- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-62674
GREAT NORTHERN INSURED
ANNUITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
WASHINGTON 91-1127115
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
TWO UNION SQUARE, SUITE 5600
SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (206) 625-1755
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable]
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)
(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE PERMITTED
ABBREVIATED NARRATIVE DISCLOSURE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Business.................................................................................................. 3
Item 2. Properties................................................................................................ 4
Item 3. Legal Proceedings......................................................................................... 4
Item 4. Submission of Matters to a Vote of Securities Holders..................................................... 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................. 5
Item 6. Selected Financial Data................................................................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 5
Item 8. Financial Statements and Supplementary Data............................................................... 8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................... 24
Item 11. Executive Compensation................................................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 24
Item 13. Certain Relationships and Related Transactions........................................................... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................... 24
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
OWNERSHIP
Great Northern Insured Annuity Corporation (GNA or the Company) was
incorporated as a stock life insurance company organized under the laws of the
State of Washington on June 4, 1980 and began writing business pursuant to
licensing on October 15, 1980. On June 30, 1983, The Weyerhaeuser Company
(Weyerhaeuser) acquired a controlling interest in GNA.
Pursuant to a Stock Purchase Agreement dated January 5, 1993, by and
between Weyerhaeuser and General Electric Capital Corporation (GE Capital), 100%
of the outstanding capital stock of GNA Corporation was sold to GE Capital
effective April 1, 1993.
Effective July 14, 1993, GE Capital acquired 100% of the outstanding
capital stock of United Pacific Life Insurance Company (United Pacific Life). GE
Capital transferred controlling ownership of United Pacific Life to GNA.
Subsequently, United Pacific Life's name was changed to General Electric Capital
Assurance Company (GE Capital Assurance). GE Capital Assurance, a Delaware life
insurer, is licensed in the District of Columbia, and all states except New
York.
On February 1, 1990, GNA acquired 100% of the outstanding stock of First
GNA Life Insurance Company of New York (First GNA). Subsequent to the
acquisition of United Pacific Life, GNA merged First GNA with United Pacific
Reliance Life Insurance Company of New York, a wholly-owned subsidiary of United
Pacific Life. The merged company is 48% owned by GNA and 52% by GE Capital
Assurance. Effective February 1, 1996, First GNA's name was changed to GE
Capital Life Assurance Company of New York (GE Capital Life of New York). GE
Capital Life of New York issues deferred and immediate annuities, life insurance
and long-term care insurance in the state of New York.
Effective October 1, 1995, GNA was party to a reorganization involving GNA
Corporation and certain of its life insurance company subsidiaries (herein
referred to as the Reorganization). As part of the Reorganization, GNA became a
wholly-owned subsidiary of GE Capital Assurance, and GE Capital Assurance became
a wholly-owned subsidiary of GNA Corporation. Previously, all of GE Capital
Assurance's voting common stock was owned by GNA. The Reorganization allows all
life insurance company subsidiaries of GNA Corporation to file a consolidated
federal tax return.
MARKETING
GNA is licensed in the District of Columbia and all states except New
Hampshire and New York. GNA markets fixed-rate deferred annuities, immediate
annuities and structured settlement immediate annuities primarily through banks,
thrifts and other financial institutions.
DEFERRED FIXED RATE ANNUITIES. The predominant form of deferred annuities
require either single premium or flexible premium payments and have a minimum
annual guaranteed crediting rate. After the initial guarantee period, the
crediting rate may be changed periodically. The policy owner is permitted to
withdraw all or part of the premium paid plus interest credited, less a
surrender charge for withdrawals during the initial penalty period of one to
eight years. The surrender charge is initially 5% to 8% of the contract value
and decreases over the penalty period. Some deferred annuities provide for
penalty-free partial withdrawals of the accumulated interest credited or up to
10% annually of the accumulation value. In 1996, the Company issued $354.4
million in deferred annuities. At December 31, 1996, deferred annuities
comprised $5,317.6 million of total liabilities for future annuity and contract
benefits.
