<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/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
Commission file number 33-37587
PRUCO LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
Arizona 22-1944557
- ---------------------------- ---------------------------------
(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)
213 Washington Street, Newark, New Jersey 07102
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
(973) 802-3274
----------------------------------------------------
(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 May 15, 2000. Common stock, par value of
$10 per share: 250,000 shares outstanding
================================================================================
<PAGE>
PRUCO LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Cover Page -
Index 2
PART I - Financial Information
Item 1. (Unaudited) Financial Statements
Consolidated Statements of Financial Position
As of March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations and Comprehensive
Income Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Changes in Stockholder's Equity
Periods ended March 31, 2000 and December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
2
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
As of March 31, 2000 and December 31, 1999 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 2000: $3,163,588; 1999: $3,084,057) $ 3,091,500 $ 2,998,362
Held to maturity, at amortized cost (fair value, 2000: $365,407; 1999: $377,822) 376,828 388,990
Equity securities - available for sale, at fair value (cost, 2000: $5,928; 1999: $3,238) 8,982 4,532
Mortgage loans on real estate 10,228 10,509
Policy loans 810,775 792,352
Short-term investments 321,097 207,219
Other long-term investments 88,121 77,769
------------ ------------
Total investments 4,707,531 4,479,733
Cash 79,338 76,396
Deferred policy acquisition costs 1,088,198 1,062,785
Accrued investment income 74,106 68,917
Other assets 100,552 48,228
Separate Account assets 16,815,682 16,032,449
------------ ------------
TOTAL ASSETS $ 22,865,407 $ 21,768,508
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 3,200,288 $ 3,116,261
Future policy benefits and other policyholder liabilities 659,724 635,978
Cash collateral for loaned securities 112,521 87,336
Securities sold under agreement to repurchase 65,048 21,151
Income taxes payable 175,817 145,600
Payables to affiliate 51,749 487
Other liabilities 94,803 59,427
Separate Account liabilities 16,815,682 16,032,449
------------ ------------
Total liabilities 21,175,632 20,098,689
------------ ------------
Contingencies (See Footnote 2)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,271,861 1,258,428
Accumulated other comprehensive loss
Net unrealized investment losses (21,875) (28,364)
Foreign currency translation adjustments (2,293) (2,327)
------------ ------------
Accumulated other comprehensive loss (24,168) (30,691)
------------ ------------
Total stockholder's equity 1,689,775 1,669,819
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 22,865,407 $ 21,768,508
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended March 31, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
Three months ended
March 31,
2000 1999
--------- ---------
REVENUES
Premiums $ 27,251 $ 19,196
Policy charges and fee income 114,881 93,013
Net investment income 84,474 69,813
Realized investment losses, net (10,311) (5,023)
Asset management fees 16,521 11,209
Other income 203 1,279
--------- ---------
Total revenues 233,019 189,487
--------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 62,332 58,398
Interest credited to policyholders' account balances 38,163 31,262
General, administrative and other expenses 111,859 68,980
--------- ---------
Total benefits and expenses 212,354 158,640
--------- ---------
Income from operations before income taxes 20,665 30,847
--------- ---------
Income tax provision 7,232 11,279
--------- ---------
NET INCOME $ 13,433 $ 19,568
--------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net of
Reclassification adjustment 6,489 (9,870)
Foreign currency translation adjustments 34 (111)
--------- ---------
Other comprehensive income (loss) 6,523 (9,981)
--------- ---------
TOTAL COMPREHENSIVE INCOME $ 19,956 $ 9,587
========= =========
See Notes to Consolidated Financial Statements
4
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
Periods Ended March 31, 2000 and December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 2,500 $ 439,582 $ 1,050,871 $ 12,564 $ 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments,
net of taxes -- -- -- 2,980 2,980
Change in net unrealized
investment losses, net of
reclassification adjustment
and taxes -- -- -- (7,227) (7,227)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
Net income -- -- 55,595 -- 55,595
Change in foreign currency
translation adjustments,
net of taxes -- -- -- (742) (742)
Change in net unrealized
investment losses, net of
reclassification adjustment
and taxes -- -- -- (38,266) (38,266)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 $ 2,500 $ 439,582 $ 1,258,428 $ (30,691) $ 1,669,819
Net income -- -- 13,433 -- 13,433
Change in foreign currency
translation adjustments,
net of taxes -- -- -- 34 34
Change in net unrealized
investment gains, net of
reclassification adjustment
and taxes -- -- -- 6,489 6,489
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 $ 2,500 $ 439,582 $ 1,271,861 $ (24,168) $ 1,689,775
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,433 $ 19,568
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (16,900) (15,543)
Interest credited to policyholders' account balances 38,163 31,262
Realized investment (gains) losses, net 10,311 5,023
Amortization and other non-cash items 1,291 12,611
Change in:
