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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________
COMMISSION FILE NUMBERS - 333-77441 AND 333-77437
SAGE LIFE ASSURANCE OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 51-0258372
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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300 ATLANTIC STREET, STAMFORD, CONNECTICUT 06901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(203) 602-6500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $2,500 Par value - 1,000 shares as of November 12, 1999.
Exhibit Index - Page 9
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SAGE LIFE ASSURANCE OF AMERICA, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
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Page
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Item 1. Financial Statements
Balance Sheets as of September 30, 1999 and December 31, 1998 3
Statements of Operations for the Three and Nine Month Periods Ended
September 30, 1999 and 1998 4
Statements of Cash Flows for the Nine Month Periods Ended September 30, 1999 and 5
1998
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results 7-9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings NA
Item 2. Changes in Securities NA
Item 3. Defaults upon Senior Securities NA
Item 4. Submission of Matters to Vote of Security Holders NA
Item 5. Other Information NA
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
Exhibit 27 - Financial Data Schedule 10
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SAGE LIFE ASSURANCE OF AMERICA, INC.
BALANCE SHEETS
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<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
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ASSETS
Investments:
Fixed maturities - at fair value (amortized cost: 1999 - $ 16,474,435 $ 12,992,917
$17,331,872; 1998 - $12,967,022)
Short-term investments 7,469,367 10,975,402
------------ ------------
Total investments 23,943,802 23,968,319
Cash and cash equivalents 78,707 1,531,165
Accrued investment income 360,185 203,425
Receivable from affiliates 28,221 --
Goodwill 6,389,283 6,565,134
Deferred income taxes 287,119 --
Development costs -- 4,269,488
Other assets 16,463 5,000
Separate account assets 70,433 --
------------ ------------
Total assets $ 31,174,213 $ 36,542,531
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 47,167 $ 61,670
Payable to affiliates 47,246 --
Deferred income taxes -- 8,804
Separate account liabilities 70,433 --
------------ ------------
Total liabilities 164,846 70,474
Stockholder's equity:
Common stock, $2,500 par value, 1,000 shares authorized,
issued and outstanding 2,500,000 2,500,000
Additional paid-in capital 37,242,481 34,875,727
Retained deficit (8,175,765) (920,760)
Accumulated other comprehensive income (557,349) 17,090
------------ ------------
Total stockholder's equity 31,009,367 36,472,057
------------ ------------
Total liabilities and stockholder's equity $ 31,174,213 $ 36,542,531
============ ============
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See accompanying notes to financial statements.
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SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
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Revenues:
Annuity charges and fees $ 89 $ -- $ 223 $ --
Administrative service fees 12,704 -- 28,221 --
Net investment income 315,040 348,784 961,880 1,034,144
----------- ----------- ----------- -----------
Total Revenues 327,833 348,784 990,324 1,034,144
----------- ----------- ----------- -----------
Benefits and Expenses:
Insurance expenses and taxes 541,877 28,953 1,433,236 1,029,274
Development expenses 863,800 -- 2,366,753 --
Amortization of goodwill and
development costs 58,617 111,490 175,851 294,502
----------- ----------- ----------- -----------
Total Benefits and Expenses 1,464,294 140,443 3,975,840 1,323,776
----------- ----------- ----------- -----------
(Loss) income from operations before
income taxes (1,136,461) 208,341 (2,985,516) (289,632)
----------- ----------- ----------- -----------
Income tax expense -- -- -- --
Net (loss) income before cumulative
effect adjustment (1,136,461) 208,341 (2,985,516) (289,632)
----------- ----------- ----------- -----------
Cumulative effect adjustment of
change in accounting for
development costs -- -- (4,269,488) --
----------- ----------- ----------- -----------
Net (loss) income $(1,136,461) $ 208,341 $(7,255,004) $ (289,632)
=========== =========== =========== ===========
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See accompanying notes to financial statements.
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SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
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Operating activities
Net loss $(7,255,004) $ (307,937)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense 175,851 294,502
Development costs paid by parent 2,366,753 --
Cumulative effect adjustment 4,269,488 --
Changes in:
Accrued investment income (156,759) (101,017)
Receivable from affiliates (28,221) 37,374
Deferred income taxes (295,923) 14,654
Accrued expenses (25,966) (183,286)
Amounts payable to affiliates 47,246 (151,356)
----------- -----------
Net cash used in operating activities (902,535) (397,066)
Investing activities
Purchase of fixed maturity securities (4,444,810) --
Proceeds from sales, maturities and repayments of fixed maturity securities 48,317 --
Net sales of short-term investments 3,846,570 (293,193)
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Net cash used in investing activities (549,923) (293,193)
Financing activities
Capital contribution from parent
-- 600,000
----------- -----------
Net cash provided by financing activities -- 600,000
Decrease in cash and cash equivalents (1,452,458) (90,259)
Cash and cash equivalents at beginning of period 1,531,165 228,605
----------- -----------
Cash and cash equivalents at end of period $ 78,707 $ 138,346
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See accompanying notes to financial statements.
