SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-87272, 333-51353, 333-28765, 333-28681, 333-28743,
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333-51949, 333-65009, 333-66745, 333-76941,333-76945
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 41-0991508
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (610) 425-3400
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Former name, former address and formal fiscal year,
if changed since last report
Indicate by check 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 250,000 shares of Common Stock
as of May 10, 2000.
NOTE: WHEREAS GOLDEN AMERICAN LIFE INSURANCE COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
Exhibit index - Page 20 Page 1 of 24
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FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Person for whom the Financial Information is given: Golden American Life Insurance Company
Condensed Consolidated Statements of Operations (Unaudited):
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Annuity and interest sensitive life product charges $35,670 $14,821
Management fee revenue 4,318 1,815
Net investment income 15,992 13,883
Realized gains (losses) on investments (1,309) 47
Other income 3,526 3,504
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58,197 34,070
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 54,007 36,393
Benefit claims incurred in excess of account balances 2,052 666
Underwriting, acquisition, and insurance expenses:
Commissions 57,476 35,767
General expenses 20,282 13,007
Insurance taxes, state licenses, and fees 1,830 1,171
Policy acquisition costs deferred (105,957) (62,400)
Amortization:
Deferred policy acquisition costs 17,730 4,722
Value of purchased insurance in force 1,244 1,507
Goodwill 945 945
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49,609 31,778
Interest expense 5,077 1,614
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54,686 33,392
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Income before income taxes 3,511 678
Income taxes 1,621 622
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Net income $1,890 $56
=======================================================
See accompnaying notes.
2
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Condensed Consolidated Balance Sheets (Unaudited):
March 31, 2000 December 31, 1999
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $843,980; 1999 - $858,052) $818,868 $835,321
Equity securities, at fair value (cost: 2000 - $9,671; 1999 - $14,952) 11,815 17,330
Mortgage loans on real estate 103,903 100,087
Policy loans 11,864 14,157
Short-term investments 40,805 80,191
------------------------------------------------
Total investments 987,255 1,047,086
Cash and cash equivalents 16,568 14,380
Reinsurance recoverable 17,308 14,834
Due from affiliates 1,900 637
Accrued investment income 12,114 11,198
Deferred policy acquisition costs 618,208 528,957
Value of purchased insurance in force 30,697 31,727
Current income taxes recoverable 8 35
Deferred income tax asset 20,405 21,943
Property and equipment, less allowances for depreciation of
$3,885 in 2000 and $3,229 in 1999 14,362 13,888
Goodwill, less accumulated amortization of $9,131 in 2000
and $8,186 in 1999 141,996 142,941
Other assets 6,758 2,514
Separate account assets 8,946,953 7,562,717
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Total assets $10,814,532 $9,392,857
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products $999,856 $1,033,701
Unearned revenue reserve 6,603 6,300
Other policy claims and benefits 87 8
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1,006,546 1,040,009
Surplus notes 245,000 245,000
Revolving note payable -- 1,400
Due to affiliates 2,526 9,547
Other liabilities 55,062 56,335
Separate account liabilities 8,946,953 7,562,717
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10,256,087 8,915,008
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share, authorized, issued,
and outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 548,640 468,640
Accumulated other comprehensive loss (10,448) (9,154)
Retained earnings 17,753 15,863
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Total stockholder's equity 558,445 477,849
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Total liabilities and stockholder's equity $10,814,532 $9,392,857
================================================
See accompanying notes.
3
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Condensed Consolidated Statements of Cash Flows (Unaudited):
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(42,907) $(2,081)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale 69,427 34,870
Equity securities 5,195 --
Mortgage loans on real estate 832 2,992
Policy loans - net 2,293 --
Short-term investments - net 39,386 --
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117,133 37,862
Acquisition of investments:
Fixed maturities - available for sale (57,212) (61,852)
Mortgage loans on real estate (4,725) --
Policy loans - net -- (415)
Short term investments - net -- (17,912)
-------------------------------------------------
(61,937) (80,179)
Net purchase of property and equipment (1,130) (3,368)
Issuance of reciprocal loan agreement receivables (16,900) --
Receipt of repayment of reciprocal loan agreement receivables 16,900 --
-------------------------------------------------
Net cash provided by (used in) investing activities 54,066 (45,685)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings 58,000 13,400
Repayment of reciprocal loan agreement borrowings (58,000) (13,400)
Proceeds from revolving note payable 34,600 18,150
Repayment of revolving note payable (36,000) (18,150)
Receipts from annuity and interest sensitive life
policies credited to account balances 172,790 168,327
Return of account balances on annuity
and interest sensitive life policies (45,591) (23,912)
Net reallocations to Separate Accounts (214,770) (112,644)
Contribution from parent 80,000 20,000
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Net cash provided by (used in) financing activities (8,971) 51,771
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Increase in cash and cash equivalents 2,188 4,005
Cash and cash equivalents at beginning of period 14,380 6,679
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Cash and cash equivalents at end of period $16,568 $10,684
=================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $7,121 $1,127
Income taxes 28 --
See accompnaying notes.
4
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NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All adjustments
were of a normal recurring nature, unless otherwise noted in Management's
Discussion and Analysis and the Notes to Financial Statements. Operating results
for the three months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. These
financial statements should be read in conjunction with the financial statements
and related footnotes included in the Golden American Life Insurance Company's
annual report on Form 10-K for the year ended December 31, 1999.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
STATUTORY
The net loss for Golden American as determined in accordance with statutory
accounting practices was $26,660,000 and $17,489,000 for the three months ended
March 31, 2000 and 1999, respectively. Total statutory capital and surplus was
$423,651,000 at March 31, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the March 31, 1999 financial statements have been
reclassified to conform to the March 31, 2000 financial statement presentation.
