<PAGE>
As filed with the Securities and Exchange Commission on June 1, 1998
File No. 333-40159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GE FINANCIAL ASSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1829180
(State of incorporation) (I.R.S. Employer Identification Number)
</TABLE>
6604 WEST BROAD STREET
RICHMOND, VIRGINIA 23230
(804) 281-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
<TABLE>
<S> <C>
LEON E. RODAY BRUCE C. BENNETT
SENIOR VICE PRESIDENT AND GENERAL COUNSEL ASSOCIATE GENERAL COUNSEL
GE FINANCIAL ASSURANCE HOLDINGS, INC. GENERAL ELECTRIC CAPITAL CORPORATION
6604 WEST BROAD STREET 260 LONG RIDGE ROAD
RICHMOND, VIRGINIA 23230 STAMFORD, CONNECTICUT 06927
(804) 281-6000 (203) 357-4000
</TABLE>
COPIES TO:
<TABLE>
<S> <C>
GARY I. HOROWITZ WINTHROP B. CONRAD, JR.
SIMPSON THACHER & BARTLETT DAVIS POLK & WARDWELL
425 LEXINGTON AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10017
(212) 455-2000 (212) 450-4000
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Subject to completion, dated June 1, 1998
PROSPECTUS
GE FINANCIAL ASSURANCE HOLDINGS, INC.
DEBT SECURITIES
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
GE Financial Assurance Holdings, Inc. ("GE Financial Assurance," and
together with its subsidiaries, the "Company") may offer from time to time its
senior, unsecured debt securities ("Debt Securities"). The Debt Securities are
hereinafter in this Prospectus referred to as the "Debt Securities," although
any series of Debt Securities to which the accompanying Prospectus Supplement
relates may bear a different title. The term "Prospectus Supplement" as used
herein includes any Pricing Supplement that accompanies any Prospectus
Supplement that accompanies this Prospectus.
The Debt Securities will be offered on terms determined at the time of sale.
The accompanying Prospectus Supplement sets forth specifically with regard to
the Debt Securities in respect of which this Prospectus is being delivered:
- the title of the Debt Securities,
- the aggregate principal amount offered,
- the currency, currencies or currency units in which payments on the Debt
Securities are payable,
- the rate or method of calculation, and the dates of payment of interest,
if any,
- the date or dates from which such interest shall accrue,
- the method of determining holders to whom any such interest shall be
payable,
- the authorized denominations, if other than as provided herein,
- the maturity,
- the offering price or terms,
- the terms of any sinking fund, purchase fund or mandatory redemption, and
of any redemption or repayment at the option of GE Financial Assurance or
the holder,
- the underwriter or underwriters or agent or agents, if any, for the Debt
Securities, their compensation or the basis of determining the same and
the net proceeds to GE Financial Assurance, and
- the exchanges, if any, on which the Debt Securities may be listed.
The Debt Securities will be sold either through underwriters or dealers,
through agents designated from time to time, or directly by GE Financial
Assurance.
SEE "RISK FACTORS," BEGINNING ON PAGE 4, FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE DEBT SECURITIES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBT SECURITIES.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF DEBT SECURITIES FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE DEBT
SECURITIES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE DEBT SECURITIES.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THE OFFERING NOR HAS SUCH COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
WITH RESPECT TO THE FIRST OFFERING OF DEBT SECURITIES HEREUNDER, UNTIL 25
DAYS AFTER THE DATE OF THE PROSPECTUS SUPPLEMENT RELATING TO SUCH OFFERING, ALL
DEALERS EFFECTING TRANSACTIONS IN SUCH DEBT SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION OF SUCH DEBT SECURITIES, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY GE
FINANCIAL ASSURANCE OR BY ANY AGENT, UNDERWRITER OR DEALER. NEITHER THE DELIVERY
OF THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT, NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF GE FINANCIAL ASSURANCE SINCE THE DATES AS OF
WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS AND IN THE ACCOMPANYING PROSPECTUS
SUPPLEMENT. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
-------------------
AVAILABLE INFORMATION
GE Financial Assurance is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports and other information which contain information about GE
Financial Assurance with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the Regional Offices of the Commission
at 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center,
New York, New York 10048 and copies can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov. which contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
-------------------
GE Financial Assurance is not required to deliver annual reports to its
security holders pursuant to the 1934 Act or any stock exchange requirement.
Copies of its annual, quarterly and periodic reports to the Commission on Forms
10-K, 10-Q and 8-K (containing financial information audited by independent
accountants in the case of its annual report on Form 10-K) are required to be
furnished to the trustee under the indenture pursuant to which the Debt
Securities will be issued.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
There is hereby incorporated in this Prospectus by reference GE Financial
Assurance's Registration Statement on Form 10 filed with the Commission pursuant
to Section 12(g) of the 1934 Act, to which reference is hereby made.
All documents filed by GE Financial Assurance pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act after the date of the initial filing of the
Registration Statement of which this Prospectus is a part and prior to the
termination of the offering of the Debt Securities offered by the accompanying
Prospectus Supplement shall be deemed to be incorporated in this Prospectus by
reference and to be a part hereof from the date of filing of such documents.
GE Financial Assurance hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus has
been delivered, on the written or oral request of such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to Stephen N. DeVos, Vice President
and Controller, GE Financial Assurance Holdings, Inc., 6604 West Broad Street,
Richmond, Virginia 23230, Telephone No. (804) 281-6000.
3
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors before
purchasing any Debt Securities offered hereby.
REGULATORY RESTRICTIONS ON DECLARATION OF DIVIDENDS BY A SUBSIDIARY
Because the operations of GE Financial Assurance are conducted through its
subsidiaries, GE Financial Assurance is dependent upon dividends from its
subsidiaries to service its debt and meet its other obligations. The payment of
dividends and other payments to GE Financial Assurance by its subsidiaries is
subject to regulatory approval by various state insurance departments. See "The
Company--Insurance Regulation" and "Description of Debt Securities--General."
SUBORDINATION OF THE NOTES TO THE OBLIGATIONS OF THE SUBSIDIARIES
GE Financial Assurance is a non-operating holding company which conducts its
business through its subsidiaries. The Debt Securities will be effectively
subordinated to the liabilities of GE Financial Assurance's subsidiaries. In the
event of the insolvency, liquidation or other reorganization of any of GE
Financial Assurance's insurance subsidiaries, the creditors and shareholders of
GE Financial Assurance would have no right to proceed against any such
subsidiary or to cause the liquidation or bankruptcy of any such subsidiary
under federal or state bankruptcy laws. The insurance laws of the domiciliary
state would govern such proceedings and the relevant insurance commissioner
would act as liquidator or rehabilitator for the subsidiary. Creditors and
policyholders of any such subsidiary would be entitled to payment in full from
the assets of the subsidiary before GE Financial Assurance, as a shareholder,
would be entitled to receive any distribution therefrom. See "Description of
Debt Securities--General."
LEGISLATIVE AND REGULATORY PROPOSALS
The Company is subject to comprehensive state regulation and supervision
throughout the United States. The laws of the various state jurisdictions
establish supervisory agencies with broad administrative powers with respect to,
among other things, licensing to transact business, admitting assets, regulating
premium rates, approving policy forms, regulating unfair trade and claims
practices, establishing reserve requirements and solvency standards, fixing
maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values, restricting certain transactions between
affiliates and regulating the type, amounts and valuation of investments
permitted. State insurance regulators and the National Association of Insurance
Commissioners ("NAIC") are continually re-examining existing laws and
regulations.
In addition to state regulation, federal legislation and administrative
policies in several areas, including pension regulation, financial services
regulation and federal taxation, can significantly and adversely affect the
insurance industry, and thus the Company. For example, Congress has from time to
time considered legislation relating to the deferral of taxation on the
accretion of value within certain annuities and life insurance products. It is
not possible to predict whether future state or federal legislation or
regulation adversely affecting the insurance industry may be enacted or, if
enacted, the extent to which such legislation or regulation would have an effect
on the Company and its competitors. See "The Company--Insurance Regulation."
COMPETITION
GE Financial Assurance and its subsidiaries operate in a highly competitive
environment. While the Company believes it has assembled a unique collection of
products and distribution channels, there are competitors that have also
assembled a similar array of financial products and have similar strategic
goals. The Company competes with other financial services companies, such as
banks, thrift institutions, third party marketers, investment companies, and
brokerage firms which offer investment, insurance and other
4
<PAGE>
products similar to those offered by the Company. Competition from banks and
other financial institutions is likely to increase as the regulations currently
in existence are revised by legislation, judicial determinations or
administrative rulings. Although the effect of these developments on GE
Financial Assurance and its subsidiaries and their competitors is uncertain,
both the persistency of the Company's existing products and the Company's
ability to sell products could be materially impacted in the future. Also,
several proposals to repeal or modify the Glass-Steagall Act of 1933, as amended
(the "Glass-Steagall Act"), and the Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"), have been made by members of Congress and the
Executive Branch. Certain of these proposals would repeal or modify the current
restrictions that prevent banks from being affiliated with insurance companies.
None of these proposals has yet been enacted, and it is not possible to predict
whether any of these proposals will be enacted or, if enacted, what their
potential effect on the Company or its competitors would be. See "The
Company--Competition."
TRANSACTIONS INVOLVING ISSUANCE OR ASSUMPTION OF DEBT
The Indenture does not contain any provisions that limit the ability of GE
Financial Assurance to incur indebtedness or that afford holders of Debt
Securities protection in the event General Electric Capital Corporation ("GE
Capital"), as sole shareholder of GE Financial Assurance, causes GE Financial
Assurance to engage in a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
TAXPAYER RELIEF ACT OF 1997
Among the Company's principal products are deferred annuities, both fixed
and variable. During the accumulation period of a deferred annuity, amounts
credited by the Company accrue on a tax deferred basis to the policy owner. When
the policy owner withdraws amounts from the annuity, proceeds are taxed as
ordinary income rather than as capital gains. This differs from the tax
treatment applicable to certain other investments, such as mutual funds, where
proceeds are generally taxed as capital gains. The Taxpayer Relief Act of 1997
(the "Act") reduces the maximum tax rate on capital gains of individuals from
28% to 20% on assets held 18 months or longer. Thus, the Act may make other
investments, such as mutual funds, relatively more attractive to certain
investors than deferred annuities. It is not possible to predict what the actual
effect of the Act on the Company will be.
RATINGS
Concerns regarding the financial stability of insurance companies have
resulted in emphasis being placed upon insurance company ratings and have
created some measure of competitive advantage for insurance carriers with higher
ratings. There can be no assurance that the ratings for GE Financial Assurance's
subsidiaries will be maintained. Any downgrade in the ratings of GE Financial
Assurance's material subsidiaries could impact the Company's ability to write
new business. See "The Company-- Ratings."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein contain forward-looking statements
concerning the Company's operations, economic performance and financial
condition. Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause such differences include,
but are not limited to, those discussed under "Risk Factors."
5
<PAGE>
THE COMPANY
GE Financial Assurance, through its direct and indirect subsidiaries, is
principally engaged in the life insurance and annuity business primarily in the
United States and increasingly abroad. All the outstanding common stock of GE
Financial Assurance is owned by GE Capital, a wholly owned subsidiary of General
Electric Capital Services, Inc. The Company's principal executive offices are
located at 6604 West Broad Street, Richmond, Virginia 23230 (telephone (804)
281-6000).
OWNERSHIP OF THE COMPANY
GE Capital operates in four financing industry segments and in a specialty
insurance industry segment. GE Capital's financing activities include a full
range of middle-market leasing and lending, equipment management sales and
services, specialized financing and consumer services. GE Capital's specialty
insurance activities include providing financial guaranty insurance, principally
on municipal bonds and structured finance issues, private mortgage insurance and
creditor insurance covering international customer loan repayments. The
long-term debt obligations of GE Capital are rated "AAA" by Standard & Poor's
Corporation ("S&P") and "Aaa" by Moody's Investors Services, Inc. ("Moody's").
GENERAL DESCRIPTION OF BUSINESS
GE Financial Assurance is a holding company that through its subsidiaries
provides consumers financial security solutions by selling a wide variety of
insurance, investment and retirement products primarily in the United States.
The Company effectively began operations in April 1993 with the acquisition of
GNA Corporation and its principal operating company, Great Northern Insured
Annuity Corporation. The Company has continued to broaden its operations through
a series of acquisitions consummated since 1993. See "The Company--Significant
Acquisitions." The Company's product offerings are divided along two major
segments of consumer needs: (i) Wealth Accumulation and Transfer and (ii) Wealth
and Lifestyle Protection.
The Company's principal product lines under the Wealth Accumulation and
Transfer segment are (i) annuities (deferred and immediate; either fixed or
variable), (ii) life insurance (universal, term, ordinary and group), (iii)
guaranteed investment contracts ("GICs") and (iv) mutual funds. Wealth
Accumulation and Transfer products are used by customers as vehicles for
accumulating wealth, often on a tax-deferred basis, transferring wealth to
beneficiaries, or providing a means to replace the insured's income in the event
of premature death. The Company's distribution of Wealth Accumulation and
Transfer products is accomplished through three distribution methods: (i)
intermediaries, (ii) career or dedicated sales forces and (iii) marketing
through businesses and affinity groups.