IMMEDIATE ANNUITIES. The Company's immediate annuities are designed to
provide a series of periodic payments for a fixed length of time or for life,
according to the annuitant's choice at the time of issue. Once the payments have
begun, the amount, frequency and length of time for which they are payable are
fixed. A primary form of immediate annuities, the structured settlement annuity,
is usually sold as part of a settlement resulting from a personal injury or
wrongful death claim to provide scheduled payments to an injured person or their
dependents. Structured settlement annuities are generally long-term and cannot
be surrendered. In 1996, the Company issued $227.3 million in immediate
annuities. At December 31, 1996, immediate annuities comprised $697.4 million of
total liabilities for future annuity and contract benefits.
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. There are numerous stock, mutual and other types
of insurers in the life insurance business in the United States, a significant
number of which are substantially larger than GNA.
3
<PAGE>
As of December 31, 1996, the Company has 480 employees. In addition, the Company
has 68 retail sales agents selling the Company's products through an affiliated
company, GNA Insurance Services, Inc. The number of retail sales agents
decreased significantly during 1996 as a result of several banks internalizing
sales forces.
A.M. Best assigned to GNA an A + (Superior) rating. Duff & Phelps
reaffirmed the Company's AA (Very High) rating, and Standard & Poor's reaffirmed
an AA (Excellent) rating based on the Company's high claims paying ability and
excellent asset quality.
GOVERNMENT REGULATION
GNA is subject to the laws of the State of Washington governing insurance
companies and to the regulations of the Washington Insurance Department. In
addition, GNA is subject to regulation under the insurance laws of other
jurisdictions in which the Company operates. Regulation by other supervisory
agencies includes licensing to transact business, overseeing trade practices,
licensing agents, approving policy forms, establishing reserve requirements,
fixing maximum interest rates on life insurance policy loans and minimum rates
for accumulation of surrender values, prescribing the form and content of
required financial statements and regulating the type and amounts of investments
permitted. The Company's books and accounts are subject to review by each
Insurance Department and other supervisory agencies at all times, and GNA files
annual statements with these agencies. A full examination of the Company's
operations is conducted periodically by various Insurance Departments and may
include the participation of the insurance departments of other states in which
GNA conducts business. Recent examinations have not resulted in significant
findings.
In addition, many states regulate affiliated groups of insurers (including
GNA) under insurance holding company legislation. Under such laws, intercompany
transactions, including transfers of assets and dividend payments from insurance
subsidiaries, may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved. Due to the Company's volume of California business, GNA is
considered a California commercially domiciled insurer under California
insurance holding company law.
The National Association of Insurance Commissioners (NAIC) has adopted
Risk-Based Capital (RBC) requirements to evaluate the adequacy of statutory
capital and surplus in relation to risks associated with: (i) asset quality,
(ii) insurance risk, (iii) interest rate risk, and (iv) other business factors.
The RBC formula is designed as an early warning tool for the states to identify
possible under-capitalized companies for the purpose of initiating regulatory
action. In the course of its operations, the Company monitors the level of its
RBC and it exceeds the minimum required levels.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. GNA has estimated assessments related to known
insolvencies, and has recorded a liability of $34.4 million at December 31, 1996
related to this estimated liability. The amount of any future assessments
related to future insolvencies under these laws, however, cannot be reasonably
estimated. Most of these laws do provide that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance and investment products sold by the Company and the
taxation impact on the relative desirability of various investment vehicles.
ITEM 2. PROPERTIES
The Company leases office space in Seattle, Washington. The Company is
reimbursed by its affiliates for rent based on direct and indirect allocation
methods.
ITEM 3. LEGAL PROCEEDINGS
There is no material pending litigation to which the Company is a party or
of which any of the Company's property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against GNA of which
the Company has any knowledge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is owned entirely by GE Capital Assurance
and, therefore, there is no trading market in such stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and notes thereto included in this Form 10-K.
SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1996 1995 1995 1994 1994 1993 1992
-------- ----------- -------- ----------- -------- -------- --------
<S> <C>
PRO FORMA PRO FORMA
(UNAUDITED) (UNAUDITED)
(1) (1)
----------- -----------
Net investment income..................... $ 462.5 $ 444.5 $ 784.7 $ 391.6 $ 837.8 $ 579.8 $ 406.4
Income before income taxes and minority
interest................................ 76.0 39.1 62.0 70.6 107.7 57.0 53.6
Net income................................ 51.1 26.7 26.3 44.0 47.5 34.1 33.6
Total assets.............................. 7,120.0 6,926.5 6,926.5 6,578.0 13,100.2 13,160.1 5,973.9
Shareholder's interest, excluding net
unrealized investment gain/(loss)....... 682.9 631.7 631.7 607.3 794.2 754.0 326.3
Net unrealized investment gain/(loss)..... 7.0 29.9 29.9 (166.7) (528.8) (16.3) (.5)
Total shareholder's interest.............. 689.9 661.6 661.6 440.6 265.4 737.7 325.8
</TABLE>
- ---------------
(1) Unaudited pro forma results reflect the Reorganization as if it had occurred
at the beginning of the period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GNA derives substantially all its income from earnings on investments
offset by interest credited to policyholders of predominantly deferred and
immediate annuities, operating expenses, acquisition costs and taxes. Funds
received for the purchase of immediate annuities with life contingencies,
including options elected under annuity contracts, are reported as premium
income. Other income is primarily surrender fees on deferred annuity policies.
GNA's results of operations for the year ended December 31, 1996 include
the accounts of GNA, as well as the Company's investment in GE Capital Life of
New York, accounted for under the equity method. For the year ended December 31,
1995, GNA's results of operations include GE Capital Assurance and subsidiaries'
results for the nine months ended September 30, 1995.
1996 COMPARED TO 1995
NET INVESTMENT INCOME decreased $322.2 million to $462.5 million, of which
$343.8 million relates to GE Capital Assurance and subsidiaries that were
divested and are no longer included in the earnings of the Company as of October
1, 1995. The offsetting $21.6 million increase is primarily attributable to
higher invested assets, the equity income of the Company's subsidiary, and the
impact of higher interest rates resulting in higher reinvestment rates.
NET REALIZED INVESTMENT GAINS (LOSSES) -- Net realized investment gains
were $3.1 million during 1996, compared to a $14.4 million loss in 1995. This
change is related to the Company's asset/liability risk management and varies
with market and economic conditions.
PREMIUMS increased $22.9 million to $200.0 million. This increase primarily
relates to greater recognition of premiums on GNA's life contingent structured
settlement product, offset by the effects of the Reorganization of $9.4 million.
5
<PAGE>
INTEREST CREDITED on policyholder deposits decreased $166.5 million to
$295.7 million. The decrease was primarily related to the Reorganization.
Interest crediting rates remained relatively consistent with 1995.
CHANGE IN POLICY RESERVES increased $26.5 million to $201.0 million. Policy
reserves related to life contingent products increased primarily from greater
life contingent structured settlement premiums, offset by the effects of the
Reorganization of $8.0 million.
ANNUITY AND SURRENDER BENEFITS decreased $106.8 million to $29.9 million.
Offsetting the effects of the Reorganization, which decreased benefits by $116.3
million, annuity and surrender benefits increased by $9.5 million, primarily due
to payments on life contingent structured settlements benefits.
COMMISSIONS decreased $15.5 million to $27.4 million. The Reorganization
accounted for $10.7 million of the decrease with the remaining decrease
attributable to a lower sales of single premium deferred annuities.
GENERAL EXPENSES decreased $34.7 million to $36.5 million. This decrease is
primarily related to an accrual for guaranty association assessments of $20.4
million recorded in the fourth quarter of 1995. There was no significant
additional accrual necessary during 1996. In addition, the effects of the
Reorganization resulted in a $14.5 million decrease in general expenses.