Future policy benefits and other policyholders' liabilities 23,746 (16,048)
Accrued investment income (5,189) (4,274)
Payable to affiliate 51,262 (14,917)
Policy loans (18,424) (15,797)
Deferred policy acquisition costs (25,413) (35,470)
Income taxes payable 30,216 (26,924)
Other, net (16,945) 9,815
----------- -----------
Cash Flows From (Used In) Operating Activities 85,551 (50,694)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 651,540 1,299,549
Held to maturity 12,189 11,843
Equity securities 251 1
Mortgage loans on real estate 281 237
Other long-term investments -- 34
Payments for the purchase of:
Fixed maturities:
Available for sale (745,783) (1,200,898)
Held to maturity -- (17,670)
Equity securities (2,772) (764)
Other long-term investments -- (33)
Cash collateral for loaned securities, net 25,184 55,299
Securities sold under agreement to repurchase, net 43,896 (26,259)
Other long-term investments (8,710) (2,588)
Short-term investments, net (113,825) (54,927)
----------- -----------
Cash Flows (Used In) From Investing Activities (137,749) 63,824
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 649,345 665,120
Withdrawals (594,205) (659,731)
----------- -----------
Cash Flows From Financing Activities 55,140 5,389
----------- -----------
Net increase in Cash 2,942 18,519
Cash, beginning of year 76,396 89,679
----------- -----------
CASH, END OF PERIOD $ 79,338 $ 108,198
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q on the basis of
accounting principles generally accepted in the United States. These interim
financial statements are unaudited but reflect all adjustments which, in the
opinion of management, are necessary to provide a fair presentation of the
consolidated results of operations and financial condition of the Pruco Life
Insurance Company ("the Company"), a wholly owned subsidiary of The Prudential
Insurance Company of America ("Prudential"), for the interim periods presented.
All such adjustments are of a normal recurring nature. The results of operations
for any interim period are not necessarily indicative of results for a full
year. Certain amounts in the Company's prior year consolidated financial
statements have been reclassified to conform with the 2000 presentation. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
2. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability that could result from such
litigation would not have a material adverse effect on the Company's financial
position.
3. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses, retail distribution expenses and asset
management fees.
The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects actual costs incurred by
Prudential to process transactions on behalf of the Company. Prudential and the
Company operate under service and lease agreements whereby services of officers
and employees (except for those agents employed directly by the Company in
Taiwan), supplies, use of equipment and office space are provided by Prudential.
7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
3. RELATED PARTY TRANSACTIONS (continued)
Late in 1998, Prudential undertook a review of its expense allocation
methodology. This review resulted in increased allocations to the Company
compared with 1998 levels, reflecting higher expense allocations to products
requiring more complex business processes and more transactions, such as
variable products which allow policyholders to make changes in their investment
portfolio. Implementation of the revised allocation methodology was
substantially completed in the second quarter of 1999.
The Company is allocated distribution expenses from Prudential's retail agency
network for both its domestic life and annuity products. The Company has
capitalized the majority of these distribution expenses as deferred policy
acquisition costs ("DAC").
The Company is charged an asset management fee from Prudential Global Asset
Management ("PGAM") for managing the Separate Account investment portfolio.
These fees are a component of general, administrative and other expenses.
In addition, the Company receives fee income from policyholder account balances
invested in the Prudential Series Fund ("PSF"). These amounts are recorded as
"Asset management fees" in the Consolidated Statements of Operations. The
Company also collects these fees on behalf of Prudential and records a Payable
to affiliate in the Consolidated Statements of Financial Position.
Corporate Owned Life Insurance
The Company has sold three Corporate Owned Life Insurance ("COLI") policies to
Prudential. The cash surrender value included in Separate Accounts was $745.6
million and $725.3 million at March 31, 2000 and December 31, 1999,
respectively. The fees received related to the COLI policies were $1.3 million
for the three months ending March 31, 2000.
Reinsurance
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the periods ended March 31, 2000 and
December 31, 1999.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $500 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of March 31, 2000 or December 31, 1999.
8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
4. RECENT ACCOUNTING PRONOUNCEMENTS
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" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may affect settlement amounts similarly to derivatives may require
separate accounting for the "host contract" and the underlying "embedded
derivative" provisions. The latter provisions would be accounted for as
derivatives as specified by the statement.
SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement, as amended, as of
January 1, 2001 and is currently assessing the effect of the new standard.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis should be read in conjunction with the Notes to
Consolidated Financial Statements.
