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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-37587
PRUCO LIFE INSURANCE COMPANY
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(Exact name of Registrant as specified in its charter)
Arizona 22-1944557
------------------------------ -------------------
(State or other jurisdiction, (IRS Employer
incorporation or organization) Identification No.)
213 Washington Street, Newark, New Jersey 07102
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(Address of principal executive offices) (Zip Code)
(201) 802-3780
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(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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.
YES X NO
--- ---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 31, 1997. Common stock, par value of $10
per share: 250,000 shares outstanding
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<PAGE>
PRUCO LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
INDEX
PAGE NO.
--------
COVER PAGE 1
INDEX 2
PART I -- FINANCIAL STATEMENTS
ITEM 1. PRUCO LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS:
STATEMENTS OF FINANCIAL POSITION -- MARCH 31, 1997 (UNAUDITED)
AND DECEMBER 31, 1996 3
STATEMENTS OF OPERATIONS (UNAUDITED) -- THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 4
STATEMENTS OF STOCKHOLDER'S EQUITY -- THREE MONTHS ENDED
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996 5
STATEMENTS OF CASH FLOWS (UNAUDITED) -- THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGE IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 11
2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
MARCH 31, DECEMBER 31,
1997 1996
----------- ----------
(000'S)
ASSETS
Fixed maturities
Held to maturity $ 372,690 $ 405,731
Available for sale 2,050,982 2,236,817
Equity securities 7,899 3,748
Mortgage loans 43,038 46,915
Policy loans 654,951 639,782
Other long term investments 1,417 4,528
Short term investments 415,196 169,830
----------- ----------
Total invested assets 3,546,173 3,507,351
----------- ----------
Cash 186,150 73,766
Deferred policy acquisition costs 648,168 633,159
Premiums due 8,912 9,084
Accrued investment income 61,882 62,110
Receivable from affiliates 10,500 1,901
Federal income tax receivable 539 7,191
Reinsurance recoverable on unpaid losses 27,014 27,014
Other assets 90,700 20,000
Separate Account assets 5,576,568 5,336,851
----------- ----------
TOTAL ASSETS $10,156,606 $9,678,427
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Future policy benefits and other
policyholders' liabilities $ 560,106 $ 557,351
Policyholders' account balances 2,181,626 2,188,862
Deferred federal income tax payable 149,768 148,960
Payable to affiliate 74,729 51,729
Other liabilities 239,325 55,090
Separate Account liabilities 5,546,151 5,277,454
----------- ----------
TOTAL LIABILITIES 8,751,705 8,279,446
----------- ----------
CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding
at March 31, 1997 and December 31, 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment (losses) gains
(less deferred income tax) (1,197) 12,402
Retained earnings 964,016 944,497
----------- ----------
TOTAL STOCKHOLDER'S EQUITY 1,404,901 1,398,981
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $10,156,606 $9,678,427
=========== ==========
3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
-------- --------
(000'S)
REVENUES
Premiums $ 12,243 $ 10,555
Policy charges and fee income 76,333 78,805
Net investment income 59,221 60,851
Realized investment gains 4,919 7,175
Other income 5,850 2,739
-------- --------
TOTAL REVENUES 158,566 160,125
-------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 49,332 39,822
Interest credited to policyholders' account balances 24,704 28,809
Other operating costs and expenses 52,305 32,051
-------- --------
TOTAL BENEFITS AND EXPENSES 126,341 100,682
-------- --------
Income before income tax provision 32,225 59,443
-------- --------
Income tax provision 12,706 20,805
-------- --------
NET INCOME $ 19,519 $ 38,638
======== ========
4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
(000'S)
COMMON STOCK
Balance, beginning of year $ 2,500 $ 2,500
Issued during period -- --
---------- ----------
Balance, end of period 2,500 2,500
---------- ----------
PAID IN CAPITAL
Balance, beginning of year 439,582 439,582
Paid in during period -- --
---------- ----------
Balance, end of period 439,582 439,582
---------- ----------
NET UNREALIZED INVESTMENT (LOSSES) GAINS
(LESS DEFERRED INCOME TAX)
Balance, beginning of year 12,402 30,836
Net change in unrealized investment
(losses) gains (13,599) (18,434)
---------- ----------
Balance, end of period (1,197) 12,402
---------- ----------
RETAINED EARNINGS
Balance, beginning of year 944,497 795,275
Net income 19,519 149,222
---------- ----------
Balance, end of period 964,016 944,497
---------- ----------
TOTAL STOCKHOLDER'S EQUITY $1,404,901 $1,398,981
========== ==========
5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
--------- ---------
