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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, 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)
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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 OFFICES) (ZIP CODE)
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(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
As of November 14, 2000, there were 1,000 shares of outstanding Common Stock,
par value $2,500 per share, of the registrant. All outstanding shares were owned
by Sage Life Holdings of America, Inc.
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SAGE LIFE ASSURANCE OF AMERICA, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Part I. Financial Information
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Page
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Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 3
Statements of Operations for the Three and Nine Month Periods Ended
September 30, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Nine Month Periods Ended September 30,
2000 and 1999 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Part II. Other Information
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to Vote of Security Holders Not applicable
Item 5. Other Information Not applicable
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAGE LIFE ASSURANCE OF AMERICA, INC.
BALANCE SHEETS
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SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS
Investments:
Fixed maturities, available for sale - at fair value $ 14,326,359 $ 16,179,750
Short-term investments 8,949,406 5,972,494
------------ ------------
Total investments 23,275,765 22,152,244
Cash and cash equivalents 755,685 1,979,985
Accrued investment income 288,493 226,234
Receivable from affiliates 1,003,420 671,270
Goodwill 6,052,295 6,228,146
Deferred federal income taxes 269,271 376,461
Reinsurance receivables 733,512 --
Deferred acquisition costs 109,261 --
Other assets 42,086 9,231
Separate account assets 15,575,578 93,009
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Total assets $ 48,105,366 $ 31,736,580
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LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred gain from Modco Agreement $ 258,001 $ --
Accrued expenses and other liabilities 774,039 140,426
Separate account liabilities 15,575,578 93,009
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Total liabilities 16,607,618 233,435
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 43,201,641 39,351,096
Deficit (13,681,190) (9,617,174)
Accumulated other comprehensive loss (522,703) (730,777)
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Total stockholder's equity 31,497,748 31,503,145
Total liabilities and stockholder's equity $ 48,105,366 $ 31,736,580
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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,
2000 1999 2000 1999
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REVENUES:
Annuity charges and fees $ 507 $ 89 $ 1,853 $ 223
Administrative service fees 8,430 12,704 33,430 28,221
Net investment income 576,658 315,040 1,194,136 961,880
----------- ----------- ----------- -----------
Total revenues 585,595 327,833 1,229,419 990,324
BENEFITS AND EXPENSES:
Salaries and benefits 412,693 339,234 991,381 956,748
Development expenses 660,911 863,800 1,455,136 2,366,753
Interest credited to policyholders 155,105 -- 155,105 --
General and administrative expenses 985,696 202,643 2,142,758 476,488
Acquisition costs 103,819 -- 373,204 --
Amortization of goodwill 58,617 58,617 175,851 175,851
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Total benefits and expenses 2,376,841 1,464,294 5,293,435 3,975,840
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Loss from operations before federal
income taxes and cumulative
effect adjustment (1,791,246) (1,136,461) (4,064,016) (2,985,516)
----------- ----------- ----------- -----------
Federal income taxes -- -- -- --
Loss before cumulative effect
adjustment (1,791,246) (1,136,461) (4,064,016) (2,985,516)
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Cumulative effect adjustment of
change in accounting for
development costs -- -- -- (4,269,488)
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Net loss $(1,791,246) $(1,136,461) $(4,064,016) $(7,255,004)
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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,
2000 1999
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OPERATING ACTIVITIES
Net loss $(4,064,016) $(7,255,004)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of goodwill 175,851 175,851
Net amortization on investments 89,021 36,259
Cumulative effect adjustment -- 4,269,488
Changes in assets and liabilities:
Accrued investment income (62,259) (156,759)
Receivable from affiliates (332,150) 19,025
Reinsurance receivable (733,512) --
Deferred acquisition costs (109,261) --
Deferred gain from modified coinsurance agreement 258,001 --
Accrued expenses and other liabilities 634,448 30,704
Other assets (33,689) --
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Net cash used in operating activities (4,177,566) (2,880,436)
INVESTING ACTIVITIES
Purchases of fixed maturity securities (455,367) (4,444,810)
Proceeds from sales, maturities and repayments of fixed maturity
securities 2,535,000 --
Short-term investments, net (2,976,912) 3,506,035
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Net cash used in investing activities (897,279) (938,775)
FINANCING ACTIVITIES
Development costs paid by parent 1,850,545 2,366,753
Capital contribution from parent 2,000,000 --
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Net cash provided by financing activities 3,850,545 2,366,753
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Decrease in cash and cash equivalents (1,224,300) (1,452,458)
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 $ 755,685 $ 78,707
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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 accompanying unaudited financial statements of Sage Life Assurance of
America, Inc. (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly do
not include all of the information and footnote disclosures required by
generally accepted accounting principles for complete financial statements and
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Form 10-K for the year ended December 31,
1999. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
2. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." This statement amended SFAS No. 133
to defer its effective date one year to fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities"--an amendment of SFAS No.
133. This statement makes certain changes in the hedging provisions of SFAS No.
133 and is effective concurrent with SFAS No. 133 (collectively hereafter
referred to as the "Statement"). The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset by the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Upon adoption, the Company will be required to record a
cumulative effect adjustment to reflect this accounting change.
3. CONCENTRATION
Significant sales activity began in the third quarter of 2000. For the three and
nine months ended September 30, 2000, sales of variable annuities were
approximately $13.5 million and $16.7 million, respectively. A significant
amount of such sales were produced through one distributor.