The Company's principal product lines under the Wealth and Lifestyle
Protection segment are (i) long-term care insurance, (ii) supplemental accident
and health insurance, (iii) personal lines of automobile insurance and (iv)
credit insurance. Wealth and Lifestyle Protection products are used by customers
as vehicles to protect their income and assets from the adverse economic impacts
of automobile accidents and related liabilities or significant health care costs
or other unanticipated events that cause temporary or permanent loss of earnings
capabilities (including the ability to repay certain indebtedness). The
Company's distribution of Wealth and Lifestyle Protection products is
accomplished through four distribution methods: (i) intermediaries, (ii) career
or dedicated sales forces, (iii) marketing through businesses and affinity
groups and (iv) direct marketing.
The following table sets forth selected information regarding the Company
presented on a basis consistent with generally accepted accounting principles
("GAAP").
6
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31, (1) MARCH 28,
----------------------------------------------------- -----------
1993(2) 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT END OF PERIOD
Invested Assets................................ $ 12,256 $ 14,845 $ 18,470 $ 35,810 $ 39,469 $ 40,017
Total Assets................................... 13,243 16,852 21,820 45,361 51,092 53,229
Policyholder Liabilities(3).................... 11,907 15,611 19,094 35,493 37,380 37,523
Debt Outstanding............................... 31 38 12 278 1,337 1,965
Shareholder's Interest......................... 1,127 992 2,319 5,721 6,958 7,061
FOR THE PERIOD THEN ENDED
Premiums....................................... 26 149 485 1,386 2,314 729
Total Revenues................................. 699 1,091 1,749 3,366 5,567 1,562
Net Income..................................... 44 72 101 229 425 112
Investment Contracts Issued.................... 668 1,064 1,239 1,998 3,430 760
</TABLE>
- ------------------------
(1) Comparability of financial information is affected by acquisitions by the
Company in the periods presented. See "The Company--Significant
Acquisitions."
(2) For the period prior to April 1, 1993, data relates to the operations of GNA
Corporation, as the Company's predecessor.
(3) Includes future annuity and contract benefits, unearned premiums, liability
for policy and contract claims, and other policyholder liabilities.
RECENT TRANSACTIONS
On February 18, 1998, the Company reached a tentative agreement with a
Japanese insurer, Toho Mutual Life Insurance Company ("Toho") to purchase the
operating infrastructure of Toho. In connection with this agreement, the Company
and Toho jointly capitalized a new insurance company ("GE Edison Life Insurance
Company") that will sell life, health and annuity products in the Japanese
market. GE Edison Life Insurance Company will originate and underwrite all of
the new business activity. Existing Toho business remains with Toho with the
exception of certain term life insurance business ceded to GE Edison Life
Insurance Company as described below. The Company's investment in GE Edison Life
Insurance Company is approximately $576 million and includes 90% of the entity's
voting interest. The transaction was completed on March 30, 1998. The Company
believes that this transaction will provide a significant opportunity to
participate in the large Japanese insurance market and to expand its global
marketing capability and presence.
As of March 28, 1998 the Company had received approximately $562 million
from Toho and borrowed $565 million in order to capitalize GE Edison Life
Insurance Company and purchase the operating infrastructure of Toho. These
amounts are included in cash as of March 28, 1998 with applicable offsetting
amounts in short-term borrowings, accounts payable and accrued expenses and
minority interest. Subsequent to March 28, 1998, the Company paid Toho $547
million to acquire the operating infrastructure and $13 million to purchase
certain tangible assets. Additionally, the Company paid Toho a ceding commission
of $400 million in exchange for Toho transferring 50% of certain term life
insurance reserves and certain other liquid assets approximating $391 million.
GE Edison Life Insurance Company also entered into an agreement with Toho which
contains certain modified coinsurance arrangements. These blocks of existing
term life insurance provide an initial operations base for GE Edison Life
Insurance Company.
The Company acquired Colonial Penn Insurance Company and its subsidiaries
("Colonial Penn") from Leucadia Corporation on November 4, 1997. Colonial Penn
is a low-cost direct marketer of personal lines of automobile insurance.
Colonial Penn is included in the Company's Wealth and Lifestyle Protection
segment. The Company believes that the acquisition of Colonial Penn will
significantly increase its direct marketing capability.
STRATEGY
The Company believes that changes in demographics such as the increased
number of baby boomers entering middle and late middle age, longer life
expectancies due to medical advances, the reduction in government- and
employer-sponsored benefit programs and the increased need for estate planning
for the most affluent group of retirees in history, have and will continue to
increase the demand for innovative products and services to solve individual
financial challenges. The Company's strategy is designed to take
7
<PAGE>
advantage of these trends by offering a broad array of products and services
through the Company's four major channels of distribution. See "Marketing and
Distribution."
The Company's approach to this opportunity is to accumulate a number of
businesses with unique product and distribution capabilities designed to deliver
innovative products and services associated with accumulating, transferring and
protecting the consumer's wealth and lifestyle. Most of the Company's products
are targeted at middle to upper income consumers and individuals employed by
small to mid-sized companies. To date, the Company has operated primarily in the
United States and to a lesser extent in selected international markets. The
Company's strategy consists of the following seven elements:
- MARKETPLACE FOCUS. The Company's business units focus on key customer
groups and distribution channels which are well positioned to maximize
penetration into these groups. The Company believes that its customers are
becoming increasingly sophisticated in assessing their needs for savings,
insurance and retirement. The Company's products and services are designed
to meet needs based on input from customers and the distributors who
service them. To enable the Company to obtain this input, it endeavors to
create and maintain direct contact with its key customer groups, as well
as the distributors who service them.
- COST LEADERSHIP. The Company recognizes that consolidation in the
financial services industry will create fewer, but larger competitors.
Effective competition will be dependent upon, among other things, the
Company's ability to reduce its expenses through the elimination of
duplicate functions and the use of enhanced technology. The Company's
continued commitment to bring together its recent acquisitions into an
integrated platform with common information systems is designed to create
a competitive advantage in the marketplace.
- GROW CAPABILITIES AND ENTER NEW MARKETS. GE Financial Assurance has
acquired a number of companies which offer a broad array of products and
services designed to address the wealth accumulation and transfer and
wealth and lifestyle protection needs of consumers. While the Company's
primary focus will be on increasing its sales of existing products by
enhancing its marketing and sales, product development and service
capabilities, the Company will continue to consider opportunities to enter
new markets. Entry into these new markets will be accomplished through (1)
development of new products for sale through existing channels, (2)
development of new products to serve new channels, (3) creation of new
distribution segments within established channels and (4) acquisition of
entities with an established presence in existing markets or distribution
channels.
- LEVERAGE EXISTING DISTRIBUTION. GE Financial Assurance's distribution
strategy is focused on penetrating its targeted consumers through four
types of distribution methods: (i) intermediaries, (ii) career or
dedicated sales forces, (iii) marketing through businesses and affinity
groups and (iv) direct marketing. In each distribution type, internal
growth will be driven by the effective cross-marketing of selected
products, and enhancing the presence, effectiveness, and loyalty of the
distributors. While the Company believes that the diversity of its
distribution channels is a competitive advantage, it recognizes the need
to coordinate its efforts to provide a unified face to its customers and
distributors. The Company has worked, and will continue to work, to
promptly integrate its recent acquisitions, many of which have enhanced
existing distribution channels or added new ones. See--"Marketing and
Distribution."
- PURSUE NEW DISTRIBUTION. A key component of GE Financial Assurance's
strategy is to continue to diversify its distribution channels. Many of
the Company's acquisitions have provided new distribution channels. The
Company believes that its multiplicity of distribution channels will
continue to be an important competitive advantage as the financial
services industry becomes less regulated and the Company is faced with
increased competition. New distribution opportunities could arise in many
forms resulting in a variety of new relationships (i.e. acquisitions,
alliances, partnering, reinsurance and de novo operations).
- INTERNATIONAL EXPANSION. The Company recognizes that demographic trends
similar to those existing in the United States are also emerging in other
developed countries. Additionally, other markets are in the process of
developing financial services capabilities currently available in the
United States. The Company continually monitors these developments and
considers opportunities to participate in these markets. GE Financial
Assurance believes that industrialization and expansion of the middle
class in Asia and Latin America and the consolidation of the financial
services industry in Europe will create opportunities for international
expansion in the future.
8
<PAGE>
- STRONG OPERATING FUNDAMENTALS. The Company's dedication to providing
quality products to its customers, maintaining strong risk management and
compliance and utilizing technology for competitive advantage all provide
a solid foundation for the Company's successful execution of its business
strategy. Risk management and compliance have been a long-standing
strength of GE Capital, and the Company has developed processes and
practices appropriate for its operating businesses using GE Capital's
practices and experience as a guide. The Company believes that its
commitment to technology, as demonstrated by its upgrading of its life
insurance administration and underwriting systems and its development of
integrated computer systems which propose, issue and administer various
types of complex contracts, will enable the Company and its distributors
to be increasingly more productive and thus provide competitive advantages
in the marketplace.
SIGNIFICANT ACQUISITIONS
The Company effectively began operations in April 1993 with the acquisition
of GNA Corporation and its principal operating company Great Northern Insured
Annuity Corporation. The Company has continued to broaden its operations through
a series of acquisitions since 1993. The following table sets forth the primary
acquisitions that GE Financial Assurance has made over the last few years with a
brief description of the new products and principal distribution channels each
acquisition brought to GE Financial Assurance.
<TABLE>
<CAPTION>
ACQUISITION DATE PRINCIPAL PRODUCTS PRINCIPAL DISTRIBUTION CHANNEL
- ------------------------------ ------------------ ------------------------------ ------------------------------
<S> <C> <C> <C>
GNA Corporation April 1993 Deferred annuities and mutual Intermediaries
funds
United Pacific Life Insurance July 1993 Deferred annuities and Intermediaries
Co. (subsequently renamed structured settlements
General Electric Capital
Assurance Company)
The Federal Home Life November 1994 Annuities, supplemental Career or dedicated sales
Companies accident and health and credit force and intermediaries
products
AMEX Life Assurance Company October 1995 Long-term care and Career or dedicated sales
(subsequently merged into corporate-owned life insurance force
General Electric Capital
Assurance Company)
Union Fidelity Life Insurance April 1996 Credit products and Direct marketing and marketing
Company supplemental accident and through businesses and
health products affinity groups
The Life Insurance Company of April 1996 Variable annuities, universal Intermediaries and career or
Virginia life insurance and GICs dedicated sales force
First Colony Life Insurance December 1996 Life insurance, retirement Intermediaries
Company annuities and structured
settlements
Colonial Penn Insurance November 1997 Personal lines of automobile Direct marketing
Company insurance
</TABLE>
9
<PAGE>
RATINGS
GE Financial Assurance's principal subsidiaries are rated by A.M. Best
Company, an independent rating agency ("A.M. Best"), as follows:
<TABLE>
<CAPTION>
COMPANY RATING
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
First Colony Life Insurance Company................................................. A++ (superior)
General Electric Capital Assurance Company.......................................... A+ (superior)
GE Capital Life Assurance Company of New York....................................... A+ (superior)
American Mayflower Life Insurance Company of New York............................... A+ (superior)
Federal Home Life Insurance Company................................................. A+ (superior)
The Harvest Life Insurance Company.................................................. A+ (superior)
The Life Insurance Company of Virginia.............................................. A+ (superior)
Great Northern Insured Annuity Corporation.......................................... A+ (superior)
Union Fidelity Life Insurance Company............................................... A (excellent)
Colonial Penn Insurance Company..................................................... A- (excellent)
PHF Life Insurance Company.......................................................... B+ (very good)
</TABLE>
A.M. Best's ratings for insurance companies currently range from A++ to F,
and some companies are not rated. A.M. Best's ratings are based upon an
evaluation of a company's: (i) financial strength (leverage/ capitalization,
capital structure/holding company, quality and appropriateness of reinsurance
program, adequacy of loss/policy reserves, quality and diversification of
assets, and liquidity); (ii) operating performance (profitability, revenue
composition, and management experience and objectives) and (iii) market profile
(market risk, competitive market position, spread of risk, and event risk).
"A++" and "A+" ratings are assigned to those companies that in A.M. Best's
opinion have, on balance, superior financial strength, operating performance and
market profile when compared to the standards established by A.M. Best and have
a very strong ability to meet their ongoing obligations to policyholders. "A"
and "A-" ratings are assigned to those companies that in A.M. Best's opinion
have, on balance, excellent financial strength, operating performance and market
profile when compared to the standards established by A.M. Best and have a
strong ability to meet their ongoing obligations to policyholders. "B+" ratings
are assigned to those companies that in A.M. Best's opinion have, on balance,
very good financial strength, operating performance and market profile when
compared to the standards established by A.M. Best and have a good ability to
meet their ongoing obligations to policyholders. A.M. Best's ratings are based
upon factors of concern to policyholders, agents and intermediaries and are not
directed toward the protection of investors.
PRODUCTS
WEALTH ACCUMULATION AND TRANSFER PRODUCTS
ANNUAL LIFE INSURANCE
The following table presents the aggregate amount of annual life insurance
the Company had in force as of the dates indicated.
ANNUAL LIFE INSURANCE IN FORCE
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
----- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Annualized Premiums of Life Insurance in Force:
Term.................................................................................... $ 1 $ 442 $ 503
Permanent............................................................................... 30 462 503
--- --------- ---------
Total................................................................................. $ 31 $ 904 $ 1,006
--- --------- ---------
--- --------- ---------
</TABLE>
10
<PAGE>
The following table presents total sales of the Company's annual life
insurance products for the periods presented.
