<PAGE>
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 quarterly period ended September 30, 1999
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, incorporation (IRS Employer Identification No.)
or organization)
213 Washington Street, Newark, New Jersey
-----------------------------------------
(Address of principal executive offices )
(973) 802-2042
-----------------------------------------
(Registrant's Telephone Number, including
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 the number of shares outstanding of each of the registrant's
classes of common stock, as of November 15, 1999. Common stock, par value
of $5 per share: 400,000 shares outstanding
Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction H(1)(a) and (b) on Form 10Q and is filing this form with
reduced disclosure.
<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, 1999 and December 31, 1998 3
Statements of Operations and Comprehensive Income
Nine and Three months ended September 30, 1999 and 1998 4
Statements of Cash Flows
Nine months ended September 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
Signature Page 10
2
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Financial Position
September 30, 1999 (Unaudited) and December 31, 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized
cost, 1999: $627,427, 1998: $617,758) $ 615,727 $ 622,990
Held to maturity, at amortized cost (fair value, 1999: $7,124) 7,470 --
Policy loans 142,625 139,443
Short-term investments 5,998 53,761
----------- -----------
Total investments 771,820 816,194
Cash 26 45
Deferred policy acquisition costs 123,071 113,923
Accrued investment income 13,155 12,209
Receivable from affiliate 5,469 --
Other assets 120 15,379
Separate Account assets 1,612,472 1,453,407
----------- -----------
TOTAL ASSETS 2,526,133 2,411,157
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 413,663 $ 414,774
Future policy benefits and other policyholder liabilities 90,586 89,604
Cash collateral for loaned securities 11,950 34,424
Securities sold under agreements to repurchase 16,073 27,210
Income taxes 27,727 25,325
Payable to affiliate -- 3,492
Other liabilities 6,062 19,489
Separate Account liabilities 1,608,731 1,450,986
----------- -----------
Total liabilities 2,174,792 2,065,304
----------- -----------
Contingencies (See Note 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 227,964 217,260
Accumulated other comprehensive income (3,623) 1,593
----------- -----------
Total stockholder's equity 351,341 345,853
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,526,133 $ 2,411,157
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income (Unaudited)
Nine and Three Months Ended September 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 1,773 $ 1,384 $ 159 $ 846
Policy charges and fee income 38,895 38,070 13,629 13,558
Net investment income 37,288 35,680 12,713 11,584
Realized investment (losses) gains, net (2,661) 7,176 (522) 5,353
Asset management fee income 4,876 4,188 1,626 1,586
Other income 4,145 3,094 1,524 998
-------- -------- -------- --------
Total revenues 84,316 89,592 29,129 33,925
-------- -------- -------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 19,906 22,646 5,479 7,963
Interest credited to policyholders' account
balances 14,042 14,195 5,117 4,952
General, administrative and other expenses 33,901 24,792 12,278 7,754
-------- -------- -------- --------
Total benefits and expenses 67,849 61,633 22,874 20,669
-------- -------- -------- --------
Income before income taxes 16,467 27,959 6,255 13,256
Income taxes 5,763 9,786 2,189 4,566
-------- -------- -------- --------
NET INCOME $ 10,704 $ 18,173 $ 4,066 $ 8,690
-------- -------- -------- --------
Unrealized gains (losses) on securities,
net of reclassification adjustment (5,216) 3,982 (1,237) 3,900
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 5,488 $ 22,155 $ 2,829 $ 12,590
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and 1998 (In Thousands)
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<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,704 $ 18,173
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Policy charges and fee income (8,630) (4,599)
Interest credited to policyholders' account balances 14,042 14,195
Realized investment losses (gains), net 2,661 (7,176)
Amortization and other non-cash items 12,569 1,058
Change in:
Future policy benefits and other policyholders' liabilities 982 2,511
Accrued investment income (946) 1,516
Payable to / Receivable from affiliates, net (8,961) (687)
Separate Accounts (1,320) (6,631)
Policy loans (3,182) (10,068)
Deferred policy acquisition costs (9,148) (3,149)
Income taxes 2,402 (1,041)
Other, net 1,832 (3,303)
--------- ---------
Cash Flows From Operating Activities 13,005 799
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 637,300 583,157
Payments for the purchase of:
Fixed maturities:
Available for sale (650,987) (546,154)
Held to maturity (7,470) --
Cash collateral for loaned securities, net (22,474) (3,800)
Securities sold under agreement to repurchase, net (11,137) --
Short-term investments, net 47,771 (32,673)
--------- ---------
