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Previous: BTI TELECOM CORP, 10-Q, EX-27, 2000-11-14 |
Next: PROTECTIVE LIFE & ANNUITY INSURANCE CO, 10-Q, EX-27, 2000-11-14 |
| ALABAMA | 63-0761690 | ||
|---|---|---|---|
| (State or other jurisdiction | (IRS Employer | ||
| incorporation or organization) | Identificiation No. |
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No[ ]
Number of shares of Common Stock, $10.00 par value, outstanding as of November 10, 2000: 250,000 shares.
The registrant meets the conditions set forth in General Instruction H(1)(a)and (b) of Form 10-Q and
Page Number
Part I. Financial Information:
Item 1. Financial Statements:
Report of Independent Accountants................................................................2
Condensed Statements of Income for the Three and Nine Months
ended September 30, 2000 and 1999 (unaudited)..................................................3
Condensed Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999..............................................................4
Condensed Statements of Cash Flows for the
Nine Months ended September 30, 2000 and 1999 (unaudited).................................... 5
Notes to Condensed Financial Statements (unaudited)..............................................6
Item 2. Management's Narrative Analysis of the Results of Operations...............................12
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K...........................................................16
Signature...............................................................................................16
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Premiums and policy fees $12,036,025 $11,550,772 $37,223,110 $43,733,030
Reinsurance ceded ( 4,223,865) (4,139,281) (12,508,571) (15,141,137)
---------- ---------- ---------- ----------
Premiums and policy fees, net of reinsurance ceded 7,812,160 7,411,491 24,714,539 28,591,893
Net investment income 8,132,593 8,755,048 23,596,785 21,644,715
Realized investment losses (28,070) (74,151) (28,070) (63,070)
Other income (loss) (987) 977 7,412 (5,416)
---------- ---------- ---------- ----------
15,915,696 16,093,365 48,290,666 50,168,122
---------- ---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 2000 - $3,574,770; 1999 - $3,645,383
nine months: 2000 - $10,491,420; 1999 - $13,344,420) 8,327,691 8,881,623 25,393,819 25,407,794
Amortization of deferred policy acquisition costs 1,608,404 244,472 5,156,776 5,514,020
Other operating expenses (net of reinsurance ceded:
three months: 2000 - $114,066; 1999 - $52,541
nine months: 2000 - $260,600; 1999 - $192,228) 1,598,073 3,612,922 7,553,368 9,470,654
---------- ---------- ---------- ----------
11,534,168 12,739,017 38,103,963 40,392,468
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 4,381,528 3,354,348 10,186,703 9,775,654
Income tax expense 1,511,627 939,217 3,514,412 2,737,183
---------- ---------- ---------- ----------
NET INCOME $ 2,869,901 $ 2,415,131 $ 6,672,291 $ 7,038,471
========== ========== ========== ==========
See notes to condensed financial statements
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
(Unaudited)
ASSETS
Investments
Fixed maturities, at market
(amortized cost: 2000 - $419,891,285; 1999 - $384,291,937) $406,097,795 $366,838,300
Mortgage loans on real estate 3,329,959 3,683,311
Investment in real estate, net of accumulated depreciation 1,085,000 1,096,250
Policy loans 54,529,984 54,824,429
Short-term investments 13,484,668 7,493,877
----------- -----------
Total investments 478,527,406 433,936,167
Cash 2,195,580 4,021,839
Accrued investment income 8,093,672 7,718,388
Accounts and premiums receivable, net of allowance for uncollectible
amounts (2000 - $7,000; 1999 - $7,000) 2,750,245 4,256,931
Reinsurance receivables 22,361,745 26,779,589
Deferred policy acquisition costs 130,686,033 127,792,025
Other assets 27,272 41,731
Assets related to separate accounts
Variable annuity 9,183,559 4,951,159
----------- -----------
$653,825,512 $609,497,829
=========== ===========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims $450,273,037 $445,284,973
Unearned premiums 8,230,999 7,852,424
----------- -----------
458,504,036 453,137,397
Annuity deposits 26,308,722 12,253,056
Other policyholders' funds 5,684,096 5,410,510
Other liabilities 18,739,498 18,338,059
Deferred income taxes 7,057,873 109,523
Liabilities related to separate accounts