DISTRIBUTION OF ANNUAL LIFE INSURANCE POLICIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
----- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Annual Life Insurance:
Term..................................................................................... $ -- $ 7 $ 100
Permanent................................................................................ 32 105 194
--- --------- ---------
Total.................................................................................. $ 32 $ 112 $ 294
--- --------- ---------
--- --------- ---------
</TABLE>
TERM LIFE INSURANCE. Term life insurance provides life insurance protection
for a limited time: a death benefit is paid only if the insured dies during the
specified term. The Company's term life insurance products include competitively
priced graded premium whole life insurance products that offer low cost
insurance protection. These products generally have level premiums for initial
terms of 1, 5, 10, 15, 20 or 30 years and give the policyholder the contractual
right to continue coverage for life.
PERMANENT LIFE INSURANCE. Permanent life insurance provides life insurance
protection for the entire life of the insured and, unlike term life insurance,
has an investment component. The Company's permanent life insurance products
include a variety of guaranteed premium interest-sensitive whole life insurance,
universal life insurance, and employee plans/salary savings products.
IMPAIRED RISK UNDERWRITING. An insured who is an impaired risk has a shorter
life expectancy than one who is accepted on a standard or preferred basis at
normal rates; for this reason the insured pays a higher premium for the same
coverage. During 1997, approximately 8% of the Company's life insurance premiums
and 5% of the face amount of its new business was underwritten on an impaired
risk basis. The Company's impaired risk underwriting capability was acquired as
part of the Life of Virginia and First Colony acquisitions in 1996. Prior to
that date, the amount of the Company's life insurance premiums represented by
impaired risk business was not material.
The following table identifies those states that accounted for 5% or more of
the Company's annual life insurance premiums collected during 1997 (includes a
small amount of single premium life insurance).
ANNUAL LIFE INSURANCE PREMIUMS PRODUCED BY STATE
<TABLE>
<CAPTION>
YEAR ENDED
STATE DECEMBER 31, 1997
- ------------------------------------------------------------------ -------------------------------
<S> <C>
(PERCENT OF TOTAL PREMIUMS)
California........................................................ 11%
Virginia.......................................................... 11
Florida........................................................... 8
New York.......................................................... 6
Texas............................................................. 5
</TABLE>
11
<PAGE>
SINGLE PREMIUM IMMEDIATE ANNUITIES
The following table presents the aggregate amount of single premium
immediate annuities ("SPIAs") in force measured by reserves as of the dates
indicated.
SINGLE PREMIUM IMMEDIATE ANNUITIES IN FORCE
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Single Premium Immediate Annuities:
Structured Settlement........................................................... $ 2,426 $ 8,041 $ 8,590
Retirement...................................................................... 1,615 2,617 2,663
--------- --------- ---------
Total......................................................................... $ 4,041 $ 10,658 $ 11,253
--------- --------- ---------
--------- --------- ---------
</TABLE>
SPIAs provide long-term guaranteed benefit payment streams utilizing a fixed
interest assumption. SPIAs guarantee a stream of payments beginning immediately
and continuing over a future period of years and, in some cases, for the life of
the annuitant. The Company's SPIAs fall into two categories: structured
settlement and retirement.
SPIAs differ from deferred annuities in that they generally provide for
payments to begin immediately, are not subject to surrender or borrowing by the
policyholder and the payment stream is contractually guaranteed. The implicit
interest rate on SPIAs is based on market conditions when the policy is issued
and is guaranteed for the term of the annuity. Since immediate annuities are not
subject to surrender or borrowing by the policyholder, they provide the
opportunity for an insurance company to match closely the underlying investment
of premium received to the cash benefits to be paid under a policy, thereby
providing an anticipated margin for expenses and profit, subject to mortality
risk. The Company is one of the few companies that offers medically underwritten
annuities. This allows retirees with medical conditions that could shorten their
life expectancies to purchase annuities at lower prices or higher payouts which
reflect their individual life expectancies.
The following table presents total sales of the Company's single premium
immediate annuity products for the periods presented. Premiums related to single
premium immediate annuity contracts without life contingencies are reported as
deposit liabilities under GAAP.
DISTRIBUTION OF SINGLE PREMIUM IMMEDIATE ANNUITIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Single Premium Immediate Annuities:
Structured Settlement................................................................... $ 188 $ 303 $ 676
Retirement.............................................................................. 19 39 213
--------- --------- ---------
Total................................................................................. $ 207 $ 342 $ 889
--------- --------- ---------
--------- --------- ---------
</TABLE>
SINGLE PREMIUM IMMEDIATE ANNUITIES-STRUCTURED SETTLEMENT. Structured
settlements provide an alternative to a lump sum settlement in a personal injury
case and are generally purchased by property and casualty insurance companies
for the benefit of an injured claimant with benefits scheduled over a fixed
period and/or for the life of the claimant thereafter. Structured settlements
offer tax advantaged long-range financial security to the injured party and
facilitate claim settlement for the casualty insurance carrier. First Colony
Life Insurance Company ("First Colony") was a pioneer in this business in the
late 1970's and early 1980's and has consistently been a significant provider
since the market's inception. GE Capital Assurance has been a significant
provider since 1993.
12
<PAGE>
Structured settlement contracts are long-term in nature, guarantee a fixed
benefit stream and generally cannot be surrendered or borrowed against. Since
many structured settlement contracts generally provide for guaranteed payments
for a predetermined period that do not depend on the survival of the annuitant,
the mortality risk portion of the Company's liability with respect to such
policies is relatively small.
SINGLE PREMIUM IMMEDIATE ANNUITIES-RETIREMENT. SPIAs used for retirement
purposes are identical to those used to facilitate structured settlements in
that payments begin immediately, cannot be surrendered or borrowed against and
guarantee a fixed stream of benefits. Retirement annuities are typically sold to
older annuitants and therefore are somewhat shorter in average contract life
than structured settlement annuities.
The Company has been able to use much of the technology it developed in the
structured settlement annuity market to its advantage in the retirement annuity
market. Its software allows agents to design and quote innovative and customized
income patterns for their clients.
SINGLE PREMIUM LIFE INSURANCE, SINGLE PREMIUM DEFERRED ANNUITIES AND GICS
The following table presents the Company's single premium life insurance,
single premium deferred annuities and GICs in force for the periods presented.
Premiums related to these products are reported as deposit liabilities under
GAAP.
SINGLE PREMIUM LIFE INSURANCE,
SINGLE PREMIUM DEFERRED ANNUITIES
AND GICS IN FORCE
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Single Premium Life Insurance.................................................... $ 657 $ 2,551 $ 2,634
Single Premium Deferred Annuities
Fixed.......................................................................... 10,434 13,277 12,545
Variable....................................................................... 18 3,167 4,590
GICs............................................................................. -- 1,341 1,606
Other............................................................................ 15 145 143
--------- --------- ---------
Total...................................................................... $ 11,124 $ 20,481 $ 21,518
--------- --------- ---------
--------- --------- ---------
</TABLE>
DISTRIBUTION OF SINGLE PREMIUM LIFE INSURANCE AND
SINGLE PREMIUM DEFERRED ANNUITY AND GIC SALES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Single Premium Life Insurance....................................................... $ 4 $ 25 $ 77
Single Premium Deferred Annuities
Fixed............................................................................. 1,060 756 712
Variable.......................................................................... 17 796 1,032
GICs................................................................................ -- 245 544
--------- --------- ---------
Total........................................................................... $ 1,081 $ 1,822 $ 2,365
--------- --------- ---------
--------- --------- ---------
</TABLE>
13
<PAGE>
The following table identifies those states that accounted for 5% or more of
the Company's 1997 production of annuities.
ANNUITY PRODUCTION BY STATE
<TABLE>
<CAPTION>
YEAR ENDED
STATE DECEMBER 31, 1997
- ------------------------------------------------------------------ -------------------------------
<S> <C>
(PERCENT OF TOTAL PREMIUMS)
Virginia.......................................................... 14%
Washington........................................................ 13
California........................................................ 8
New York.......................................................... 8
Florida........................................................... 8
</TABLE>
SINGLE PREMIUM LIFE INSURANCE
The Company's single premium life insurance products are interest
rate-sensitive policies that, for a single payment, provide the insured with
non-participating life insurance with a guaranteed cash value and death benefit.
Current interest is credited to the policy's cash values based upon interest
rates that are revised periodically by the Company to reflect current economic
conditions. In most cases, this accrual of interest during the accumulation
period is on a tax-deferred basis to the insured. The Company guarantees that in
no event will the interest rate credited on cash values be less than the
guaranteed rate specified in the policy. The policy owner is permitted to take
loans and withdrawals against the cash value. Withdrawals in the early years of
the contract are subject to a significant surrender charge. In 1997, most
policies being issued provide surrender charges which are 8% for the first six
policy years and decrease to zero over the subsequent 10-year period. The
product permits up to a 10% annual withdrawal without penalty.
SINGLE PREMIUM DEFERRED ANNUITIES
FIXED ANNUITIES. A fixed single premium deferred annuity (an "SPDA")
provides for a single premium payment at time of issue, an accumulation period
and an annuity payout period at some future date. During the accumulation
period, the insurance company credits the account value of the annuitant with
interest earnings at a current interest rate (the "crediting rate") that is
guaranteed for a period of one to five years, at the annuitant's option, and,
thereafter, is subject to change based on prevailing market rates and product
profitability. Each contract also has a minimum guaranteed rate. This accrual of
interest during the accumulation period is on a tax deferred basis to the policy
owner. After the number of years specified in the annuity contract, the owner
may elect to take the proceeds of the annuity as a single payment, a specified
income for life or a specified income for a fixed number of years. The policy
owner is permitted at any time during the accumulation period to withdraw all or
part of the single premium paid plus the amount credited to his account.
Withdrawals in the early years of the contract are subject to a significant
surrender charge. In 1997, policies being issued provide surrender charges which
vary from 5% to 8% of the account value starting in the year of policy issue and
decrease to zero over a five to nine year period. SPDAs permit up to a 10%
annual withdrawal after the first twelve months without penalty.
At least once each month the Company establishes an interest crediting rate
for its new fixed SPDA policies. In determining the Company's interest crediting
rate on new policies, management considers the competitive position of the
Company, prevailing market rates and the profitability of the annuity product.
The Company maintains the initial crediting rate for a minimum period of one
year. Thereafter, the Company may adjust the crediting rate not more frequently
than once per year for a given SPDA policy. Interest rates credited on the
Company's in-force SPDA policies ranged from 4.0% to 7.6% at December 31, 1997.
All of the Company's annuity products have minimum guaranteed crediting rates
ranging from 3.0% to 5.5% for the life of the policy.
The Company offers an SPDA product where the amount of interest credited is
linked to the S&P 500 Index. This indexed annuity allows customers to
participate in the growth in the S&P 500 while providing protection of principal
and a guaranteed return. The guaranteed minimum crediting rate on the product is
14
<PAGE>
3% per annum. The product has a ten-year surrender charge period with surrender
charges of 8%. The Company earns an annual administrative fee on the product
which is computed based on the policy's accumulated value.
VARIABLE ANNUITIES. A variable annuity incorporates all the features of a
fixed SPDA, but also involves maintaining a portion of the policyholders'
premiums in a separate account maintained for variable annuities, distinct from
the Company's general assets and liabilities. Policyholders have discretion to
allocate their premiums among several available fund options (mutual funds and
other investment funds, including a fixed account, which is held by the
Company). The cash surrender value of a variable annuity policy depends on the
performance of these underlying funds, which the policyholder may reallocate
from time to time. There is no guaranteed minimum rate in the mutual fund
components of variable annuity policies. Similarly, during the variable
annuity's payout period, the payments distributed to the annuitant fluctuate
with the performance of the underlying funds selected by the annuitant. Variable
annuities provide the Company with fee based revenue in the form of management
and administrative fees charged to the policyholder's account.
GICS
GICs are deposit-type products that provide a guaranteed return (on a fixed
or indexed basis) to the contract holder. GICs are purchased by Employee
Retirement Income Security Act ("ERISA") qualified defined contribution plans,
including but not limited to, 401(k) plans where plan participants elect a
stable value option. Funding Agreements, which operate substantially similarly
to GICs, are purchased by institutional accredited investors for various kinds
of plans and programs that are not ERISA qualified. Examples of such agreements
include money market funds, bank common trust funds and other corporate and
trust accounts.
GICs credit interest at fixed or indexed interest rates (determined by
market conditions) and fixed GICs have a fixed maturity ranging from three to
five years, both of which are set at the time of sale. Substantially all GICs
allow for the payment of benefits at contract value to ERISA plan participants
in the event of death, disability, retirement or change in investment election.
The Company underwrites these risks before placing a GIC with a plan. In
addition, the Company requires plans buying its GICs to have certain
restrictions on participant transfers to money market and similar funds in order
to reduce disintermediation risk. The Company's GICs can also be terminated
prior to their maturity by the contract holder, but only after an adjustment to
the contract value for changes in the level of interest rates and the
application of a significant penalty (net payment amount may not exceed contract
value). Funding Agreements credit interest at a rate that is indexed to LIBOR
(London Interbank Offered Rate). These contracts are renewed annually, however,
either the Company or the contract holders can terminate the Funding Agreement
with seven days' notice.