The Company markets interest-sensitive individual life insurance and variable
life insurance, individual variable and fixed annuities, and guaranteed interest
contracts ("GICs") by utilizing Prudential's sales force in the United States.
These markets are subject to regulatory oversight with particular emphasis
placed on company solvency and sales practices. These markets are also subject
to increasing competitive pressures as the legal barriers that have historically
segregated the markets of the financial services industry have changed through
both legislative and judicial processes. Regulatory changes have opened the
insurance industry to competition from other financial institutions,
particularly banks and mutual funds companies that are positioned to deliver
competing investment products through large, stable distribution channels. The
Company also markets traditional individual life insurance through its branch
office in Taiwan.
The Company's Analysis of Financial Condition and Results of Operations are
described below.
1. Analysis of Financial Condition
From December 31, 1999 to March 31, 2000 there was an increase of $1.1 billion
in total assets from $21.8 billion to $22.9 billion, the majority of which
relates to a $783 million increase in Separate Accounts from increased cash
inflows as described below. General Account invested assets increased by $228
million, mainly due to net purchases and appreciation of fixed maturities of $81
million, net purchases of short-term investments of $114 million based on a
strategic decision to hold more short-term investments and increased policy loan
lending of $18 million. Other assets increased by $52 million due to timing on
the cash collection of receivables for securities sold and asset management fees
earned.
During this three-month period, liabilities also increased by $1.1 billion from
$20.1 million to $21.2 million. Corresponding with the asset change, Separate
Account liabilities increased by $783 million due to cash inflows to the
Separate Accounts of $702 million, net investment income (including unrealized
gains) of $424 million, and surrenders, withdrawals and disbursements of $343
million. The increase in Separate Account cash inflows results from sales of the
Discovery Select ("Discovery Select") annuity product; sales were $626 million
in the first quarter of 2000. This represents a decrease of $27 million in sales
from the first quarter of 1999. The remainder of cash inflows relates to sales
of the Variable Universal Life product ("VUL") which increased from the previous
year by $35 million. The remaining increases in liabilities relate to increases
in securities lending, taxes payable and payables to affiliates.
From March 31, 1999 to March 31, 2000 total assets increased by $5.3 billion,
the largest component of this increase was in Separate Account assets of $4.6
billion which will be described later. General Account invested assets increased
by approximately $500 million; the GIC business was the driving force behind
this change as GIC assets increased $383 million mainly from new sales. Life and
annuity had only small increases to their General Account invested assets
balances as described below, as the majority of cash inflows are invested in
Separate Accounts. The remaining increase to assets was mainly in DAC, which
increased by $185 million mainly due to growth in the business and consequently
deferrable costs.
Similarly, total liabilities increased $5.3 billion from March 31, 1999 to March
31, 2000, primarily from the increase in Separate Account liabilities, which
represent contractholder fund balances. Separate Account fund balances grew from
$12.2 billion to $16.8 billion, an increase of $4.6 billion. Most of the
increase was in annuity Separate Accounts which grew by $3.8 billion as a result
of net sales (sales less withdrawals) and exchanges of Discovery Select of
approximately $2.4 billion as well as appreciation on equity funds. The domestic
life business had higher Separate Account fund balances of approximately $765
million due to sales of VUL and equity fund appreciation. There was also an
increase in General Account policyholder balances of $477 million, mainly due to
sales and interest credited on the GIC product of $398 million, and an increase
of approximately $70 million on annuity fund balances due to sales of Discovery
Select. Future policy benefits and other policyholder liabilities also increased
by $147 million due to business growth for Taiwan and domestic life.
10
<PAGE>
2. Results of Operations
Consolidated net income of $13.4 million for the first quarter of 2000 was $6.1
million less than for the first quarter of 1999. While revenues continued to
grow from the prior year, the increase in benefits and expenses of $53.7 million
from the prior year more than offsets the revenue increase. The main driver in
the rise in expenses was an increase in general, administrative, and other
expenses of $42.9 million.
Consolidated revenues increased by $43.5 million, from $189.5 million to $233.0
million. Insurance revenues, which include premiums from the Taiwan traditional
life business and policy charges and fee income from the individual annuity and
domestic life businesses, increased by $29.9 million to $142.1 million in 2000.
Policy charges and fee income, consisting primarily of mortality and expense,
loading and other insurance charges assessed on General and Separate Account
policyholder fund balances, increased by $13.5 million for the individual
annuity business and $8.4 million for the domestic life business, as the
policyholder account balances upon which these fees are assessed grew
substantially since March 31, 1999, as described in the "Analysis of Financial
Condition". The increase in premiums of $8.1 million is primarily from the
Taiwan life business. Taiwan premiums grew $6.3 million due to increased
persistency rates and growth in the in force business of 27%.
