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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 JUNE 30, 2000
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 (I.R.S. EMPLOYER
OF INCORPORATION) 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 8, 2000.
Exhibit Index - Page 10
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SAGE LIFE ASSURANCE OF AMERICA, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 3
Statements of Operations for the Three and Six Month Periods Ended June 30, 2000 4
and 1999 (unaudited)
Statements of Cash Flows for the Six Month Periods Ended June 30, 2000 5
and 1999 (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and Financial 7-8
Condition
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 10
Exhibit 27 - Financial Data Schedule 11
</TABLE>
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SAGE LIFE ASSURANCE OF AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS
Investments:
Fixed maturities - at fair value $ 14,116,103 $ 16,179,750
Short-term investments 9,940,685 5,972,494
------------ ------------
Total investments 24,056,788 22,152,244
Cash and cash equivalents 579,703 1,979,985
Accrued investment income 206,739 226,234
Receivable from affiliates 473,489 671,270
Goodwill 6,110,912 6,228,146
Deferred income taxes 349,677 376,461
Other assets 8,539 9,231
Separate account assets 2,002,048 93,009
------------ ------------
Total assets $ 33,787,895 $ 31,736,580
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 174,661 $ 140,426
Other liabilities 580,395 --
Separate account liabilities 2,002,048 93,009
------------ ------------
Total liabilities 2,757,104 233,435
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 41,099,519 39,351,096
Retained deficit (11,889,944) (9,617,174)
Accumulated other comprehensive income (678,784) (730,777)
------------ ------------
Total stockholder's equity 31,030,791 31,503,145
Total liabilities and stockholder's equity $ 33,787,895 $ 31,736,580
============ ============
</TABLE>
See accompanying notes to financial statements.
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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, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Investment income $ 259,420 $ 322,214 $ 588,179 $ 646,840
Administrative service fees 10,000 15,517 25,000 15,517
Policy charges and fees 732 89 1,346 134
------------ ------------ ------------ -----------
Total Revenues 270,152 337,820 614,525 662,491
------------ ------------ ------------ -----------
Benefits and Expenses:
Expenses:
Salaries and benefits expenses 412,777 333,525 1,065,668 617,514
Development expenses 398,097 968,180 998,423 1,502,953
Amortization expense 58,617 58,617 117,234 117,234
General and administrative
expenses 159,973 60,565 705,970 273,845
------------ ------------ ------------ -----------
Total Benefits and Expenses 1,029,464 1,420,887 2,887,295 2,511,546
------------ ------------ ------------ -----------
Loss from operations before income
taxes (759,312) (1,083,067) (2,272,770) (1,849,055)
------------ ------------ ------------ -----------
Income tax expense - - - -
Net loss before cumulative effect
adjustment (759,312) (1,083,067) (2,272,770) (1,849,055)
------------ ------------ ------------ -----------
Cumulative effect adjustment of
change in accounting for
development costs - - - (4,269,488)
------------ ------------ ------------ -----------
Net loss $ (759,312) $ (1,083,067) $ (2,272,770) $(6,118,543)
============ ============ ============ ===========
</TABLE>
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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<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
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Operating activities
Net loss $(2,272,770) $(6,118,543)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense 117,234 117,234
Development costs paid by parent 998,423 1,502,953
Deferred income taxes 26,784
Cumulative effect adjustment -- 4,269,488
Changes in assets and liabilities:
Accrued investment income 19,495 (2,744)
Receivable from affiliates 197,781 (15,517)
Other assets 692 (256,314)
Other liabilities 580,395
Accrued expenses 34,235 (23,886)
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Net cash used in operating activities (297,731) (527,329)
Investing activities
Purchase of fixed maturity securities -- (3,947,436)
Proceeds from sales, maturities and repayments of fixed maturity
Securities 51,993 75,212
Net (purchases) sales of short-term investments (1,904,544) 3,240,532
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Net cash used in investing activities (1,852,551) (631,692)
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Financing activities
Capital contribution from parent 750,000 --
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Net cash provided by financing activities 750,000 --
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Decrease in cash and cash equivalents (1,400,282) (1,159,021)
Cash and cash equivalents at beginning of period 1,979,985 1,531,165
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Cash and cash equivalents at end of period $ 579,703 $ 372,144
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</TABLE>
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 six month periods ended June
30, 2000 and 1999 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 Form 10-K filed March
30, 2000.
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.