MUTUAL FUNDS
Since 1987, a predecessor to the Company has marketed and managed mutual
funds under the Investors Trust name. On September 26, 1997, the various
Investors Trust mutual funds were merged into mutual funds (the "GE Funds") with
similar investment composition and objectives managed by General Electric
Investment Management Incorporated ("GEIM"), a wholly owned subsidiary of
General Electric Company and an affiliate of the Company. The Company offers the
GE Funds to retail customers through its bank and other distribution channels.
In addition, the Company markets GE Investments Funds, Inc. ("GEI Funds"), a
family of mutual funds also managed by GEIM and offered exclusively as
investment vehicles for certain variable annuity contracts and variable life
insurance contracts issued by the Company or by other insurers, and for
qualified pension and retirement plans.
15
<PAGE>
WEALTH AND LIFESTYLE PROTECTION PRODUCTS
The Company's Wealth and Lifestyle Protection product lines include
long-term care insurance, supplemental accident and health, medicare supplement,
credit insurance and automobile insurance.
The following table presents total sales of the Company's Wealth and
Lifestyle Protection products for the periods presented.
DISTRIBUTION OF WEALTH AND LIFESTYLE PROTECTION PRODUCTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Long-Term Care.......................................................................... $ 27 $ 83 $ 109
Supplemental Accident and Health (including Medicare Supplement)........................ 41 123 102
Credit Insurance........................................................................ 39 48 74
Automobile Insurance.................................................................... -- -- 17
--------- --------- ---------
Total............................................................................... $ 107 $ 254 $ 302
--------- --------- ---------
--------- --------- ---------
</TABLE>
LONG-TERM CARE INSURANCE
The Company is one of two leading companies in the sale of individual
long-term care insurance policies when measured by first-year annualized premium
and policies in force. Such policies provide coverage within prescribed limits,
for nursing home, community and in-home care. The long-term care insurance plans
are sold to senior citizens (primarily 60 years of age or older). Long-term care
insurance policies are expected to account for an increasing percentage of the
Company's wealth and lifestyle protection premiums because of the growing demand
for such products among senior citizens, especially in the area of home health
care.
Current nursing home coverages in force include both expense incurred and
daily fixed dollar benefit policies. Currently, only expense incurred policies
are being sold, with an elimination period (which, similar to a deductible,
requires the insured to pay for a certain number of days of nursing home care
before the insurance coverage begins) and a maximum benefit period. Home health
care benefits also have an elimination period, and pay covered charges, after
Medicare coordination, subject to a daily or weekly maximum dollar limit and an
overall maximum. The applicant may select from one of several available benefits
levels.
The Company's policies are guaranteed renewable and, consequently, the
Company has the right to change premiums by policy class, but not based on age
or health of any individual.
SUPPLEMENTAL ACCIDENT AND HEALTH
The Company offers supplemental accident, health and disability products to
employer and employee groups, associations and other affinity groups and
residents of farm and rural communities. The Company markets supplemental
accident and health products because it believes that offering a broad range of
products is essential in order to be a preferred provider of benefits
effectively meeting the needs of employers and consumers. The Company's
supplemental accident and health products include a variety of coverages such as
medicare supplement products (described below), specified disease policies,
hospital indemnity coverages, accident policies and disability income policies.
These policies pay for the policyholder's medical costs directly (after certain
deductibles or co-payment arrangements have been met), pay a lump sum upon the
occurrence of a covered event, or in the case of disability income, provide
continuous payments to insureds during periods of disability. Many of the
Company's supplemental accident and health products have defined benefit limits.
The Company has a maximum retention of risk per any single
16
<PAGE>
case or individual which limits risk in the event that its claims experience
deviates from the assumptions used in setting premium rates.
MEDICARE SUPPLEMENT
Medicare supplement policies provide coverage for many of the medical
expenses which the Medicare program does not cover, such as the deductible and
coinsurance costs (in which the insured and Medicare share the costs of medical
expenses) and specified losses which exceed the federal program's maximum
benefits. In marketing these products, the Company concentrates on individuals
who have just reached the age of 65 and, thus, have become eligible for
Medicare. Approximately one-half of the Company's new sales of Medicare
supplement policies are to individuals who have just reached age 65. The
Company's Medicare supplement plans automatically adjust coverages to reflect
changes in Medicare benefits. Premium increases on the Company's Medicare
supplement policies must be approved by the insurance departments of each state
in which the Company sells such products.
CREDIT INSURANCE
The Company's credit insurance operations consist of life and accident and
health insurance coverages offered to consumer debtors, chiefly through banks
and finance companies. Typically, this insurance will pay outstanding loan
obligations in the event of an insured loss. This coverage is issued on either
the single-premium or outstanding loan balance basis. Credit life is sold on a
reducing or level-term basis and is available on a single-life or, if permitted
by state law, on a joint-life basis where the related loan is co-signed. Credit
accident and health insurance will normally only be written by the Company in
conjunction with credit life insurance. The maximum term is generally 10 years
for credit life insurance and five to six years for credit accident and health
insurance. During 1997, maximum issue age for credit life and credit accident
and health insurance is 70 and 66, respectively. All of the foregoing terms and
limits are subject to statutory requirements which may vary from state to state.
The Company currently reinsures a portion of its credit insurance risk
through an affiliate, which also offers reinsurance to third parties.
AUTOMOBILE INSURANCE
The Company, through its recent acquisition of Colonial Penn primarily
writes personal automobile insurance which covers the legal liability of
individuals arising out of the ownership or operation of an automobile and also
provides physical damage insurance on the automobile, medical payments insurance
and protection against uninsured motorists. All of the Company's personal
automobile insurance policies are written for a term of one year. In many
states, however, the Company offers a "guaranteed lifetime protection" provision
to certain qualifying policyholders that ensures their policies will be renewed
at rates then in effect for their classification.
PRODUCT/SERVICE CENTERS
The Company has established five primary product/service centers for
creating and servicing its products for its businesses as follows: (i) the fixed
life and annuities business primarily operates in Lynchburg, Virginia; (ii) the
variable life and annuities business primarily operates in Richmond, Virginia;
(iii) the long-term care insurance business primarily operates in San Rafael,
California; (iv) the supplemental accident and health insurance and credit
insurance business primarily operates in Trevose, Pennsylvania; and (v) the
automobile insurance business primarily operates in Valley Forge, Pennsylvania.
17
<PAGE>
MARKETING AND DISTRIBUTION
The Company distributes its products through four primary channels:
- Intermediaries, such as brokerage general agents ("BGAs"), banks,
securities brokerage firms, personal producing general agents ("PPGAs")
and specialized brokers;
- Career or dedicated sales forces;
- Marketing through businesses and affinity groups; and
- Direct marketing.
INTERMEDIARIES
BGAS. The Company distributes many of its products (including fixed and
variable annuities and life products, long term care, universal and term life
insurance (including impaired risk underwriting), and immediate annuities)
through more than 250 independent insurance brokerage firms located throughout
the United States. These BGAs market the Company's products through
approximately 150,000 licensed insurance agents or brokers, who also represent
other companies. The Company believes its consistent commitment to this system
has helped earn it a reputation as a leading provider of life insurance among
BGAs. The Company endeavors to be placed at the top of the BGAs' list of sources
of insurance products and services in which the Company specializes. To achieve
this objective the Company seeks to provide innovative and competitive products
and services for BGA and end-customer needs, personalized quality service for
the BGAs' agents and brokers and competitive pricing. Service offered by the
Company to the BGAs' agents and brokers includes the opportunity to participate
in the Company's First Colony University, an integrated insurance training
curriculum which is recognized for its excellence throughout the industry. The
Company also offers agents and brokers access to its automated PDQ system, a
computer-based data access system which gives the agents and brokers instant
access to data regarding their customers' policies and applications with the
Company and information systems to run their businesses.
The Company's commitment to the independent general agency system has
allowed it to develop a loyal relationship with these general agencies. Of the
Company's 20 leading BGAs in 1997 on the basis of commissions earned, most were
among the leading general agents of the Company 10 years before. No individual
general agency accounted for more than 7% of premiums produced in 1997, and the
top ten general agencies collectively produced almost 32% of the Company's
ordinary life insurance premiums by BGAs. The Company believes the loss of any
one BGA relationship in any given year would not materially impact the Company's
financial results.
BANKS AND SECURITIES BROKERAGES. Banks are a significant distribution
channel for the Company's fixed and variable annuities, life insurance products
and mutual funds. The Company's credit life and credit accident and health
insurance is also distributed primarily through banks, credit unions, and
finance companies. Bank of America and The Chase Manhattan Bank are currently
the largest bank distributors of the Company's products. During 1997, these
banks generated 14% of the Company's annuity sales. While the loss of these two
banks would not materially impact the Company's financial results, it could
potentially reduce annual annuity sales by a material amount.
Over the last few years distribution of the Company's products through
securities brokerages has substantially increased, primarily due to the
Company's acquisition of The Life Insurance Company of Virginia ("Life of
Virginia") which distributed its variable annuity products through a large
network of securities brokerage firms. In addition, a significant percentage of
the Company's single premium immediate annuities are sold through major stock
brokerage firms and banks.
PPGAS. The Company sells through PPGAs some of its products under the Wealth
Accumulation and Transfer segment, such as fixed and variable annuities and
universal and term life insurance. PPGAs primarily include personal financial
planners whose emphasis is on providing investment and insurance
18
<PAGE>
products to one of the Company's target customer groups. The Company believes
that this segment presents an opportunity for growth within the intermediary
distribution channel.
SPECIALIZED BROKERS AND OTHER DISTRIBUTION. The Company's single premium
immediate annuities used to facilitate structured settlements are sold through a
network of specialized independent brokers. These brokers are skilled in claims
negotiation and experts in the creation of benefit plans tailored to the needs
of individual claimants and their families. As a pioneer in this industry, the
Company has the oldest and largest distribution system in this market. Its
products are sold through approximately 350 specialized brokers located
throughout the United States. The Company's relationship with many of these
specialized brokers dates back to the inception of this market. The Company
believes, due to its position in this market, new brokers could be added.
The Company sells GICs through specialized GIC brokers, fund managers,
employee benefit investment advisors and directly to large employee benefit
plans. The Company sells Funding Agreements through institutional accredited
investors or banks acting in a fiduciary capacity.
CAREER OR DEDICATED SALES FORCES
Career or dedicated sales forces consist primarily of non-employees who sell
products of the Company on an exclusive basis and to a lesser extent, a sales
force employed directly by the Company. All non-employee career or dedicated
sales force agents are affiliated with an insurance agency. Career or dedicated
sales forces are compensated by the Company primarily on a commission basis.
The Company's long-term care insurance policies are sold through a network
of specialized career agents who sell these products exclusively. The Company
believes that long-term care insurance policies will account for an increasing
percentage of the Company's premiums due to the growing demand for such products
among senior citizens. Prospective customers are reached through direct mail
advertising and referrals. The Company contributes leads generated through these
advertising campaigns to agents.
The Company has another group of non-employee career agents who specialize
in selling the Company's annuity, life insurance and supplemental accident and
health insurance products to residents of farm and rural communities.
Prospective customers are reached through direct mail, policyholder referrals
and advertising in controlled circulation farming and ranching magazines. In
1991, a predecessor to the Company entered into an agreement with The Farm
Progress Companies, Inc. ("Farm Progress," a wholly owned subsidiary of ABC/Cap
Cities, Inc.) under which Farm Progress agreed to exclusively advertise certain
of the Company's products in its magazines until 2016.
The Company's subsidiary, Life of Virginia, has an employee career agent
force which specializes in selling life insurance products and annuities. This
career force is heavily concentrated in the mid-Atlantic states.
The Company provides certain of its career agents with sales leads generated
through direct mail advertising campaigns. These campaigns target subscribers of
certain publications or those with demographic characteristics that indicate a
possible need for specific products and services. The Company believes that its
lead generation programs provide its sales forces opportunities to increase
their sales effectiveness.
MARKETING THROUGH BUSINESSES AND AFFINITY GROUPS
In 1996, the Company began selling supplemental accident and health
insurance and universal life products through payroll deduction
employer-sponsored programs. Under these programs, the Company enters into a
contractual arrangement with a corporate customer permitting agents of the
Company to market these products directly to the corporate customers' employees
on site. Employees are able to pay premiums on products they purchase by means
of automatic deductions from their paychecks.
19
<PAGE>
DIRECT MARKETING
The Company's acquisition of Colonial Penn provides the Company with a
substantial direct marketing distribution channel for personal automobile
insurance. Direct marketing is a form of marketing in which a company and a
customer deal directly with each other, rather than through an insurance agent.
As a direct marketer, the Company deals directly with the public and endeavors
to be the lowest cost provider in this market. The Company also uses direct mail
and telemarketing to generate qualified leads for agents selling other products
of the Company. Within the bank channel this approach has created new sales
opportunities with bank customers.
Direct marketing is also an additional distribution channel for the
Company's credit-related products and supplemental accident and health insurance
products, primarily through Union Fidelity Life Insurance Company ("Union
Fidelity").
COMPETITION
The Company operates in a highly competitive environment. While the Company
believes it has assembled a unique collection of products and distribution
channels, there are competitors that have also assembled a similar array of
financial products and have similar strategic goals. The Company believes that
the principal competitive factors in the sale of insurance are product features,
commission structure, perceived stability of the insurer, claims paying ability
ratings, service, name recognition and price. Many other insurance companies are
capable of competing for sales in the Company's target markets. The Company's
ability to compete is affected in part by its ability to provide competitive
products and quality service to the insurance consumer, general agents, licensed
insurance agents and brokers. However, the Company believes that it competes
primarily on the basis of its high level of customer service, its financial
strength and its competitively priced products.
