================================================================================
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 March 31, 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, (IRS Employer Identification No.)
incorporation or organization)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 802-5740
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 17, 1999. 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
<TABLE>
PAGE NO.
--------
<S> <C>
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
ITEM 1. (UNAUDITED) FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
MARCH 31, 1999 AND DECEMBER 31, 1998 3
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 4
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998 5
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 9
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 12
</TABLE>
2
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
MARCH 31, 1999 AND 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
ASSETS
Fixed maturities
<S> <C> <C>
Available for sale, at fair value (amortized cost, 1999: $560,235; $ 559,951 $ 622,990
1998: $617,758)
Held to maturity, at amortized cost (fair value, 1999: $5,340) 5,470 --
Policy loans 142,114 139,443
Short-term investments 80,854 53,761
----------- -----------
Total investments 788,389 816,194
Cash 2,872 45
Deferred policy acquisition costs 116,107 113,923
Accrued investment income 12,888 12,209
Receivable from affiliate 5,402 (3,492)
Other assets 9,016 15,379
Separate Account assets 1,498,259 1,453,407
----------- -----------
TOTAL ASSETS $ 2,432,933 $ 2,407,665
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 414,516 $ 414,546
Future policy benefits and other policyholder liabilities 89,318 89,832
Cash collateral for loaned securities 40,471 34,424
Securities sold under agreements to repurchase 4,704 27,210
Income taxes payable 3,107 1,610
Net deferred income tax liability 23,144 23,715
Other liabilities 13,831 19,489
Separate Account liabilities 1,495,562 1,450,986
----------- -----------
TOTAL LIABILITIES 2,084,653 2,061,812
----------- -----------
CONTINGENCIES (SEE NOTE 2)
STOCKHOLDER'S EQUITY
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
March 31, 1999 and December 31, 1998 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 221,256 217,260
Accumulated other comprehensive income 24 1,593
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 348,280 345,853
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,432,933 $ 2,407,665
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
REVENUES
Premiums $ 283 $ 363
Policy charges and fee income 12,633 12,467
Net investment income 11,926 11,879
Realized investment (losses) gains, net (347) 1,142
Asset management fee income 1,495 1,446
Other income 233 45
-------- --------
TOTAL REVENUES 26,223 27,342
-------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 7,205 6,991
Interest credited to policyholders' account 4,280 5,322
balances
General, administrative and other expenses 8,437 5,795
-------- --------
TOTAL BENEFITS AND EXPENSES 19,922 18,108
-------- --------
Income before income taxes 6,301 9,234
-------- --------
Income taxes 2,305 3,278
-------- --------
NET INCOME $ 3,996 $ 5,956
-------- --------
Unrealized losses on securities,
net of reclassification adjustment (1,569) (1,623)
-------- --------
COMPREHENSIVE INCOME $ 2,427 $ 4,593
======== ========
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN- RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME EQUITY
------------- ------------- ------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 2,000 $ 125,000 $ 185,437 $ 2,956 $ 315,393
Net income -- -- 31,823 -- 31,823
Change in unrealized losses on
securities, net of
reclassification
adjustment -- -- -- (1,363) (1,363)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 2,000 $ 125,000 $ 217,260 $ 1,593 $ 345,853
Net income -- -- 3,996 -- 3,996
Change in unrealized losses on
securities, net of
reclassification
adjustment -- -- -- (1,569) (1,569)
--------- --------- --------- --------- ---------
BALANCE, MARCH 31, 1999 $ 2,000 $ 125,000 $ 221,256 $ 24 $ 348,280
========= ========= ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,996 $ 5,956
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Policy charges and fee income (2,471) (3,110)
Interest credited to policyholders' account balances 4,280 5,322
Realized investment gains, net 347 (1,142)
Amortization and other non-cash items 4,385 (932)
Change in:
Future policy benefits and other policyholders' liabilities (514) 2,272
Accrued investment income (679) (17)
Receivable from affiliate (8,894) 4,644
Separate Accounts (276) (278)
Policy loans (2,671) (4,297)
Deferred policy acquisition costs (2,184) (741)
Income taxes payable 1,497 3,103
Deferred income tax liability (571) (961)
Other, net 705 (2,055)
--------- ---------
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES (3,050) 7,764
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 402,023 188,545
Payments for the purchase of:
Fixed maturities:
Available for sale (345,265) (163,676)
Held to maturity (5,470) --
Cash collateral for loaned securities, net 6,047 (5,519)
Securities sold under agreement to repurchase, net (22,506) --
Short-term investments, net (27,086) (23,475)
--------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 7,743 (4,125)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 44,029 84,084
Withdrawals (45,895) (82,199)
--------- ---------
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES (1,866) 1,885
--------- ---------
Net increase in Cash 2,827 5,524
Cash, beginning of year 45 3
--------- ---------
CASH, END OF PERIOD $ 2,872 $ 5,527
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Pruco Life Insurance Company
of New Jersey (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,
1998 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 three months ended March 31, 1999 may not be indicative of
the results that may be expected for the year ending December 31, 1999.