NOTE 2 -- COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the first quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $596,000 and $(1,249,000),
respectively. Included in these amounts are total comprehensive income (loss)
for First Golden of $69,000 and $(18,000) for the first quarters of 2000 and
1999, respectively. Other comprehensive income (loss) excludes net investment
gains (losses) included in net income which merely represent transfers from
unrealized to realized gains and losses. These amounts totaled $(468,000) and
$296,000 during the first quarters of 2000 and 1999, respectively. Such amounts,
which have been measured through the date of sale, are net of income taxes and
adjustments for value of purchased insurance in force and deferred policy
acquisition costs totaling $(841,000) and $(249,000) for the first quarters of
2000 and 1999, respectively.
NOTE 3 -- RELATED PARTY TRANSACTIONS
OPERATING AGREEMENTS: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $55,854,000 and $34,785,000 for the
quarters ended March 31, 2000 and 1999, respectively.
5
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Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the quarters ended March 31, 2000
and 1999, the fee was $4,318,000 and $1,815,000, respectively.
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
first quarters of 2000 and 1999, the Companies incurred fees of $658,000 and
$538,000, respectively, under this agreement.
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("Equitable Life"), an affiliate. In consideration of an annual fee,
payable June 30, Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the contractual claims
made under the provisions of Golden American's life insurance and annuity
contracts. The agreement is not, and nothing contained therein or done pursuant
thereto by Equitable Life shall be deemed to constitute, a direct or indirect
guaranty by Equitable Life of the payment of any debt or other obligation,
indebtedness, or liability, of any kind or character whatsoever, of Golden
American. The agreement does not guarantee the value of the underlying assets
held in separate accounts in which funds of variable life insurance and variable
annuity policies have been invested. The calculation of the annual fee is based
on risk based capital. As Golden American's risk based capital level was above
required amounts, no annual fee was payable in 1999.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,568,000 and $399,000 for the
quarters ended March 31, 2000 and 1999, respectively.
The Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $312,000 and $317,000 for the
quarters ended March 31, 2000 and 1999, respectively.
First Golden provides resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$52,000 and $32,000 for the quarters ended March 31, 2000 and 1999,
respectively.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $105,000 for the quarter ended
March 31, 2000.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $169,000 for the quarter
ended March 31, 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $52,000 for the quarter
ended March 31, 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $26,000 for the quarter ended March
31, 2000.
For the quarter ended March 31, 2000, the Companies received premiums, net of
reinsurance, for variable products sold through five affiliates, Locust Street
Securities, Inc., Vestax Securities Corporation, DSI, Multi-Financial Securities
Corporation, and IFG Network Securities, Inc., of $57,500,000, $21,400,000,
$700,000, $18,300,000, and $6,700,000, respectively ($29,700,000, $26,500,000,
$5,400,000, $5,500,000, and $0, respectively, for the same period of 1999).
6
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RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the Department of Insurance of the
State of Delaware. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on
any ING AIH borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a similar duration.
Under this agreement, Golden American incurred interest expense of $82,000 and
$7,000 for the quarters ended March 31, 2000 and 1999, respectively, and
received interest income of $3,000 for the quarter ended March 31, 2000. At
March 31, 2000, Golden American did not have any borrowings or receivables from
ING AIH under this agreement.
SURPLUS NOTES: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of the note and related accrued interest is
subordinate to payments due to policyholders, claimant and beneficiary claims,
as well as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance Commissioner. Under this
agreement, Golden American incurred interest expense of $1,034,000 for the
quarter ended March 31, 2000.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of the note and related
accrued interest is subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of debtors, other
than surplus note holders, of Golden American. Any payment of principal and/or
interest made is subject to the prior approval of the Delaware Insurance
Commissioner. Under this agreement, Golden American incurred interest expense of
$877,000 for the quarter ended March 31, 2000.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,453,000 for the quarter ended March 31, 2000. On
December 30, 1999, ING AIH assigned the note to Equitable Life.
On December 30, 1998, Golden American issued a 7.25% surplus note in the amount
of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment
of the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,088,000 and $1,087,000 for the quarters ended
March 31, 2000 and 1999, respectively.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of the note and related accrued interest is subordinate to
payments due to policyholders, claimant, and beneficiary claims, as well as
debts owed to all other classes of debtors of Golden American. Any payment of
principal made is subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling $516,000 for the
quarter ended March 31, 2000, unchanged from the first quarter of 1999.
STOCKHOLDER'S EQUITY: During the first quarters of 2000 and 1999, Golden
American received capital contributions from its Parent of $80,000,000 and
$20,000,000, respectively.
7
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NOTE 4 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At March 31, 2000, the Companies had reinsurance treaties with four
unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements. At March 31, 2000 and
December 31, 1999, the Companies had net receivables of $17,308,000 and
$14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $546,000 and $493,000,
respectively, for claims recoverable from reinsurers, $1,363,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $18,125,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $2,637,000 in the first quarter of 2000 compared to $1,815,000 for
the same period in 1999. Also included in the accompanying financial statements
are net policy benefits of $557,000 in the first quarter of 2000 compared to
$721,000 for the same period in 2000.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial statements
are presented net of the effects of the treaty.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
INVESTMENT COMMITMENTS: At March 31, 2000, an outstanding commitment to fund a
mortgage loan totaled $4,725,000.
