SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended _______________March 31, 1999_____________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________________
Commission file numbers 33-3630 and 333-1783
KEYPORT LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0302931
(State of other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
125 High Street, Boston, Massachusetts 02110-2712
(Address of principal executive offices) (Zip Code)
(617) 526-1400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
There were 2,412,000 shares of the registrant's Common Stock, $1.25 par
value, outstanding as of March 31, 1999.
Exhibit Index - Page 16 Page 1 of 16
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999
and December 31, 1998 3
Consolidated Income Statement for the Three-month
Periods Ended March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows for the
Three-month Periods Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
Exhibit Index 15
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, December 31,
ASSETS 1999 1998
Unaudited
Cash and investments:
Bonds - available for sale (amortized
cost: 1999 - $11,425,353; 1998 -
$11,174,697) $ 11,475,634 $ 11,277,204
Equity securities (cost: 1999 - $18,507;
1998 - $21,836) 23,041 24,649
Mortgage loans 14,225 55,117
Policy loans 582,991 578,770
Other invested assets 721,305 662,513
Cash and cash equivalents 1,011,543 719,625
Total cash and investments 13,828,739 13,317,878
Accrued investment income 168,381 160,950
Deferred policy acquisition costs 372,809 340,957
Value of insurance in force 69,613 66,636
Intangible assets 17,768 18,082
Income taxes recoverable 12,452 31,909
Receivable for investments sold 40,663 37,936
Other assets 38,050 35,345
Separate account assets 2,365,152 1,765,538
Total assets $ 16,913,627 $ 15,775,231
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities $ 12,413,999 $ 12,504,081
Deferred income taxes 146,250 143,596
Payable for investments purchased and
loaned 845,788 240,440
Other liabilities 33,911 28,312
Separate account liabilities 2,322,528 1,723,205
Total liabilities 15,762,476 14,639,634
Stockholder's equity:
Common stock, $1.25 par value; authorized
8,000 shares; issued and outstanding
2,412 shares 3,015 3,015
Additional paid-in capital 505,933 505,933
Retained earnings 626,401 600,396
Accumulated other comprehensive income 15,802 26,253
Total stockholder's equity 1,151,151 1,135,597
Total liabilities and stockholder's equity $ 16,913,627 $ 15,775,231
See accompanying notes
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
(in thousands)
Unaudited
Three-months Ended
March 31,
1999 1998
Investment income $ 204,925 $ 206,075
Interest credited to policyholders 134,778 142,136
Investment spread 70,147 63,939
Net realized investment gains (losses) (3,094) 818
Fee income:
Surrender charges 3,885 4,211
Separate account fees 6,578 4,708
Management fees 1,621 958
Total fee income 12,084 9,877
Expenses:
Policy benefits 1,182 460
Operating expenses 13,479 15,539
Amortization of deferred policy
acquisition costs 22,014 18,975
Amortization of value of insurance in
force 2,249 1,476
Amortization of intangible assets 314 314
Total expenses 39,238 36,764
Income before income taxes 39,899 37,870
Income tax expense 13,894 11,821
Net income $ 26,005 $ 26,049
See accompanying notes
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Unaudited
Three-months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income $ 26,005 $ 26,049
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to policyholders 134,778 142,136
Net realized investment (gains) losses 3,094 (818)
Amortization of value of insurance in
force and intangible assets 2,563 1,790
Net amortization on investments 21,257 39,349
Change in deferred policy acquisition costs (2,145) (202)
Change in current and deferred income taxes 27,656 31,516
Net change in other assets and liabilities (5,759) (21,652)
Net cash provided by operating activities 207,449 218,168
Cash flows from investing activities:
Investments purchased - available for sale (1,519,424) (1,155,234)
Investments sold - available for sale 1,190,758 1,034,044
Investments matured - available for sale 80,811 287,541
Increase in policy loans (4,221) (9,041)
Decrease in mortgage loans 40,892 1,413
Other invested assets purchased, net (2,500) 9,937
Value of business acquired, net of cash - (3,999)
Net cash (used in) provided by investing
activities (213,684) 164,661
Cash flows from financing activities:
Withdrawals from policyholder accounts (456,282) (393,125)
Deposits to policyholder accounts 154,924 167,411
Securities lending 599,511 (23,208)
Net cash provided by (used in) financing
activities 298,153 (248,922)
Change in cash and cash equivalents 291,918 133,907
Cash and cash equivalents at beginning
of period 719,625 1,162,347
Cash and cash equivalents at end of period $ 1,011,543 $ 1,296,254
See accompanying notes
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. General
The accompanying unaudited consolidated financial statements of Keyport
Life Insurance Company (the Company) includes all adjustments, consisting
of normal recurring accruals that management considers necessary for a fair
presentation of the Company's financial position as of March 31, 1999 and
the related consolidated statements of income and cash flows for the three-
month periods ended March 31, 1999 and 1998. Certain footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Therefore, these consolidated financial statements should be
read in conjunction with the audited consolidated financial statements
contained in the Company's 1998 Form 10-K. The results of operations for
the three-month period ended March 31, 1999 are not necessarily indicative
of the results to be expected for the full year.