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
2. 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.
3. RELATED PARTY TRANSACTIONS
Prudential and the Company 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 the Separate Accounts. Under this
agreement, Prudential pays compensation to the Company in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. This is recorded as "Asset management fee income" on the Statements of
Operations and Comprehensive Income.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
- --------------
The following analysis should be read in conjunction with the Notes to Financial
Statements.
The Company markets individual life insurance, variable life insurance, variable
annuities and fixed 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 subject to regulatory oversight with
particular emphasis placed on company solvency and sales practices. These
markets are also subject to increasing competitive pressures as 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 have opened the insurance industry to competition
from other financial institutions, particularly banks and mutual funds, that are
positioned to deliver competing products through large, stable distribution
channels.
The Company held $2.43 billion in assets at March 31, 1999 compared to $2.40
billion at December 31, 1998, of which $1.50 billion were held in Separate
Accounts in both 1999 and 1998 under variable life insurance policies and
variable annuity contracts. The remaining assets consisted primarily of general
account investments and deferred policy acquisition costs.
1. RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 amounted to $4.0 million,
a decrease of $2.0 million or 33.3% from $6.0 million in the three months ended
March 31, 1998.
Total insurance revenues, consisting of premiums and policy charges and fee
income increased $0.1 million from $12.8 million for the three months ended
March 31, 1998 to $12.9 million for the three months ended March 31, 1999. This
increase in insurance revenues is primarily attributable to an increase in sales
of Discovery Select, a variable annuity retirement type product. Increased sales
and appreciation in Separate Account asset values contributed to the growth in
assets under management and consequently on fees earned. For Discovery Select,
the growth in Separate Account assets under management surpassed March 31, 1998
balances by $233.1 million for a total of $419.3 million as of March 31, 1999.
The Company's net realized investment gains decreased $1.4 million from $1.1
million for the three months ended March 31, 1998 to a loss of $0.3 million for
the three months ended March 31, 1999. This decrease in net realized investment
gains was primarily due to net sales of fixed maturities during a period of
increasing interest rates. These sales were a result of a strategic decision to
reallocate money to short term investments.
Asset management fee income increased $0.1 million from $1.4 million for the
three months ended March 31, 1998 to $1.5 million for the three months ended
March 31, 1999. The portfolio of mutual fund investments related to the
Company's Separate Account products is known as The Prudential Series Fund. The
Company receives an allocated portion of investment management fees that
Prudential earns from the Prudential Series Fund. The increased sales and
appreciation in the Separate Account products have resulted in larger fees being
received from Prudential.
Interest credited to policyholders' account balances decreased by $1.0 million
from $5.3 million for the three months ended March 31, 1998 to $4.3 million for
the three months ended March 31, 1999. This decrease is primarily attributable
to a decrease in interest crediting rates, partially offset by increased
interest credited to policy loans as well as increased fund values due to new
sales of Separate Account products.