(000'S)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,519 $ 38,638
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders'
liabilities 2,755 15,988
General account policy fee income (6,786) (13,427)
Interest credited to policyholders' account balances 24,704 28,809
Net decrease (increase) in Separate Accounts 28,980 (7,067)
Net realized investment gains (4,919) (7,175)
Amortization and other non-cash items 17,756 18,753
Change in:
Accrued investment income 228 2,177
Premiums due 172 (82)
Receivable from affiliates (8,599) 550
Deferred policy acquisition costs (15,009) (11,770)
Federal income tax receivable 6,652 13,660
Other assets (70,700) (1,149)
Payable to affiliate 23,000 (15,068)
Deferred federal income tax payable 808 (4,012)
Other liabilities 184,235 34,781
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES 202,796 93,606
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 35,890 26,584
Available for sale 719,943 888,902
Equity securities -- 21
Mortgage loans 3,957 1,839
Other long term investments 3,148 3
Investment real estate -- (7)
Payments for the purchase of:
Fixed maturities:
Held to maturity (3,150) (45,037)
Available for sale (560,311) (839,841)
Equity securities (4,163) (840)
Other long term investments (37) (501)
Policy loans (15,169) (17,750)
Net payments of short term investments (245,366) (75,599)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES (65,258) (62,226)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 330,710 83,407
Withdrawals (net of transfers to/from separate accounts) (355,864) (109,684)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES (25,154) (26,277)
--------- ---------
Net increase in Cash 112,384 5,103
Cash, beginning of year 73,766 41,435
--------- ---------
CASH, END OF PERIOD $ 186,150 $ 46,538
========= =========
</TABLE>
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Pruco Life Insurance Company (Pruco Life), a stock life insurance
company, and its subsidiaries (collectively, the Company). Pruco Life has two
subsidiaries, Pruco Life Insurance Company of New Jersey and The Prudential Life
Insurance Company of Arizona. Pruco Life is a wholly-owned subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual life insurance
company. The Company markets individual life insurance and deferred annuities
primarily through Prudential's sales force in the United States, and in Taiwan.
All significant intercompany balances and transactions have been eliminated in
consolidation.
B. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the other information and disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results of operations. The
results of operations for the three months ended March 31, 1997 may not be
indicative of the results that may be expected for the year ending December 31,
1997.
C. RECLASSIFICATIONS
To facilitate comparisons with the current year, certain amounts in the prior
years have been reclassified.
2. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and
the Company. Prudential has agreed to indemnify the Company for any and all
losses resulting from such litigation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Pruco Life Insurance Company consists of Pruco Life Insurance Company and its
subsidiaries (collectively, the Company). Pruco Life Insurance Company is a
wholly owned subsidiary of The Prudential Insurance Company of America
(Prudential). The Company markets individual life insurance primarily through
Prudential's sales force in the United States and in Taiwan. The company held
$10.2 billion in assets at March 31, 1997, $5.6 billion of which were held in
Separate Accounts under variable life insurance policies and variable annuity
contracts. The remaining assets were held in the general account for investment
primarily in bonds, short-term investments and policy loans.
The business climate in the insurance industry remained unchanged during the
first quarter as compared to 1996. Regulatory changes which opened the
insurance industry to other financial institutions, particularly banks and
mutual funds, continued to heighten competition in investment type products
since those institutions were positioned to deliver the same products through
large, stable distribution channels. In addition, the industry has been beset by
negative publicity following the discovery of unacceptable sales practices that
resulted in investigations of most large insurers, including Prudential.
The Company's assets were $10.2 billion at March 31, 1997 compared to $9.7
billion at December 31, 1996. Net income amounted to $19.5 million, a decrease
of $19.1 million compared to the $38.6 million earned in first quarter of 1996.
1. RESULTS OF OPERATIONS
(a) 1997 versus 1996
Premiums increased by $1.7 million for the three months of 1997 from $10.5
million in 1996 to $12.2 million for the same period in 1997. This change is
primarily due to increased sales related to traditional life insurance products
in our Taiwan branch which continued to expand its business throughout 1997,
along with a steady flow of renewals in the US.