2. Bonds
The Company's general investment policy is to hold bonds for long-term
investment. To provide for maximum portfolio flexibility and enable
appropriate tax planning, the Company classifies bonds as "available for
sale", which are carried at fair value.
The carrying value of non-income producing bonds at March 31, 1999 and
December 31, 1998 was approximately $23.3 million and $30.0 million,
respectively.
3. Acquisitions
On January 2, 1998, the Company acquired the common stock of American
Benefit Life Insurance Company, renamed Keyport Benefit Life Insurance
Company on March 31, 1998, a New York insurance company, for $7.4 million.
The acquisition was accounted for as a purchase and, accordingly, operating
results are included in the consolidated financial statements from the date
of acquisition. In connection with the acquisition, the Company acquired
assets with a fair value of $9.4 million and assumed liabilities of $3.2
million. Subsequent to the acquisition, the Company made a capital
contribution to Keyport Benefit in the amount of $7.5 million.
4. Comprehensive Income
Total comprehensive income, net of tax, for the three-month periods ended
March 31, 1999 and 1998, was $15.6 million and $30.2 million, respectively.
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unaudited
5. Recent Accounting Prouncement
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") was issued. SFAS 133 standardizes the
accounting for derivative instruments and the derivative portion of certain
other contracts that have similar characteristics by requiring that an
entity recognize those instruments at fair value. This statement also
requires a new method of accounting for hedging transactions, prescribes
the type of items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting. This
statement is effective for fiscal years beginning after June 15, 1999.
Earlier adoption is permitted. Upon adoption, the Company will be required
to record a cumulative effect adjustment to reflect this accounting change.
The Company has not completed its analysis and evaluation of the
requirements and the impact of this statement.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Net income was consistent with the prior year at $26.0 million for the
three-month periods ended March 31, 1999 and 1998. A decrease in net
realized investment gains (losses), and increases in expenses and income
taxes offset increases in investment spread and fee income.
Investment spread is the amount by which investment income earned on the
Company's investments exceeds interest credited on policyholder balances.
Investment spread was $70.1 million and $63.9 million for the three-month
periods ended March 31, 1999 and 1998, respectively. The amount by which
the average yield on investments exceeds the average interest credited rate
on policyholder balances is the investment spread percentage, which
amounted to 1.95% and 1.85% for the three-month periods ended March 31,
1999 and 1998, respectively.
Investment income was $204.9 million and $206.1 million for the three-month
periods ended March 31, 1999 and 1998, respectively. The decrease of $1.2
million in 1999 compared to 1998 is attributable to a $5.4 million decrease
resulting from a lower average investment yield offset by a $4.2 million
increase as a result of a higher level of average invested assets.