AMORTIZATION OF INTANGIBLES is a result of the GNA and GE Capital Assurance
acquisitions. The Company established goodwill and present value of future
profits (PVFP) assets in connection with the acquisitions. Amortization of
goodwill is based on a 25 year life and amortization of PVFP is based on
periodic estimates of realized and remaining gross profits. For the years ended
December 31, 1996 and 1995, goodwill amortization was $1.5 million and $4.8
million, respectively, and net PVFP amortization was $32.4 million and $52.4
million, respectively. The decrease is primarily related to the fact that as
result of the Reorganization, the amortization of the goodwill and PVFP balances
of GE Capital Assurance are no longer included in the Company's earnings
effective October 1, 1995.
INCREASE IN DEFERRED ACQUISITION COSTS decreased $16.2 million to $26.7
million primarily as a result of lower commissions of $4.8 million and the
effect of the Reorganization of $10.8 million.
PROVISION FOR INCOME TAXES. The effective tax rate for 1996 decreased from
39.5% to 32.8% primarily due to equity income of the Company's subsidiary and
lower state taxes caused by the Reorganization.
MINORITY INTEREST decreased $11.2 million to zero due to the fact that
subsequent to the third quarter of 1995, after the effects of the
Reorganization, there was no longer minority interest recorded in GNA's
financial statements. The minority interest previously recorded represented GNA
Corporation's proportional ownership of GE Capital Assurance.
1995 COMPARED TO 1994
NET INVESTMENT INCOME decreased $53.1 million to $784.7 million. This is
primarily related to the Reorganization described above, which reduced earning
assets by $6,506.8 million. As a result of the Reorganization, net investment
income excluded GE Capital Assurance and subsidiaries' fourth quarter net
investment income of $114.7 million. The remaining $61.6 million increase is
primarily attributable to higher invested assets and reinvestment of net
investment proceeds in higher yielding securities.
NET REALIZED INVESTMENT GAINS (LOSSES) -- As part of the Company's
asset/liability risk management, net realized investment losses were $14.4
million during 1995, compared to a $6.3 million gain in 1994.
PREMIUMS increased $59.5 million to $177.1 million. This increase primarily
relates to increased sales of GNA's structured settlement product of $67.3
million, introduced in June of 1994, offset by the effects of the Reorganization
of $7.8 million.
INTEREST CREDITED on policyholder deposits decreased $27.2 million to
$462.2 million. The decrease was primarily related to the Reorganization as
interest crediting rates remained relatively consistent with 1994.
CHANGE IN POLICY RESERVES increased $54.1 million to $174.5 million. Policy
reserves related to life contingent products increased primarily from new
structured settlement premiums and growth in annuitizations of life contingent
products.
ANNUITY AND SURRENDER BENEFITS decreased $24.2 million to $136.7 million.
Offsetting the effects of the Reorganization, which decreased benefits by $40.8
million, annuity and surrender benefits increased by $16.6 million. This
increase is due to structured settlements benefits and increased tax free
exchanges.
6
<PAGE>
COMMISSIONS decreased $9.9 million to $42.9 million. This decrease is
primarily due to decreased product sales of $125.1 million to $987.4 million.
GENERAL EXPENSES increased $24.4 million to $71.2 million. This increase is
primarily related to an accrual for guaranty association assessments of $20.4
million recorded in the fourth quarter of 1995. These assessments levied by
various state regulators help to ensure payments to policyholders of impaired or
insolvent companies.
AMORTIZATION OF INTANGIBLES is a result of the GNA and GE Capital Assurance
acquisitions. The Company established goodwill and present value of future
profits (PVFP) assets in connection with the acquisition. For the years ended
December 31, 1995 and 1994, goodwill amortization was $4.8 million and $7.8
million, respectively. The decrease is primarily related to the fact that after
the Reorganization, the goodwill balance of GE Capital Assurance was dividended
out and the related amortization was not included in GNA's operations for the
fourth quarter of 1995.
Net PVFP amortization for the years ended December 31, 1995 and 1994 was
$52.4 million and $50.0 million, respectively.
INCREASE IN DEFERRED ACQUISITION COSTS decreased $20.2 million to $42.9
million primarily as a result of lower commissions and an increase of $10.3
million in amortization of the related balance sheet account.