Variable annuity 9,183,559 4,951,159
----------- -----------
Total liabilities 525,477,784 494,199,704
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
SHARE-OWNERS’ EQUITY
Preferred Stock, $1.00 par value, shares authorized, issued, and
outstanding: 2,000 2,000 2,000
Common Stock, $10 par value
Shares authorized: 500,000
Shares issued and outstanding: 2000 and 1999: 250,000 2,500,000 2,500,000
Additional paid-in capital 101,386,324 101,386,324
Retained earnings 29,426,955 22,754,665
Accumulated other comprehensive income
Net unrealized losses on investments (net of income
tax: 2000 - $(2,674,835); 1999 - $(6,108,773)) (4,967,551) (11,344,864)
----------- -----------
Total share-owners’ equity 128,347,728 115,298,125
----------- -----------
$653,825,512 $609,497,829
=========== ===========
See notes to condensed financial statements
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,672,291 $ 7,038,471
Adjustments to reconcile net income to net cash used in operating activities:
Realized investment losses 28,070 63,070
Amortization of deferred policy acquisition costs 5,156,776 5,514,020
Capitalization of deferred policy acquisition costs (1,899,680) (509,514)
Deferred income tax 3,514,412 2,737,183
Interest credited to universal life and investment products 13,433,933 8,552,618
Policy fees assessed on universal life and investment products (28,448,863) (8,956,188)
Change in accrued investment income and other receivables 5,549,246 (4,412,822)
Change in policy liabilities and other policyholder
funds of traditional life and health products 14,460,627 (15,205,019)
Change in other liabilities 401,439 4,522,089
Other (net) 14,459 (174,396)
---------- ----------
Net cash provided by (used in) operating activities 18,882,710 (830,488)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 281,483,032 49,917,961
Other 779,055 2,505,047
Sale of investments
Investments available for sale 2,973,510
Cost of investments acquired
Investments available for sale (326,078,267) (66,937,862)
Other (116,493) (1,100,000)
----------- ----------
Net cash used in investing activities (40,959,163) (15,614,854)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Investment product deposits and change in universal life deposits 45,611,550 31,676,938
Investment product withdrawals (25,361,356) (14,221,355)
---------- ----------
Net cash provided by financing activities 20,250,194 17,455,583
---------- ----------
INCREASE (DECREASE) IN CASH (1,826,259) 1,010,241
CASH AT BEGINNING OF PERIOD 4,021,839 0
---------- ----------
CASH AT END OF PERIOD $ 2,195,580 $ 1,010,241
========== ==========
See notes to condensed financial statements
The accompanying unaudited condensed financial statements of Protective Life and Annuity Insurance Company ("the Company") have been prepared on the basis of accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The year- end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 1999.
All outstanding shares of the Company’s common stock are owned by Protective Life Insurance Company ("Protective"), which is a wholly-owned subsidiary of Protective Life Corporation ("PLC"). All outstanding shares of the Company’s preferred stock are owned by PLC.
Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.
A number of civil jury verdicts have been returned against insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments against the insurer that are disproportionate to the actual damages, including material amounts of punitive damages. In addition, in some class action and other lawsuits involving insurers’ sales practices, insurers have made material settlement payments. In some states (including Alabama), juries have substantial discretion in awarding punitive damages which creates the potential for unpredictable material adverse judgments in any given punitive damage suit. The Company, like other insurers, in the ordinary course of business, is involved in such litigation or alternatively in arbitration. Although the outcome of any litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.
PLC, through its subsidiaries, operates seven divisions whose principal strategic focus can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The Company is involved in the businesses of four of PLC’s seven divisions. The following table sets forth operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition of income tax expense. There are no asset adjustments.