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the six months ended
June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net loss $(2,272,770) $(6,118,543)
Other comprehensive income:
Change in unrealized investment gains and losses 51,993 (514,640)
----------- -----------
Comprehensive income $(2,220,770) $(6,633,183)
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</TABLE>
The components of accumulated other comprehensive income, net of tax, as of June
30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Unrealized investment gains and losses $(678,784) $(730,777)
--------- ---------
Accumulated other comprehensive income $(678,784) $(730,777)
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Business Overview
Sage Insurance Group acquired the Company on December 31, 1996, and since that
date, we have been reengineering our products, systems and administration in
preparation for the commencement of our insurance underwriting and marketing
activities. All of our current senior management are experienced in the
insurance industry (either in the United States or in South Africa). We
recruited most of them since January 1997. Our ongoing business strategy is to
focus on the development, underwriting, and marketing of variable insurance
products. Our obligations under these contracts are supported by (1) variable
accounts -- determined by the value of investments held in separate accounts,
and (2) fixed accounts -- backed by investments held in separate accounts. We
may not use the assets of these separate accounts that equal the reserves and
other liabilities supporting the contracts to which they relate, to pay any of
our other obligations or creditors. During February 1999, we began to market, on
a limited basis, our new variable insurance products. Our initial marketing
focus has been to distribute the contracts through banks and third-party
marketing organizations working closely with banks. We anticipate that, over the
long-term, our distribution channels will expand to include wirehouses, regional
broker-dealers, and financial planners.
On December 1, 1998, Sage Group entered into a letter of intent with Swiss Re
Life and Health America, Inc. ("Swiss Re"). Swiss Re is an indirect subsidiary
of Swiss Reinsurance Company, Switzerland, one of the world's largest
reinsurance groups. This agreement encompassed two transactions: (1) that Sage
Life will enter into a reinsurance agreement with Swiss Re or its affiliate,
Life Reassurance Corporation of America ("LRCA"); and (2) that Swiss Re or LRCA
would make an investment in Sage Life Holdings, our immediate parent. The
reinsurance agreement with LRCA was entered into on June 8, 2000. As to the
investment in Sage Life Holdings, on December 31, 1998, LRCA did invest $12.5
million in non-voting, non-redeemable, cumulative preferred stock of Sage Life
Holdings, which at that point became our immediate parent and a wholly-owned
subsidiary of Sage Insurance Group. We anticipate that, during the third quarter
of 2000, LRCA will exchange part of its preferred stock for a voting interest of
not more that 9.9% in Sage Life Holdings with a retroactive effective date of
April 1999. The arrangements contemplated by the agreement may be subject to
regulatory approval.
Results of Operations
The Company has had a substantial increase in its premium volume during the
first six months of 2000. Premiums received for the six months ended June 30,
2000 and 1999 were $2.2 million and $.1 million, respectively. A large
percentage of the premiums were received during the last week of June as the
Company continues to expand its distribution network. Sales have continued at
this steady pace during the beginning of the month of July. For the six months
ended June 30, 2000 and 1999, the Company reported net losses of ($2.3m) and
($6.1), respectively. The loss for 1999 included a one-time expense for a
cumulative effect adjustment in the amount of $4.3 million.
For the six months ended June 30, 2000 and 1999, investment income was $588,179
and $646,840, respectively. Administrative service fees earned on funds invested
in the Sage Life Investment Trust were $25,000 and $15,517 during the six months
ended June 30, 2000 and 1999, respectively. Annuity charges and fees were $1,346
and $134 at June 30, 2000 and 1999, respectively.
Salaries and benefits expenses at June 30, 2000 and 1999 were $1,065,668 and
$617,514, respectively. The increase was attributable to an increase in full
time employees from 14 to 32 over the period. General and administrative
expenses increased to $705,970 at June 30, 2000 from $273,845 at June 30, 1999.
Development expenses related to the Company's products and systems at June 30,
2000 and 1999 were $998,423 and $1,502,953 , respectively.
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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 on the invested assets of the general account as well as with
capital contributions from Sage Insurance Group.
During 2000, the Company expects its cash needs will continue to increase with
its expanded underwriting and marketing activities. The Company anticipates that
it will be unable to meet all of its liquidity requirements during the year
without capital contributions from Sage Insurance Group. 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 the year. 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.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expenses related to this effort were not material. The Company is not aware of
any material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
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
8
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(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,
2000
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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
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 8, 2000
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