Investment income for the three-month periods ended March 31, 1999 and
1998, includes $19.4 million and $17.3 million, respectively, of S&P 500
Index call option amortization expense related to the Company's equity-
indexed annuities. The average investment yield was 6.27% and 6.54 % for
the three-month periods ended March 31, 1999 and 1998, respectively
Interest credited to policyholders was $134.8 million and $142.1 million
for the three-month periods ended March 31, 1999 and 1998, respectively.
The decrease of $7.3 million in 1999 compared to 1998 is attributable to a
$8.1 million decrease resulting from a lower average interest credited rate
offset by a $.8 million increase as a result of a higher level of average
policyholder balances. Policyholder balances averaged $12.5 billion in the
first quarter of 1999 ($10.4 billion of fixed products, consisting of fixed
annuities and the closed block of single premium whole life insurance, and
$2.1 billion of equity-indexed annuities) compared to $12.1 billion ($10.5
billion of fixed products and $1.6 billion of equity-indexed annuities) in
the first quarter of 1998. The average interest credited rate was 4.32%
(5.02% on fixed products and .85% on equity-indexed annuities) and 4.69%
(5.31% on fixed products and .85% on equity-indexed annuities) for the
three-month periods ended March 31, 1999 and 1998, respectively. The
Company's equity-indexed annuities credit interest to the policyholder at a
"participation rate" equal to a portion (ranging for existing policies from
30% to 95%) of the change in value of the S&P 500 Index. The Company's
equity-indexed annuities also provide full guarantee of principal if held
to term, plus interest at 0.85% annually. For each of the periods
presented, the interest credited to equity-indexed policyholders related to
the participation rate is reflected net of income recognized on the S&P 500
Index call options and futures resulting in a .85% net credited rate.
Average investments in the Company's general account (computed without
giving effect to SFAS 115), including a portion of the Company's cash and
cash equivalents, were $13.1 billion and $12.6 billion for the three-month
periods ended March 31, 1999 and 1998, respectively. The increase of $0.5
billion in 1999 compared to 1998 primarily relates to reinvestment of
portfolio earnings.
Net realized investment gains (losses) were $(3.1) million and $.8 million
for the three-month periods ended March 31, 1999 and 1998, respectively.
Sales of investments generally are made to maximize total return and to
take advantage of prevailing market conditions. There were not any other
than temporary declines recorded in the three-month periods ended March 31,
1999 and 1998.
<PAGE>
Surrender charges are revenues earned on the early withdrawal of fixed,
equity-indexed and variable annuity policyholder balances. Surrender
charges on fixed, equity-indexed and variable annuity withdrawals generally
are assessed at declining rates applied to policyholder withdrawals during
the first five to seven years of the contract. Total surrender charges
were $3.9 million in the first quarter of 1999 compared to $4.2 million in
1998.
On an annualized basis, total fixed, equity-indexed and variable annuity
withdrawals represented 12.81% and 14.1% of the total average annuity
policyholder and separate account balances for the first quarter of 1999
and 1998, respectively.
Separate account fees are primarily mortality and expense charges earned on
variable annuity and variable life policyholder balances. These fees,
which are primarily based on the market values of the assets supporting the
contracts in separate accounts, were $6.6 million and $4.7 million for the
three-month periods ended March 31, 1999 and 1998, respectively. Mortality
and expense charges represented 1.45% and 1.43% of the average variable
annuity and variable life separate account balances for the first quarters
of 1999 and 1998, respectively.
Management fees are primarily investment advisory fees related to the
separate account assets. The fees are based on the level of assets under
management, which are affected by product sales, redemptions, and changes
in the market values of the investments managed. Management fees were $1.6
million and $1.0 million for the three-month periods ended March 31, 1999
and 1998, respectively. The increase of $0.6 million in 1999 compared to
1998 primarily reflects an increase in the average level of assets under
management.
Operating expenses represent compensation and other general and
administrative expenses. These expenses were $13.5 million and $15.5
million for the three-month periods ended March 31, 1999 and 1998,
respectively. The decrease in 1999 compared to 1998 was primarily due to
lower compensation and selling expenses.