OPERATING SEGMENT INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ --------- ------------
Premiums and policy fees $34,087,145 $928,320 $2,123,610
Reinsurance ceded (12,139,026) (464,159) 94,614
---------- ------- ---------
Net of reinsurance ceded 21,948,119 464,161 2,218,224
Net investment income 21,951,958 4,647 462,154
Realized investment losses
Other income 8,718
---------- ------- ---------
Total revenues 43,908,795 468,808 2,680,378
---------- ------- ---------
Benefits and settlement expenses 22,617,803 248,899 1,752,828
Amortization of deferred policy
acquisition costs 4,614,631 542,145
Other operating expenses 7,826,612 3,365 49,204
---------- ------- ---------
Total benefits and expenses 35,059,046 252,264 2,344,177
---------- ------- ---------
Income (loss) before income tax 8,849,749 216,544 336,201
CORPORATE
INVESTMENT AND
PRODUCTS OTHER ADJUSTMENTS TOTAL
---------- --------- ----------- -----
Premiums and policy fees $84,035 $37,223,110
Reinsurance ceded (12,508,571)
--------- ----------
Net of reinsurance ceded 84,035 24,714,539
Net investment income 965,739 $212,287 23,596,785
Realized investment losses $(28,070) (28,070)
Other income (1,306) 7,412
--------- ------- ------ ----------
Total revenues 1,048,468 212,287 (28,070) 48,290,666
--------- ------- ------ ----------
Benefits and settlement expenses 774,289 25,393,819
Amortization of deferred policy
acquisition costs 5,156,776
Other operating expenses (385,999) 60,186 7,553,368
--------- ------- ------ ----------
Total benefits and expenses 388,290 60,186 38,103,963
--------- ------- ------ ----------
Income (loss) before income tax 660,178 152,101 (28,070) 10,186,703
Income tax expense 3,514,412 3,514,412
----------
Net income $ 6,672,291
==========
OPERATING SEGMENT INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ ---------- ------------
Premiums and policy fees $ 40,657,642 $1,865,248 $1,191,926
Reinsurance ceded (14,593,146) (547,991)
---------- --------- ---------
Net of reinsurance ceded 26,064,496 1,317,257 1,191,926
Net investment income 20,735,028 344,133 175,597
Realized investment gains (losses)
Other income (8,718)
---------- --------- ---------
Total revenues 46,790,806 1,661,390 1,367,523
---------- --------- ---------
Benefits and settlement expenses 23,177,480 1,482,549 605,625
Amortization of deferred policy
acquisition costs 5,220,186 293,834
Other operating expenses 9,019,249 40,883 (12,480)
---------- --------- ---------
Total benefits and expenses 37,416,915 1,523,432 886,979
---------- --------- ---------
Income before income tax 9,373,891 137,958 480,544
CORPORATE
INVESTMENT AND
PRODUCTS OTHER ADJUSTMENTS TOTAL
---------- --------- ----------- -----
Premiums and policy fees $ 18,214 $43,733,030
Reinsurance ceded (15,141,137)
------ ----------
Net of reinsurance ceded 18,214 28,591,893
Net investment income $389,957 21,644,715
Realized investment gains (losses) $ (63,070) (63,070)
Other income 3,302 (5,416)
------- ------- ------ ----------
Total revenues 21,516 389,957 (63,070) 50,168,122
------- ------- ------ ----------
Benefits and settlement expenses 142,140 25,407,794
Amortization of deferred policy
acquisition costs 5,514,020
Other operating expenses 397,872 25,130 9,470,654
------- ------ ----------
Total benefits and expenses 540,012 25,130 40,392,468
------- ------- ------ ----------
Income (loss) before income tax (518,496) 364,827 (63,070) 9,775,654
Income tax expense 2,737,183 2,737,183
----------
Net income $ 7,038,471
==========
OPERATING SEGMENT ASSETS
SEPTEMBER 30, 2000
----------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ --------- ------------
Investments and other assets $443,251,590 $3,712,042 $11,743,445
Deferred policy acquisition costs 127,784,338 1,601,695
----------- --------- ----------
Total assets $571,035,928 $3,712,042 $13,345,140
=========== ========= ==========
CORPORATE
INVESTMENT AND
PRODUCTS OTHER TOTAL
---------- ---------- -----------
Investments and other assets $23,861,252 $40,571,150 $523,139,479
Deferred policy acquisition costs 1,300,000 130,686,033
---------- ---------- -----------