PROVISION FOR INCOME TAXES. The effective tax rate for 1995 decreased from
41.5% to 39.5% primarily due to lower state taxes caused by the Reorganization.
MINORITY INTEREST decreased $4.3 million to $11.2 million primarily due to
the fact that in the fourth quarter of 1995, after the effects of the
Reorganization, there was no longer minority interest recorded in GNA's
financial statements. The minority interest previously recorded represented GNA
Corporation's proportional ownership of GE Capital Assurance.
INVESTMENTS
FIXED MATURITIES. The Company's assets must be invested in accordance with
requirements of applicable state laws and regulations regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of its assets that may be held in certain types of investments. At
December 31, 1996, approximately 38.0% of the fixed maturities were in corporate
issues, U.S. Treasuries, and other foreign securities with expected maturities
within five years. Another 35.4% is invested in securities backed by residential
mortgages. At December 31, 1996, the Company did not hold any fixed maturity
securities, other than securities issued or guaranteed by the U.S. government,
which exceeded 10% of shareholder's interest before net unrealized investment
gains (losses). Approximately 23.5%, 16.9% and 6.3% of the portfolio were
concentrated in the manufacturing, financial and utility industries,
respectively. As of December 31, 1996, .8% of the Company's portfolio was rated
below investment grade and no bonds were in default as to interest and
principal.
All of the Company's fixed maturities were designated as available-for-sale
at December 31, 1996 and 1995. Accordingly, such investments were reported at
fair value. Unrealized gains and losses, net of the effects of present value of
future profits, deferred acquisition costs and deferred taxes, have been
included in shareholder's interest as of December 31, 1996 and 1995. At December
31, 1996 and 1995, shareholder's interest included net unrealized gains of $7.0
million and $29.9 million, respectively, a difference primarily due to an
decrease in the fair value of fixed maturities, principally resulting from
higher interest rates.
Mortgage-backed securities are subject to risks associated with variable
prepayments. This may result in these securities having a different actual
maturity than planned at the time of purchase. Prepayment speeds are generally
dependent on the relative sensitivity of the underlying mortgages backing the
assets to changing interest rates and the repayment priority of the securities
in the overall securitization structure. Under certain circumstances, the
Company has purchased higher risk securities which do not compromise the safety
of the general portfolio, but rather serve to mitigate the Company's risk
exposure to changing interest rates. There are negligible default risks in the
mortgage-backed securities portfolio as a whole, as the vast majority of the
assets are either guaranteed by U.S. government sponsored entities or are
supported in the securitization structure by junior securities enabling the
assets to achieve high investment grade status.
MORTGAGE LOANS. At December 31, 1996, the mortgage loan portfolio consisted
of 1,044 mortgage loans on commercial real estate properties, 46% of which are
located in California. The loans, which were originated through a network of
mortgage bankers, were made only on completed, leased properties and have
loan-to-value ratios at the date of origination of less than 75%. GNA does not
engage in construction lending or land loans. Nonearning and reduced earning
receivables decreased to $14.3 million at December 31, 1996, compared with $16.2
million at year-end 1995.
7
<PAGE>
OTHER INVESTED ASSETS. The Company's other invested assets consist of GNA's
equity investment in GE Capital Life of New York of $121.0 million and
investments in mutual fund portfolios offered in conjunction with the deferred
variable annuity of $40.7 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements are met by funds from operations and
investment activity. Premiums and policyholder deposits are invested in assets
that generally have durations similar to the Company's liabilities. Funds from
investment activity included principal and interest payments from the bond and
mortgage portfolio as well as sales, calls and maturities of certain securities.
As of December 31, 1996, investments subject to certain call provisions totaled
$128.6 million; and mortgage-backed securities subject to prepayment risk
totaled $1,863.9 million.
The Company is restricted by Washington State as to the amount of dividends
it may pay within a given calendar year to its parent without regulatory
consent. That restriction is the greater of statutory net gain from operations
for the previous year or 10% of the statutory surplus at the end of the year,
subject to a maximum equal to statutory earned surplus. As of December 31, 1996,
approximately $66.0 million was available for dividend payments in 1997.