Amortization of deferred policy acquisition costs relates to the costs of
acquiring new business, which vary with, and are primarily related to, the
production of new annuity business. Such costs include commissions, costs
of policy issuance and underwriting and selling expenses. Amortization was
$22.0 million and $19.0 million for the three-month periods ended March 31,
1999 and 1998, respectively. The $3.0 million amortization increase in
1999 compared to 1998 was primarily related to the growth of business in
force. Amortization expense represented 28.5% and 27.5%, on an annualized
basis, of investment spread and separate account fees for 1999 and 1998,
respectively.
Amortization of value of insurance in force relates to the actuarially
determined present value of projected future gross profits from policies in
force at the date of acquisition. Amortization was $2.2 and $1.5 million
for the three-month periods ended March 31, 1999 and 1998, respectively.
Federal income tax expense was $13.9 million or 34.8% of pretax income in
the first quarter of 1999 compared to $11.8 million, or 31.2% of pretax
income in the first quarter of 1998. The increase in the effective tax
rate is due to the decrease of certain permanent differences coupled with
an adjustment to the 1998 deferred tax liability.
Financial Condition
Stockholder's equity as of March 31, 1999 was $1.151 billion compared to
$1.136 billion as of December 31, 1998. The increase in stockholder's
equity of $15.6 million was due to $26.0 million of net income for the
period offset by a decline in net unrealized investment gains of available
for sale securities of $10.4 million.
<PAGE>
Investments, excluding cash and cash equivalents, totaled $12.8 billion at
March 31, 1999 compared to $12.6 billion at December 31, 1998.
The Company's general investment policy is to hold bonds for long-term
investment and, accordingly, the Company does not have a trading portfolio.
To provide for maximum portfolio flexibility and appropriate tax planning,
the Company classifies its bond portfolio as "available for sale" and
carries such investments at fair value. The Company's total investments at
March 31, 1999 and December 31, 1998 reflected gross unrealized gains of
$54.8 million and $105.3 million, respectively, relating to its bond and
equity portfolios.
Approximately $11.9 billion, or 83.8%, of the Company's general account and
certain separate account investments at March 31, 1999, was rated by
Standard & Poor's Corporation, Moody's Investors Service or under
comparable statutory rating guidelines established by the National
Association of Insurance Commissioners (NAIC). At March 31, 1999, the
carrying value of investments in below investment grade securities totaled
$1.2 billion, or 8.6% of general account and certain separate account
investments of $14.2 billion. Below investment grade securities generally
provide higher yields and involve greater risks than investment grade
securities because their issuers typically are more highly leveraged and
more vulnerable to adverse economic conditions than investment grade
issuers. In addition, the trading market for these securities may be more
limited than for investment grade securities.
The carrying value of non-income producing securities at March 31, 1999 and
December 31, 1998 was approximately $23.3 milllion and $30.0 million,
respectively.
Derivatives
As a component of its investment strategy and to reduce its exposure to
interest rate risk, the Company utilizes interest rate swap agreements
("swap agreements") and interest rate cap agreements ("cap agreements") to
match assets more closely to liabilities. Swap agreements are agreements
to exchange with counterparty interest rate payments of differing character
(e.g., fixed-rate payments exchanged for variable-rate payments) based on
an underlying principal balance (notional principal) to hedge against
interest rate changes. The Company currently utilizes swap agreements to
reduce asset duration and to better match interest earned on longer-term
fixed-rate assets with interest credited to policyholders. The Company had
64 and 42 outstanding swap agreements with an aggregate notional principal
amount of $2.8 billion and $2.4 billion as of March 31, 1999 and December
31, 1998, respectively.
Cap agreements are agreements with a counterparty that require the payment
of a premium for the right to receive payments for the difference between
the cap interest rate and a market interest rate on specified future dates
based on an underlying principal balance (notional principal) to hedge
against rising interest rates. The Company had interest rate cap agreements
with an aggregate notional amount of $250.0 million as of March 31, 1999
and December 31, 1998.