Cash Flows Used In Investing Activities (6,997) 530
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 195,689 239,687
Withdrawals (201,716) (241,128)
Proceeds from issuance of affiliated notes payable -- 7,000
--------- ---------
Cash Flows Used In Financing Activities (6,027) 5,559
--------- ---------
Net increase in Cash (19) 6,888
Cash, beginning of year 45 3
--------- ---------
CASH, END OF PERIOD $ 26 $ 6,891
========= =========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
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1. BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared pursuant to the
rules and regulations for reporting on Form 10-Q on the basis of generally
accepted accounting principles. These interim financial statements are unaudited
but reflect all adjustments which, in the opinion of management, are necessary
to provide a fair presentation of the results of operations and financial
condition of Pruco Life of New Jersey ("the Company"), a wholly owned subsidiary
of Pruco Life Insurance Company ("Pruco Life"), for the interim periods
presented. Pruco Life, in turn, is a wholly owned subsidiary of The Prudential
Insurance Company of America ("Prudential"). All such adjustments are of a
normal recurring nature. The results of operations for any interim period are
not necessarily indicative of results for a full year. Certain amounts in the
Company's prior year financial statements have been reclassified to conform with
the 1999 presentation. These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
2. CONTINGENCIES
Several actions, based on complaints about sales practices engaged in by
Prudential, the Company and agents, have been brought against the Company on
behalf of those persons who purchased life insurance policies. 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 Company's financial position or results of operations
of the Company.
3. RELATED PARTY TRANSACTIONS
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees, supplies, use of equipment and office space
are provided by Prudential. Prudential periodically reviews its methods for
determining the level of administrative expenses charged to the Company. During
1999, Prudential revised its allocation methodology to more closely align
allocations based on business processes, resulting in increased allocations from
1998 levels. In addition, the method of allocating distribution costs to
individual annuity products was modified during 1999 such that allocated costs
exceeding an agreed upon amount remained with Prudential instead of being
allocated to non-annuity products within the Company. Management believes that
the updated methodology is reasonable and better reflects actual costs incurred
by Prudential to process transactions on behalf of the Company.
The Company receives asset management fee income from Pruco Life for its
policyholder account balances invested in the Prudential Series Fund ("PSF")
managed by Pruco Life. This is recorded as "Asset management fee income" in the
Statements of Operations and Comprehensive Income.
6
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities." The new accounting treatment required by this statement will not
affect the Company's liquidity or the ultimate economic gain or loss from its
derivative positions. However, it may affect the way the Company recognizes
changes in value of some of its derivatives and derivative-like contract
features, and this could lead to more volatility in the Company's reported
income statement results, especially on a quarterly basis.
Under previous accounting standards, companies could defer recognizing changes
in the value of derivatives used to hedge various risks if certain conditions
were met. Under the new accounting standards, all derivatives must be reported
at fair value each quarter, but if special hedge accounting requirements are met
this change in fair value may be offset, entirely or partially, by also
recognizing the corresponding change in value of the hedged item. Since the
Company already marks most of its derivative positions to market each quarter,
the Company does not expect this new treatment to materially increase its net
income volatility assuming the Company continues its current derivative and
hedging strategies.
While the Statement does not apply to most traditional insurance contracts, some
contracts may contain features that can affect settlement amounts similarly to
derivatives. For these contracts, the new standard calls for separate accounting
for the "host contract" and the "embedded derivative," leading to mark-to-market
for the "embedded derivative" features that was not previously required. While
the Company's economic results from these contracts are also unaffected, this
accounting could lead to increased volatility in the quarterly income statement
results it reports.
The Company has not yet completed its assessment of the impact of the statement,
and its effect on the Company depends, among other things, on its derivative
positions and hedging strategies after the date of adoption. The Company is
required to adopt this statement no later than January 1, 2001.
