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 June 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
Commission file number 333-1173
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Colorado 84-0467907
--------------------------------- --------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
8515 East Orchard Road, Englewood, CO 80111
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(Address of principal executive offices)
(Zip Code)
[303] 689-4128
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(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 No X
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As of June 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.
<PAGE>
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
Page
Part I FINANCIAL INFORMATION ----
Item 1 Financial Statements
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
Part II OTHER INFORMATION
Item 1 Legal Proceeding 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
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<TABLE>
<CAPTION>
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 Six Months Ended
June 30, June 30,
<C> <C> <C> <C>
<S> 1997 1996 1997 1996
REVENUES:
Annuity contract charges and premiums $27,563 $ 20,663 $55,758 $43,436
Life, accident, and health premiums earned 419,669 209,576 653,050 481,244
Net investment income 218,956 207,565 436,972 413,107
Net realized losses on investments (2,216) (24,628) (7,160) (22,895)
663,972 413,176 1,138,620 914,892
BENEFITS AND EXPENSES:
Life and other policy benefits 128,022 125,906 251,842 254,382
Increase (decrease) in reserves 167,545 (1,456) 183,374 35,293
Interest paid or credited to contractholders 131,731 136,943 270,596 285,379
Provision for policyholders' share of earnings
on participating business 3,657 (1,419) 4,514 270
Dividends to policyholders 14,552 12,638 34,013 22,766
445,507 272,612 744,339 598,090
Commissions 24,453 24,191 50,031 52,130
Operating expenses 106,779 78,862 202,393 160,397
Premium taxes 5,078 7,467 8,869 11,459
581,817 383,132 1,005,632 822,076
INCOME BEFORE INCOME TAXES 82,155 30,044 132,988 92,816
PROVISION FOR INCOME TAXES:
Current 18,736 22,573 32,105 37,167
Deferred 17,314 (12,391) 22,932 (13,014)
36,050 10,182 55,037 24,153
<PAGE>
NET INCOME $46,105 $ 19,862 $77,951 $68,663
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
June 30, December 31,
ASSETS 1997 1996
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost $ 2,056,111 $1,992,681
(fair value $2,086,227 and $2,041,064)
Available-for-sale, at fair value 6,339,975 6,206,478
(amortized cost $6,280,574 and $6,151,519)
Mortgage loans on real estate, net 1,385,760 1,487,575
Common stock 49,808 19,715
Real estate, net 55,951 67,967
Policy loans 2,590,483 2,523,477
Short-term investments, available-for-sale
(cost approximates fair value) 422,556 419,008
Total Investments 12,900,644 12,716,901
Cash 118,216 125,182
Reinsurance receivable 81,612 196,958
Deferred policy acquisition costs 272,418 282,780
Investment income due and accrued 170,494 198,441
Other assets 158,282 57,244
Premiums in course of collection 71,582 74,693
Deferred income taxes 185,722 214,404
Separate account assets 6,832,172 5,484,631
TOTAL ASSETS $ 20,791,142 $19,351,234
See notes to consolidated financial statements. (Continued)
</TABLE>
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<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
June 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
POLICY BENEFIT LIABILITIES:
Policy reserves $ 10,988,788 $11,022,595
Policy and contract claims 392,089 372,327
Policyholders' funds 172,552 153,867
Experience refunds 71,852 87,399
Provision for policyholders' dividends 62,339 51,279
GENERAL LIABILITIES:
Due to Parent Corporation 150,129 151,431
Repurchase agreements 390,071 286,736
Commercial paper 79,414 84,682
Other liabilities 401,891 488,818
Undistributed earnings on participating business
141,949 133,255
Separate account liabilities 6,832,172 5,484,631
Total Liabilities 19,683,246 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 $20.90 41,800 41,800
per share, issued, and outstanding
<PAGE>
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, net 18,868 14,951
Retained earnings 269,448 226,166
Total Stockholder's Equity 1,107,896 1,034,214
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 20,791,142 $19,351,234
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
<S> <C> <C>
1997 1996
OPERATING ACTIVITIES:
Net income $77,951 $ 68,663
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain allocated to participating policyholders 7,268 270
Amortization of investments 3,408 11,595
Realized losses on disposal of investments and
write-downs of mortgage loans and real
7,160 22,895estate
Amortization 23,995 17,751
Deferred income taxes 25,810 (13,197)
Changes in assets and liabilities:
Policy benefit liabilities 265,372 121,414
Reinsurance receivable 115,346 (17,845)