GUARANTY FUND ASSESSMENTS: Assessments are levied on the Companies by life and
health guaranty associations in most states in which the Companies are licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially offset through a reduction in future
premium taxes. The Companies cannot predict whether and to what extent
legislative initiatives may affect the right to offset. The associated cost for
a particular insurance company can vary significantly based upon its fixed
account premium volume by line of business and state premiums as well as its
potential for premium tax offset. The Companies have established an undiscounted
reserve to cover such assessments, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $1,000 in the first
quarter of 2000. At March 31, 2000 and December 31, 1999, the Companies have an
undiscounted reserve of $2,446,000 and $2,444,000, respectively, to cover
estimated future assessments (net of related anticipated premium tax offsets)
and have established an asset totaling $649,000 and $618,000, respectively, for
assessments paid which may be recoverable through future premium tax offsets.
The Companies believe this reserve is sufficient to cover expected future
guaranty fund assessments based upon previous premiums and known insolvencies at
this time.
LITIGATION: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations in
the investment portfolio. The Companies' asset growth, net investment income,
and cash flow are primarily generated from the sale of variable insurance
products and associated future policy benefits and separate account liabilities.
Substantial changes in tax laws that would make these products less attractive
to consumers and extreme fluctuations in interest rates or stock market returns,
which may result in higher lapse experience than assumed, could cause a severe
impact on the Companies' financial condition. One broker/dealer generated 12% of
the Companies' sales during the first quarter of 2000 (33% by two broker/dealers
in the same period of 1999). The Premium Plus product generated 77% of the
Companies' sales during the first quarter of 2000 (73% in the same period of
1999).
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REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies
established revolving notes payable effective July 27, 1998 and expiring July
31, 1999 with SunTrust Bank, Atlanta (the "Bank"). As of July 31, 1999, the
SunTrust Bank, Atlanta revolving note facilities were extended to July 31, 2000.
The total amount the Companies may have outstanding is $85,000,000, of which
Golden American and First Golden have individual credit sublimits of $75,000,000
and $10,000,000, respectively. The notes accrue interest at an annual rate equal
to: (1) the cost of funds for the Bank for the period applicable for the advance
plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance.
The terms of the agreement require the Companies to maintain the minimum level
of Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the quarters ended March 31, 2000 and 1999, the
Companies incurred interest expense of $28,000 and $4,000, respectively. At
March 31, 2000, the Companies did not have any borrowings under these agreements
($1,400,000 at December 31, 1999).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
The purpose of this section is to discuss and analyze the Golden American Life
Insurance Company's ("Golden American") condensed consolidated results of
operations. In addition, some analysis and information regarding financial
condition and liquidity and capital resources has also been provided. This
analysis should be read jointly with the condensed consolidated financial
statements, the related notes, and the Cautionary Statement Regarding
Forward-Looking Statements, which appear elsewhere in this report. Golden
American reports financial results on a consolidated basis. The condensed
consolidated financial statements include the accounts of Golden American and
its subsidiary, First Golden American Life Insurance Company of New York ("First
Golden," and collectively with Golden American, the "Companies").
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V. ("ING"), a global financial services holding company based in The
Netherlands.
RESULTS OF OPERATIONS
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<CAPTION>
PREMIUMS
Percentage Dollar
Three Months ended March 31 2000 Change Change 1999
- ----------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Variable annuity premiums:
Separate account $859.5 99.9% $429.5 $430.0
Fixed account 172.2 2.3 3.8 168.4
-----------------------------------------------------------------------------------
Total variable annuity premiums 1,031.7 72.4 433.3 598.4
Variable life premiums 0.3 (76.7) (1.2) 1.5
-----------------------------------------------------------------------------------
Total premiums $1,032.0 72.0% $432.1 $599.9
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For the Companies' variable contracts, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. Revenues for these products
are recognized over time in the form of investment spread and product charges.
Variable annuity separate account premiums increased 99.9% during the first
three months of 2000 compared to the first quarter of 1999, primarily due to
increased sales of the Premium Plus product.
Variable life premiums decreased 76.7% in the first quarter of 2000 from the
first quarter of 1999. In August 1999, Golden American discontinued offering
variable life products.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the quarter ended
March 31, 2000 totaled $121.4 million, or 12% of total premiums ($207.6 million,
or 33% from two significant broker/dealers for the quarter ended March 31,
1999).
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REVENUES
Percentage Dollar
Three Months ended March 31 2000 Change Change 1999
- ----------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Annuity and interest sensitive
life product charges $35.7 140.7% $20.9 $14.8
Management fee revenue 4.3 137.9 2.5 1.8
Net investment income 16.0 15.2 2.1 13.9
Realized gains (losses) on investments (1.3) (2,857.8) (1.4) 0.1
Other income 3.5 0.7 -- 3.5
----------------------------------------------------------------------------------
$58.2 70.8% $24.1 $34.1
==================================================================================
</TABLE>
Total revenues increased 70.8% in the first quarter of 2000 from the same period
in 1999. Annuity and interest sensitive life product charges increased 140.7% in
the first quarter of 2000 due to additional fees earned from the increasing
block of business under management in the variable separate accounts.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $4.3 million and $1.8 million for the first three months of 2000
and 1999, respectively.
Net investment income increased 15.2% in the first quarter of 2000 due to growth
in invested assets from March 31, 1999. The Companies had $1.3 million of
realized losses on the sale of investments in the first three months of 2000,
compared to gains of $47,000 in the same period of 1999.
EXPENSES
Total insurance benefits and expenses increased $17.8 million, or 56.1%, to
$49.6 million in the first three months of 2000. Interest credited to account
balances increased $17.6 million, or 48.4%, to $54.0 million in the first three
months of 2000. The premium credit bonus on the Premium Plus product increased
$18.5 million to $38.3 million at March 31, 2000 resulting in an increase in
interest credited during the first three months of 2000 compared to the same
period in 1999. The bonus interest on the fixed account decreased $1.1 million
to $2.4 million at March 31, 2000 resulting in a decrease in interest credited
during the first three months of 2000 compared to the same period in 1999. The
remaining increase in interest credited relates to higher account balances
associated with the Companies' fixed account options within the variable
products.