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\ SAGE LIFE ASSURANCE OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements of Sage Life Assurance of America, Inc. ("the
Company") included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the unaudited financial statements presented herein include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of operations in
accordance with generally accepted accounting principles and prevailing industry
practice requires management to make estimates that affect the reported amounts
and disclosure of contingencies in the financial statements. Actual results
could differ from those estimates. Results for the nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of annual results.
These unaudited financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's prospectus
filed February 26, 1999.
2. NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting the Costs of Start-up
Activities, which requires that costs related to start-up activities be expensed
as incurred. Prior to 1998, the Company capitalized its costs incurred in the
development of its products and systems. The Company adopted the provisions of
SOP 98-5 in its financial statements for the year beginning January 1, 1999. The
effect of adoption of SOP 98-5 was to record a charge for the cumulative effect
of an accounting change of $4,269,488, to expense costs that had previously been
capitalized prior to 1999.
In June 1998, Statement of Financial Accounting Standard No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS
133 standardizes the accounting for derivative instruments and the derivative
portion of certain other contracts that have similar characteristics by
requiring that an entity recognize those instruments at fair value. This
statement also requires a new method of accounting for hedging transactions,
prescribes the type of items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting. This statement is
effective for fiscal years beginning after June 15, 2000. Earlier adoption is
permitted. The Company has not completed its analysis and evaluation of the
requirements and the impact of this statement.
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the nine months ended
September 30, 1999 and 1998 were as follows:
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1999 1998
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Net loss $(7,255,004) $ (289,632)
Other comprehensive income:
Change in unrealized investment gains and losses (574,439) 30,650
----------- -----------
Comprehensive income $(7,829,443) $ (258,982)
=========== ===========
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The components of accumulated other comprehensive income, net of tax, as of
September 30, 1999 and December 31, 1998 were as follows:
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1999 1998
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Unrealized investment gains and losses $(557,349) $ 17,090
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Accumulated other comprehensive income $(557,349) $ 17,090
========= =========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Business Overview
The Company has been in the process of developing and preparing to market
variable annuity and variable life insurance products. The marketing of these
products began during the first quarter of 1999. The Company also intends to
enter into a coinsurance reinsurance arrangement with Swiss Re Life & Health
America ("Swiss Re"), pursuant to which Swiss Re will reinsure a significant
portion of the liabilities under the variable insurance contracts.
Sage Insurance Group, Inc. ("Sage Insurance Group") entered into an agreement
with Swiss Re on December 31, 1998, whereby Swiss Re will enter into reinsurance
arrangements with the Company. In addition, Swiss Re invested $12.5 million in
non-voting non-redeemable cumulative preferred stock in a newly formed company,
Sage Life Holdings, that became the immediate parent of the Company and a
wholly-owned subsidiary of Sage Insurance Group. It is anticipated that, during
the fourth quarter of 1999, Swiss Re will exchange part of its preferred stock
for a voting interest of not more than 9.9% in Sage Life Holdings. Swiss Re's
ultimate parent is Swiss Reinsurance Company, Switzerland, one of the world's
largest life and health reinsurance groups. The arrangements contemplated by the
agreement may be subject to regulatory approval.
Results of Operations
For the nine months ended September 30, 1999 and 1998, the Company reported net
losses of $7,255,004 and $289,632, respectively.
During the first nine months of 1999, investment income was $961,880 as compared
to $1,034,144 for the corresponding period during 1998. Administrative service
fee income was $28,221 for the nine months ended September 30, 1999. Annuity
charges and fee income for the nine month period were $223.
Insurance expenses and taxes for the nine months ended September 30, 1999 were
$1,433,236 as compared to $1,029,274 for the corresponding period during 1998.
In accordance with SOP 98-5, development costs of $2,366,753 were expensed
during 1999. Prior to this year all development costs were capitalized and
amortized quarterly. In addition, the adoption of SOP 98-5 resulted in a
cumulative effect adjustment in the amount of $4,269,488, the unamortized
development costs at January 1, 1999, being deducted from earnings.
For the three months ended September 30, 1999 and 1998, the Company reported a
net loss of $1,136,461 and net income of $208,341, respectively.
During the three months ended September 1999, investment income was $315,040 as
compared to $348,784 for the corresponding period during 1998. Administrative
service fee income was $12,704 for the three months ended September 30, 1999.
Annuity charges and fee income for the three month period were $89.