4. COMPREHENSIVE LOSS
The components of comprehensive loss, net of deferred federal income taxes, for
the three and nine months ended September 30, 2000 and 1999 were as follows:
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Three months Ended Nine months Ended
September 30, September 30,
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2000 1999 2000 1999
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Net loss $(1,791,246) $(1,136,461) $(4,064,016) $(7,255,004)
Other comprehensive income (loss):
Change in unrealized investment
gains and losses 156,081 (59,799) 208,074 (574,439)
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Comprehensive loss $(1,635,165) $(1,196,260) $(3,855,942) $(7,829,443)
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Accumulated other comprehensive income at September 30, 2000 and December 31,
1999, consists of unrealized losses of $522,703 and $730,777, respectively, net
of related deferred federal income taxes.
5. MODIFIED COINSURANCE AGREEMENT
During 2000, the Company entered into a quota share modified coinsurance
agreement (the "Modco Agreement") with Life Reassurance Corporation of America
("Life Re"), a subsidiary of Swiss Re Life and Health America, Inc. Under the
Modco Agreement, the Company cedes a quota share of the premiums related to all
of its variable business to Life Re. Commissions and expense allowances received
under the Modco Agreement are deferred and amortized in relation to the
estimated gross profits of the related business. The deferred gain from Modco
Agreement in the accompanying balance sheet represents the unamortized
commission and expense allowance received by the Company in excess of the quota
share percentage. Such gain is amortized in relation to the estimated gross
profits of the related business.
For the three and nine months ended September 30, 2000, the Company has ceded
approximately $10.8 million in variable annuity premiums to Life Re. Annuity
charges and fees for the three and nine months ended September 30, 2000 are net
of approximately $2,000 ceded to Life Re.
6. COMMITMENTS
The Company is in the process of forming a direct subsidiary, Sage Life
Assurance Company of New York ("Sage New York") that will be domiciled and
primarily write business in the State of New York. The Company anticipates that
the formation and licensing of Sage New York will be completed during the first
quarter of 2001. The Company will utilize approximately $10 million of current
capital for the funding with any remaining capital required by the State of New
York Department of Insurance funded through a capital infusion from Sage
Insurance Group, Inc.
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 building an infrastructure, obtaining necessary financial
ratings, and developing products, systems and administration, to support the
commencement of our insurance underwriting and marketing activities. In June
1999, the Company received a rating of A ("Excellent") from A.M. Best Co. Also,
in October 2000, the Company received a rating of AA- ("Very Strong") from Fitch
IBCN, Duff & Phelps. 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. Our initial marketing focus has been to distribute the
contracts through banks and financial planning companies. We anticipate that,
over the long-term, our distribution channels will expand to include wirehouses
and regional broker-dealers.
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 the
Company would enter into a reinsurance agreement with Swiss Re or its affiliate,
Life Reassurance Corporation of America ("Life Re"); and (2) that Swiss Re or
Life Re would make an investment in Sage Life Holdings, our immediate parent and
a wholly-owned subsidiary of Sage Insurance Group, Inc. The reinsurance
agreement with Life Re was entered into on June 8, 2000 (Refer to Note 5 -
Modified Coinsurance Agreement, in the
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accompanying financial statements). As to the investment in Sage Life Holdings,
on December 31, 1998, Life Re purchased $12.5 million in non-voting,
non-redeemable, cumulative preferred stock of Sage Life Holdings. During the
third quarter of 2000, Life Re exchanged 20,965.13 shares of the preferred stock
for 109.88 shares of Sage Life Holdings' Common Stock, representing a voting
interest of 9.9% in Sage Life Holdings.
Results of Operations
Gross premiums written (which, under generally accepted accounting principles
are not reported as revenue) for the three and nine months ended September 30,
2000 were approximately $13.5 million and $16.7 million, respectively, while net
premiums written for the same periods were approximately $2.7 million and $4.9
million, respectively.
Prior to the third quarter of 2000, the Company had produced only a limited
amount of business as it focused most of its efforts on obtaining the necessary
financial ratings and developing the infrastructure necessary for the
commencement of its underwriting and marketing activities. The reduction in
development expenses and increase in salaries and benefits and insurance
expenses and taxes for the three and nine months ended September 30, 2000, as
compared to the same periods in the prior year, are a direct reflection of the
Company's continued progress in the implementation of its strategy and related
infrastructure needed to support its operations, including planned growth.
Liquidity and Capital Resources
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 through
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. Although not required
to do so, the Company believes that Sage Insurance Group will continue to
provide capital to the Company for its costs associated with new products and
business development during the year to the extent needed. The Company's future
marketing efforts could be adversely affected in the event that Swiss Re, Sage
Insurance Group and/or their affiliates are unwilling to commit additional
funding.
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
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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, and (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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk during the nine
months ended September 30, 2000. The Company has provided a discussion of its
market risks in Item 7A of Part II of the December 31, 1999 Form 10-K.
Part II Other Information
ITEM 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, 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/ Jeffrey C. Gordon
Jeffrey C. Gordon
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ James F. Renz
James F. Renz
Vice President - Accounting and Finance
(Principal Accounting Officer)
Date: November 14, 2000
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