Commissions increased $21.7 million, or 60.7%, to $57.5 million in the first
three months of 2000. Insurance taxes, state licenses, and fees increased $0.7
million, or 56.4%, to $1.8 million in the first three months of 2000. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and mix or composition of variable product sales.
Insurance taxes, state licenses, and fees are impacted by several other factors,
which include an increase in FICA taxes primarily due to bonuses and an increase
in premium taxes due to the growth in sales. Most costs incurred as the result
of new sales have been deferred, thus having very little impact on current
earnings.
General expenses increased $7.3 million, or 55.9%, to $20.3 million in the first
three months of 2000. Management expects general expenses to continue to
increase in 2000 as a result of the emphasis on expanding the salaried
wholesaler distribution network, the growth in sales, and the increased amounts
in force. The Companies use a network of wholesalers to distribute products, and
the salaries and sales bonuses of these wholesalers are included in general
expenses. The portion of these salaries and related expenses that varies
directly with production levels is deferred thus having little impact on current
earnings. The increase in general expenses was partially offset by
reimbursements received from DSI, Equitable Life Insurance Company of Iowa
("Equitable Life"), ING Mutual Funds Management Co., LLC, an affiliate, Security
Life of Denver Insurance Company, an affiliate, Southland Life Insurance
Company, an affiliate, and United Life & Annuity Insurance Company, an
affiliate, for certain advisory, computer, and other resources and services
provided by the Companies.
10
<PAGE>
During the first quarter of 2000 and 1999, value of purchased insurance in force
("VPIF") was adjusted to increase amortization by $0.3 million and $0.2 million,
respectively, to reflect changes in the assumptions related to the timing of
estimated gross profits. Amortization of deferred policy acquisition costs
("DPAC") increased $13.0 million, or 275.5%, in the first three months of 2000.
This increase resulted from growth in policy acquisition costs deferred from
$62.4 million at March 31, 1999 to $106.0 million at March 31, 2000, which was
generated by expenses associated with the large sales volume experienced since
March 31, 1999. Based on current conditions and assumptions as to the impact of
future events on acquired policies in force, the expected approximate net
amortization relating to VPIF as of March 31, 2000 is $2.9 million for the
remainder of 2000, $3.5 million in 2001, $3.3 million in 2002, $2.8 million in
2003, $2.3 million in 2004, and $1.8 million in 2005. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 214.5%, or $3.5 million, to $5.1 million in the first
three months of 2000. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $0.5 million for the first three
months of 2000, unchanged from the same period of 1999. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$1.1 million for the first three months of 2000, unchanged from the same period
of 1999. Interest expense on a $75 million surplus note, issued September 1999
and expiring September 2029 was $1.5 million for the first three months of 2000.
Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $1.0 million for the first three months of 2000.
Interest expense on a $35 million surplus note issued December 1999 and expiring
December 2029 was $0.9 million for the first three months of 2000. Golden
American also paid $0.1 million in 2000 and $7,000 in 1999 to ING America
Insurance Holdings, Inc. ("ING AIH") for interest on a reciprocal loan
agreement. Interest expense on a revolving note payable with SunTrust Bank,
Atlanta was $28,000 and $4,000 for the first three months of 2000 and 1999,
respectively.
INCOME
Net income was $1.9 million for the first three months of 2000, an increase of
$1.8 million, or 3,324.5% from the same period of 1999.
Comprehensive income for the first three months of 2000 was $0.6 million, an
increase of $1.9 million from comprehensive loss of $1.3 million in the same
period of 1999.
FINANCIAL CONDITION
- -------------------
INVESTMENTS
The financial statement carrying value and amortized cost basis of the
Companies' total investments declined 5.6% and 5.3%, respectively, during the
first quarter of 2000. All of the Companies' investments, other than mortgage
loans on real estate, are carried at fair value in the Companies' financial
statements. The decline in the carrying value of the Companies' investment
portfolio was due to changes in unrealized appreciation and depreciation of
fixed maturities as well as net sales of these securities. Growth in the cost
basis of the Companies' investment portfolio resulted from the investment of
premiums from the sale of the Companies' fixed account options. The Companies
manage the growth of insurance operations in order to maintain adequate capital
ratios. To support the fixed account options of the Companies' variable
insurance products, cash flow was invested primarily in fixed maturities and
mortgage loans on real estate.
At March 31, 2000, the Companies had no investments in default. At March 31,
2000, the Companies' investments had a yield of 6.6%. The Companies estimate the
total investment portfolio, excluding policy loans, had a fair value
approximately equal to 97.4% of amortized cost value at March 31, 2000.
11
<PAGE>
FIXED MATURITIES: At March 31, 2000, the Companies had fixed maturities with an
amortized cost of $844.0 million and an estimated fair value of $818.9 million.
The Companies classify 100% of securities as available for sale. Net unrealized
depreciation of fixed maturities of $25.1 million was comprised of gross
appreciation of $0.5 million and gross depreciation of $25.6 million. Net
unrealized holding losses on these securities, net of adjustments for VPIF,
DPAC, and deferred income taxes of $7.7 million, were included in stockholder's
equity at March 31, 2000.