Asset management fees, which are charged on policyholder accounts invested in
the Prudential Series Fund ("PSF"), increased by $5.3 million, also due to the
growth in the Separate Account fund balances.
Net investment income increased by $14.7 million from the prior year. Total
General Account invested assets increased by approximately $500 million since
March 31 1999, mainly due to GIC sales as described in the "Analysis of
Financial Condition". This increase was primarily in investment grade fixed
maturities, which comprise the majority of the investment portfolio. Interest on
fixed maturities increased by $8 million as a result of the portfolio increase.
Another factor in the net investment income increase was a net gain of $8
million related to the Company's Separate Accounts. There were also realized
losses recognized on sales of fixed maturities of $10 million, permanent
impairment writedowns on fixed maturities of $3 million, and derivative gains of
$3 million. This compares to a $5 million loss in first quarter 1999 primarily
from sales of fixed maturities.
Policyholder benefits, including changes to reserves, increased by $4 million.
Reserves increased due to higher Taiwan life insurance sales and premiums from
Discovery Select annuitizations in the amount of $4.4 million and $3.0 million,
respectively. Domestic life had a decrease in reserves of $3.2 million due to a
decline in the reserve for disabled insureds. Interest credited to policyholder
account balances increased by $6.9 million mainly due to the increase in GIC
policyholder account balances from sales as mentioned above.
General, administrative, and other expenses increased by $42.9 million from the
prior year. Late in 1998, Prudential undertook a review of its expense
allocation methodology. This review resulted in increased allocations to the
Company compared with 1998 levels, reflecting higher expense allocations to
products requiring more complex business processes and more transactions, such
as variable products which allow policyholders to make changes in their
investment portfolio. Implementation of the revised allocation methodology was
substantially completed in the second quarter of 1999. As a result of this
methodology change general and administrative expense for first quarter of 2000
increased by $14 million from the first quarter of 1999. DAC increased by $8.6
million due to growth in profitability of the business, changes made in late
1999 to the assumptions used in the amortization model, and release of DAC due
to Discovery Select lapse experience. Another contributor to the increase was
asset management fees paid to PGAM for managing the Separate Account Portfolios.
These fees were not charged until later in 1999, thereby creating a $5.8 million
variance year over year. Annuities had $5.6 million more in non-deferrable
expenses mainly due to the growth in trail commissions on Discovery Select
exchanges, which are not subject to capitalization. The remaining rise in
expenses is due to increases in distribution and other general and
administrative expenses due to business growth.
11
<PAGE>
3. Liquidity and Capital Resources
Principal cash flow sources are investment and fee income, investment maturities
and sales, and premiums and fund deposits. These cash inflows may be
complemented by financing activities through other Prudential affiliates.
Cash outflows consist principally of benefits, claims and amounts paid to
policyholders in connection with policy surrenders, withdrawals and net policy
loan activity. Uses of cash also include commissions, general and administrative
expenses, and purchases of investments. Liquidity requirements associated with
policyholder obligations are monitored regularly so that the Company can manage
cash inflows to match anticipated cash outflow requirements.
The Company believes that cash flow from operations together with proceeds from
scheduled maturities and sales of fixed maturity investments, are adequate to
satisfy liquidity requirements based on the Company's current liability
structure.
The Company had $22.9 billion of assets at March 31, 2000 compared to $21.8
billion at December 31, 1999, of which $16.8 billion and $16.0 billion were held
in Separate Accounts at March 31, 2000 and December 31, 1999, respectively,
under variable life insurance policies and variable annuity contracts. The
remaining assets consisted primarily of investments and deferred policy
acquisition costs.
4. The Year 2000 Issue
The Company utilizes many of the same business applications, infrastructure and
business partners as Prudential. Prudential addressed the Year 2000 issue on an
enterprise-wide basis. Therefore, it is not possible to differentiate the
Company's Year 2000 issue from that of Prudential. To date, neither Prudential
nor the Company has experienced material Year 2000 related problems in any of
their operations. Prudential believes that it has mitigated the Year 2000 risk,
however Prudential cannot guarantee that it will not experience a Year 2000
failure that has thus far been undetected. In the worst case, it is possible
that an as yet unknown Year 2000 failure, whether internal or external, could
have a material impact on Prudential or the Company's results of operations,
liquidity or financial condition. Where necessary, we have enhanced our general
business continuation contingency plans to ensure that they would be effective
in responding to a Year 2000 failure. Substantially all of these plans, as they
related to Year 2000 issues, include the ultimate resolution of any technology
failure that we may encounter.
