
--------------------- ---------------------
BENEFITS AND EXPENSES
Policyholders' benefits 19,902 23,133 6,914 7,799
Interest credited to
policyholders' account balances 14,853 14,371 5,162 4,886
General, administrative and other
expenses 24,443 16,451 8,089 4,368
--------------------- ---------------------
TOTAL BENEFITS AND EXPENSES 59,198 53,955 20,165 17,053
--------------------- ---------------------
Income from operations
before income taxes 27,959 25,639 13,256 11,510
--------------------- ---------------------
Income taxes
Current 10,921 8,974 5,816 3,721
Deferred (1,135) 145 (1,250) 385
--------------------- ---------------------
Total income taxes 9,786 9,119 4,566 4,106
--------------------- ---------------------
NET INCOME 18,173 16,520 8,690 7,404
--------------------- ---------------------
Unrealized gains on securities,
net of reclassification
adjustment 3,982 637 3,900 3,240
--------------------- ---------------------
COMPREHENSIVE INCOME $ 22,155 $ 17,157 $ 12,754 $ 10,644
===================== =====================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN- RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME EQUITY
------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 2,000 $ 125,000 $ 166,214 $ 2,032 $ 295,246
Net income -- -- 19,223 -- 19,223
Change in unrealized gains
on securities, net of
reclassification
adjustment -- -- -- 924 924
------- --------- --------- -------- ---------
BALANCE, DECEMBER 31, 1997 2,000 125,000 185,437 2,956 315,393
Net income -- -- 18,173 -- 18,173
Change in unrealized gains
on securities, net of
reclassification
adjustment -- -- -- 3,982 3,982
------- --------- --------- -------- ---------
BALANCE, SEPTEMBER 30, 1998 $ 2,000 $ 125,000 $ 203,610 $ 6,938 $ 337,548
======= ========= ========= ======== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,173 $ 16,520
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Policy charges and fee income (6,329) (5,922)
Interest credited to policyholders' account balances 14,853 14,371
Net (increase) decrease in Separate Accounts (6,631) 1,358
Realized investment gains, net (7,176) (1,328)
Amortization and other non-cash items 132 940
Change in:
Future policy benefits and other policyholders'
liabilities 3,437 5,977
Accrued investment income 1,516 (1,492)
Payable to affiliates (687) 2,692
Policy loans (10,068) (10,213)
Deferred policy acquisition costs (3,149) (285)
Income taxes payable (2,050) 8,604
Deferred income tax liability 1,009 488
Other, net (3,303) 11,329
--------- ---------
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES (273) 43,039
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 583,157 564,841
Payments for the purchase of:
Fixed maturities:
Available for sale $(546,154) $(561,021)
Cash collateral for loaned securities, net (3,800) 26,188
Short-term investments, net (32,673) (70,745)
--------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 530 (40,737)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 240,463 87,354
Withdrawals (240,832) (91,887)
Proceeds from issuance of affiliated notes payable 7,000 --
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 6,631 (4,533)
--------- ---------
Net increase in Cash 6,888 (2,231)
Cash, beginning of year 3 3,928
--------- ---------
CASH, END OF PERIOD $ 6,891 $ 1,697
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company of New Jersey (the Company) is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licensed to sell individual life insurance, variable life insurance,
deferred annuities, and variable annuities (the Contracts) only in the states of
New Jersey and New York.
The Company is a wholly owned subsidiary of Pruco Life Insurance Company (Pruco
Life), a stock life insurance company organized in 1971 under the laws of the
state of Arizona. Pruco Life, in turn, is a wholly owned subsidiary of The
Prudential Insurance Company of America (Prudential).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with the requirements of Form 10-Q and generally accepted
accounting principles for interim financial information. These statements should
be read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1997 included in the Company's Annual Report on Form
10-K for that year.
The accompanying financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards, but in the
opinion of management such financial statements include all adjustments,
consisting only of normal recurring accruals necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the nine months ended September 30, 1998 may not be indicative of
the results that may be expected for the year ending December 31, 1998.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under Statement No. 130 as components of comprehensive income are to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Statement No. 130 stipulates that comprehensive
income reflect the change in equity of an enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. The Company has adopted Statement No. 130, resulting primarily in
reporting unrealized gains and losses on investments in debt and equity
securities in comprehensive income.
On June 15, 1998, FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (Statement No.
133). Statement No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company). Statement No.
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company is currently evaluating the
impact of the adoption of Statement No. 133 on the Company's results of
operations and its financial position.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentations.
3. INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. The amortized cost of fixed maturities is written down to estimated
fair value when the asset is considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts, that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Accumulated other comprehensive income."