The Company's competition from banks and other financial institutions is
likely to increase as the regulations currently in existence are revised by
legislation, judicial determinations or administrative rulings. Although the
effect of these developments on GE Financial Assurance and its subsidiaries and
their competitors is uncertain, both the persistency of the Company's existing
products and the Company's ability to sell products could be materially impacted
in the future. Also, several proposals to repeal or modify the Glass-Steagall
Act and the Bank Holding Company Act have been made by members of Congress and
the Executive Branch. Certain of these proposals would repeal or modify the
current restrictions that prevent banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not possible
to predict whether any of these proposals will be enacted or, if enacted, what
their potential effect on the Company or its competitors would be.
RISK MANAGEMENT AND COMPLIANCE
During the last few years GE Financial Assurance has grown rapidly through
acquisitions. See "The Company--Significant Acquisitions." In an effort to
integrate each acquired business, GE Financial Assurance maintains a strong
commitment to risk management and compliance, and avails itself of GE Capital's
long-standing strength and experience in risk management. For example, the
Company's commitment to risk management processes and compliance includes
requiring underwriting of all new products and reviews of all existing product
performance, both of which are reviewed by a team of risk managers and
actuaries. In addition, both internal and external periodic reviews of the
Company's products, internal processes and pricing strategy are conducted. The
Company also has committed to meeting Insurance Marketplace Standards
Association (IMSA) certification and has instituted company-wide compliance
initiatives such as centralized complaint databases and agent tracking and
licensing.
20
<PAGE>
YEAR 2000
Year 2000 compliance programs and information systems modifications have
been initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, including enterprise systems, and by monitoring supplier
and other third-party interfaces. While there can be no assurance that all such
modifications will be successful, management does not expect that either costs
of modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the Corporation's financial position, results of
operations or liquidity.
UNDERWRITING
Applications for most of the Company's underwritten insurance related
products are individually reviewed and analyzed by the Company's dedicated
underwriting staff based on standardized underwriting guidelines and procedures.
After initial processing, each file is reviewed and additional information (such
as medical examinations, attending physician's statements and special medical
tests, if applicable) is obtained to make an underwriting decision. The
independent sales agents and the Company's own sales staff do not retain any
underwriting authority. The Company employs a professional underwriting staff of
approximately 343 persons as of December 31, 1997 who collectively have an
average of 15 years of experience in the insurance industry.
RESERVES
In accordance with applicable insurance regulations, the Company establishes
and carries as liabilities actuarially determined reserves which are calculated
to meet the Company's future obligations. The reserves are based on actuarially
recognized methods using prescribed morbidity and mortality tables in general
use in the United States modified to reflect the Company's actual experience
when appropriate. These reserves are computed at amounts that, with additions
from premiums to be received and with interest on such reserves compounded
annually at certain assumed rates, are expected to be sufficient to meet the
Company's policy obligations at their maturities or in the event of an insured's
death. Reserves include unearned premiums, premium deposits, claims reported but
not yet paid, claims incurred but not reported and claims in the process of
settlement.
For the Company's individual life policies, universal life and
interest-sensitive whole life policies, reserves are set according to premiums
collected, plus interest, less charges. Reserves for other fixed death benefit
and supplemental accident and health policies are based on assumed investment
yield, persistency, mortality and morbidity as per commonly used actuarial
tables, expenses and margins for adverse deviations. For the Company's accident
and health policies, the level of reserves is based on a variety of factors
including particular diagnoses, termination rates and benefit payments.
The stability of the Company's annuity and other interest-sensitive life
insurance reserves is enhanced by policy restrictions on withdrawal of funds.
Withdrawals in excess of allowable penalty-free amounts are assessed a surrender
charge during a penalty period ranging from five years to twenty years. Such
surrender charge is initially a percentage of the accumulation value, which
varies by product, and generally decreases gradually during the penalty period.
Surrender charges are set at levels to protect the Company from loss on early
terminations and to reduce the likelihood of policyholders terminating their
policies during periods of increasing interest rates, thereby lengthening the
effective duration of policy liabilities and improving the Company's ability to
maintain profitability on such policies. The Company's reserves comply in all
material respects with state insurance department statutory requirements;
however, in the Consolidated Financial Statements, insurance reserves are
determined in accordance with GAAP, which may vary from statutory requirements.
21
<PAGE>
REINSURANCE
The Company follows the usual industry practice of reinsuring ("ceding")
portions of its life insurance risks with other companies, a practice that
permits it to write policies in amounts larger than the risk it is willing to
retain on any one life, and also to continue writing a larger volume of new
business. The maximum amount of individual ordinary life insurance normally
retained by the Company on any one life policy is $1,000,000. Certain
supplemental accident and health and long-term care policies are reinsured on
either a quota share or excess of risk basis. The Company cedes insurance
primarily on a treaty basis, under which risks are ceded to a reinsurer on
specific blocks of business where the underlying risks meet certain
predetermined criteria, and, to a lesser extent, on a facultative basis, under
which the reinsurer's prior approval is required on each risk reinsured. Use of
reinsurance does not discharge an insurer from liability on the insurance ceded.
An insurer is required to pay the full amount of its insurance obligations
regardless of whether it is entitled or able to receive payments from its
reinsurer. The principal reinsuring companies (and their corresponding A.M. Best
ratings) at December 31, 1997 were: Employers Reassurance Corporation, whose
parent, GE Global Insurance Holding Corporation, is an affiliate of the Company,
rated A++; UNUM, rated A++; Combined Insurance Company of America, rated A+;
American United Life Insurance Company, rated A+; IDS Life Insurance Company,
rated A+; The Lincoln National Life Insurance Company, rated A+; Reinsurance
Group of America, rated A+; Transamerica Occidental Life Insurance Company,
rated A+; Phoenix Home Life Mutual Insurance Company, rated A; and Swiss Re Life
Company of America, rated A. The Company has not experienced any material
difficulties in collecting from reinsurers.
INVESTMENTS
The Company manages its investment portfolio to meet the diversification,
credit quality, yield and liquidity requirements of its policy liabilities by
investing primarily in fixed maturity instruments, including government and
corporate bonds, mortgage backed bonds, and mortgage loans on real estate. At
December 31, 1997, the Company held $37.2 billion, or 94.3% of its investment
portfolio, in fixed maturity instruments and mortgage loans. The Company's
investment philosophy focuses on purchasing assets the durations of which
approximate policyholder obligations. To match some of its longer term policy
liabilities, the Company has followed a strategy of buying bonds with adequate
call protection. The Company also invests in preferred stock, policy loans,
short-term securities and other investments, which comprised the remaining 5.7%
of its investment portfolio at December 31, 1997.
The Company primarily purchases investment-grade (BBB-/Baa3 or above) bonds.
At December 31, 1997, $30.6 billion, or 88.6%, of the fixed maturity securities
held by the Company were bonds rated by a rating agency (S&P or Moody's), or
were government/agency bonds. The remaining $3.9 billion, or 11.4%, was
comprised primarily of private placement bonds not rated by either rating
agency. At December 31, 1997, the Company held $1,278 million of bonds rated
below investment grade (excluding split-rated bonds). In addition, the Company
held $263 million of "not-rated" bonds which the Company believes are below
investment grade. Below investment grade bonds include those bonds originally
purchased as investment grade but subsequently downgraded in rating, as well as
bonds purchased as below investment grade. The Company holds this small
percentage of below investment grade bonds in order to enhance the yield on its
investment portfolio.
Investments in mortgage backed bonds include $7,216 million in
collateralized mortgage obligations (CMOs) and asset-backed securities and
$1,337 million of pass-through securities. These bonds are secured primarily by
pools of residential mortgages and generally carry high credit ratings.
Approximately 45% of the mortgage-backed bonds are backed by securities issued
by Government National Mortgage Association, Federal Home Loan Mortgage
Corporation, or Federal National Mortgage Association. In the aggregate, the
mortgage-backed bonds had an average rating of AAA/Aaa at December 31, 1997.
Most CMO and pass-through securities are subject to prepayment and extension
risk (i.e. principal can be
22
<PAGE>
received earlier or later than anticipated, based on the rate of mortgage
prepayments in the underlying residential mortgage pools).
At December 31, 1997, the Company's investments in equity securities
totalled $416 million, of which $372 million was preferred stock and $44 million
was common stock. The investments in preferred stock generally pay dividends on
a quarterly basis at yields comparable to bonds.
The Company has classified all of its fixed maturity and equity securities
as available-for-sale. Therefore, these securities are carried on the balance
sheet at current fair values and marked to market quarterly. Changes in market
value, net of the effect on present value of future profits, deferred policy
acquisition costs and deferred income taxes, are recorded as unrealized
appreciation or depreciation directly in shareholder's interest and,
accordingly, have no effect on net income. At December 31, 1997, the amortized
cost basis of the Company's fixed maturity securities was $33,263 million,
representing net unrealized gains of $1,274 million, while the cost basis of
equity securities was $386 million, representing net unrealized gains of $30
million.
The Company's mortgage loan portfolio consisted of 1,898 loans at December
31, 1997. The loans, which are originated through a network of mortgage bankers,
are made only on completed, leased properties and have a maximum loan-to-value
ratio of 75% at the date of origination. Commercial loans comprise the majority
of the portfolio, with $1,284 million (48.1%), $566 million (21.2%) and $402
million (15.1%) attributable to the retail, industrial and office sectors,
respectively. The remainder of the loans, $415 million (15.6%), are attributable
to the residential and other miscellaneous sectors. The mortgage loans are
secured by property throughout the U.S., with concentrations in the Pacific
region (32.2%) and the South Atlantic region (25.5%).
Certain policies issued by the Company allow the policyholders to borrow
against the policy. These loans are classified in the asset side of the balance
sheet as Policy Loans. At December 31, 1997, the outstanding loans of $1,066
million bore interest at an average rate of 8.5%, which is determined by the
terms of the policy.
Other invested assets of $497 million at December 31, 1997 were comprised of
several types of assets. The Company has made investments in mutual funds
offered by the Company's mutual fund and variable annuity distribution channels
of $120 million in order to provide seed money for these funds. Pursuant to a
periodic review of its asset allocation strategy, the Company has also made
investments in limited partnerships ($336 million) and real estate and other
properties ($12 million) in order to achieve higher investment returns on an
incremental portion of the portfolio.
23
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
<S> <C> <C>
FAIR MARKET VALUE PERCENTAGE OF TOTAL
----------------- -------------------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed Maturity Securities--Available For Sale(1)
U.S. Government and Agencies.............................................. $ 1,705 4.3%
State and Municipal....................................................... 53 0.1
Foreign Government........................................................ 120 0.3
Foreign Corporate......................................................... 1,716 4.4
U.S. Corporate............................................................ 22,390 56.7
Mortgage Backed(2)........................................................ 8,553 21.7
------- -----
Total Fixed Maturity Securities......................................... 34,537 87.5
------- -----
Equity Securities--Available For Sale(3)
Common Stock.............................................................. 44 0.1
Preferred Stock, Non-Redeemable........................................... 372 0.9
------- -----
Total Equity Securities................................................. 416 1.0
------- -----
Mortgage Loans on Real Estate, Net.......................................... 2,667 6.8
Policy Loans................................................................ 1,066 2.7
Short Term Investments...................................................... 286 0.7
Other Invested Assets
Mutual Funds.............................................................. 120 0.3
Limited Partnerships...................................................... 336 0.9
Properties Held For Investment............................................ 4 --
Real Estate Owned......................................................... 12 --
Other Assets.............................................................. 25 0.1
------- -----
Total Other Invested Assets............................................. 497 1.3
------- -----
Total Investments........................................................... $ 39,469 100.0%
------- -----
------- -----
</TABLE>
- ------------------------
(1) Fixed maturity securities available-for-sale are stated at current market
values. Amortized cost of fixed maturity securities available-for-sale at
December 31, 1997 was $33,263 million, representing net unrealized gains of
$1,274 million. Changes in market value, net of the effect on present value
of future profits, deferred policy acquisition costs and deferred federal
income taxes, are reflected as unrealized appreciation or depreciation
directly in shareholder's interest and, accordingly, have no effect on net
income.
(2) Mortgage Backed Securities are comprised of CMOs ($7,216 million) and
Pass-throughs ($1,337 million).
(3) Equity securities available-for-sale are stated at current market values.
The cost basis of equity securities available-for-sale at December 31, 1997
was $386 million, representing net unrealized gains of $30 million. Changes
in market value, net of the effect on present value of future profits,
deferred policy acquisition costs and deferred federal income taxes, are
reflected as unrealized appreciation or depreciation directly in
shareholder's interest and, accordingly, have no effect on net income.
24
<PAGE>
The following table summarizes the Company's investment results for the
periods indicated.
INVESTMENT RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Invested Assets(1).................................................. $ 16,417 $ 24,144 $ 36,641
Net Investment Income(2).................................................. $ 1,194 $ 1,773 $ 2,755
Effective Yield(3)........................................................ 7.5% 7.6% 7.8%
Net Realized Investment Gains(4).......................................... $ 6 $ 15 $ 77
</TABLE>
- ------------------------
(1) Average of cash and total invested assets on an amortized cost basis,
adjusted for impact of timing on acquired companies.
(2) Net investment income is net of investment expenses and excludes capital
gains or losses or provision for income taxes.
(3) Net investment income divided by the sum of the (i) average cash and total
invested assets minus (ii) one-half of net investment income.
