<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 MARCH 31, 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 May 11, 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 MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
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Page
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Item 1. Financial Statements
Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 3
Statements of Operations for the Three Month Periods Ended March 31, 2000 4
and 1999 (unaudited)
Statements of Cash Flows for the Three Month Periods Ended March 31, 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 8
Signatures 9
Exhibit 27 - Financial Data Schedule 10
</TABLE>
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SAGE LIFE ASSURANCE OF AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities - at fair value $ 16,194,293 16,179,750
Short-term investments 6,967,186 5,972,494
------------ ------------
Total investments 23,161,479 22,152,244
Cash and cash equivalents 906,068 1,979,985
Accrued investment income 360,054 226,234
Receivable from affiliates 994,230 671,270
Goodwill 6,169,529 6,228,146
Deferred income taxes 360,517 376,461
Other assets 10,969 9,231
Separate account assets 206,645 93,009
------------ ------------
Total assets $ 32,169,491 $ 31,736,580
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 464,704 $ 140,426
Amounts payable to affiliates 877,658 --
Other liabilities 75 --
Separate account liabilities 206,645 93,009
------------ ------------
Total liabilities 1,549,082 233,435
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 39,951,424 39,351,096
Retained deficit (11,131,187) (9,617,174)
Accumulated other comprehensive income (699,828) (730,777)
------------ ------------
Total stockholder's equity 30,620,409 31,503,145
------------ ------------
Total liabilities and stockholder's equity $ 32,169,491 $ 31,736,580
============ ============
</TABLE>
See accompanying notes to financial statements.
3
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SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
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<S> <C> <C>
Revenues:
Investment income $ 358,058 $ 336,988
Administrative service fees 15,000 --
Policy charges and fees 614 45
----------- -----------
Total Revenues 373,672 337,033
----------- -----------
Benefits and Expenses:
Expenses:
Salaries and benefits expenses 594,334 360,381
Development expenses 600,328 534,773
Amortization expense 58,617 58,617
General and administrative expenses 634,406 149,250
----------- -----------
Total Benefits and Expenses 1,887,685 1,103,021
----------- -----------
Loss from operations before income taxes and cumulative
effect adjustment (1,514,013) (765,988)
----------- -----------
Income tax expense -- --
Net loss before cumulative effect adjustment (1,514,013) (765,988)
----------- -----------
Cumulative effect adjustment of change in accounting
for development costs -- 4,269,488
----------- -----------
Net loss $(1,514,013) $(5,035,476)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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SAGE LIFE ASSURANCE OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
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<S> <C> <C>
Operating activities
Net loss $(1,514,013) $(5,035,476)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense 58,617 58,617
Development costs paid by parent 600,328 534,773
Cumulative effect adjustment -- 4,269,488
Changes in:
Accrued investment income (133,820) (102,628)
Receivable from affiliates (322,960) (206,866)
Other assets (1,663) (117,881)
Accrued expenses 324,277 79,302
Amounts payable to affiliates 877,658 417,381
----------- -----------
Net cash used in operating activities (111,576) (103,290)
Investing activities
Purchase of fixed maturity securities -- (1,937,016)
Proceeds from sales, maturities and repayments of fixed maturity securities 32,349 21,892
Net (purchases) sales of short-term investments (994,692) 633,072
----------- -----------
Net cash used in investing activities (962,341) (1,282,052)
----------- -----------
Decrease in cash and cash equivalents (1,073,917) (1,385,342)
Cash and cash equivalents at beginning of period 1,979,985 1,531,165
----------- -----------
Cash and cash equivalents at end of period $ 906,068 $ 145,823
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
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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 three month periods ended
March 31, 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 three months ended
March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net loss $(1,514,013) $(5,035,476)
Other comprehensive income:
Change in unrealized investment gains and losses 30,949 245,917
----------- -----------
Comprehensive income $(1,483,064) $(5,281,393)
=========== ===========
</TABLE>
The components of accumulated other comprehensive income, net of tax, as of
March 31, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Unrealized investment gains and losses $(699,828) $(730,777)
--------- ---------
Accumulated other comprehensive income $(699,828) $(730,777)
========= =========
</TABLE>
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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 on a limited basis 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 second
quarter of 2000, 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 are
subject to regulatory approval.
Results of Operations
For the three months ended March 31, 2000 and 1999, the Company reported net
losses of ($1.5m) and ($5.0), respectively. The loss for 1999 included a
one-time expense for a cumulative effect adjustment in the amount of $4.3
million.
For the three months ended March 31, 2000 and 1999, investment income was
$358,058 and $336,988, respectively. Administrative service fees of $15,000 were
earned during the first quarter on funds invested in the Sage Life Investment
Trust. Annuity charges and fees were $614 and $45 at March 31, 2000 and 1999,
respectively.
Salaries and benefits expenses at March 31, 2000 and 1999 were $594,334 and
$336,988, respectively. The increase was attributable to full time employees
increasing to 29, an increase of 15 over March 31, 1999. General and
administrative expenses increased to $634,408 at March 31, 2000 from $149,250 at
March 31, 1999. Development expenses related to the Company's products and
systems at March 31, 2000 and 1999 were $600,328 and $534,773, respectively.
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 2000, 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 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.
7
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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
(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 March 31,
2000
8
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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: May 11, 2000
9
<TABLE> <S> <C>
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<MULTIPLIER> 1
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 16,194,293
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,967,691
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 23,161,984
<CASH> 805,519
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0
0
<COMMON> 2,500,000
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