The individual securities in the Companies' fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's Rating Services ("Standard & Poor's") ($543.2
million or 64.4%), that are rated BBB+ to BBB- by Standard & Poor's ($141.3
million or 16.7%), and below investment grade securities, which are securities
issued by corporations that are rated BB+ to B- by Standard & Poor's ($61.0
million or 7.2%). Securities not rated by Standard & Poor's had a National
Association of Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5
($98.5 million or 11.7%). The Companies' fixed maturity investment portfolio had
a combined yield at amortized cost of 6.6% at March 31, 2000.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At March 31, 2000, the amortized cost value of the Companies' total investments
in below investment grade securities, excluding mortgage-backed securities, was
$65.3 million, or 6.5%, of the Companies' investment portfolio. The Companies
intend to purchase additional below investment grade securities, but do not
expect the percentage of the portfolio invested in such securities to exceed 10%
of the investment portfolio. At March 31, 2000, the yield at amortized cost on
the Companies' below investment grade portfolio was 7.9% compared to 6.5% for
the Companies' investment grade corporate bond portfolio. The Companies estimate
the fair value of the below investment grade portfolio was $61.3 million, or
93.9% of amortized cost value, at March 31, 2000.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as recession or
increasing interest rates, than are investment grade issuers. The Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e., if it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
During the first three months of 2000, fixed maturities designated as available
for sale with a combined amortized cost of $70.6 million were sold, called, or
repaid by their issuers. In total, net pre-tax losses from sales, calls, and
repayments of fixed maturity investments amounted to $1.2 million in the first
three months of 2000.
At March 31, 2000, no fixed maturities were deemed to have impairments in value
that are other than temporary.
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<PAGE>
EQUITY SECURITIES: Equity securities represent 1.0% of the Companies' investment
portfolio. At March 31, 2000, the Companies owned equity securities with a cost
of $9.7 million and an estimated fair value of $11.8 million. Net unrealized
appreciation of equity securities was comprised entirely of gross appreciation
of $2.1 million. Equity securities are primarily comprised of investments in
shares of the mutual funds underlying the Companies' registered separate
accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 10.4% of
the Companies' investment portfolio. Mortgages outstanding were $103.9 million
at March 31, 2000 with an estimated fair value of $101.1 million. The Companies'
mortgage loan portfolio includes 59 loans with an average size of $1.8 million
and average seasoning of 0.7 years if weighted by the number of loans. The
Companies' mortgage loans on real estate are typically secured by occupied
buildings in major metropolitan locations and not speculative developments and
are diversified by type of property and geographic location. At March 31, 2000,
the yield on the Companies' mortgage loan portfolio was 7.4%
At March 31, 2000, no mortgage loan on real estate was delinquent by 90 days or
more. The Companies' loan investment strategy is consistent with other life
insurance subsidiaries of ING in the United States. The insurance subsidiaries
of EIC have experienced a historically low default rate in their mortgage loan
portfolios.
OTHER ASSETS
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credits, and
other expenses related to production after October 24, 1997. The Companies'
previous balances of DPAC and VPIF were eliminated as of the ING merger date,
and an asset representing VPIF was established for all policies in force at the
ING merger date. VPIF is amortized into income in proportion to the expected
gross profits of in force acquired business in a manner similar to DPAC
amortization. Any expenses which vary directly with the sales of the Companies'
products are deferred and amortized. At March 31, 2000, the Companies had DPAC
and VPIF balances of $618.2 million and $30.7 million, respectively. During the
first quarters of 2000 and 1999, VPIF was adjusted to increase amortization by
$0.3 million and $0.2 million, respectively, to reflect changes in the
assumptions related to the timing of estimated gross profits.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established as a result of
the merger with ING. Accumulated amortization of goodwill through March 31, 2000
was $9.1 million.
Other assets increased $4.2 million from December 31, 1999, due to increases in
a receivable from the separate account and prepaid expenses.
At March 31, 2000, the Companies had $8.9 billion of separate account assets
compared to $7.6 billion at December 31, 1999. The increase in separate account
assets resulted from market appreciation and sales of the Companies' variable
annuity products, net of redemptions.
At March 31, 2000, the Companies had total assets of $10.8 billion, a 15.1%
increase from December 31, 1999.
LIABILITIES
Future policy benefits for annuity and interest sensitive life products
decreased $33.8 million, or 3.3%, to $1.0 billion reflecting net transfers to
the separate accounts. Market appreciation and premiums, net of redemptions,
accounted for the $1.3 billion, or 18.3%, increase in separate account
liabilities to $8.9 billion at March 31, 2000.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
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<PAGE>
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH
assigned the surplus note to Equitable Life.
On December 30, 1998, Golden American issued a $60 million, 7.25% surplus note
to Equitable Life, which matures on December 29, 2028.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note
to Equitable of Iowa Companies, which matures on December 17, 2026. As a result
of the merger, the surplus note is now payable to EIC.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $1.3 billion, or 15.0%, during first quarter 2000 and
totaled $10.3 billion at March 31, 2000.
The effects of inflation and changing prices on the Companies' financial
position are not material since insurance assets and liabilities are both
primarily monetary and remain in balance. An effect of inflation, which has been
low in recent years, is a decline in stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY
Additional paid-in capital increased $80.0 million, or 17.1%, from December 31,
1999 to $548.6 million at March 31, 2000 due to a capital contributions from the
Parent.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Companies' principal sources of cash are variable annuity premiums and
product charges, investment income, maturing investments, proceeds from debt
issuance, and capital contributions made by the Parent. Primary uses of these
funds are payments of commissions and operating expenses, interest and premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash used in operating activities was $42.9 million in the first quarter of
2000 compared to $2.1 million in the same period of 1999. The Companies have
predominantly had negative cash flows from operating activities since Golden
American started issuing variable insurance products in 1989. These negative
operating cash flows result primarily from the funding of commissions and other
deferrable expenses related to the continued growth in the variable annuity
products.