7
<PAGE>
Cautionary Note Regarding Forward-Looking Statements
Certain of the statements included in this document may constitute
forward-looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Words such as "expects," "believes,"
"anticipates," "intends," "plans," "assumes," "estimates," "projects," or
variations of such words are generally part of forward-looking statements.
Forward-looking statements are made based on 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 the
Company will be those anticipated by management. These forward looking
statements are not a guarantee of future performance and involve risks and
uncertainties, and 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 document in light of future events.
The information referred to below should be considered by readers when reviewing
any forward-looking statements contained in this document.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
- --------------
Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction H(1)(a) and (b) on Form 10Q and is filing this form with
reduced disclosure.
For the nine months ended September 30, 1999 and September 30, 1998
- -------------------------------------------------------------------
Net income for the nine months ended September 30, 1999 was $10.7 million, a
decrease of $7.5 million or 41.2% from $18.2 million in the nine months ended
September 30, 1998.
The Company's net realized investment gains decreased $9.9 million from $7.2
million for the nine months ended September 30, 1998 to a loss of $2.7 million
for the nine months ended September 30, 1999; the decrease was primarily due to
net sales activity of fixed maturities during a period of increasing interest
rates.
Policyholders' benefits decreased $2.7 million for the nine months ended
September 30, 1999 to $19.9 million from $22.6 million for the nine months ended
September 30, 1998. This decrease in policyholder's benefits is largely
attributable to a decrease in claims processed during 1999.
General, administrative, and other expenses increased $9.1 million from $24.8
million for the nine months ended September 30, 1998 to $33.9 million for the
nine months ended September 30, 1999. The primary reason for the higher level of
expenses in 1999 is a change in Prudential's allocation methodology for expenses
billed to the Company resulting in an increase in non-deferrable expenses. The
increase in expenses was partially offset by a reduction in distribution costs
allocated to the Company's annuity products by Prudential.
8
<PAGE>
PART II
-------
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
--------
3(i)(a) The Articles of Incorporation (as amended through March 11,
1983) of Pruco Life Insurance Company of New Jersey are
incorporated by reference to Post-effective Amendment No. 26
to the Registration Statement on Form S-6 of Pruco Life of New
Jersey Variable Appreciable Account as filed April 28, 1997,
Registration No. 2-89780.
3(i)(b) Amendment to the Articles of Incorporation dated February 12,
1998 is incorporated by reference to Post-Effective Amendment
No. 12 to the Registration Statement on Form S-1, of Pruco
Life of New Jersey Variable Contract Real Property Account as
filed on April 16, 1999, Registration No. 33-20018.
3(ii)a By-Laws of Pruco Life Insurance Company of New Jersey (as
amended through May 5, 1997) are incorporated by reference to
Form 10-Q as filed by the Company on August 15, 1997.
3(ii)b Incorporated by reference to Form S-6, filed on August 13,
1999 on behalf of the Pruco Life Insurance Company of New
Jersey Variable Appreciable account.
4 Market-Value Adjustment Annuity Contract is incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-18053, as filed November 17, 1995.
27 Financial Data Schedule is filed herewith in accordance with
EDGAR instructions.
9
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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 15, 1999
- ------------------------
Esther H. Milnes
/s/ Dennis G. Sullivan Principal Financial Officer November 15, 1999
- ------------------------ and Chief Accounting Officer
Dennis G. Sullivan
10
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 615,727
<DEBT-CARRYING-VALUE> 7,470
<DEBT-MARKET-VALUE> 7,124
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 771,820
<CASH> 26
<RECOVER-REINSURE> 16
<DEFERRED-ACQUISITION> 123,071
<TOTAL-ASSETS> 2,526,133
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 90,586
<POLICY-HOLDER-FUNDS> 413,663
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 349,341
<TOTAL-LIABILITY-AND-EQUITY> 2,526,133
1,773
<INVESTMENT-INCOME> 37,288
<INVESTMENT-GAINS> (2,661)
<OTHER-INCOME> 4,145
<BENEFITS> 19,906
<UNDERWRITING-AMORTIZATION> 11,707
<UNDERWRITING-OTHER> 22,194
<INCOME-PRETAX> 16,467
<INCOME-TAX> 5,763
<INCOME-CONTINUING> 10,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,704
<EPS-BASIC> 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>