(4) Excludes provision for income taxes.
The credit quality of the Company's bond portfolio as stated below is based
upon the higher of the ratings published by S&P or Moody's.
PORTFOLIO CREDIT QUALITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
<S> <C> <C>
FAIR MARKET PERCENTAGE
VALUE OF TOTAL
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Agencies and Treasuries................................................................. $ 5,847 16.9%
AAA/Aaa................................................................................. 4,102 11.9
AA/Aa................................................................................... 2,183 6.3
A/A..................................................................................... 8,831 25.6
BBB/Baa................................................................................. 8,345 24.2
BB/Ba................................................................................... 979 2.8
B/B..................................................................................... 297 0.9
CCC/Caa................................................................................. 2 --
Not Rated............................................................................... 3,951 11.4
----------- -----
Total............................................................................... $ 34,537 100.0%
----------- -----
----------- -----
</TABLE>
As of December 31, 1997, the Company's bond portfolio had an average rating
of A+/A1. According to S&P and Moody's, bonds which are rated "A" possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. S&P applies "+" and "-" modifiers in each generic rating
classification from AA to CCC. Moody's applies numerical modifiers "1", "2" and
"3" in each generic rating classification from Aa to B. Modifier "1" indicates a
bond in the higher end of a generic rating classification.
Fixed maturity securities with ratings ranging from AAA/Aaa to BBB-/Baa3 are
generally regarded as investment grade. Some agencies and treasuries (that is,
those securities issued by the U.S. Government or an agency thereof) are not
rated, but are considered to be investment grade securities. Finally, some
securities, such as private placements, have not been assigned a rating by any
rating service and are
25
<PAGE>
therefore categorized as "not rated." This has neither positive nor negative
implications regarding the credit quality of the security.
At December 31, 1996 and 1997, there were fixed maturity securities in
default with a fair value of $14 million and $8 million, respectively.
The following table sets forth scheduled maturities for the Company's
investments in fixed maturities at December 31, 1997.
SCHEDULED MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
<S> <C> <C>
FAIR MARKET PERCENTAGE
VALUES OF TOTAL
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less................................................................. $ 1,054 3.1%
Due after one year through five years................................................... 6,027 17.4
Due after five years through 10 years................................................... 6,084 17.6
Due after 10 years...................................................................... 12,819 37.1
Mortgage-Backed Bonds................................................................... 8,553 24.8
----------- -----
Total............................................................................... $ 34,537 100.0%
----------- -----
----------- -----
</TABLE>
Expected maturities may differ from scheduled maturities because issuers of
securities may have the right to call or prepay obligations with or without call
or prepayment penalties. At December 31, 1997, $5,761 million of the Company's
investments (excluding mortgage-backed bonds) were subject to certain call
provisions.
INSURANCE REGULATION
GENERAL REGULATION AT STATE LEVEL
The insurance business of the Company is subject to comprehensive state and
federal regulation and supervision throughout the United States. The laws of the
various jurisdictions establish supervisory agencies with broad administrative
powers with respect to, among other things, licensing to transact business,
licensing agents, admittance of assets, regulating premium rates, approving
policy forms, regulating unfair trade and claims practices, establishing reserve
requirements and solvency standards, fixing maximum interest rates on life
insurance policy loans and minimum rates for accumulation of surrender values,
restricting certain transactions between affiliates and regulating the type,
amounts and valuations of investments permitted.
As a holding company with no significant business operations of its own, the
Company relies on dividends from its subsidiaries as the principal source of
cash to meet its obligations, including the payment of principal and interest on
the Debt Securities. The Company's insurance subsidiaries are subject to various
state statutory and regulatory restrictions, applicable generally to each
insurance company in its state of domicile, which limit the amount of dividends
or distributions an insurance company may pay to its shareholders without
regulatory approval.
The Company's principal insurance subsidiaries are domiciled in the states
of Delaware, Florida, Illinois, Indiana, New York, Ohio, Pennsylvania, Virginia
and Washington. Each of these states has laws and regulations which govern the
parameters for approval and payment of dividends.
Generally, dividends may be paid out of earned surplus without approval with
thirty days prior written notice within certain limits. The limits are generally
based on 10% of the prior year surplus (net of adjustments in some cases) and
prior year statutory income (net gain from operations, net income adjusted for
realized capital gains, or net investment income). Dividends paid or distributed
within any twelve
26
<PAGE>
consecutive months in excess of the prescribed limits or the company's earned
surplus are deemed extraordinary and require formal state insurance commission
approval.
Delaware (GE Capital Assurance), Washington (Great Northern Insured Annuity
Corporation), Indiana (Federal Home Life Insurance Company), Ohio (The Harvest
Life Insurance Company), Illinois (Union Fidelity) and Pennsylvania (Colonial
Penn) allow companies to pay dividends up to the greater of 10% of prior year
surplus or 100% of prior year statutory net gain from operations to the extent
of their earned surplus; however, Ohio requires companies to adjust the net gain
from operations to include realized investment gains in the computation of prior
year statutory net income. Florida (PHF Life Insurance Company) allows companies
to pay dividends up to the greater of 10% of prior year surplus adjusted for
unrealized gains or 100% of prior year statutory net income (including realized
capital gains). Virginia (Life of Virginia, First Colony) allows companies to
pay dividends up to the lesser of 10% of prior year surplus or 100% of prior
year statutory net gain from operations, to the extent of earned surplus. New
York (GE Capital Life Assurance of New York, American Mayflower Life Insurance
Company of New York) requires regulatory approval for the payment of any
dividends.
Each insurance subsidiary's dividend capacity is calculated separately;
therefore, total dividend capacity for the Company is driven in part by its
legal structure. Union Fidelity and Colonial Penn are owned directly by the
Company and GE Capital Assurance is owned directly by GNA Corporation which is,
in turn, owned 100% by GE Financial Assurance. All other insurance subsidiaries
are 100% owned by GE Capital Assurance, except for Life of Virginia and First
Colony which are owned 80% by GE Capital Assurance and 20% by GE Financial
Assurance. Thus, the Company's dividend capacity is the sum of capacity for GE
Capital Assurance, Union Fidelity, Colonial Penn and 20% of First Colony and
Life of Virginia. GNA Corporation, which is a holding company, is not subject to
the regulatory restrictions on dividends imposed on the Company's insurance
subsidiaries.
Insurance laws of the states in which the Company's insurance subsidiaries
are domiciled generally provide that no person may acquire control of the
Company, and thus indirect control of these insurance company subsidiaries,
without the prior approval of the appropriate insurance regulators. In general,
any person who acquires beneficial ownership of 10% (5% in Florida) or more of
the voting securities of the Company would be presumed to have acquired such
control, although the appropriate insurance regulators, upon application, may
determine otherwise.
Each insurance company is required to file detailed annual reports with
supervisory departments in each of the jurisdictions in which it does business
and its operations and accounts are subject to examination by such departments
at regular intervals. Each of the Company's life insurance subsidiaries prepares
statutory financial statements in accordance with accounting practices
prescribed or permitted by the insurance departments of their respective states
of domicile. Prescribed statutory accounting practices include publications of
the NAIC, as well as state laws, regulations and general administrative rules.
Life insurance companies are required to establish an Asset Valuation
Reserve ("AVR") consisting of two components: (i) a "default component" which
provides for future credit-related losses on fixed maturity investments and (ii)
an "equity component" which provides for losses on all types of equity
investments, including real estate. The AVR required by the Company's insurance
subsidiaries totaled $410 million and $348 million at December 31, 1996 and
1997, respectively. The default component totaled $375 million and $292 million,
while the equity component totaled $35 million and $56 million at December 31,
1996 and 1997, respectively. Insurers are also required to establish an Interest
Maintenance Reserve ("IMR") for fixed maturity net realized capital gains and
losses, net of tax, related to changes in interest rates. The IMR is required to
be amortized into statutory earnings on a basis reflecting the remaining period
to maturity of the fixed maturity securities sold. The IMR required by the
Company's insurance subsidiaries totaled $278 million and $286 million at
December 31, 1996 and 1997, respectively. This reserve is primarily the deferral
of gains from the sale of bonds in prior periods. These reserves are required by
state insurance regulatory authorities to be established as a liability on a
life insurer's statutory
27
<PAGE>
financial statements, but do not affect financial statements of the Company
prepared in accordance with GAAP. Although future additions to AVR will reduce
the future statutory surplus of the Company's insurance subsidiaries, the
Company does not believe that the impact under current regulations of such
reserve requirements will materially affect the ability of its insurance
subsidiaries to grow their statutory surplus and pay dividends to the Company in
the future.
The NAIC's Insurance Regulatory Information System (IRIS) is a series of 12
ratios historically used as an early warning system to help regulators identify
insurance companies experiencing notable changes in its business operations and
financial conditions. Ratio results falling outside of the established upper or
lower limits are designated as unusual ratios. Although the ratios are
calculated and distributed to companies, their usefulness as a regulatory
surveillance tool has diminished in recent years with the calculation and
reporting of risk-based capital described below. Additionally, the IRIS ratios
have not been updated to reflect the changing insurance market, regulation, and
operations for many years.
The NAIC has adopted risk-based capital ("RBC") standards, which are used to
determine the amount of Total Adjusted Capital (as defined by the NAIC) that a
life insurance company must have, taking into account the risk characteristics
of such company's investments and liabilities. The formula establishes a
standard of capital adequacy that is related to risk. The RBC formula
establishes capital requirements for four categories of risk: asset risk,
insurance risk, interest rate risk and business risk. For each category, the
capital requirements are determined by applying specified factors to various
asset, premium, reserve and other items, with the factor being higher for items
with greater underlying risk and lower for items with less risk. The formula is
used by insurance regulators as an early warning tool to identify deteriorating
or weakly capitalized companies for the purpose of initiating regulatory action.
The NAIC's RBC requirements provide for four levels of regulatory attention
depending on the ratio of the company's Total Adjusted Capital to its Authorized
Control Level RBC ("ACL") (as defined by the NAIC). If a company's Total
Adjusted Capital is less than 200% of its ACL but greater than or equal to 150%
of its ACL, or if a negative trend has occurred (as defined by the NAIC) and
Total Adjusted Capital is less than 250% of its ACL, the company must submit a
comprehensive plan to the regulatory authority which discusses proposed
corrective actions to improve its capital position. If a company's Total
Adjusted Capital is less than 150% of its ACL but greater than or equal to 100%
of its ACL, in addition to the above required actions, the regulatory authority
will perform a special examination of the company and issue an order specifying
corrective actions that must be followed. If a company's Total Adjusted Capital
is less than 100% of its ACL but greater than or equal to 70% of its ACL, in
addition to the above required actions, the regulatory authority may take any
action it deems necessary, including placing the company under its control. If a
company's Total Adjusted Capital is less than 70% of its ACL, the regulatory
authority is mandated to place the company under its control. The Total Adjusted
Capital for each of the Company's insurance subsidiaries is in excess of 250% of
their respective ACL.
In addition, as part of their routine regulatory oversight process, state
insurance departments conduct detailed examinations periodically (generally once
every three to five years) of the books, records, accounts and market conduct of
insurance companies domiciled in their states. Such examinations are generally
conducted in cooperation with the departments of two or three other states under
guidelines promulgated by the NAIC. None of the recent regulatory examinations
have disclosed any findings that would have a material adverse impact on the
Company.
REGULATORY INITIATIVES
State insurance regulators and the NAIC are continually re-examining
existing laws and regulations, specifically focusing on insurance company
investments and solvency issues, risk-adjusted capital guidelines,
interpretations of existing laws, the development of new laws, the
implementation of non-statutory guidelines and the circumstances under which
dividends may be paid. These initiatives may be adopted by the various states in
which the Company's insurance subsidiaries are licensed, but the ultimate
content and
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timing of any statutes and regulations adopted by the states cannot be
determined at this time. It is impossible to predict the future impact of
changing state and federal regulations on the Company's operations, and there
can be no assurance that existing or future insurance-related laws and
regulations will not become more restrictive.
Recently, state regulatory authorities, industry groups and rating agencies
have developed several initiatives regarding market conduct. For example, the
NAIC has adopted the NAIC Model Life Insurance Illustrations Regulation, which
applies to group and individual life insurance policies and certificates, and
the Market Conduct Examiners Handbook which sets out required parameters for
such examinations. State regulators have imposed significant fines on various
insurers for improper market conduct. The American Council on Life Insurance is
establishing the Insurance Market Place Standards Association, a self-regulatory
organization, to implement its Principles and Code of Ethical Life Insurance
Market Conduct, which includes a third-party assessment procedure. Market
conduct also has become one of the criteria used to establish the ratings of an
insurance company. For example, A.M. Best's ratings analysis now includes a
review of the insurer's compliance program. Management does not believe that
these market conduct initiatives will have a material adverse effect on its
business, financial condition or results of operation.
In addition, the NAIC has issued the Valuation of Life Insurance Policies
Model Regulation, which would establish new minimum reserve requirements for
individual life insurance policies written in the future. Before the new reserve
standards can become effective, individual states must enact the model
regulation. If these reserve standards were adopted in their current form,
companies selling certain individual life insurance products such as term life
products with guaranteed premium periods and universal life products with
no-lapse guarantees would be required to adjust reserves for policies issued
after the respective state-by-state effective dates. It is impossible at this
time to predict if the model regulation will be enacted and, if enacted, when it
will become applicable, in any of the states in which the Company's insurance
subsidiaries are domiciled. However, the Company anticipates no material impact
as a result of the enactment of this regulation.