Net cash provided by investing activities was $54.1 million during the first
quarter of 2000 compared to net cash used in investing activities of $45.7
million in the same period of 1999. This increase is primarily due to greater
net sales of fixed maturities, equity securities, and short term investments
during the first quarter of 2000 than in the same period of 1999. Net sales of
fixed maturities reached $12.2 million during the first quarter of 2000 versus
net purchases of $27.0 million in the same period of 1999. Net sales of short
term investments reached $39.4 million in the first quarter of 2000 versus net
purchases of $17.9 million during the same period in 1999. Net purchases of
mortgage loans on real estate were $3.9 million during the first quarter of 2000
versus net sales of $3.0 million during the first quarter of 1999.
Net cash used in financing activities was $9.0 million during the first quarter
of 2000 compared to net cash provided by financing activities of $51.8 million
during the same period in 1999. In the first quarter of 2000, net cash provided
by financing activities was negatively impacted by net fixed account deposits of
$127.2 million compared to $144.4 million in the same period of 1999. The
increase in net reallocations to the Companies' separate accounts, which
increased to $214.5 million from $112.6 million during the prior year, and the
14
<PAGE>
net repayment of borrowings of $1.4 million in the first quarter of 2000
contributed to the decrease. In the first quarter of 2000, another important
source of cash provided by financing activities was a $80.0 million capital
contribution from the Parent compared to $20.0 million during the first quarter
of 1999.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH and the Companies have established an $85.0 million
revolving note facility with SunTrust Bank, Atlanta. Management believes that
these sources of liquidity are adequate to meet the Companies' short-term cash
obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities, given the continued growth of the variable annuity sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; and 2) the ratio of Total Adjusted Capital
(excluding surplus notes) divided by Company Action Level Risk Based Capital
exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the
"Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on
page 3, Line 13A of Golden American's Statutory Statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Golden American occupies 105,000 square
feet of leased space; its affiliate occupies 20,000 square feet. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $1.3 million on capital needs during
the remainder of 2000.
The ability of Golden American to pay dividends to its Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 2000, Golden
American cannot pay dividends to its Parent without prior approval of statutory
authorities.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department finds the financial condition of First Golden does not
warrant the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing. The
management of First Golden does not anticipate paying any dividends to Golden
American during 2000.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to monitor the
capitalization of insurance companies based upon the type and mixture of risks
inherent in a company's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. The Companies
have complied with the NAIC's risk-based capital reporting requirements. Amounts
reported indicate the Companies have total adjusted capital well above all
required capital levels.
REINSURANCE: At March 31, 2000, Golden American had reinsurance treaties with
four unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
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<PAGE>
IMPACT OF YEAR 2000: In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
The Companies are not aware of any material problems resulting from Year 2000
issues, either with products, internal systems, or the products and services of
third parties. The Companies will continue to monitor mission critical computer
applications and those of suppliers and vendors throughout the Year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
MARKET RISK AND RISK MANAGEMENT
- -------------------------------
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include contractholder behavior
and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable insurance products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed by
contractholders, not by the Companies (subject to, among other things, certain
minimum guarantees). The Companies' products also provide certain minimum death
benefits that depend on the performance of the variable separate accounts.
Currently, the majority of death benefit risks are reinsured, which protects the
Companies from adverse mortality experience and prolonged capital market
decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed asset account may be subject to a
market value adjustment. As the majority of the liabilities in the fixed account
are subject to market value adjustment, the Companies do not face a material
amount of market risk volatility. The fixed account liabilities are supported by
a portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
March 31, 2000 levels, variable separate account funds, which represent 90% of
the in force, pass the risk in underlying fund performance to the contractholder
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from March 31, 2000 levels, the remaining 10% of the
in force are fixed account funds and almost all of these have market value
adjustments which provide significant protection against changes in interest
rates. The April market downturn offset March year-to-date excess separate
account returns, so that on an annual basis, April separate account returns
would closely parallel expected returns. The estimated net effect of the April
market downturn would indicate a normalized net income for the first quarter of
2000 of approximately 10% lower than actual first quarter net income. The
corresponding estimated net effect on the balance sheet would be a decrease of
approximately $460.0 million of both separate account assets and liabilities.
16
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the Companies or any of their officers, directors, or employees is
qualified by the fact that actual results of the Companies may differ materially
from such statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Companies to sell their products, the market
value and liquidity of the Companies' investments, fee revenue, and the
lapse rate of the Companies' policies, notwithstanding product design
features intended to enhance persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations, which may affect
the tax status of the Companies' products.
3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation, insurance
industry insolvencies, availability of competitive reinsurance on new
business, investment performance of the underlying portfolios of the
variable products, variable product design, and sales volume by significant
sellers of the Companies' variable products.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
A list of exhibits included as part of this report is set forth in the Exhibit
Index which immediately precedes such exhibits and is hereby incorporated by
reference herein.
(b) Reports on Form 8-K
None
18
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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.