7
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The following reconciles the Net unrealized investment gains recorded in
Stockholder's equity at September 30, 1998 and December 31, 1997.
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(000'S)
Fixed maturities - Available for sale:
Fair Value $ 564,904 $ 592,361
Amortized cost 551,178 585,109
--------- ---------
Unrealized investment gains 13,726 7,252
Related adjustments:
Deferred policy acquisition costs (3,698) (3,379)
Policyholders' account balances 637 544
Deferred federal income tax liability (3,727) (1,461)
--------- ---------
(6,788) (4,296)
--------- ---------
Net unrealized investment gains $ 6,938 $ 2,956
========= =========
4. RELATED PARTY TRANSACTIONS
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding Corporation, a wholly owned subsidiary of Prudential. Notes
payable to affiliates includes amounts which mature at various dates throughout
1998 with an interest rate of 5.7%.
Prudential and Pruco Life of New Jersey have an agreement with respect to
administrative services for the Prudential Series Fund. The Company invests in
the various portfolios of the Series Fund through Separate Accounts. Under this
agreement, Prudential pays compensation to Pruco Life of New Jersey in the
amount equal to a portion of the gross investment advisory fees paid by the
Prudential Series Fund. The Company received from Prudential its allocable share
of such compensation in the amount of $4 million and $3 million during 1998 and
1997, respectively, recorded in Other income.
5. 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.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company markets individual life insurance, variable life insurance, variable
annuities and deferred annuities through Prudential's sales force in New Jersey
and New York.
The Company markets its products in the life insurance and annuity sectors of
the insurance industry. These markets are faced with an increased tightening of
the regulatory environment with particular emphasis placed on company solvency
and sales practices. The legal barriers which have historically segregated the
markets of the financial services industry are being challenged through both
legislative and judicial processes. Regulatory changes which opened the
insurance industry to other financial institutions, particularly banks and
mutual funds, heightened competition in investment type products since those
institutions were positioned to deliver the same products through large, stable
distribution channels.
The Company held $2.2 billion in assets at September 30, 1998 compared to $2.0
billion at December 31, 1997, of which $1.3 billion and $1.1 billion were held
in Separate Accounts as of September 30, 1998 and December 31, 1997 under
variable life insurance policies and variable annuity contracts. The remaining
assets were held in the general account for investment primarily in bonds,
policy loans and short-term investments.
1. RESULTS OF OPERATIONS
1998 versus 1997
Net income for the nine months ended September 30, 1998 amounted to $18.2
million, compared to $16.5 million in the nine months ended September 30, 1997.
Separate Account activity was a factor in operating results during the first
nine months of 1998. Separate Account assets increased 14.6% as of September 30,
1998, from $1.1 billion as of December 31, 1997 to $1.3 billion. An increase of
approximately $208.3 million is due to sales of the Company's variable products
and is offset by a $46.2 million reduction as a result of portfolio
depreciation. Increased sales primarily relate to the Discovery Select product
which was added to the Company's portfolio as of January 1997. Separate Account
asset based charges such as mortality and expense charges, administration fees
and Separate Account gains are the operating results elements effected by this
growth.
Policy charges and fee income decreased $.3 million from $39.8 million for the
nine months ended September 30, 1997 to $39.5 million for the nine months ended
September 30, 1998. This decrease is attributable to the decline in the number
of policies in force in 1998 as compared to 1997 partially offset by increased
sales of Discovery Select.
The Company's net investment income for the period ended September 30, 1998 was
$35.7 million representing a $1.4 million increase from the period ended
September 30, 1997. The increase in net investment income is a result of higher
beginning of year portfolio assets partially offset by declining interest rates.
The Company's net realized investment gains for the period ended September 30,
1998 was $7.2 million an increase of $5.9 million compared to the same period
ended September 30, 1997. This increase was primarily due to net sales of fixed
maturities during a period of declining interest rates. Also contributing to
this increase were gains recognized on futures contracts used to hedge the
insurance and annuity liabilities.
Other income increased $.9 million from $3.4 million for the nine months ended
September 30, 1997 to $4.3 million for the nine months ended September 30, 1998.
This is primarily attributable to the increase in investment management fees
which are received by the Company for services Prudential provides to The
Prudential Series Funds, an underlying investment option of the growing Separate
Accounts.
Policyholders' benefits decreased $3.2 million from $23.1 million for the nine
months ended September 30, 1997 to $19.9 million for the nine months ended
September 30, 1998. This decrease is primarily attributable to favorable
experience in the life business.