Insurance expenses and taxes for the three months ended September 30, 1999 were
$541,877 as compared to $28,953 for the corresponding period during 1998.
Development expenses for the three months ended September 1999 were $863,800.
7
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Liquidity
Since the beginning of 1997, the Company's primary cash needs have been for the
development of its insurance products and related infrastructure and to fund the
daily operations of the Company. The Company's cash needs have been met through
interest income and capital contributions from Sage Insurance Group.
During 1999, the Company expects its cash needs will continue to increase as its
underwriting and marketing activities begin. The Company anticipates that it
will be unable to meet all of its liquidity requirements in 1999 without capital
contributions from Sage Insurance Group. However, Swiss Re has made an equity
investment that provides an additional source of funds to the Company for new
business expenses. In addition, although not required to do so, the Company
believes that Sage Insurance Group will continue to provide capital to the
Company for its non-recurring costs associated with new products and business
development during 1999. The Company's future marketing efforts could be
hampered in the unlikely event that Swiss Re, Sage Insurance Group and/or their
affiliates are unwilling to commit additional funding.
Year 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. This
potential problem has become known as the "Year 2000 issue." The Year 2000 issue
affects virtually all companies and organizations.
Computer applications that are affected by the Year 2000 issue could impact the
Company's business functions in various ways, ranging from a complete inability
to perform critical business functions to a loss of productivity in varying
degrees. Likewise, the failure of some computer applications could have no
impact on critical business functions. The Company used these issues as critical
components in the evaluation and selection of in-house systems and of third
party administrators.
Since the Company plans to outsource most of its operating functions, there will
only be a limited number of in-house systems utilized. At present, the only
in-house system utilized is the accounting system. This system was certified as
Year 2000 compliant before it was selected and installed for operation. The
Company also intends to purchase a reserve valuation system and a reinsurance
system. Year 2000 compliance will be a critical component in the evaluation and
selection process for those two systems.
The Company has various third party administrators (including investment
advisors, brokers, transfer agents, and other financial services institutions)
for the processing of such tasks as contract administration, fund
administration, underwriting and investment administration. The quality of these
third party administrators was of paramount importance in the selection process.
Although the Company has received assurances from all of its third party
administrators, a complete assessment was completed addressing all Year 2000
issues associated with the processing of the Company's applications. This
assessment involved the testing of the data being processed by third party
administrators and electronically interfaced into the Company's accounting
system. As to outside organizations from which the Company will not be relying
on electronic interface, the Company relied on responses to questionnaires
supplied to these service providers as to their status on Year 2000 compliance.
Based upon the responses received from these third party administrators, the
Company has developed a plan to assure Year 2000 compliance by all third party
administrators. The Company has currently completed all of its testing. Costs
associated with Year 2000 compliance were not of a material amount.
The failure of any of the Company's third party administrators to achieve
complete compliance could have a material adverse effect on the Company's
ability to conduct its business, including delays in calculating unit values,
redeeming shares, delivering account statements and providing other information,
communication and servicing to contract owners. The Company believes that it has
taken the necessary provisions, both through
8
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selection and testing, to assure that it will not experience any material
adverse effects on the Company's ability to conduct its business. The Company
does however realize the importance of this issue and has developed a detailed
contingency plan for operations in the unlikely event one or more of its third
party administrators is unable to fulfill its obligations.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor"
for forward-looking statements. This Report may include forward-looking
statements, as do other publicly available Company documents, including reports
on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission
and other written or oral statements made by or on behalf of the Company, its
officers and employees. When made, such forward-looking statements reflect the
then-current views of the Company or its management with respect to future
events and financial performance. There are known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those contemplated or indicated by such forward-looking
statements. These include, but are not limited to, risks and uncertainties
inherent in or relating to (i) general economic conditions, including interest
rate movements, inflation and cyclical industry conditions, (ii) governmental
and regulatory policies, as well as the judicial environment, (iii) increasing
competition in the market segments in which the Company operates. The words
"believe", "expect", "anticipate", "project", and similar expressions identify
forward-looking statements, which speak only as of their dates. Neither the
Company nor its management undertakes any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Part II. Other Information
Items 6. Exhibits and Reports on Form 8-K
(a) Exhibit
#27 Financial Data Schedule - page 10
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended September
30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sage Life Assurance of America, Inc.
/s/ Mitchell R. Katcher
-----------------------
Mitchell R. Katcher
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ James F. Renz
-----------------
James F. Renz
Vice President - Accounting and Finance
(Chief Accounting Officer)
Date: November 12, 1999
9
<TABLE> <S> <C>
<ARTICLE> 7
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 16,474,435
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,469,367
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 23,943,802
<CASH> 78,707
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0
0
<COMMON> 2,500,000
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0
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<EXTRAORDINARY> (4,269,488)
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