FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
==============================================
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
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Commission file number 333-1173
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GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
=================================================================
(Exact name of registrant as specified in its charter)
Colorado 84-0467907
======================================== ==================================
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8515 East Orchard Road, Englewood, CO 80111
=================================================================
(Address of principal executive offices)
(Zip Code)
[303] 689-4128
=================================================================
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
========= =========
As of September 30, 1997, 7,032,000 shares of the registrant's common stock were
outstanding, all of which were owned by the registrant's parent company.
NOTE:This Form 10-Q is filed by the registrant only as a consequence of the
sale by the registrant of a market value adjusted annuity product.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
<S> <C>
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
</TABLE>
Part II OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1 Legal Proceeding 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
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<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
REVENUES:
<S> <C> <C> <C> <C>
Annuity contract charges and premiums $ 28,772 $ 23,994 $ 84,530 $ 67,430
Life, accident, and health premiums 262,990 236,284 916,040 717,528
earned
Net investment income 227,804 209,596 664,776 622,703
Net realized gains (losses) on 5,332 (7,797) (1,828) (30,692)
investments
--------- ----------- ----------- -----------
524,898 462,077 1,663,518 1,376,969
--------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Life and other policy benefits 144,125 127,038 395,967 381,420
Increase in reserves 37,389 27,763 220,763 63,056
Interest paid or credited to 131,986 137,318 402,582 422,697
contractholders
Provision for policyholders' share
of earnings
on participating business 211 1,543 4,725 1,813
Dividends to policyholders 10,967 9,315 44,980 32,081
--------- ----------- ----------- -----------
324,678 302,977 1,069,017 901,067
Commissions 25,659 25,736 75,690 77,866
Operating expenses 109,194 81,836 311,587 242,233
Premium taxes 6,109 6,067 14,978 17,526
--------- ----------- ----------- -----------
465,640 416,616 1,471,272 1,238,692
--------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 59,258 45,461 192,246 138,277
PROVISION FOR INCOME TAXES:
Current 30,252 20,834 62,357 58,001
Deferred (10,283) (5,380) 12,649 (18,394)
--------- ----------- ----------- -----------
19,969 15,454 75,006 39,607
--------- ----------- ----------- -----------
NET INCOME $ 39,289 $ 30,007 $ 117,240 $ 98,670
========= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
<S> <C> <C>
ASSETS 1997 1996
- ------
--------------- --------------
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost $ 2,127,717 $ 1,992,681
(fair value $2,187,858 and $2,041,064)
Available-for-sale, at fair value 6,410,905 6,206,478
(amortized cost $6,271,460 and $6,151,519)
Mortgage loans on real estate, net 1,307,599 1,487,575
Common stock 42,426 19,715
Real estate, net 54,758 67,967
Policy loans 2,647,353 2,523,477
Short-term investments, available-for-sale
(cost approximates fair value) 460,225 419,008
--------------- --------------
Total Investments 13,050,983 12,716,901
Cash 101,210 125,182
Reinsurance receivable 69,608 196,958
Deferred policy acquisition costs 257,942 282,780
Investment income due and accrued 172,775 198,441
Other assets 164,082 57,244
Premiums in course of collection 71,173 74,693
Deferred income taxes 179,817 214,404
Separate account assets 7,572,001 5,484,631
--------------- --------------
TOTAL ASSETS $ 21,639,591 $ 19,351,234
=============== ==============
See notes to consolidated financial statements. (Continued)
</TABLE>
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<PAGE>
<TABLE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
- ------------------------------------
--------------- --------------
POLICY BENEFIT LIABILITIES:
Policy reserves $ 11,078,130 $ 11,022,595
Policy and contract claims 386,765 372,327
Policyholders' funds 158,021 153,867
Experience refunds 75,165 87,399
Provision for policyholders' dividends 61,549 51,279
GENERAL LIABILITIES:
Due to Parent Corporation 123,559 151,431