DATE: May 12, 2000 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/S/ E. Robert Koster
------------------------------------
E. Robert Koster
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By/S/ Cheryl L. Harding
------------------------------------
Cheryl L. Harding
Assistant Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
19
<PAGE>
<TABLE>
<CAPTION>
INDEX
Exhibits to Annual Report on Form 10-Q
Three Months ended March 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
<S> <C>
2 PLAN OF MERGER
(a) Agreement and Plan of Merger dated as of July 7, 1997, among ING Groep N.V.,
PFHI Holdings, Inc., and Equitable of Iowa Companies ("Equitable")
(incorporated by reference from Exhibit 2 in Equitable's Form 8-K filed July 11, 1997)............... __
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of Golden American Life Insurance Company ("Registrant"
or "Golden American") (incorporated by reference from Exhibit 3(a) to Amendment
No. 9 to Registrant's Registration Statement on Form S-1 filed with the Securities
and Exchange Commission (the "SEC") on February 17, 1998 (File No. 33-87272))........................ __
(b)(i) By-laws of Golden American (incorporated by reference from Exhibit 3(b)(i) to Amendment
No. 9 to Registrant's Registration Statement on Form S-1 filed with the SEC on
February 17, 1998 (File No. 33-87272))............................................................... __
(ii) By-laws of Golden American, as amended (incorporated by reference from Exhibit 3(b)(ii)
to Amendment No. 9 to the Registrant's Registration Statement on Form S-1 filed with the
SEC on February 17, 1998 (File No. 33-87272))........................................................ __
(iii)Certificate of Amendment of the By-laws of MB Variable Life Insurance Company, as amended
(incorporated by reference from Exhibit 3(b)(iii) to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on February 17, 1998 (File No. 33-87272))...... __
(iv) By-laws of Golden American, as amended (12/21/93) (incorporated by reference
from Exhibit 3(b)(iv) to Amendment No. 9 to Registrant's Registration Statement
on Form S-1 filed with the SEC on February 17, 1998 (File No. 33-87272))............................. __
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity Contract (incorporated
by reference from Exhibit 4(a) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999 (File No. 333-51353))............ __
(b) Discretionary Group Deferred Combination Variable Annuity Contract (incorporated
by reference from Exhibit 4(b) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999 (File No. 333-51353))............ __
(c) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 5 of Registrant's Registration Statement on
Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353))....................... __
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX
Exhibits to Annual Report on Form 10-Q
Three Months ended March 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
<S> <C>
(d) Individual Deferred Combination Variable and Fixed Annuity Application
(incorporated by reference from Exhibit 4(g) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(e) Group Deferred Combination Variable and Fixed Annuity Enrollment Form
(incorporated by reference from Exhibit 4(h) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(f) Individual Deferred Variable Annuity Application (incorporated by reference from Exhibit 4(i)
to Amendment No. 6 of Registrant's Registration Statement on Form S-1 filed with the SEC on
or about December 3, 1999 (File No. 333-51353))...................................................... __
(g) Minimum Guaranteed Accumulation Benefit Rider (incorporated by reference from Exhibit 4(i)
to Amendment No. 6 to a Registration Statement for Golden American on Form S-1 filed with
the SEC on or about December 3, 1999 (File No. 333-28765))........................................... __
(h) Minimum Guaranteed Income Benefit Rider (incorporated by reference from Exhibit 4(j) to
Amendment No. 6 to a Registration Statement for Golden American on Form S-1 filed with the
SEC on or about December 3, 1999 (File No. 333-28765))............................................... __
(i) Minimum Guaranteed Withdrawal Benefit Rider (incorporated by reference from Exhibit 4(k) to
Amendment No. 6 to a Registration Statement for Golden American on Form S-1 filed with the
SEC on or about December 3, 1999 (File No. 333-28765))............................................... __
(j) Death Benefit Endorsement Number 1 describing the 7% Solution Enhanced Death Benefit
(incorporated by reference from Exhibit 4(l) to Amendment No. 6 to a Registration Statement
for Golden American on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-28765))................................................................................ __
(k) Death Benefit Endorsement Number 2 describing the Annual Ratchet Enhanced Death Benefit
(incorporated by reference from Exhibit 4(m) to Amendment No. 6 to a Registration Statement
for Golden American on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-28765))................................................................................ __
(l) Death Benefit Endorsement Number 1 describing the Standard Death Benefit
(incorporated by reference from Exhibit 4(n) to Amendment No. 6 to a Registration
Statement for Golden American on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-28765))................................................................................ __
(m) Death Benefit Endorsement Number 1 describing the Max 7 Enhanced Death Benefit
(incorporated by reference from Exhibit 4(o) to Amendment No. 6 to a Registration Statement
for Golden American on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-28765))................................................................................ __
(n) Individual Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(a) to Amendment No. 6 to Registrant's Registration Statement
filed with the SEC on or about December 3, 1999 (File No. 333-28765))................................ __
21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX
Exhibits to Annual Report on Form 10-Q
Three Months ended March 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
<S> <C>
(o) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to Amendment
No. 6 to Registrant's Registration Statement filed with the SEC on or about December 3,
1999 (File No. 333-28765))........................................................................... __
(p) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 6 to Registrant's Registration Statement filed with
the SEC on or about December 3, 1999 (File No. 333-28765))........................................... __
(q) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(r) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a Registration
Statement for Golden American filed with the SEC on or about April 23, 1999 (File No. 333-76941)).... __
(s) Individual Deferred Variable Annuity Contract (incorporated by reference from Exhibit 4(c)
to a Registration Statement for Golden American filed with the SEC on or about April 23, 1999
(File No. 333-76941))................................................................................ __
(t) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC on or
about April 23, 1999 (File No. 333-76945))........................................................... __
(u) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable and Fixed
Annuity Contract (incorporated by reference from Exhibit 4(b) to a Registration Statement
for Golden American filed with the SEC on or about April 23, 1999 (File No. 333-76945)).............. __
(v) Individual Deferred Variable Annuity Contract (incorporated by reference from Exhibit 4(c)
