<PAGE> 1
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 JUNE 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)
DELAWARE 51-0258372
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
300 ATLANTIC STREET, STAMFORD, CONNECTICUT 06901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (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 August 13, 1999.
Exhibit Index - Page 9
1
<PAGE> 2
SAGE LIFE ASSURANCE OF AMERICA, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Balance Sheets as of June 30, 1999 and December 31, 1998 3
Statements of Operations for the Three and Six Month Periods Ended June 30, 1999 And 1998 4
Statements of Cash Flows for the Six Month Periods Ended June 30, 1999 and 1998 5
Notes to Financial Statements 6
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
</TABLE>
2
<PAGE> 3
SAGE LIFE ASSURANCE OF AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
1999 DECEMBER 31,
(UNAUDITED) 1998
------------ ------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at fair value (amortized cost: 1999 - $ 16,099,509 $ 12,992.917
$16,853,372; 1998 - $12,967,022)
Short-term investments 7,977,060 10,975,402
------------ ------------
Total investments 24,076,569 23,968,319
Cash and cash equivalents 372,144 1,531,165
Accrued investment income 206,169 203,425
Receivable from affiliates 15,517 --
Goodwill 6,447,900 6,565,134
Deferred income taxes 256,314 --
Development costs -- 4,269,488
Other assets 5,000 5,000
Separate account assets 72,699 --
------------ ------------
Total assets $ 31,452,312 $ 36,542,531
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 37,784 $ 61,670
Deferred income taxes -- 8,804
Separate account liabilities 72,699 --
------------ ------------
Total liabilities 110,483 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 36,378,682 34,875,727
Retained deficit (7,039,303) (920,760)
Accumulated other comprehensive income (497,550) 17,090
------------ ------------
Total stockholder's equity 31,341,829 36,472,057
------------ ------------
Total liabilities and stockholder's equity $ 31,452,312 $ 36,542,531
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
--------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Annuity charges and fees $ 89 $ -- $ 134 $ --
Administrative service fees 15,517 -- 15,517 --
Net investment income 322,214 342,918 646,840 685,360
----------- ----------- ----------- -----------
Total Revenues 337,820 342,918 662,491 685,360
----------- ----------- ----------- -----------
Benefits and Expenses:
Insurance expenses and taxes 394,090 466,621 891,359 1,000,321
Development expenses 968,180 -- 1,502,953 --
Amortization of goodwill and
development costs 58,617 154,823 117,234 183,012
----------- ----------- ----------- -----------
Total Benefits and Expenses 1,420,887 621,444 2,511,546 1,183,333
----------- ----------- ----------- -----------
Loss from operations before
income taxes (1,083,067) (278,526) (1,849,055) (497,973)
----------- ----------- ----------- -----------
Income tax expense -- -- -- --
Net loss before cumulative effect
Adjustment (1,083,067) (278,526) (1,849,055) (497,973)
----------- ----------- ----------- -----------
Cumulative effect adjustment of
change in accounting for
development costs -- -- (4,269,488) --
----------- ----------- ----------- -----------
Net income (loss) $(1,083,067) $ 278,526 $(6,118,543) $ (497,973)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
Operating activities
<S> <C> <C>
Net loss $(6,118,543) $ (497,973)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense 117,234 183,012
Development costs paid by parent 1,502,953 --
Cumulative effect adjustment 4,269,488 --
Changes in:
Accrued investment income (2,744) (6,985)
Receivable from affiliates (15,517) 25,941
Deferred income taxes (256,314) (38,199)
Accrued expenses (23,886) (50,488)
Amounts payable to affiliates -- (41,226)
----------- -----------
Net cash used in operating activities (527,329) (425,918)
Investing activities
Purchase of fixed maturity securities (3,947,436) --
Proceeds from sales, maturities and repayments of fixed maturity securities 75,212 --
Net sales of short-term investments 3,240,532 357,960
----------- -----------
Net cash provided by (used in) investing activities (631,692) 357,960
Financing activities
Capital contribution from parent -- 600,000
----------- -----------
Net cash provided by financing activities -- 600,000
Increase (decrease) in cash and cash equivalents (1,159,021) 532,042
Cash and cash equivalents at beginning of period 1,531,165 228,605
----------- -----------
Cash and cash equivalents at end of period $ 372,144 $ 760,647
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
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 six month periods ended June
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 PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 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 the SOP 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, SFAS 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, 1999. Earlier adoption is permitted. Upon adoption, the
Company will be required to record a cumulative effect adjustment to reflect
this accounting change. The Company has not completed its analysis and
evaluation of the requirements and the impact of this statement. Subsequently,
the Federal Accounting Standards Board has issued Statement No. 137, Accounting
for Derivative Instruments and Hedging Activities*Deferral of the Effective Date
of FASB Statement No. 133. The Statement defers for one year the effective date
of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The rule now will apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000.
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the six months ended
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss $(6,118,543) $ (497,973)
Other comprehensive income:
Change in unrealized investment gains and losses (514,640) 1,829
----------- -----------
Comprehensive income $(6,633,183) $ (496,144)
=========== ===========
</TABLE>
6
<PAGE> 7
The components of accumulated other comprehensive income, net of tax, as of June
30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Unrealized investment gains and losses $(497,550) $ 17,090
--------- ---------
Accumulated other comprehensive income $(497,550) $ 17,090
========= =========
</TABLE>
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 1, 1998, whereby Swiss Re will enter into reinsurance
arrangements with us. 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 third
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 six months ended June 30, 1999 and 1998, the Company reported net losses
of $6,118,543 and $497,973, respectively.
During the first six months of 1999, investment income was $646,840 as compared
to $685,360 for the corresponding period during 1998. Administrative service
fees earned from invested assets have produced income of $15,517 during 1999.
Annuity charges and fee income for the six month period were $134.
Insurance expenses and taxes for the six months ended June 30, 1999 were
$891,359 as compared to $1,000,321 for the corresponding period during 1998. In
accordance with SOP 98-5, development costs of $1,502,953 were expensed during
1999. Prior to this quarter 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 being deducted from earnings. This amount
was the amount of unamortized development costs as of January 1, 1999.
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.
7
<PAGE> 8
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 in a newly formed holding company, Sage Life Holdings, that will
provide 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, it is currently working with them to assess all Year 2000 issues
associated with the processing of the Company's applications. This assessment
involves 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 will be relying 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
will develop a plan to assure Year 2000 compliance by all third party
administrators. The Company anticipates completing all testing well in advance
of January 1, 2000. As this testing has and continues to be done in the normal
course of system development, the Company has not budgeted any costs associated
with the Year 2000 issue. In addition, Year 2000 costs have been deemed
immaterial.
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 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 is currently developing a detailed contingency plan for
operations in the unlikely event one or more of its third party administrators
is unable to fulfill its obligations.
8
<PAGE> 9
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 June 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: August 13, 1999
9
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 16,099,509
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,977,060
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 24,076,569
<CASH> 372,144
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 31,452,312
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500,000
<OTHER-SE> 28,952,312
<TOTAL-LIABILITY-AND-EQUITY> 31,452,312
0
<INVESTMENT-INCOME> 646,840
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 15,651
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 891,359
<INCOME-PRETAX> (1,849,055)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (4,269,488)
<CHANGES> 0
<NET-INCOME> (6,188,543)
<EPS-BASIC> 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>