Repurchase agreements 442,033 286,736
Commercial paper 74,517 84,682
Other liabilities 367,743 488,818
Undistributed earnings on
participating business 142,960 133,255
Separate account liabilities 7,572,001 5,484,631
--------------- --------------
Total Liabilities 20,482,443 18,317,020
--------------- --------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of 41,800 41,800
$20.90
per share, issued, and outstanding
Common stock, $1 par value; 50,000,000 shares
authorized;
7,032,000 shares issued and outstanding 7,032 7,032
Additional paid-in capital 690,748 664,265
Net unrealized gains on securities available-for-sale, 48,202 14,951
net
Retained earnings 289,366 226,166
--------------- --------------
Total Stockholder's Equity 1,157,148 1,034,214
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 21,639,591 $ 19,351,234
=============== ==============
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 117,240 $ 98,670
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain allocated to participating policyholders 7,479 1,814
Amortization of investments 2,150 18,562
Realized losses on disposal of investments and
write-downs of mortgage loans and real estate 1,828 30,692
Amortization 36,233 24,741
Deferred income taxes 15,445 (18,676)
Changes in assets and liabilities:
Policy benefit liabilities 351,264 206,966
Reinsurance receivable 127,350 (25,749)
Accrued interest and other receivables 29,186 (12,671)
Other, net (216,353) 28,593
------------- -------------
Net cash provided by operating activities 471,822 352,942
------------- -------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Maturities and redemptions 287,314 409,012
Available-for-sale
Sales 1,820,194 2,664,867
Maturities and redemptions 528,737 621,231
Mortgage loans 176,767 188,398
Real estate 13,809 2,111
Common stock 12,578 1,773
Purchases of investments:
Fixed maturities
Held-to-maturity (415,248) (336,291)
Available-for-sale (2,518,279) (3,590,988)
Mortages (2,226) (3,485)
Real estate (5,144) (5,923)
Common stock (28,317) (1,904)
------------- -------------
Net cash used in investing activities (129,815) (51,199)
------------- -------------
(Continued)
</TABLE>
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<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------- -------------
FINANCING ACTIVITIES:
<S> <C> <C>
Contract withdrawals, net of deposits $ (440,199) $ (275,213)
Net repayments to Parent Corporation (16,872) (15,923)
Dividends paid (54,040) (42,159)
Net commercial paper repayments (10,165) (366)
Net repurchase agreements borrowings 155,297 22,770
------------- -------------
Net cash used in financing activities (365,979) (310,891)
------------- -------------
NET DECREASE IN CASH (23,972) (9,148)
CASH, BEGINNING OF YEAR 125,182 90,939
------------- -------------
CASH, END OF PERIOD $ 101,210 $ 81,791
============= =============
See notes to consolidated financial statements. (Concluded)
</TABLE>
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<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, except Share Amounts)
- -------------------------------------------------------------------------------
(Unaudited)
1. GENERAL
The consolidated financial statements and related notes of Great-West
Life & Annuity Insurance Company (the Company) have been prepared in
accordance with generally accepted accounting principles applicable to
interim financial reporting and do not include all of the information
and footnotes required for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
December 31, 1996. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.
2. TRANSFER OF EMPLOYEES
Effective January 1, 1997, all employees of the U.S. Operations of the
Company's Parent, The Great-West Life Assurance Company, were
transferred to the Company. All related employee benefit plan assets and
liabilities were also transferred from the Parent Corporation to the
Company. The transfer did not have a material effect on the Company's
operating expenses as the costs associated with the employees and
benefit plans were charged previously to the Company under the
administrative service agreements between the Company and its Parent.
3. EMPLOYEE BENEFIT PLANS
The Company's defined benefit pension plan (pension plan) covers
substantially all of its employees. The benefits are based on years of
service, age at retirement, and the compensation during the last seven
years of employment. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned
in the future. Investments of the pension plan are managed by the
Company and invested primarily in investment contracts and separate
accounts.