Total assets $25,161,252 $40,571,150 $653,825,512
========== ========== ===========
OPERATING SEGMENT ASSETS
DECEMBER 31, 1999
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ --------- -----------
Investments and other assets $424,265,907 $3,871,844 $11,815,617
Deferred policy acquisition costs 126,247,865 1,544,160
----------- --------- ----------
Total assets $550,513,772 $3,871,844 $13,359,777
=========== ========= ==========
CORPORATE
INVESTMENT AND
PRODUCTS OTHER TOTAL
--------- ---------- -----------
Investments and other assets $9,812,824 $31,939,612 $481,705,804
Deferred policy acquisition costs 127,792,025
--------- ---------- -----------
Total assets $9,812,824 $31,939,612 $609,497,829
========= ========== ===========
Financial statements prepared in conformity with generally accepted accounting principles (i.e., GAAP) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At September 30, 2000, and for the nine months then ended, the Company had share-owners’ equity and net income prepared in conformity with statutory reporting practices of $43.3 million and $11.7 million, respectively.
As prescribed by Statement of Financial Accounting Standards ("SFAS") No. 115, certain investments are recorded at their market values with the resulting net unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, recorded as a component of share-owners’ equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect the Company’s operations, its reported share-owners’ equity will fluctuate significantly as interest rates change.
The Company’s balance sheets at September 30, 2000 and December 31, 1999, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Total investments $492,320,896 $451,389,804
Deferred policy acquisition costs 124,534,929 127,792,025
All other assets 44,612,073 47,769,637
----------- -----------
$661,467,898 $626,951,466
=========== ===========
Deferred income taxes $ 9,732,708 $ 6,218,296
All other liabilities 518,419,911 494,090,181
----------- -----------
528,152,619 500,308,477
Share-owners’ equity 133,315,279 126,642,989
----------- -----------
$661,467,898 $626,951,466
=========== ===========
The following table sets forth the Company’s comprehensive income (loss) for the three-month and nine month periods ended September 30, 2000 and 1999:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $2,869,901 $ 2,415,131 $ 6,672,291 $ 7,038,471
Increase (decrease) in net unrealized gains
on investments (net of income tax:
three months: 2000 - $1,062,485;
1999 - $709,574
nine months: 2000 - $3,424,114;
1999 - $(6,452,848)) 1,973,184 1,302,951 6,359,067 (11,996,476)
Reclassification adjustment for amounts
included in net income (net of income tax:
three months: 2000 - $9,824; 1999 - $20,762
nine months: 2000 - $9,824; 1999 - $17,659) 18,246 53,388 18,246 45,410
--------- --------- ---------- ----------
Comprehensive income (loss) $4,861,331 $3,771,470 $13,049,604 $(4,912,595)
========= ========= ========== ==========
Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share- owners’ equity.
The Financial Accounting Standards Board (“FASB”) has issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. Effective January 1, 2001, SFAS No. 133, as amended by SFAS No. 138, will require the Company to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period through net income. If the derivative is a hedge, its change in fair value is either offset against the change in fair value of the hedged item through net income or recorded in share-owners’ equity until the hedged item is recognized in net income. The fair value of derivatives increase or decrease as interest rates and general economic conditions change. Although the adoption of SFAS No. 133 will not affect the Company's operations, adoption may introduce volatility into the Company's reported net income and share-owners' equity.
In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and extinguishments of Liabilities, a replacement of FASB Statement No. 125”. FASB No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ended after December 15, 2000.