ASSESSMENTS AGAINST INSURERS
Under the insurance guaranty fund laws existing in each state, the District
of Columbia and Puerto Rico, licensed insurers can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life insurance
companies for the deemed losses. Most of these states do provide, however, that
an assessment may be excused or deferred if it would threaten an insurer's
solvency and further provide for annual limits on such assessments. A large part
of the assessments paid by the Company's insurance subsidiaries pursuant to
these laws may be used as credits for a portion of the Company's insurance
subsidiaries' premium taxes. The Company's insurance subsidiaries paid
assessments of $11 million, $9 million and $14 million in 1995, 1996 and 1997,
respectively. Since such assessments are typically not made for several years
after an insurer fails and depend upon the final outcome of liquidation or
rehabilitation proceedings, the Company cannot accurately determine the amount
or timing of any future assessment on the Company's insurance subsidiaries.
However, based on the best information presently available, management believes
the Company's total future assessments will not be material to its business,
financial condition or results of operation.
REGULATION AT FEDERAL LEVEL
Although the federal government does not directly regulate the business of
insurance, federal legislation and administrative policies in several areas,
including pension regulation, financial services regulation and federal
taxation, can significantly and adversely affect the insurance industry and thus
the Company. For example, Congress has from time to time considered legislation
relating to the deferral of
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<PAGE>
taxation on the accretion of value within certain annuities and life insurance
products, the removal of barriers preventing banks from engaging in the
insurance business, changes in ERISA regulations, the alteration of the federal
income tax structure and the availability of Section 401(k) or individual
retirement accounts. In particular, Congress has reviewed various proposals to
repeal or modify the McCarran-Ferguson Act (which exempts the insurance industry
from certain federal laws), the Glass-Steagall Act (which restricts banks from
engaging in the securities-related business) and the Bank Holding Company Act
(which prohibits banks from being affiliated with insurance companies).
Moreover, the United States Supreme Court held on January 18, 1995 in
NATIONSBANK OF NORTH CAROLINA V. VARIABLE ANNUITY LIFE INSURANCE COMPANY that
annuities are not insurance for purposes of the National Bank Act. In addition,
the Supreme Court also held on March 26, 1996 in BARNETT BANK OF MARION COUNTY
V. NELSON that state laws prohibiting national banks from selling insurance in
small town locations are preempted by federal law. The Office of the Comptroller
of the Currency also adopted a ruling in November 1996 that permits national
banks, under certain circumstances, to expand into other financial services,
thereby increasing competition for the Company. At present, the extent to which
banks can sell insurance and annuities without regulation by state insurance
departments is being litigated in various courts in the United States. Although
the effect of these recent developments on the Company and its competitors is
uncertain, both the persistency of the Company's existing products and the
Company's ability to sell products may be materially impacted in the future.
SECURITIES LAWS
Certain of the Company's subsidiaries and certain policies and contracts
offered by them are subject to regulation under the federal securities laws
administered by the Commission and certain state securities laws. Certain
separate accounts of the Company's insurance subsidiaries are registered as
investment companies under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Separate accounts through which certain variable
annuity contracts and certain variable insurance policies issued by the
Company's insurance subsidiaries are made available are also registered under
the Securities Act. Certain other subsidiaries of the Company are registered as
broker-dealers under the Exchange Act and are members of, and subject to
regulation by, the National Association of Securities Dealers, Inc.
Certain of the Company's subsidiaries are investment advisors registered
under the Investment Advisers Act of 1940, as amended. The investment companies
managed by such subsidiaries are registered with the Commission under the
Investment Company Act and the shares of certain of these entities are qualified
for sale in certain states in the United States and the District of Columbia.
Certain subsidiaries of the Company are also subject to the Commission's net
capital rules.
In October 1996, the National Securities Markets Improvements Act of 1996
was enacted into law. Of particular interest to the variable products industry
are the provisions establishing a new "reasonableness standard" for all fees and
charges in variable annuity and variable life insurance policies. Because
insurers no longer will have to explain each and every component of their fees
and charges to the Commission, and instead will be subject to an overall
reasonableness standard for aggregate fees and charges, the Company believes the
legislative changes will provide the industry with greater flexibility in
product design. However, given the significant barriers to market entry, such as
entering into relationships with broker-dealers and systems constraints, the
Company believes that the legislation overall will have a minimal competitive
impact.
All aspects of the Company's investment advisory activities are subject to
various federal and state laws and regulations. These laws and regulations are
primarily intended to benefit investment advisory clients and investment company
stockholders and generally grant supervisory agencies broad administrative
powers, including the power to limit or restrict the carrying on of business for
failure to comply with such laws and regulations. In such event, the possible
sanctions which may be imposed include the
30
<PAGE>
suspension of individual employees, limitations on the activities in which the
investment advisor may engage, suspension or revocation of the investment
advisor's registration as an advisor, censure and fines.
ERISA CONSIDERATIONS
Enacted into law on August 20, 1996, the Small Business Protection Job Act
(the "SBPJA") offered insurers protection from potential litigation exposure
prompted by the 1993 U.S. Supreme Court decision in JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY V. HARRIS TRUST & SAVINGS BANK (the "Harris Trust Decision")
in which the Court held that, with respect to a portion of the funds held under
certain general account group annuity contracts, an insurer is subject to the
fiduciary requirements of ERISA. The pertinent SBPJA provisions provide that
generally all persons are protected from liability in connection with prohibited
transactions on the basis of a claim that the assets of an insurer constitute
the assets of a plan for conduct occurring prior to 18 months following the
Department of Labor's issuance of proposed regulations. However, insurers remain
subject to federal criminal law and liable for actions brought by the Secretary
of Labor alleging breaches of fiduciary duties that also constitute a violation
of federal or state criminal law. The SBPJA also provides that contracts issued
from an insurer's general account on or before December 31, 1998, that are not
guaranteed benefit policies, will be permanently grandfathered if they meet the
requirements of regulations the United States Department of Labor has to issue
by December 31, 1997. The SBPJA further provides that contracts issued from an
insurer's general account after December 31, 1998, that are not guaranteed
benefit policies, will be subject to ERISA. Although the Company does not
believe that the Harris Trust Decision had a material adverse effect on its
business, financial condition or results of operations, the Company supported
and welcomed the enactment of the aforementioned provisions of the SBPJA as a
means to remove an area of potential exposure for the insurance industry
generally.
With respect to employee welfare benefit plans subject to ERISA, Congress
periodically has considered amendments to the law's federal preemption
provision, which would expose the Company, and the insurance industry generally,
to state law causes of action, and accompanying extra-contractual (e.g.,
punitive) damages in lawsuits involving, for example, group life and group
disability claims. To date, all such amendments to ERISA have been defeated.
USE OF PROCEEDS
Except as may be otherwise set forth in the Prospectus Supplement
accompanying this Prospectus, the Company intends to apply the net proceeds from
the sale of any Debt Securities for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, -------------------------------------------------- MARCH 28,
1993 1994 1995 1996 1997 1998
- --------------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
51 42 57 63 22 10
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed
charges, earnings consist of net earnings adjusted for the provision for income
taxes, minority interest and fixed charges. Fixed charges consist of interest
and discount on all indebtedness and one-third of annual rentals, which GE
Financial Assurance believes is a reasonable approximation of the interest
factor of such rentals.
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<PAGE>
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities are to be issued in one or more series under an
Indenture (the "Indenture"), between GE Financial Assurance and The Chase
Manhattan Bank (the "Trustee"). The Indenture does not limit the amount of Debt
Securities or other unsecured, senior debt which may be issued thereunder or
limit the amount of other debt, secured or unsecured, which may be issued by GE
Financial Assurance. The Debt Securities will be obligations exclusively of GE
Financial Assurance. GE Financial Assurance is a non-operating holding company
which conducts business through its subsidiaries and the Debt Securities will be
effectively subordinated to the liabilities of GE Financial Assurance's
subsidiaries, including substantial claims for policy benefits under contracts
of insurance. Since GE Financial Assurance's subsidiaries are subject to
regulatory control by various state insurance departments and other foreign
insurance regulatory authorities, the ability of such subsidiaries to pay
dividends or make loans or advances to GE Financial Assurance without prior
regulatory approval is limited by applicable laws and regulations. During 1996
and 1997, no dividends were paid to GE Financial Assurance. See "The
Company--Insurance Regulation."
The statements under this heading are subject to the detailed provisions of
the Indenture, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Wherever particular provisions
of the Indenture or terms defined therein are referred to, such provisions or
definitions are incorporated by reference as a part of the statements made and
the statements are qualified in their entirety by such reference.
Reference is made to the Prospectus Supplement accompanying this Prospectus
for the terms specified by GE Financial Assurance pursuant to the Indenture of,
and other information with respect to, the Debt Securities being offered
thereby, including: (1) the designation, the aggregate principal amount and the
authorized denominations of such Debt Securities; (2) the percentage of their
principal amount at which such Debt Securities will be issued; (3) the date or
dates on which such Debt Securities will mature; (4) the currency, currencies or
currency units in which the payments on such Debt Securities will be payable;
(5) the rate or rates at which such Debt Securities will bear interest, if any,
or the method of determination of such rate or rates; (6) the date or dates from
which such interest, if any, shall accrue, the dates on which such interest, if
any, will be payable and the method of determining holders to whom any such
interest shall be payable; (7) the prices, if any, at which, and the dates at or
after which, such Debt Securities must or may be repaid, repurchased or redeemed
and (8) the exchanges, if any, on which the Debt Securities may be listed.
(Section 2.02.) Interest, if any, is to be payable to the persons, and in the
manner, specified in the Prospectus Supplement accompanying this Prospectus and,
unless otherwise specified in such Prospectus Supplement, will be computed on
the basis of a 360-day year consisting of twelve 30-day months. (Section 2.10.)
The Debt Securities will be unsecured and will rank PARI PASSU (equally and
ratably) with all other unsecured and unsubordinated indebtedness of GE
Financial Assurance.
Some of the Debt Securities may be issued as discounted Debt Securities to
be sold at a substantial discount below their stated principal amount. Federal
income tax consequences and other special considerations applicable to any such
discounted Debt Securities will be described in the Prospectus Supplement with
respect to any such Debt Securities.
The Indenture does not contain any provisions that limit the ability of GE
Financial Assurance to incur indebtedness or that afford holders of Debt
Securities protection in the event GE Capital, as sole shareholder of GE
Financial Assurance, causes GE Financial Assurance to engage in a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
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<PAGE>
GLOBAL DEBT SECURITIES, DELIVERY AND FORM
The Debt Securities may be issued in the form of one or more global
securities (a "Global Security") that will be deposited with a depositary (a
"Depositary") or with a nominee for a Depositary identified in an appropriate
Prospectus Supplement and registered in the name of the Depositary or a nominee
thereof. In such case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities to be represented by such Global
Security or Securities. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive registered form, a Global Security may not be
transferred, except as a whole by the Depositary for such Global Security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any Debt
Securities to be represented by a Global Security will be described in the
Prospectus Supplement relating thereto.
MODIFICATION OF THE INDENTURE
The Indenture permits GE Financial Assurance and the Trustee, with the
consent of the holders of not less than 66 2/3% in aggregate principal amount of
the Debt Securities of each series affected outstanding, to add any provisions
to or change in any manner or eliminate any of the provisions of the Indenture
or modify in any manner the rights of the holders of Debt Securities of each
such series, PROVIDED that no such addition or modification shall (i) among
other things, extend the fixed maturity of any Debt Securities or reduce the
principal amount thereof (including in the case of a discounted Debt Security
the amount payable upon acceleration of the maturity thereof), reduce the
redemption premium thereon or reduce the rate or extend the time of payment of
interest, if any, thereon, or (ii) reduce the aforesaid percentage of principal
amount of such Debt Securities of any series, the consent of the holders of
which is required for any addition or modification or any waiver of any past
default, without in each case the consent of the holder of each such Debt
Security so affected. (Section 10.02.)
EVENTS OF DEFAULT
An Event of Default with respect to any series of Debt Securities is defined
in the Indenture as being: (a) default in any payment of principal or premium,
if any, on any Debt Security of such series; (b) default for 30 days in the
payment of any interest on any Debt Security of such series; (c) default in the
making or satisfaction of any sinking fund payment or analogous obligation on
the Debt Securities of such series; (d) default for 60 days after written notice
to GE Financial Assurance by the Trustee or the holders of at least 25% in
aggregate principal amount of the Debt Securities of such series in the
performance of any other covenant in respect of the Debt Securities of such
series contained in the Indenture; (e) a default, as defined, with respect to
any other series of Debt Securities outstanding under the Indenture or as
defined in any other indenture or instrument evidencing or under which GE
Financial Assurance has outstanding any indebtedness for borrowed money, as a
result of which such other series or such other indebtedness of GE Financial
Assurance shall have been accelerated and such acceleration shall not have been
annulled within 10 days after written notice thereof by the Trustee or the
holders of at least 25% in aggregate principal amount of the Debt Securities of
such series (PROVIDED, that the resulting Event of Default with respect to such
series of Debt Securities may be remedied, cured or waived by the remedying,
curing or waiving of such other default under such other series or such other
indebtedness); or (f) certain events of bankruptcy, insolvency or
reorganization. (Section 6.01.) The Indenture requires GE Financial Assurance to
deliver to the Trustee annually a written statement as to the presence or
absence of any default under the terms thereof. (Section 4.05.) No Event of
Default with respect to a particular series of Debt Securities under the
Indenture necessarily constitutes an Event of Default with respect to any other
series of Debt Securities issued thereunder. The Indenture provides that the
Trustee may withhold notice to the holders of any series of Debt Securities
issued thereunder of any default (except in the payment of principal,
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<PAGE>
premium, if any, or interest, if any, on any of the Debt Securities of such
series or in the making of any sinking fund instalment or analogous obligation
with respect to such series) if the Trustee considers it in the interest of such
securityholders to do so. (Section 6.08.)