<PAGE>
With respect to the Company's equity-indexed annuities, the Company buys
call options and futures on the S&P 500 Index to hedge its obligations to
provide returns based upon this index. The Company had call options with a
carrying value of $585.5 million and $535.6 million as of March 31, 1999
and December 31, 1998, respectively. The Company had futures with a
carrying value of $(.1) million and $(.6) million as of March 31, 1999 and
December 31, 1998, respectively.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap,
cap and call option agreements is counterparty nonperformance. The Company
believes that the counterparties to its swap, cap and call option
agreements are financially responsible and that the counterparty risk
associated with these transactions is minimal. Future contracts trade on
organized exchanges and, therefore, have minimal credit risk. In addition,
swap and cap agreements have interest rate risk and call options and future
contracts have stock market risk. These swap and cap agreements hedge
fixed-rate assets and the Company expects that any interest rate movements
that adversely affect the market value of swap agreements would be offset
by changes in the market values of such fixed-rate assets. However, there
can be no assurance that these hedges will be effective in offsetting the
potential adverse effects of changes in interest rates. Similarly, the
call options and futures hedge the Company's obligations to provide returns
on equity-indexed annuities based upon the S&P 500 Index, and the Company
believes that any stock market movements that adversely affect the market
value of S&P 500 Index call options and futures would be substantially
offset by a reduction in policyholder liabilities. However, there can be
no assurance that these hedges will be effective in offsetting the
potentially adverse effects of changes in S&P 500 Index levels. The
Company's profitability could be adversely affected if the value of its
swap and cap agreements increase less than (or decrease more than) the
change in the market value of its fixed rate assets and/or if the value of
its S&P Index 500 call options and futures increase less than (or decrease
more than) the value of the guarantees made to equity-indexed
policyholders.
In June 1998, Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued.
This statement standardizes the accounting for derivative instruments and
the derivative portion of certain other contracts that have similar
characteristics by requiring that an entity recognize those instruments at
fair value. This statement also requires a new method of accounting for
hedging transactions, prescribes the type of items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for
hedge accounting. This statement is effective for fiscal years beginning
after June 15, 1999. Earlier adoption is permitted. Upon adoption, the
Company will be required to record a cumulative effect adjustment to
reflect this accounting change. At this time, the Company has not
completed its analysis and evaluation of the requirements and the impact of
this statement.
Liquidity
The Company's liquidity needs and financial resources pertain to the
management of the general account assets and policyholder balances. The
Company uses cash for the payment of annuity and life insurance benefits,
operating expenses, policy acquisition costs, and the purchase of
investments. The Company generates cash from annuity premiums and
deposits, net investment income, and from maturities and sales of its
investments. Annuity premiums, maturing investments and net investment
income have historically been sufficient to meet the Company's cash
requirements. The Company monitors cash and cash equivalents in an effort
to maintain sufficient liquidity and has strategies in place to maintain
sufficient liquidity in changing interest rate environments. Consistent
with the nature of its obligations, the Company has invested a substantial
amount of its general account assets in readily marketable securities. At
March 31, 1999, $10.6 billion, or 74.4%, of the Company's general account
investments are considered readily marketable.
To the extent that unanticipated surrenders cause the Company to sell for
liquidity purposes a material amount of securities prior to their maturity,
such surrenders could have a material adverse effect on the Company.
Although no assurance can be given, the Company believes that liquidity to
fund withdrawals would be available through incoming cash flow, the sale of
short-term or floating-rate instruments, thereby precluding the sale of
fixed maturity investments in a potentially unfavorable market.
<PAGE>
Current Rhode Island insurance law permits the payment of dividends or
distributions from the Company to Liberty Financial, which, together with
dividends and distributions paid during the preceding 12 months, do not
exceed the lesser of (i) 10% of statutory surplus as of the preceding
December 31 or (ii) the net gain from operations for the preceding fiscal
year. Any proposed dividend in excess of this amount is called an
"extraordinary dividend" and may not be paid until it is approved by the
Commissioner of Insurance of the State of Rhode Island. As of March 31,
1999, the amount of additional dividends that the Company could pay without
such approval was $59.1 million.