Protective Life and Annuity Insurance Company ("the Company"), a stock life insurance company, was founded in 1978. Since 1983, all outstanding shares of the Company’s common stock have been owned by Protective Life Insurance Company ("Protective"), which is a wholly- owned subsidiary of Protective Life Corporation ("PLC"), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol "PL". All outstanding shares of the Com pany’s preferred stock are owned by PLC. The Company is authorized to transact insurance business as an insurance company or a reinsurance company in 49 states, including New York, as well as the District of Columbia.
In accordance with General Instruction H(2)(a), the Company includes the following analysis with the reduced disclosure format.
PLC through its subsidiaries provides financial services through the production, distribution, and administration of insurance and investment products. PLC through its subsidiaries operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The life insurance category includes the Individual Life, West Coast, and Acquisitions Divisions. The specialty insurance products category includes the Dental and Consumer Benefits (“Dental”) and Financial Institutions Divisions. The retirement savings and investment products category includes the Stable Value Products and Investment Products Divisions.
The Company, since it is licensed in the State of New York, is the entity through which PLC markets, distributes, and services insurance and annuity products in New York. As of September 30, 2000, the Company was involved in the businesses of four of PLC’s seven divisions: the Acquisition Division, the Dental Division, the Financial Institutions Division and the Investment Products Division. The Company has an additional business segment which is described herein as Corporate and Other.
Protective has entered into an intercompany guaranty agreement, enforceable by the Company or its successors, whereby Protective has guaranteed the Company’s payment of claims made by the holders of Company policies according to the terms of such policies. The guarantee will remain in force until the earlier of (a) when the Company achieves a claims-paying rating equal to or better than Protective without the benefit of any intercompany guaranty agreement or (b) 90 days after the guaranty agreement is revoked by written instrument; provided, however, even after any revocation or termination by such notice, the guarantee shall remain effective as to policies issued during the existence of the guaranty agreement.
This report includes "forward-looking statements" which express expectations of future events and/or results. The words "believe",
"expect", "anticipate" and similar expressions identify forward-looking statements which are based on future expectations rather than on historical facts and are subject to a number of risks and uncertainties, and the Company cannot give assurance that such statements will prove to be correct. Please refer to Exhibit 99 herein for more information about factors which could affect future results.
Revenues
The following table sets forth revenues by source for the period shown, and the percentage change from the prior period:
NINE MONTHS PERCENTAGE
ENDED INCREASE
SEPTEMBER 30 (DECREASE)
------------------------------ -----------
2000 1999
---- ----
Premiums and policy fees $24,714,539 $28,591,893 (13.6)%
Net investment income 23,596,785 21,644,715 9.0
Realized investment gains (28,070) (63,070)
Other 7,412 (5,416)
---------- ----------
$48,290,666 $50,168,122
========== ==========
Premiums and policy fees, net of reinsurance ("premiums and policy fees") decreased $3.9 million or 13.6% in the first nine months of 2000 over the first nine months of 1999. Premiums and policy fees in the Acquisitions Division are expected to decline with time unless new acquisitions are made. No acquisitions were in this Division in 1999 or the first nine months of 2000, therefore decreases in older acquired policies resulted in a decrease of $4.1 million in the first nine months of 2000 as compared with the first nine months of 1999. Premiums and policy fees related to the Dental Division decreased $0.9 million in the first nine months of 2000 as compared to the same period in 1999, primarily due to the termination of a group life customer effective December 31, 1999. The Financial Institutions Division’s premiums and policy fees increased $1.0 million in the first nine months of 2000 over the first nine months of 1999 due to increased marketing efforts and sales momentum. Premiums and policy fees from the Investment Products Division increased $0.1 million in the first nine months of 2000 over the first nine months of 1999 due to increased annuity sales in New York.