The Company's Parent had previously accounted for the pension plan under
the Canadian Institute of Chartered Accountants (CICA) guidelines and
had recorded a prepaid pension asset of $19,091. As generally accepted
accounting principles do not materially differ from CICA guidelines and
the transfer is between related parties, the prepaid pension asset was
transferred at cost. As a result, the Company recorded the following
effective January 1, 1997:
<TABLE>
<S> <C> <C>
Prepaid pension cost $ 19,091 Undistributed earnings $ 3,608
on participating business
Stockholder's Equity 15,483
============== ==============
$ 19,091 $ 19,091
============== ==============
</TABLE>
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<PAGE>
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 87, "Employers Accounting for Pensions" effective January 1, 1997,
immediately following the transfer. The following table sets forth the
pension plan's funded status and amounts recognized in the Company's
statement of financial position at January 1, 1997, in accordance with
SFAS No. 87:
<TABLE>
Actuarial present value of benefit obligations:
<S> <C>
Accumulated benefit obligation, including vested benefits $ (77,500)
of $74,386
Projected benefit obligation for service rendered to date (95,175)
Plan assets at fair value 139,690
---------
Plan assets in excess of projected benefit obligation 44,515
Unrecognized net obligation at January 1, 1997, being
recognized over
15 years (25,424)
=========
Prepaid pension cost included in other assets $ 19,091
=========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.5% and 5.0%, respectively.
The Company also sponsors a post-retirement medical plan (medical plan)
which provides health benefits to employees who have worked for 15 years
and attained age 65 while in service with the Company. The medical plan
is contributory and contains other cost sharing features which may be
adjusted annually for the expected general inflation rate. The Company's
policy will be to fund the cost of the medical plan benefits in amounts
determined at the discretion of management. The Plan as of January 1,
1997 was not funded. The Parent Company was not required under CICA
guidelines to record any liability related to the Plan.
Effective January 1, 1997, on the date of transfer, the Company has
adopted SFAS No. 106, "Post-retirement Benefits Other Than Pensions."
The Company has elected to delay recognition of the unfunded accumulated
post-retirement benefit obligation and has set up a transition
obligation to amortize over 20 years.
The following table sets forth the medical plan status of January 1,
1997:
<TABLE>
Accumulated post-retirement benefit obligation:
<S> <C>
Retirees $ (4,939)
Fully eligible active plan participants (1,751)
Other active plan participants (9,470)
--------
(16,160)
Unrecognized net transition obligation at
January 1, 1997, being recognized
over 20 years 16,160
========
Accrued post-retirement benefit cost $ 0
========
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed. The health care
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by 1% point in each year would increase the accumulated
post-retirement benefit obligation as of January 1, 1997, by $2,977.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5%.
- 9 -
<PAGE>
4. RELATED-PARTY TRANSACTIONS
On June 30, 1997, the Company recaptured all remaining pieces of an
individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The Company
recorded at estimated fair value, the following at June 30, 1997, as a
result of this transaction:
Assets Liabilities and Stockholder's
Equity
Cash $ 160,000 Policy reserves $ 155,798
Bonds 17,975 Due to parent corporation 9,373
Other 60 Deferred income taxes 2,719
Undistributed earnings on
participating business (855)
Stockholder's equity 11,000
----------- ----------
$ 178,035 $ 178,035
=========== ===========
5. FEDERAL INCOME TAXES
Pursuant to a December 31, 1993, agreement between the Company and its
Parent whereby the Company assumed responsibility for the Parent
Corporation's income tax liability for fiscal years prior to 1994, the
Company had previously recorded a contingent liability provision. The
Company's 1997 results of operations include a release of $47,750 from
the provision to reflect the resolution of certain tax issues related to
the 1990 and 1991 audit years with the Internal Revenue Service. In the
opinion of Company management, the amounts paid and accrued are
adequate; however, it is possible that the Company's accrued amounts may
change as a result of the completion of the IRS audits.