NEW ACCOUNTING STANDARDS
New accounting standards include Statement of Financial Accounting
Standards (SFAS) No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES. Among other things, the new statement
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings, based on control of the transferred assets. SFAS No. 125
is effective for transfers of financial assets occurring after December 31, 1996
and its adoption will not have a material effect on the financial position or
results of operations of GNA.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Great Northern Insured Annuity Corporation:
We have audited the accompanying consolidated balance sheets of Great
Northern Insured Annuity Corporation and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholder's
interest, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Great
Northern Insured Annuity Corporation and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
January 17, 1997
9
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------------------------------------------------------------------------------------------------------- -------- --------
<S> <C>
Investments:
Fixed maturities, at fair value (amortized cost of $5,254.4 in 1996 and $4,942.2 in 1995............. $5,270.1 $5,064.6
Mortgage loans, net of valuation allowance of $35.6 in 1996 and $35.3 in 1995........................ 1,159.7 1,282.4
Policy loans......................................................................................... 3.3 3.9
Short-term investments............................................................................... 3.9 28.1
Other invested assets................................................................................ 161.7 165.1
-------- --------
Total investments................................................................................. 6,598.7 6,544.1
Cash................................................................................................... 2.3 1.9
Accrued investment income.............................................................................. 112.2 85.6
Deferred acquisition costs............................................................................. 129.6 88.8
Intangible assets...................................................................................... 181.0 156.3
Deferred income tax benefit............................................................................ 19.1 --
Other assets........................................................................................... 44.4 32.2
Separate account assets................................................................................ 32.7 17.6
-------- --------
Total assets...................................................................................... $7,120.0 $6,926.5
-------- --------
-------- --------
<CAPTION>
LIABILITIES AND SHAREHOLDER'S INTEREST
- -------------------------------------------------------------------------------------------------------
<S> <C>
Liabilities:
Future annuity and contract benefits................................................................. $6,075.1 $5,977.9
Policy and contract claims........................................................................... 96.8 89.5
Other policyholder liabilities....................................................................... 48.1 73.6
Deferred income tax liability........................................................................ -- 2.2
Accounts payable and accrued expenses................................................................ 177.4 104.1
Separate account liabilities......................................................................... 32.7 17.6
-------- --------
Total liabilities................................................................................. 6,430.1 6,264.9
Shareholder's interest:
Common stock, $100 par value. Authorized, issued and outstanding 25,000 shares....................... 2.5 2.5
Additional paid-in capital........................................................................... 542.0 541.9
Net unrealized investment gain....................................................................... 7.0 29.9
Retained earnings.................................................................................... 138.4 87.3
-------- --------
Total shareholder's interest...................................................................... 689.9 661.6
-------- --------
Total liabilities and shareholder's interest...................................................... $7,120.0 $6,926.5
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Revenues:
Net investment income.......................................................................... $462.5 $784.7 $837.8
Net realized investment gains (losses)......................................................... 3.1 (14.4) 6.3
Premiums....................................................................................... 200.0 177.1 117.6
Surrender fee and other income................................................................. 8.1 16.7 11.2
------ ------ ------
Total revenues.............................................................................. 673.7 964.1 972.9
------ ------ ------
Benefits and expenses:
Interest credited.............................................................................. 295.7 462.2 489.4
Change in policy reserves...................................................................... 201.0 174.5 120.4
Annuity and surrender benefits................................................................. 29.9 136.7 160.9
Commissions.................................................................................... 27.4 42.9 52.8
General expenses............................................................................... 36.5 71.2 46.8