Other income increased $3.1 million for the quarter ended March 31, 1997 from
the same period in 1996. This increase is due to an increase in separate account
net gains.
Policyholders' benefits increased $9.5 million during the current quarter to
$49.3 million. This increase is attributable to the mortality costs associated
with the Company's products. Additionally, increase in reserves associated with
new sales of annuity products including Discovery Preferred and Discovery
Select, which was introduced to the market in October 1996.
Other operating expenses increased $20.2 million for the quarter ended March 31,
1997 compared to the same period for 1996. To increase competitive positioning
in the market place, technological advancements are being made in the annuity
processing and customer service areas. Also enhanced product developments and
marketing strategies were created to better suit our customers needs.
Implementation of these strategies has increased current costs, but will create
higher future sales and revenues. In addition, operational expenses associated
with the introduction of Discovery Select increased costs.
2. LIQUIDITY
For an insurance company, cash needs, for the purpose of paying current
benefits, making policy loans, and paying expenses, are met primarily from
premiums and investment income. Benefit expenses incurred in the three months
ended March 31, 1997, and 1996 were $126.3 million, and $100.7 million,
respectively. Cash flows are anticipated to be sufficient to meet the Company's
liquidity needs for the foreseeable future.
3. CAPITAL RESOURCES
The primary components of the Company's total assets of $10.2 billion at March
31, 1997 are as follows (as a percentage of total assets): fixed income
securities 23.9%, separate account assets (fixed income and equity securities)
54.9%, policy loans 6.5%, and other assets 14.7%.
8
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDING
Pruco Life Insurance Company is not involved in any litigation that is expected
to have a material effect.
ITEM 2 CHANGES IN SECURITIES
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not Applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
(a)(1) and (2) financial Statements of registrant and subsidiaries are
listed on pages 3-6 hereof and are filed as part of this Report.
(a)(3) Exhibits
Regulation S-K
2. Not Applicable
3. Documents Incorporated by Reference
(i) The Articles of Incorporation of Pruco Life, as amended October 13,
1993, are incorporated herein by reference to Exhibit 14(3) of the Pruco
Life Insurance Company Form 10-K for the fiscal year ended December 31,
1993; (ii) Bylaws of Pruco Life, as amended June 14, 1983, are incorporated
herein by reference to Post-Effective Amendment No. 13 to Form S-6,
Registration No. 2-89558, filed March 2, 1989 on behalf of the Pruco Life
Variable Annuity Account.
4. Exhibits
Modified Guaranteed Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No. 33-37587,
filed November 2, 1990.
Market-Value Adjustment Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No. 33-61143,
filed November 17, 1995.
10. None.
11. Not Applicable.
15. Not Applicable.
18. None.
19. Not Applicable.
9
<PAGE>
20. Not Applicable.
22. None.
23. None.
24. Not Applicable.
25. Not Applicable.
27. Exhibit 27, Financial Data Schedule appended to this form in accordance
with EDGAR instructions.
99. None
10
<PAGE>
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 of the
undersigned, thereunto duly authorized.
...................PRUCO LIFE INSURANCE COMPANY
(Registrant)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ESTHER H. MILNES President and Director May 15, 1997
- ------------------------
Esther H. Milnes
/s/LINDA S. DOUGHERTY Vice President and Comptroller May 15, 1997
- ------------------------
Linda S. Dougherty and Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27
FINANCIAL DATA SCHEDULE
Article 7 of Regulation S-X
Pruco Life Insurance Company
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 2,050,982
<DEBT-CARRYING-VALUE> 372,690
<DEBT-MARKET-VALUE> 379,228
<EQUITIES> 7,899
<MORTGAGE> 43,038
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,546,173
<CASH> 186,150
<RECOVER-REINSURE> 27,014
<DEFERRED-ACQUISITION> 648,168
<TOTAL-ASSETS> 10,156,606
<POLICY-LOSSES> 2,181,626
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 560,106
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 1,402,401
<TOTAL-LIABILITY-AND-EQUITY> 10,156,606
12,243
<INVESTMENT-INCOME> 59,221
<INVESTMENT-GAINS> 4,919
<OTHER-INCOME> 5,850
<BENEFITS> 74,036
<UNDERWRITING-AMORTIZATION> 11,665
<UNDERWRITING-OTHER> 40,640
<INCOME-PRETAX> 32,225
<INCOME-TAX> 12,706
<INCOME-CONTINUING> 19,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,519
<EPS-PRIMARY> 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>