6. OTHER
The Company is involved in various legal proceedings which arise in the
ordinary course of its business. In the opinion of management, after
consultation with counsel, the resolution of these proceedings should
not have a material adverse effect on its financial position or results
of operations.
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------
<S> <C> <C> <C> <C>
Operating Summary (Millions) 1997 1996 1997 1996
---- ----- ------- -------
Premiums and other income $292 $ 260 $ 1,000 $ 785
Net investment income 228 210 665 623
Realized gains (losses) on
on investments 5 (8) (2) (31)
---- ----- ------- -------
Total Revenues 525 462 1,663 1,377
Total benefits and expenses 466 417 1,471 1,239
Income tax expense 20 15 75 39
==== ===== ======= =======
Net income $ 39 $ 30 $ 117 $ 99
==== ===== ======= =======
</TABLE>
Sept. 30, Dec 31,
Balance Sheet (Millions) 1997 1996
----------- ------------
Investment assets $ 13,051 $ 12,717
Separate account assets 7,572 5,485
Total assets 21,640 19,351
Total policyholder 11,760 11,687
liabilities
Total shareholder's equity 1,157 1,034
Introduction
The following discussion addresses the financial condition of the
Company as of September 30, 1997, compared with December 31, 1996, and
its results of operations for the quarter and nine months ended
September 30, 1997, compared with the same periods last year. The
consolidated balance sheet as of September 30, 1997 and the related
consolidated statements of income and cash flows for the three and nine
month periods ended September 30, 1997 and 1996 are unaudited, but in
management's opinion, include all adjustments necessary for a fair
presentation of such financial statements. Such adjustments consist only
of normal recurring items. Interim results are not necessarily
indicative of results for a full year. The discussion should be read in
conjunction with the Management's Discussion and Analysis section
included in the Company's report on Form 10-K for the year-ended
December 31, 1996, to which the reader is directed for additional
information.
Comparison of Nine Months Ended September 30, 1997 and 1996
On June 30, 1997, the Company recaptured from The Great-West Life
Assurance Company (the "Parent Corporation") an individual participating
insurance block of business previously ceded in December 1992. The
Company recorded various assets and liabilities related to the recapture
as discussed in Footnote 4 to the quarterly financial statements
included herein. In addition, in the process of recording the recapture
both life insurance premiums and increases in reserves were increased by
the amount of the policy reserves recaptured ($156 million)
- 11 -
<PAGE>
Pursuant to a December 1993 agreement between the Company and the Parent
Corporation whereby the Company assumed responsibility for the Parent
Corporation's income tax liability for fiscal years prior to 1994, the
Company had previously recorded a contingent liability provision. During
the second quarter of 1997, the Company's results of operations included
a release of $48 million from the provision to reflect the resolution of
certain tax matters with the Internal Revenue Service related to the
1990 and 1991 audit years. The Company's first quarter 1996 results of
operations include a release of $26 million from the provision to
reflect the resolution of 1988 and 1989 tax issues. Audits of tax years
1992 and 1993 are currently in process. It is the opinion of Company
management that the amounts paid and accrued for the remaining open tax
years are adequate, however, it is possible the Company's accrued
amounts may change as a result of the completion of the IRS audits.
Net income increased 31% and 19% for the third quarter and nine months
of 1997, respectively. There are several non-recurring transactions
which have impacted 1997. The contingent tax liability release in the
second quarter of 1997 and the first quarter of 1996 produced
fluctuations in these periods of $23 million in 1997, as discussed
below, and $26 million in 1996. The $48 million liability release in the
second quarter of 1997 included $15 million which was attributable to
participating policyholders and is reflected as a liability on the
balance sheet, thus, only $23 million of the release actually directly
impacts net income. In addition to the contingent liability release, the
Company also in the normal course of business reviewed its deferred tax
assets and liabilities and increased its liability by $21 million (of
which $10 million is attributable to participating policyholders) which
resulted in a $11 million impact to net income during the second quarter
of 1997. Excluding the affect of these transactions, the growth in net
income for the nine months of 1997 is 32% which reflects higher fee
income from assets under management, higher margins on investment
products, and better mortality and morbidity. Also during the first
quarter of 1996, the Company strengthened reserves in the individual
annuity product line which negatively impacted net income in that
period.