General, administrative, and other expenses increased $2.6 million from $5.8
million for the three months ended March 31, 1998 to $8.4 million for the three
months ended March 31, 1999. The primary reason for the higher level of expenses
in 1999 is an increase in deferred policy acquisition costs amortization. The
level of deferred policy acquisition costs and, consequently, the amortization
of such costs, increased significantly over the past year reflecting strong
growth in sales of the Discovery Select Variable Annuity. In addition,
amortization of deferred policy acquisition costs in 1998 was reduced as a
result of a refinement in estimated gross profit margins.
8
<PAGE>
2. THE YEAR 2000 ISSUE
Prudential has addressed the Year 2000 issue on an enterprise-wide basis;
therefore, it is not possible to differentiate Pruco Life of New Jersey's Year
2000 issue from that of the Prudential. Refer to management's discussion of the
Year 2000 issue in the December 31, 1998 Form 10-K for the steps taken by
Prudential to mitigate the Year 2000 risks.
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 projects may not meet their
targeted completion dates, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. These responses are being reviewed and are expected to be finalized
by June 1999 to ensure that they are workable under the special conditions of a
Year 2000 failure. The contingency plans are substantially on schedule and will
be implemented prior to year-end.
The Year 2000 costs allocated to Pruco Life of New Jersey to date are not
material to its operations and financial position. 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. The discussion
of the Year 2000 issue herein, and in particular the Company's plans to
remediate this issue and estimated costs thereof, are forward-looking in nature.
See cautionary statement below relating to forward-looking statements.
3. 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company's exposure to market risks and the way these risks are managed, are
summarized in Item 7a of the 1998 Form 10K.
9
<PAGE>
PART II
-------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- --------------------------------------------------
(d) Information required by Item 701(f) of Regulation S-K:
(1) The original effective date of the Registration Statement of the
Company on Form S-1 was declared effective on February 14, 1997
(Registration No. 333-18053). The registration statement
continues to be effective through annual amendments, the most
recent filed April 16, 1999 and declared effective April 30,
1999.
(2) Offering commenced immediately upon effectiveness of the
registration statement.
(3) Not applicable.
(4) (i) The offering has not been terminated.
(ii) The managing underwriter of the offering is Prudential
Investment Management Services LLC.
(iii) Market-Value Adjustment Annuity Contracts (also known as
modified guaranteed annuity contracts).
(iv) Securities registered and sold for the account of the
Company:
<TABLE>
<S> <C>
Amount registered*: $ 150,000,000
Aggregate price of the offering amount registered: $ 150,000,000
Amount sold*: $ 19,589,000
Aggregate offering price of amount sold to date: $ 19,589,000
* Securities not issued in predetermined units
No securities have been registered for the account
of any selling security holder.
(v) Expenses associated with the issuance of the securities:
Underwriting discounts and commissions** $ 685,000
Other expenses** $ 389,000
Total $ 1,074,000
** Amounts are estimated and are paid to affiliated parties.
(vi) Net offering proceeds: $ 18,515,000
</TABLE>
(vii) Not applicable.
(viii) Not applicable.
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.
10
<PAGE>
PART II
-------
3(ii) 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.
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.
11
<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 May 17, 1999
- --------------------------
Esther H. Milnes
/s/ DENNIS G. SULLIVAN Principal Financial Officer and May 17, 1999
- -------------------------- Chief Accounting Officer
Dennis G. Sullivan
12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
FINANCIAL DATA SCHEDULE
Article 7 of Regulation S-X
Pruco Life Insurance Company of New Jersey
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 559,951
<DEBT-CARRYING-VALUE> 5,470
<DEBT-MARKET-VALUE> 5,340
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 788,389
<CASH> 2,872
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 116,107
<TOTAL-ASSETS> 2,432,933
<POLICY-LOSSES> 414,516
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 89,318
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 346,280
<TOTAL-LIABILITY-AND-EQUITY> 2,432,933
283
<INVESTMENT-INCOME> 11,926
<INVESTMENT-GAINS> (347)
<OTHER-INCOME> 233
<BENEFITS> 11,485
<UNDERWRITING-AMORTIZATION> 4,149
<UNDERWRITING-OTHER> 4,288
<INCOME-PRETAX> 6,301
<INCOME-TAX> 2,305
<INCOME-CONTINUING> 3,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,996
<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>