Net investment income in the first nine months of 2000 increased $2.0 million or 9.0% as compared to the corresponding period of the preceding year primarily due to increases in the average amount of invested assets. The Company could experience significant realized investment losses were it to make adjustments to its existing fixed maturity portfolio.
The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. However, the Company may sell any of its investments to maintain approximate matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as "available for sale." The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities.
The Company reported an insignificant amount of realized investment losses and other income (loss) in the first nine months of 2000 and 1999.
Income Before Income Tax
The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:
Operating Income (Loss) and Income (Loss) Before Income Tax
Nine Months Ended September 30
2000 1999
---- ----
Operating Income (Loss)1
Acquisitions $8,849,749 $9,373,891
Dental and Consumer Benefits 216,544 137,958
Financial Institutions 336,201 480,544
Investment Products 660,178 (518,496)
Corporate and Other 152,101 364,827
---------- ---------
Total operating income 10,214,773 9,838,724
---------- ---------
Realized Investment Losses
Unallocated Investment Losses (28,070) (63,070)
---------- ---------
Total net (28,070) (63,070)
---------- ---------
Income (Loss) Before Income Tax
Acquisitions 8,849,749 9,373,891
Dental and Consumer Benefits 216,544 137,958
Financial Institutions 336,201 480,544
Investment Products 660,178 (518,496)
Corporate and Other 152,101 364,827
Unallocated Realized Investment Losses (28,070) (63,070)
---------- ---------
Total income before tax $10,186,703 $9,775,654
========== =========
1 Income (loss) before tax excluding realized investment gains and losses.
Pretax operating income from the Acquisitions Division was $8.8 million in the first nine months of 2000 and $9.4 million in the first nine months of 1999. Earnings from the Acquisitions Division are expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. The increase in investment income on invested assets allocated to the division offsets a portion of the decrease in premiums and policy fees.
Dental Division pretax earnings were $0.2 million in the first nine months of 2000 and $0.1 million in the first nine months of 1999.
The Financial Institutions Division’s pretax operating income was $0.3 million for the first nine months of 2000 as compared to $0.5 million in the first nine months of 1999. The decrease was primarily due to higher than expected mortality in the division.
The Investment Products Division began marketing certain annuity products in the state of New York in the latter part of 1998. The Division had pretax operating income of $0.7 million in the first nine months of 2000 and a pretax operating loss of $0.5 million in the first nine months in 1999. The 1999 loss was a result of the start-up activities of the Division. In 2000 the Division experienced increase sales which resulted in improved operating results.
The Corporate and Other segment consists of net investment income and realized investment gains not identified with the preceding operating divisions. Pretax operating income from this segment was $0.2 million in the first nine months of 2000 as compared to $0.4 million in the first nine months of 1999.
Income Taxes
The following table sets forth the effective tax rates for the periods shown:
NINE MONTHS
ENDED ESTIMATED EFFECTIVE
SEPTEMBER 30 INCOME TAX RATES
------------ -------------------
1999 28.0 %
2000 34.5
The effective income tax rate for the full year of 1999 was 28%. Management’s estimate of the effective income tax rate for 2000 is 34.5%.
Net Income
Net IncomeThe following table sets forth net income for the periods shown, and the percentage change from the prior period:
NET INCOME
------------------------------------
NINE MONTHS PERCENTAGE
ENDED INCREASE
SEPTEMBER 30 TOTAL (DECREASE)
---------- --------- ----------
1999 $7,038,471 412.8 %
2000 6,672,291 (5.2)
Compared to the same period in 1999, net income in the first nine months of 2000 decreased $0.4 million, reflecting decreases in all divisions and the Corporate and Other segment, and by an increase in the Company’s effective tax rate.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
Exhibit 99 - Safe Harbor for Forward-Looking Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Protective Life and Annuity Insurance Company | ||
|---|---|---|
| Date: | November 14, 2000 | /s/ Jerry W. Defoor |
| Jerry W. DeFoor | ||
| Vice President and Controller | ||
| and Chief Accounting Officer | ||
| (Duly authrorized officer) |
|
|