Premiums and other income increased 12% and 27% for the third quarter
and nine months of 1997, respectively. The increase for the nine months
of 1997 reflects the insurance recapture and the contingent tax
provision release discussed in the preceding three paragraphs. Excluding
these items from the related periods in both 1997 and 1996, the increase
would have been 5% for the nine months of 1997 which primarily reflects
higher fee income from assets under management.
Net investment income increased 9% and 7% for the third quarter and nine
months of 1997, respectively. This growth in net investment income is a
direct result of the growth in investment assets and less interest lost
on problem accounts. The actual earned rate for the nine months ended
1997 and 1996 was 7.26% and 7.12%, respectively.
Realized investment losses decreased from a $31 million loss in 1996 to
a $2 million loss in 1997. Losses on sales of investments were $20
million in 1996 versus a gain of $4 million in 1997. Provisions for
asset losses were $10 million in 1996 versus $6 million in 1997.
Total benefits and expenses increased 12% and 19% for the third quarter
and nine months of 1997. Excluding the insurance recapture discussed
previously, the growth for the nine months of 1997 is 6% which is
composed primarily of increased operating expenses associated with
increased systems and managed care development costs. The Company
continues to expand its managed care business by the further development
of new and existing health maintenance organizations (HMOs). See further
discussion included in the Employee Benefits section of this management
discussion and analysis.
- 12 -
<PAGE>
The effective income tax rate increased from 1996 due to the
strengthening of the deferred tax liability in the second quarter.
Investment assets increased from December 31, 1996, to September 30,
1997, by $334 million. At the same time separate account assets
increased $2 billion. This reflects the continued trend of
contractholders moving to variable products and away from the more
traditional guaranteed products.
Business Units Results from Operations
The following discussion of results from operations is presented in
terms of the major business units of the company:
Employee Benefits
Total revenue premium (including premium equivalents) for group life and
health increased 2% from 1996 levels. Sales in the Company's life and
health business have slowed as a result of heightened price sensitivity
and competition from managed care companies, however, new case sales in
1997 totaled 1,031 compared to 790 in 1996 and termination rates have
decreased significantly.
The Company has continued to emphasize the development of its HMO
subsidiaries during the third quarter of 1997 and capitalized two HMOs
(Florida and Indiana) in addition to the six capitalized during the
first half of 1997 (Oregon, Ohio, Tennessee, Massachusetts, Washington
and North Carolina). Of the 8 HMO's capitalized in 1997, 4 have received
their licenses to commence operations while the other 4 are pending.
This brings the total number of HMOs capitalized to 13.
Of the total 401(k) cash flow received during the first half of 1997,
93% was allocated to variable funds. Total assets under administration
(including third-party administration) grew from $3.9 billion at
December 31, 1996 to $5.4 billion at September 30, 1997. The number of
401(k) participants increased from 350,000 at December 31 1996, to more
than 430,000 at September 30, 1997.
Financial Services
Savings
Assets under administration in the public non-profit (P/NP) business,
including separate accounts increased $329 million during 1997 to $7.5
billion. New contributions to variable P/NP business represented 66% of
the total deposits received in 1997 compared to 54% in 1996. The
increase was primarily the result of a large rollover from one case.
The Company also provides third-party administration of policyholder
accounts. The number of participant accounts under administration grew
from 117,000 at December 31, 1996 to 241,000 at September 30, 1997. The
third-party administration of accounts continues to be a strategic focus
for this business unit and with the acquisition of several large
institutional clients during 1997, the participant accounts under
administration should continue to grow.