Accrued interest and other receivables 31,057 21,684
Other, net (162,024) (32,722)
Net cash provided by operating activities 395,343 200,508
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Maturities and redemptions 197,412 273,081
Available-for-sale
Sales 1,181,648 1,954,015
Maturities and redemptions 395,902 438,132
Mortgage loans 100,311 124,707
Real estate 11,366 2,110
Common stock 2,365 1,724
Purchases of investments:
Fixed maturities
Held-to-maturity (257,448) (210,604)
<PAGE>
Available-for-sale (1,721,38 (2,516,33
0) 3)
Mortages (1,033) (3,485)
Real estate (2,675) (2,518)
Common stock (27,688) (79)
Net cash provided by investing activities (121,220) 60,750
</TABLE> (continued)
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<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
<S> <C> <C>
1997 1996
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(343,184) $(252,315)
Due to Parent Corporation (1,303) (17,495)
Dividends paid (34,669) (26,987)
Net commercial paper repayments (5,268) (10,203)
Net repurchase agreements borrowings 103,335 56,641
Net cash used in financing activities (281,089) (250,359)
NET DECREASE IN CASH (6,966) 10,899
CASH, BEGINNING OF YEAR 125,182 90,939
CASH, END OF PERIOD $118,216 $101,838
See notes to consolidated financial statements. (Concluded)
</TABLE>
<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 six
months ended June 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>
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<S> <C> <S> <C>
Prepaid pension cost $ 19,091 Undistributed earnings on $ 3,608
participating business
Stockholder's Equity 15,483
$ $19,09119,091
</TABLE>
<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>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $74,386 $ (77,500)
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 (25,422)
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 December 31,
1996:
<TABLE>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees $ (4,939)
Fully eligible active plan participants (1,751)
Other active plan participants (9,470)
<PAGE>
(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%.
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:
<TABLE>
<S> <C> <S> <C>
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
</TABLE>
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
<PAGE>
Service. In the opinion of Company management, the amounts paid or
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.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
Operating Summary (Millions) 1997 1996 1997 1996
Premiums and other income $ 447 $ 230 $ 709 $525
Net investment income 219 208 437 413
Realized gains (losses) on
on investments (2) (25) (7) (23)
Total Revenues 664 413 1,139 915
Total benefits and expenses 582 383 1,006 822
Income tax expense 36 10 55 24
Net income $ $ $ $46207869
June 30, Dec 31,
Balance Sheet (Millions) 1997 1996
Investment assets $ 12,901 $ 12,717
Separate account assets 6,832 5,485
Total assets 20,791 19,351
Total policyholder liabilities 11,688 11,687
Total shareholder's equity 1,108 1,034
</TABLE>
Introduction
The following discussion addresses the financial condition of the Company
as of June 30, 1997, compared with December 31, 1996, and its results of
operations for the quarter and six months ended June 30, 1997, compared
with the same periods last 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.
<PAGE>
Comparison of Six Months Ended June 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).
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 or accrued for the remaining open tax years are
adequate, however, it is possible the the Company's accrued amounts may
change as a result of the completion of the IRS audits.
Net income increased 132% and 14% for the second quarter and six months of
1997, respectively. There are several non-recurring transactions which
have impacted 1997. The contingent liability release in the second quarter
of 1997 and the first quarter of 1996 produced fluctuations in these
periods of $23 million in 1997 and $26 million in 1996. The $48 million
liability release in 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 second quarter and six months of 1997 is 23% and 33% 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 94% and 35% for the second quarter and
six months of 1997, respectively. These increases reflect the insurance
recapture and the contingent tax provision release discussed in the
preceding two paragraphs. Excluding these items from their related periods
in both 1997 and 1996, the increase would have been 6% and 1% for the
second quarter and six months of 1997 which primarily reflects higher fee
income from assets under management.
<PAGE>
Net investment income increased 5% and 6% for the second quarter and six
months of 1997, respectively. This growth in net investment income is a
direct result of the growth in investment assets. The actual earned rate
for both the six months ended 1997 and 1996 was 7.18%.