5. Information Concerning Forward-Looking Statements
Some of the statements contained in Management's Discussion and Analysis,
including those words such as "believes", "expects", "intends", "estimates",
"assumes", "anticipates" and "seeks", are forward-looking statements. These
forward-looking statements involve risk and uncertainties. Actual results may
differ materially from those suggested by the forward-looking statements for
various reasons. In particular, statements contained in Management's Discussion
and Analysis regarding the Company's business strategies involve risks and
uncertainties, and we can provide no assurance that we will be able to execute
our strategies effectively or achieve our financial and other objectives.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risks and the way these risks are managed, are
summarized in Item 7a of the 1999 Form 10K.
12
<PAGE>
PART II
Item 2. Changes in Securities and Use of Proceeds.
(d) Information required by Item 701(f) of Regulation S-K:
The information below pertains to modified guaranteed annuity contracts
issued by the Company in two distinct variable annuity products, Discovery
Preferred Variable Annuity and Discovery Select Variable Annuity. However,
because the modified guaranteed annuity option of each of these products
is identical, the Company has aggregated the registration of these
securities.
(1) The original effective date of the Registration Statement of the
Company for the Discovery Preferred Variable Annuity on Form S-1 was
declared effective on November 27, 1995 (Registration No. 33-61143).
The Discovery Select prospectus was added through filings under Rule
424 of the Securities Act of 1993. The registration statement
continues to be effective through annual amendments, the most recent
filed April 16, 1999 and declared effective April 30, 1999.
(2) Offering commenced immediately upon effectiveness of the
registration statement.
(3) Not applicable.
(4) (i) The offering has not been terminated.
(ii) The managing underwriter of the offering is Prudential
Investment Management Services LLC.
(iii) Market-Value Adjustment Annuity Contracts (also known as
modified guaranteed annuity contracts).
(iv) Securities registered and sold for the account of the Company:
Amount registered*: $500,000,000
Aggregate price of the offering amount
registered: $500,000,000
Amount sold*: $292,312,106
Aggregate offering price of amount sold to
date: $292,312,106
* Securities not issued in predetermined units
No securities have been registered for the account of any
selling security holder.
(v) Expenses associated with the issuance of the securities:
Underwriting discounts and commissions** $ 10,230,924
Other expenses** $ 14,864,091
------------
Total $ 25,095,015
** Amounts are estimated and are paid to affiliated
parties.
(vi) Net offering proceeds: $267,217,091
(vii) Not applicable.
(viii) Not applicable.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i)(a) The Articles of Incorporation of Pruco Life Insurance Company
(as amended through October 19, 1993) are incorporated by
reference to the initial Registration Statement on Form S-6 of
Pruco Life Variable Appreciable Account as filed July 2, 1996,
Registration No. 333-07451.
3(ii) By-Laws of Pruco Life Insurance Company (as amended through
May 6, 1997) are incorporated by reference to Form 10-Q as
filed by the Company on August 15, 1997.
4(a) Modified Guaranteed Annuity Contract is filed herewith
(previously filed as an exhibit to the Company's Registration
Statement on Form S-1 as filed November 2, 1990, Registration
No. 33-37587).
4(b) Market-Value Adjustment Annuity Contract is incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-18053, as filed November 17, 1995.
27 Financial Data Schedule is filed herewith in accordance with
EDGAR instructions.
(b) Reports on Form 8K
None
14
<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
- --------- ----- ----
___________________________ President and Director May 15, 2000
Esther H. Milnes
___________________________ Principal Financial Officer and May 15, 2000
Dennis G. Sullivan Chief Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 3,091,500
<DEBT-CARRYING-VALUE> 376,828
<DEBT-MARKET-VALUE> 365,407
<EQUITIES> 8,982
<MORTGAGE> 10,228
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,707,531
<CASH> 79,338
<RECOVER-REINSURE> 24,790
<DEFERRED-ACQUISITION> 1,088,198
<TOTAL-ASSETS> 22,865,407
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 659,724
<POLICY-HOLDER-FUNDS> 3,200,288
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 1,687,275
<TOTAL-LIABILITY-AND-EQUITY> 22,865,407
27,251
<INVESTMENT-INCOME> 84,474
<INVESTMENT-GAINS> (10,311)
<OTHER-INCOME> 203
<BENEFITS> 62,332
<UNDERWRITING-AMORTIZATION> 33,895
<UNDERWRITING-OTHER> 77,964
<INCOME-PRETAX> 20,665
<INCOME-TAX> 7,232
<INCOME-CONTINUING> 13,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,433
<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>