Based upon the historical cash flow of the Company, the Company's current
financial condition and the Company's expectation that there will not be a
material adverse change in the results of operations of the Company and its
subsidiaries during the next twelve months, the Company believes that cash
flow provided by operating activities over this period will provide
sufficient liquidity for the Company to meet its liquidity needs.
Year 2000
Many companies and organizations have computer programs that use only two
digits to identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change in the
century. The Company relies significantly on computer systems and
applications in its operations. Some of these systems are not presently
Year 2000 compliant. If not corrected, this could cause system failures.
Such failures could have an adverse effect on the Company causing
disruption of operations, including, among other things, an inability to
process transactions.
In addressing the Year 2000 issue, the Company has completed an inventory
of its computer programs and assessed its Year 2000 readiness. The
Company's computer programs include internally developed programs, third
party purchased programs and third-party custom developed programs. For
programs which were identified as not being Year 2000 ready, the Company
has implemented a remediation plan which includes repairing or replacing
the programs and appropriate testing for Year 2000. The remediation plan is
substantially complete and is currently in the final testing phase. The
Company also identified its non-information technology systems with respect
to Year 2000 issues. The Company initiated remediation efforts in this area
and expects to complete this phase during 1999.
The Company has initiated communication with significant financial
institutions, distributors, suppliers and others with which it does
business to determine the extent to which the Company's systems are
vulnerable by the failure of others to remediate their own Year 2000
issues. The Company has received feedback from such parties and is in the
process of independently confirming information received from other parties
with respect to their year 2000 issues.
The Company is developing, and will continue to develop, contingency plans
for dealing with any adverse effects that become likely in the event the
Company's remediation plans are not successful or third parties fail to
remediate their own Year 2000 issues. If necessary modifications and
conversions are not made, or are not timely completed, or if the systems of
the companies on which the Company's interface system relies are not timely
converted, the Year 2000 issues could have a material impact on the
financial condition and results of operations of the Company. However, the
Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems.
Effects of Inflation
Inflation has not had a material effect on the Company's consolidated
results of operations to date. The Company manages its investment
portfolio in part to reduce its exposure to interest rate fluctuations. In
general, the fair value of the Company's fixed maturity portfolio increases
or decreases in inverse relationship with fluctuations in interest rates,
and the Company's net investment income increases or decreases in direct
relationship with interest rate changes. For example, if interest rates
decline the Company's fixed maturity investments generally will increase in
fair value, while net investment income will decrease as fixed maturity
investments mature or are sold and the proceeds are reinvested at reduced
rates. However, inflation may result in increased operating expenses that
may not be readily recoverable in the prices of the services charged by the
Company.
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have not been any material changes during the three-month period
ended March 31, 1999 in the market risks the Company is exposed to and
management of such risks, which are summarized in our 1998 Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
#27 Financial Data Schedule - page 16
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended March
31, 1999.
<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 by the
undersigned thereunto duly authorized.
KEYPORT LIFE INSURANCE COMPANY
/s/ Bernhard M. Koch__________
Bernhard M. Koch
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Jeff Whitehead__________
Jeff Whitehead
Vice President and Treasurer
(Chief Accounting Officer)
Date: May 13, 1999
<PAGE>
Exhibit Index
Exhibit No. Description Page
27 Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 7
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 11,475,634
<DEBT-CARRYING-VALUE> 0
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<EQUITIES> 23,041
<MORTGAGE> 14,255
<REAL-ESTATE> 0
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<CASH> 1,011,543
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<DEFERRED-ACQUISITION> 372,809
<TOTAL-ASSETS> 16,913,627
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,413,999
<POLICY-HOLDER-FUNDS> 0
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0
0
<COMMON> 3,015
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0
<INVESTMENT-INCOME> 204,925
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<UNDERWRITING-AMORTIZATION> 24,263
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