Realized investment losses decreased from a $23 million loss in 1996 to a
$7 million loss in 1997. Losses on sales of fixed maturities were $17
million in 1996 versus $4 million in 1997. Provisions for asset losses
were $7 million in 1996 versus $4 million in 1997. The majority of the
fluctuation from 1996 to 1997 is reflected in the second quarter results
for both periods. The net earned rate on investments fluctuated in both
years from 7.27% at March 31, 1996, to 7.18% at June 30, 1996 and from
7.13% at March 31, 1997, to 7.18% at June 30, 1997.
Total benefits and expenses increased 52% and 22% for the second quarter
and six months of 1997. Excluding the insurance recapture discussed
previously, the growth for these periods is 11% and 3% 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.
The effective income tax rate increased from 1996 due to the strengthening
of the deferred tax liability by $21 million in quarter.
Investment assets decreased from December 31, 1996, to June 30, 1997, by
$184 million. At the same time separate account assets increased $1,347
million. 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 1% 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 656 compared to 473 in 1996 and termination rates have decreased
significantly.
The Company has continued to emphasize the development of its HMO
subsidiaries during the second quarter of 1997 and capitalized four HMOs
(Oregon, Ohio, Tennessee, and Massachusetts) in addition to the two
capitalized during the first quarter of 1997 (Washington and North
Carolina). Both Massachusetts and Ohio received their licenses to commence
operations during the second quarter of 1997 while the remaining HMOs are
in the process of obtaining licensure in their respective states.
<PAGE>
Of the total 401(k) cash flow received during the first half of 1997, 97%
was allocated to variable funds. Total assets under administration
(including third-party administration) grew from $3.9 billion at December
31, 1996 to $4.8 billion at June 30, 1997. The number of 401(k)
participants increased from 350,000 at December 31 1996, to more than
400,000 at June 30, 1997.
Financial Services
Savings
Assets under administration in the public non-profit (P/NP) business,
including separate accounts increased $170 million during the first six
months of 1997 to $7.3 billion. New contributions to variable P/NP
business represented 72% of the total deposits received in 1997 compared to
60% for the first six months of 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 109,000 at December 31, 1996 to 170,000 at June 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 $132 million during the first
six months of 1997. This product was first introduced to the market in the
fourth quarter of 1996.
Insurance
Individual life insurance premiums and deposits of $199 million (excluding
the insurance recapture and tax provision release) in the first six months
of 1997 decreased 24% 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
June 30, 1997 were $64 million.
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
<PAGE>
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:
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
AAA 47.4% 45.9%
AA 7.6% 8.1%
A 23.6% 23.7%
BBB 20.4% 20.9%
BB and Below (non-investment grade) 1.0% 1.4%
100.0% 100.0%
</TABLE>
During the first half 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 $4 million
compared with a decrease of $67 million for the same period last year,
reflecting the reduction of interest rates in 1997.
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.
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
<PAGE>
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.
<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 Title Page
Number
27 Financial Data 18
Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the second
quarter of 1997.
<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:August 12, 1997 BY: /s/Glen R. Derback
---------------------------------------
Glen R. Derback, Vice President
and Controller
(Duly authorized officer and chief
accounting officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 6,339,975
<DEBT-CARRYING-VALUE> 2,056,111
<DEBT-MARKET-VALUE> 2,086,227
<EQUITIES> 49,808
<MORTGAGE> 1,385,760
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,900,644
<CASH> 118,216
<RECOVER-REINSURE> 81,612
<DEFERRED-ACQUISITION> 272,418
<TOTAL-ASSETS> 20,791,142
<POLICY-LOSSES> 11,380,877
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 448,692
<NOTES-PAYABLE> 79,414
0
121,800
<COMMON> 7,032
<OTHER-SE> 979,064
<TOTAL-LIABILITY-AND-EQUITY> 20,791,142
708,808
<INVESTMENT-INCOME> 436,972
<INVESTMENT-GAINS> (7,160)
<OTHER-INCOME> 0
<BENEFITS> 744,339
<UNDERWRITING-AMORTIZATION> 22,443
<UNDERWRITING-OTHER> 238,850
<INCOME-PRETAX> 132,988
<INCOME-TAX> 55,037
<INCOME-CONTINUING> 77,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,951
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