Individual fixed and variable deferred annuities sold through a
marketing agreement with Charles Schwab & Co. totaled $193 million
during 1997. This product was first introduced to the market in the
fourth quarter of 1996.
- 13 -
<PAGE>
Insurance
Individual life insurance premiums and deposits of $389 million
(excluding the insurance recapture and tax provision release) during
1997 decreased 7% from 1996. Premiums are down due to legislation put in
place in 1996 which phases out the tax deductibility of interest on
policy loans on Corporate-Owned Life Insurance (COLI) products during
1997 and 1998. Although sales were discontinued in 1996, the Company
continues to receive renewal premiums and deposits at a reduced level
and the Company is working closely with existing COLI customers to
determine the options available to them. The Company does not expect the
effect of these legislative changes to be material to the Company's
operations.
The Company began focusing on sales of its Bank-Owned Life Insurance
(BOLI) product during the second quarter of 1996 which was not affected
by the change in legislation discussed above. Deposits from BOLI
business through September 30, 1997 were $64 million versus $77 million
in 1996.
General Account Investments
The Company's investment strategies and portfolios are intended to match
the duration of the related liabilities and provide sufficient cash flow
to meet obligations while maintaining a competitive rate of return. The
duration of these investments is monitored, and investment purchases and
sales are executed with the objective of having adequate funds available
to satisfy the Company's maturing liabilities.
It is management's philosophy that the portfolio of fixed maturities be
of high quality. The fixed maturities in the Company's portfolio are
generally rated by external rating agencies, and if not externally
rated, are rated by the Company on a basis believed to be similar to
that used by rating agencies.
The distribution of the fixed maturity portfolio by credit rating is
summarized as follows:
September 30, December 31,
1997 1996
------------------ ------------------
AAA 46.8% 45.9%
AA 7.8% 8.1%
A 23.7% 23.7%
BBB 20.6% 20.9%
BB and Below
(non-investment grade) 1.1% 1.4%
------------------ ------------------
100.0% 100.0%
During the nine months of 1997, net unrealized gains (losses) on fixed
maturities included in stockholders' equity, which is net of
policyholder-related amounts and deferred income taxes, increased
surplus by $33 million compared with a decrease of $61 million for the
same period last year.
Liquidity and Capital Resources
Liquidity for the Company has remained strong as evidenced by
significant amounts of short-term investments and cash in the aggregate.
Generally, the Company has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and through
utilization of positive operating cash flows.
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<PAGE>
The Company's capital resources represent funds available for long-term
business commitments and primarily consist of retained earnings and
proceeds from the issuance of commercial paper. Capital resources
provide protection for policyholders and the financial strength to
support the underwriting of insurance risks, and allow for continued
business growth. The amount of capital resources that may be needed is
determined by the Company's senior management and Board of Directors, as
well as by regulatory requirements. The allocation of resources to new
long-term business commitments is designed to achieve an attractive
return, tempered by considerations of risk and the need to support the
Company's existing business.
The Company financial strength provides the capacity and flexibility to
enable it to raise funds in the capital markets through the issuance of
commercial paper. The Company continues to be well capitalized, with
sufficient borrowing capacity to meet the anticipated needs of its
business. The Company continues to conduct strategic and financial
reviews of its businesses to deploy its capital resources most
efficiently.
- 15 -
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party or of
which any of their property is the subject.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit Number Title Page
--------------- ----------------- ------
27 Financial Data 18
Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
third quarter of 1997.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
DATE: November 12, 1997 BY: /s/_Glen R. Derback
-------------------------------- ---------------
Glen R. Derback, Vice President and Controller
(Duly authorized officer and chief accounting
officer)
- 17 -
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27 Financial Data Schedule
Great-West Life & Annuity Insurance Company as of and for the Period Ending
September 30, 1997 (000s)
- -----------------------------------------------------------
</LEGEND>
<CIK> 0000744455
<NAME> GREAT-WEST LIF & ANNUITY INSURANCE COMPANY
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<CURRENCY> U.S. DOLLARS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
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0
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