to a Registration Statement for Golden American filed with the SEC on or about
April 23, 1999 (File No. 333-76945))................................................................. __
(w) Schedule Page to the Premium Plus Contract featuring the Galaxy VIP Fund (incorporated by
reference from Exhibit 4(i) to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about September 24, 1999 (File No. 333-76945)).............................. __
(x) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference from
Exhibit 4(a) to Amendment No. 3 to Registrant's Registration Statement filed with the SEC
on or about April 23, 1999 (File No. 333-66745))..................................................... __
(y) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable and Fixed
Annuity Contract (incorporated by reference from Exhibit 4(b) to Amendment No. 3 to
Registrant's Registration Statement filed with the SEC on or about April 23, 1999
(File No. 333-66745))................................................................................ __
22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX
Exhibits to Annual Report on Form 10-Q
Three Months ended March 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
<S> <C>
(z) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 3 to Registrant's Registration Statement filed with
the SEC on or about April 23, 1999 (File No. 333-66745))............................................. __
10 MATERIAL CONTRACTS
(a) Administrative Services Agreement, dated as of January 1, 1997, between Golden
American and Equitable Life Insurance Company of Iowa (incorporated by reference
from Exhibit 10(a) to a Registration Statement for Golden American on Form S-1 filed
with the SEC on April 29, 1998 (File No. 333-51353))................................................. __
(b) Service Agreement, dated as of January 1, 1994, between Golden American and Directed
Services, Inc. (incorporated by reference from Exhibit 10(b) to a Registration Statement
for Golden American on Form S-1 filed with the SEC on April 29, 1998 (File No. 333-51353))........... __
(c) Service Agreement, dated as of January 1, 1997, between Golden American and
Equitable Investment Services, Inc. (incorporated by reference from Exhibit 10(c)
to a Registration Statement for Golden American on Form S-1 filed with the SEC on
April 29, 1998 (File No. 333-51353))................................................................. __
(d) Participation Agreement between Golden American and Warburg Pincus Trust
(incorporated by reference from Exhibit 8(a) to Amendment No. 54 to Separate
Account B of Golden American's Registration Statement on Form N-4 filed with
SEC on or about April 30, 1998 (File No. 333-28679 and 811-5626)).................................... __
(e) Participation Agreement between Golden American and PIMCO Variable Trust (incorporated
by reference from Exhibit 8(b) to Amendment No. 54 to Separate Account B of Golden
American's Registration Statement on Form N-4 filed with the SEC on or about
April 30, 1998 (File No. 333-28679 and 811-5626)).................................................... __
(f) Participation Agreement between Golden American and The Galaxy VIP Fund (incorporated
by reference from Exhibit 10(i) to a Registration Statement for Golden American on
Form S-1 filed with the SEC on or about September 24, 1999 (File No. 333-76945)).................... __
(g) Asset Management Agreement, dated January 20, 1998, between Golden American
and ING Investment Management LLC (incorporated by reference from Exhibit 10(f)
to Golden American's Form 10-Q filed with the SEC on August 14, 1998 (File
No. 33-87272))....................................................................................... __
(h) Reciprocal Loan Agreement, dated January 1, 1998, as amended March 20, 1998,
between Golden American and ING America Insurance Holdings, Inc. (incorporated
by reference from Exhibit 10(g) to Golden American's Form 10-Q filed with the SEC
on August 14, 1998 (File No. 33-87272)).............................................................. __
(i) Underwriting Agreement between Golden American and Directed Services, Inc.
(incorporated by reference from Exhibit 1 to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on or about February 17, 1998
(File No. 33-87272))................................................................................. __
23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX
Exhibits to Annual Report on Form 10-Q
Three Months ended March 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
<S> <C>
(j) Revolving Note Payable, dated July 27, 1998, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(i) to Golden American's
Form 10-Q filed with the SEC on November 13, 1998 (File No. 33-87272))............................... __
(k) Revolving Note Payable, dated July 31, 1999, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(j) to Golden American's
Form 10-Q filed with the SEC on August 13, 1999 (File No. 33-87272))................................. __
(l) Surplus Note, dated December 17, 1996, between Golden American and Equitable of Iowa
Companies (incorporated by reference from Exhibit 10(l) to Golden American's
Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)).................................. __
(m) Surplus Note, dated December 30, 1998, between Golden American and Equitable Life
Insurance Company of Iowa (incorporated by reference from Exhibit 10(m) to Golden
American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272))....................... __
(n) Surplus Note, dated September 30, 1998, between Golden American and ING America
Insurance Holdings, Inc. (incorporated by reference from Exhibit 10(n) to Golden
American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272))....................... __
(o) Surplus Note, dated December 8, 1999, between Golden American and First
Columbine Life Insurance Company (incorporated by reference from Exhibit 10(g)
to Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(p) Surplus Note, dated December 30, 1999, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(h) to
Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(q) Participation Agreement between Golden American and Prudential Series Fund, Inc.
(incorporated by reference from Exhibit 10(l) to Registration Statement for Golden
American on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-
35592)).............................................................................................. __
(r) Participation Agreement between Golden American and ING Variable Insurance Trust
(incorporated by reference from Exhibit 10(m) to Registration Statement for Golden
American on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592))............. __
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING ONLY).............................................................. __
24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
STATEMENTS OF OPERATIONS AND CONDENSED BALANCE SHEETS (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 818,868
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,815
<MORTGAGE> 103,903
<REAL-ESTATE> 0
<TOTAL-INVEST> 987,255
<CASH> 16,568
<RECOVER-REINSURE> 17,308
<DEFERRED-ACQUISITION> 618,208
<TOTAL-ASSETS> 10,814,532
<POLICY-LOSSES> 999,856
<UNEARNED-PREMIUMS> 6,603
<POLICY-OTHER> 87
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 245,000
0
0
<COMMON> 2,500
<OTHER-SE> 555,945
<TOTAL-LIABILITY-AND-EQUITY> 10,814,532
0
<INVESTMENT-INCOME> 15,992
<INVESTMENT-GAINS> (1,309)
<OTHER-INCOME> 43,514
<BENEFITS> 56,059
<UNDERWRITING-AMORTIZATION> 17,730
<UNDERWRITING-OTHER> (24,180)
<INCOME-PRETAX> 3,511
<INCOME-TAX> 1,621
<INCOME-CONTINUING> 1,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<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>