General, administrative, and other expenses increased $7.9 million from $16.5
million for the nine months ended September 30, 1997 to $24.4 million for the
nine months ended September 30, 1998. An exchange program, which allows
investors to exchange their current contract for a new Discovery Select policy,
has led to an increase in the sales activity of Discovery Select. This increased
sales volume resulted in a corresponding increase in expenses. In addition to
the increased sales volume, the parent company's allocation methodology for
expenses billed to its subsidiaries in 1998 changed, resulting in increased
expenses in Pruco Life of New Jersey. Also, a 1997 refinement of estimated gross
profit margins also contributed to a decrease in deferred policy acquisition
cost amortization for 1997.
9
<PAGE>
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in-force. The Company has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios. The Company anticipates funding all its cash requirements utilizing
cash from operations, normal investment maturities, and anticipated calls and
repayments or through short term lending from its affiliate Prudential Funding
Corporation (see Related Party Transactions). As of September 30, 1998, the
Company's assets included $631 million of cash, short-term investments and
investment grade publicly traded fixed maturity securities that could be
liquidated if funds were required.
The Company conducts a thorough review of the adequacy of statutory insurance
reserves and other actuarial liabilities. The review is performed to ensure that
the Company's statutory reserves are computed in accordance with accepted
actuarial standards, reflect all contractual obligations, meet the requirements
of state laws and regulations and include adequate provisions for any other
actuarial liabilities that need to be established. All significant reserve
changes are reviewed by the Board of Directors and are subject to approval by
the New Jersey Department of Banking and Insurance. The Company believes that
its statutory capital is adequate for its currently anticipated levels of risk
as measured by regulatory guidelines.
3. THE YEAR 2000 ISSUE
Pruco Life of New Jersey as an indirect wholly-owned subsidiary of Prudential
utilizes many of the same business applications, infrastructure and business
partners as Prudential. Prudential has addressed the Year 2000 issue on an
enterprise-wide basis. Therefore, is not possible to differentiate Pruco Life of
New Jersey's Year 2000 issue from that of Prudential. The accompanying
discussion of the Year 2000 issue reflects steps taken by Prudential to mitigate
the Year 2000 risks.
Many computer systems are programmed to recognize only the last two digits in a
date. As a result, any computer system that has date-sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly which could in turn affect the accuracy
and compromise the integrity of business records. Business operations could be
interrupted when companies are unable to process transactions, send invoices, or
engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
Business Applications
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production. Business application projects are grouped by applications undergoing
renovations, replacements or retirements. At September 30, 1998, the percentage
of business applications (based on application count) in the implementation
phase for Year 2000 compliance for renovation, replacement and retirement are
91%, 62% and 87%,respectively. The interim target date for completing
renovations and retirements is December 1998, with an overall completion date
for Business Applications of June 1999.
Infrastructure
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
10
<PAGE>
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of infrastructure initiatives is December 1998 with an overall
completion date for Infrastructure of June 1999.
Business Partners
Prudential's approach to business partner readiness includes classification of
each partner's status as "critical" or "less critical" and the development of
contingency plans to address the potential that a business partner could
experience a Year 2000 failure. Project phases include inventory, risk
assessment, and contingency planning activities. The interim target date for
highly critical business partner readiness is December 1998 with an overall
completion date for business partner readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including Pruco Life of New Jersey.
Expenses related to the Year 2000 initiatives allocated to Pruco Life of New
Jersey are part of systems overhead costs and are included in Pruco Life of New
Jersey's general and administrative expenses. The Year 2000 costs allocated to
Pruco Life of New Jersey to date are not material to its operations and
financial condition. Moreover, the forecasted allocated Year 2000 costs are not
expected to have a material impact on Pruco Life of New Jersey's ability to meet
its contractual commitments.
Year 2000 Risks and Contingency Planning
The major portion of the Prudential's transactions are of such volume that they
can only be effectively processed through the use of automated systems.
Therefore, substantially all of Prudential's contingency plans include the
ultimate resolution of any causative technology failures that may be
encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects slated for
completion as of the end of 1998 will not meet this target date, it is
anticipated that these projects will be completed mid-1999 so that these delays,
if experienced, would not have a significant impact on the timing of the project
as a whole. During the course of the Year 2000 program, some discretionary
technology projects have been delayed in favor of the completion of Year 2000
projects. However, this impact has been minimized by Prudential's strategic
decision to outsource most of the Year 2000 renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the Company's results of operations, liquidity or financial condition. In the
worst case, it is possible that any technology failure, including an internal or
external Year 2000 failure, could have a material impact on the Company's
results of operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature. See cautionary statement below relating to
forward-looking statements.
4. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting
11
<PAGE>
the Company will be those anticipated by management. There are certain important
factors that could cause actual results to differ materially from estimates or
expectations reflected in such forward-looking statements including without
limitation, changes in general economic conditions, including the performance of
financial markets and interest rates; market acceptance of new products and
distribution channels; competitive, regulatory or tax changes that affect the
cost or demand for the Company's products; and adverse litigation results. While
the Company reassesses material trends and uncertainties affecting its financial
condition and results of operations, it does not intend to review or revise any
particular forward-looking statement referenced in this Management's Discussion
and Analysis in light of future events. The information referred to above should
be considered by readers when reviewing any forward-looking statements contained
in this Management's Discussion and Analysis.
12
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
- ------------------------
Pruco Life Insurance Company of New Jersey is not involved in any litigation
that is expected to have a material effect.
ITEM 2 CHANGES IN SECURITIES
- ----------------------------
The following table presents sales and related expenses of the Flexible Premium
Variable Annuity Account since December 17, 1996, the effective date of the
registration statement (SEC file number 333-18053).
<TABLE>
<CAPTION>
For the account of the For the account(s) of the
Company contractholder(s)
---------------------------- -------------------------
AGGREGATE
OFFERING
PRICE OF
AMOUNT
REGISTERED AMOUNT SOLD AMOUNT SOLD
---------- ----------- -----------
(000's)
<S> <C> <C> <C>
Flexible Premium Variable Annuity Account * $ 150,000 $ 16,937 $ 521
Underwriting discounts and commissions ** (593)
Other expenses *** (260)
--------
Total (823)
Net offering proceeds $ 16,084
========
</TABLE>
- -------------
* Securities are not issued or sold in predetermined units.
** Amount represents estimated commissions paid to affiliated parties.
*** Amount represents estimated general administrative expenses paid to the
parent under service and lease agreement.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ----------------------------------------------------------
At the annual meeting of the stockholders held on June 9, 1998, the sole
stockholder of the Company elected the Board of Directors of the Company. The
following are the elected Board of Directors: James J. Avery, Jr. (Chairman of
the Board); I. Edward Price (Vice Chairman of the Board); William Bethke; Ira J.
Kleinman; Esther H. Milnes; and Mendel Melzer.
ITEM 5 OTHER INFORMATION
- ------------------------
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------
(a) (1) and (2) financial Statements of registrant and subsidiaries are
listed on pages 3-6 hereof and are filed as part of this Report. There have
been no 8-K's filed during the third quarter of 1998.
(a) (3) Exhibits
--------
Regulation S-K
--------------
2. Not Applicable
13
<PAGE>
PART II
3. Documents Incorporated by Reference
(i) The Articles of Incorporation of Pruco Life Insurance Company of New
Jersey, as amended February 12, 1998, are incorporated herein by reference
to Form 10-Q for the period ended March 31, 1998 and dated May 15, 1998 on
behalf of the Pruco Life Insurance Company of New Jersey; (ii) Bylaws of
Pruco Life Insurance Company of New Jersey, as amended May 5, 1997 are
incorporated herein by reference to Form 10-Q, Registration
No. 333-18117-01, filed August 15, 1997 on behalf of Pruco Life Insurance
Company of New Jersey.
4. Exhibits
Market-Value Adjustment Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No. 333-18053,
filed December 17, 1996.
10. None.
11. Not Applicable.
15. Not Applicable.
18. None.
19. Not Applicable.
20. Not Applicable.
22. None.
23. None.
24. Not Applicable.
25. Not Applicable.
27. Exhibit 27, Financial Data Schedule appended to this form in
accordance with EDGAR instructions.
99. None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ ESTHER H. MILNES President and Director November 16, 1998
- ----------------------
Esther H. Milnes
/s/ JAMES M. SCHLOMANN Vice President and November 16, 1998
- ---------------------- Comptroller and Chief
James M. Schlomann Chief Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27
FINANCIAL DATA SCHEDULE
Article 7 of Regulation S-X
Pruco Life Insurance Company of New Jersey
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 564,904
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 787,419
<CASH> 6,891
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 104,774
<TOTAL-ASSETS> 2,192,476
<POLICY-LOSSES> 409,280
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 88,657
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,000
0
0
<COMMON> 2,000
<OTHER-SE> 335,548
<TOTAL-LIABILITY-AND-EQUITY> 2,192,476
599
<INVESTMENT-INCOME> 35,680
<INVESTMENT-GAINS> 7,176
<OTHER-INCOME> 4,251
<BENEFITS> 34,755
<UNDERWRITING-AMORTIZATION> 8,183
<UNDERWRITING-OTHER> 16,260
<INCOME-PRETAX> 27,959
<INCOME-TAX> 9,786
<INCOME-CONTINUING> 18,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,173
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