The Indenture provides that during the continuance of an Event of Default
with respect to any series of Debt Securities, either the Trustee or the holders
of 25% in aggregate principal amount of the outstanding Debt Securities of such
series may declare the principal, or in the case of discounted Debt Securities,
such portion thereof as may be described in the Prospectus Supplement
accompanying this Prospectus, of all such Debt Securities to be due and payable
immediately, but under certain conditions such declaration may be annulled by
the holders of a majority in principal amount of such Debt Securities then
outstanding. The Indenture provides that past defaults with respect to a
particular series of Debt Securities (except, unless theretofore cured, a
default in payment of principal of, premium, if any, or interest, if any, on any
of the Debt Securities of such series, or the payment of any sinking fund
instalment or analogous obligation on the Debt Securities of such series or in
respect of a covenant or provision which cannot be modified without the consent
of the holder of each Debt Security affected) may be waived on behalf of the
holders of all Debt Securities of such series by the holders of a majority in
principal amount of such Debt Securities then outstanding. (Sections 6.01 and
6.07.)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default with respect to any series of Debt
Securities shall occur and be continuing, the Trustee shall be under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any holders of Debt Securities of any series
issued thereunder unless such holders shall have offered to the Trustee
reasonable indemnity. (Sections 7.01 and 7.02.) Subject to such indemnification
provision, the Indenture provides that the holders of a majority in principal
amount of the Debt Securities of any series issued thereunder at the time
outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee with respect to the Debt Securities
of such series, PROVIDED that the Trustee may decline to follow any such
direction if it has not been offered reasonable indemnity therefor or if it
determines that the proceedings so directed would be illegal or involve it in
any personal liability. (Section 6.07.)
CONCERNING THE TRUSTEE
The Chase Manhattan Bank acts as trustee under several indentures with
affiliates of GE Financial Assurance and other subsidiaries of GE Company.
Any material business and other relationships (including additional
trusteeships), other than the present and prospective trusteeships referred to
in the foregoing paragraph, between, on the one hand, GE Financial Assurance, GE
Company or other affiliates of GE Company and, on the other hand, each Trustee
under any Indenture pursuant to which any of the Debt Securities to which the
Prospectus Supplement accompanying this Prospectus relates are to be issued, are
described in such Prospectus Supplement.
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<PAGE>
PLAN OF DISTRIBUTION
GE Financial Assurance may sell any issue of the Debt Securities in any one
or more of the following ways: (i) through one or more underwriters or dealers;
(ii) directly to one or more purchasers; or (iii) through one or more agents.
From time to time, GE Financial Assurance may receive, and may solicit,
offers from underwriters to purchase all or a part of the Debt Securities, to be
reoffered to the public through underwriting syndicates led by one or more
managing underwriters or through one or more underwriters acting alone or
otherwise. The managing underwriter or underwriters, if any, with respect to the
offer and sale of the Debt Securities to which the Prospectus Supplement
accompanying this Prospectus relates are set forth in such Prospectus Supplement
and the members of the underwriting syndicate, if any, are named in such
Prospectus Supplement. GE Financial Assurance will execute an underwriting
agreement (the "Underwriting Agreement") with any such underwriters and the
names of the underwriters and the terms of the transaction will be set forth in
the Prospectus Supplement, which will be used by the underwriters to make
resales of the Debt Securities in respect of which this Prospectus is delivered
to the public. Such Prospectus Supplement also states the discounts and
commissions, if any, to be allowed or paid to the underwriters by GE Financial
Assurance, and describes all other items, if any, constituting underwriting
compensation and the discounts and commissions to be allowed or paid to dealers,
if any. If underwriters or dealers are used in the sale, the Debt Securities
will be acquired by the underwriters or dealers for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
by the underwriter or dealer at the time of sale. The relevant Underwriting
Agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent, and GE Financial Assurance will agree, under the
Underwriting Agreement, to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933.
Any agent involved in the offer or sale of the Debt Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable by
GE Financial Assurance to such agent will be set forth, in the Prospectus
Supplement accompanying this Prospectus. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment. Agents and dealers may be entitled under
agreements entered into with GE Financial Assurance to indemnification by GE
Financial Assurance against certain civil liabilities, including liabilities
under the Securities Act of 1933.
For further information with respect to the terms of the offering of Debt
Securities in respect of which this Prospectus is being delivered, see the
Prospectus Supplement accompanying this Prospectus.
LEGAL MATTERS
Except as may be otherwise specified in the Prospectus Supplement
accompanying this Prospectus, certain legal matters in connection with the Debt
Securities will be passed upon for GE Financial Assurance by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York, New
York, and for the underwriters, agents or dealers by Davis Polk & Wardwell, New
York, New York.
EXPERTS
The financial statements and schedules of GE Financial Assurance and
consolidated affiliates included in GE Financial Assurance's Registration
Statement on Form 10/A, filed on June 1, 1998 with the Commission pursuant to
Section 12(g) of the 1934 Act have been incorporated by reference herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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<PAGE>
The financial statements of Amex Life included in GE Financial Assurance's
Registration Statement on Form 10/A, filed on June 1, 1998 with the Commission
pursuant to Section 12(g) of the 1934 Act have been incorporated by reference
herein in reliance upon the report of Ernst & Young LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The 1996 financial statements of Life of Virginia included in GE Financial
Assurance's Registration Statement on Form 10/A, filed on June 1, 1998 with the
Commission pursuant to Section 12(g) of the 1934 Act have been incorporated
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. Such report, dated
January 15, 1997, contains an explanatory paragraph that states that effective
April 1, 1996, General Electric Capital Corporation acquired all of the
outstanding stock of Life of Virginia in a business combination accounted for as
a purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
The 1995 and 1994 financial statements of Life of Virginia included in GE
Financial Assurance's Registration Statement on Form 10/A, filed on June 1, 1998
with the Commission pursuant to Section 12(g) of the 1934 Act have been
incorporated herein in reliance upon the report of Ernst & Young LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of First Colony included in GE Financial
Assurance's Registration Statement on Form 10/A, filed on June 1, 1998 with the
Commission pursuant to Section 12(g) of the 1934 Act have been incorporated
herein in reliance upon the report of Coopers & Lybrand LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are:
<TABLE>
<S> <C>
Filing Fee for Registration Statement................................... $ 303,031
Accounting Fees and Expenses............................................ 350,000
Fees to GE Financial Assurance's Counsel................................ 200,000
Trustee's Fees and Expenses (including counsel fees).................... 20,000
Blue Sky filing and counsel fees........................................ 20,000
Printing and Engraving Fees............................................. 100,000
Rating Agency Fees...................................................... 150,000
Miscellaneous........................................................... 50,000
---------
Total............................................................... $1,193,031
---------
---------
</TABLE>
- ------------------------
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
that in certain circumstances a corporation may indemnify directors and officers
against the reasonable expenses, (including attorney's fees), judgments, fines
and amounts paid in settlement, actually and reasonably incurred by them in
connection with any action, suit or proceeding by reason of being or having been
directors or officers, if such person shall have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that if such action, suit or proceeding shall be in the
right of the corporation, indemnification shall be provided only against
reasonable expenses (including attorney's fees) and no such indemnification
shall be provided as to any claim, issue or matter as to which such person shall
have been judged to have been liable to the corporation, unless and to the
extent that the Court of Chancery of the State of Delaware or any other court in
which the suit was brought shall determine upon application that, in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity. A corporation shall be required to indemnify against reasonable
expenses (including attorney's fees) any director or officer who successfully
defends any such actions. The foregoing statements are subject to the detailed
provisions of Section 145 of the General Corporation Law of the State of
Delaware.
The By-Laws of GE Financial Assurance provide that each person who at any
time is or shall have been a director, officer, employee or agent of GE
Financial Assurance, or is or shall have been serving at the request of GE
Financial Assurance as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and his
heirs, executors and administrators, shall be indemnified by GE Financial
Assurance in accordance with and to the full extent permitted by the General
Corporation Law of the State of Delaware.
GE Financial Assurance intends to enter into one or more underwriting
agreements which will include provisions regarding the indemnification of GE
Financial Assurance and its officers and directors by one or more underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The directors of GE Financial Assurance are insured under officers and
directors liability insurance policies purchased by GE Company. The directors,
officers and employees of GE Company are also insured against fiduciary
liabilities under the Employee Retirement Income Security Act of 1974.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
*1 -- Form of Underwriting Agreement.
*4 -- Form of Indenture.
*5 -- Opinion and consent of Simpson Thacher & Bartlett.
12 -- Computation of ratio of earnings to fixed charges.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Coopers & Lybrand LLP.
*23.4 -- Consent of Simpson Thacher & Bartlett is included in their opinion referred to in Exhibit 5 above.
*24 -- Power of Attorney. (included on Signature Page)
*25 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The
Chase Manhattan Bank in respect of the Indenture filed as Exhibit 4(a).
*27 -- Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that clauses (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
GE Financial Assurance Holdings, Inc., certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Richmond, the Commonwealth of Virginia, on the 1st day of June 1998.
<TABLE>
<S> <C> <C>
GE FINANCIAL ASSURANCE HOLDINGS, INC.
By /s/ STEVEN N. DEVOS
-----------------------------------------
Steven N. DeVos
Vice President and Controller
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ MICHAEL D. FRAIZER Officer and Chairman
- ------------------------------ (Principal Executive June 1, 1998
Michael D. Fraizer Officer)
Senior Vice President and
/s/ THOMAS W. CASEY Chief Financial Officer
- ------------------------------ (Principal Financial June 1, 1998
Thomas W. Casey Officer)
/s/ LEON E. RODAY
- ------------------------------ Director June 1, 1998
Leon E. Roday
/s/ GEOFFREY S. STIFF
- ------------------------------ Director June 1, 1998
Geoffrey S. Stiff
/s/ STEPHEN N. DEVOS
- ------------------------------ Attorney-In-Fact June 1, 1998
Stephen N. DeVos
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
*1 -- Form of Underwriting Agreement.
*4 -- Form of Indenture.
*5 -- Opinion and consent of Simpson Thacher & Bartlett.
12 -- Computation of ratio of earnings to fixed charges.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Coopers & Lybrand LLP.
*23.4 -- Consent of Simpson Thacher & Bartlett is included in their opinion referred to in Exhibit 5 above.
*24 -- Power of Attorney. (included on Signature Page)
*25 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The
Chase Manhattan Bank in respect of the Indenture filed as Exhibit 4(a).
*27 -- Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 12
GE FINANCIAL ASSURANCE HOLDINGS, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Years Ended December 31, Ended
December 31, --------------------------------------------------- March 28,
1993 1994 1995 1996 1997 1998
-------------- ----------- ----------- ----------- ----------- --------
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Net earnings ..................................... $ 35 $ 72 $ 101 $ 229 $ 425 $ 112
Provision for income taxes ....................... 15 51 67 140 261 69
Minority interest in net earnings of
consolidated affiliates ......................... -- -- -- 1 --
----- ----- ----- ------ ----- -----
Income before provision for income taxes
and minority interest ........................... 50 123 168 370 686 181
Fixed charges:
Interest ........................................ -- -- -- 1 23 18
One-third of rentals ............................ 1 3 3 5 9 3
----- ----- ----- ------ ----- -----
Total fixed charges .............................. 1 3 3 6 32 21
Less interest capitalized, net of
amortization .................................... -- -- -- -- -- --
----- ----- ----- ------ ----- -----
Earnings before provision for income taxes
and minority interest plus fixed charges ........ $ 51 $ 126 $ 171 $ 376 $ 718 $ 202
===== ===== ===== ====== ===== =====
Ratio of earnings to fixed charges ............... 51 42 57 63 22 10
===== ===== ===== ====== ===== =====
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
GE Financial Assurance Holdings, Inc.
The Board of Directors
The Life Insurance Company of Virginia
We consent to the use of our reports incorporated herein by reference and to the
references to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
May 27, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-40159) and related Prospectus of GE
Financial Assurance Holdings, Inc. for the registration of
debt securities and to the incorporation by reference therein from GE
Financial Assurance's Registration Statement on Form 10/A of our report dated
December 15, 1995 on the financial statements of AMEX Life Assurance Company
at October 2, 1995, and for the period from January 1, 1995 to October 2,
1995, and our report dated February 8, 1996 on the financial statements of The
Life Insurance Company of Virginia at December 31, 1995 and for the two years
then ended, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
May 29, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of GE Financial Assurance Holdings, Inc. on Amendment No. 2 to Form S-3 (File
No. 333-40159) of our report dated May 20, 1997, on our audits of the
consolidated financial statements of First Colony Corporation and subsidiaries
as of November 30, 1996 and December 31, 1995, and for the period from
January 1 to November 30, 1996, and the years ended December 31, 1995 and
1994 which report is included in Form 10A. We also consent to the reference
to our firm under the caption "Experts" in the registration statement on Form
S-3.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Richmond, Virginia
May 27, 1998