Amortization of intangibles, net............................................................... 33.9 57.5 58.0
Increase in deferred acquisition costs, net.................................................... (26.7) (42.9) (63.1)
------ ------ ------
Total benefits and expenses................................................................. 597.7 902.1 865.2
------ ------ ------
Income before income taxes and minority interest............................................ 76.0 62.0 107.7
Provision for income taxes....................................................................... 24.9 24.5 44.7
------ ------ ------
Income before minority interest............................................................. 51.1 37.5 63.0
Minority interest................................................................................ -- 11.2 15.5
------ ------ ------
Net income.................................................................................. $ 51.1 $ 26.3 $ 47.5
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INTEREST
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL INVESTMENT
------------------ PAID-IN GAINS RETAINED
SHARES AMOUNT CAPITAL (LOSSES) EARNINGS
------ -------- ---------- ---------- --------
<S> <C>
Balances at December 31, 1993............................ 25,000 $ 2.5 $ 726.7 $ (16.3) $ 24.8
Net income.......................................... -- -- -- -- 47.5
Purchase price adjustments.......................... -- -- (7.3) -- --
Net unrealized investment losses.................... -- -- -- (512.5) --
------ -------- ---------- ---------- --------
Balances at December 31, 1994............................ 25,000 2.5 719.4 (528.8) 72.3
Net income.......................................... -- -- -- -- 26.3
Dividend of GE Capital Assurance.................... -- -- (175.2) -- (11.3)
Purchase price adjustments.......................... -- -- (2.3) -- --
Net unrealized investment gains..................... -- -- -- 558.7 --
------ -------- ---------- ---------- --------
Balances at December 31, 1995............................ 25,000 2.5 541.9 29.9 87.3
Net income.......................................... -- -- -- -- 51.1
Purchase price adjustments.......................... -- -- .1 -- --
Net unrealized investment losses.................... -- -- -- (22.9) --
------ -------- ---------- ---------- --------
Balances at December 31, 1996............................ 25,000 $ 2.5 $ 542.0 $ 7.0 $138.4
------ -------- ---------- ---------- --------
------ -------- ---------- ---------- --------
<CAPTION>
TOTAL
SHAREHOLDER'S
INTEREST
-----------------
<S> <C>
Balances at December 31, 1993............................ $ 737.7
Net income.......................................... 47.5
Purchase price adjustments.......................... (7.3)
Net unrealized investment losses.................... (512.5)
--------
Balances at December 31, 1994............................ 265.4
Net income.......................................... 26.3
Dividend of GE Capital Assurance.................... (186.5)
Purchase price adjustments.......................... (2.3)
Net unrealized investment gains..................... 558.7
--------
Balances at December 31, 1995............................ 661.6
Net income.......................................... 51.1
Purchase price adjustments.......................... .1
Net unrealized investment losses.................... (22.9)
--------
Balances at December 31, 1996............................ $ 689.9
--------
--------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C>
Cash flows from operating activities:
Net income............................................................................... $ 51.1 $ 26.3 $ 47.5
--------- -------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest..................................................................... -- 11.2 15.5
Equity in earnings of GE Capital Life of New York..................................... (7.6) (1.3) --
Increase in future policy benefits.................................................... 496.7 636.7 609.8
Net realized investment (gains) losses................................................ (3.1) 14.4 (6.3)
Amortization of investment premiums and discounts..................................... 27.7 61.4 83.6
Amortization of intangibles........................................................... 33.9 57.5 58.0
Deferred income tax provision (benefit)............................................... (10.4) 4.0 30.2
Change in certain assets and liabilities:
Decrease (increase) in:
Accrued investment income........................................................ (26.6) (6.5) 6.5
Deferred acquisition costs....................................................... (26.7) (42.9) (63.1)
Other assets..................................................................... (12.4) 12.6 (10.7)
Increase (decrease) in:
Other policyholder liabilities................................................... (25.5) (25.7) 122.7
Accounts payable and accrued expenses............................................ 73.3 24.1 (13.0)
--------- -------- --------
Total adjustments................................................................ 519.3 745.5 833.2
--------- -------- --------
Net cash provided by operating activities........................................ 570.4 771.8 880.7
--------- -------- --------
Cash flows from investing activities:
Proceeds from investments in fixed maturities and real estate............................ 868.2 1,735.6 1,970.8
Principal collected on mortgage loans.................................................... 163.9 124.4 93.1
Purchases of fixed maturities............................................................ (1,199.5) (1,846.5) (2,413.7)
Mortgage loan originations............................................................... (42.3) (159.9) (389.2)
Dividends received....................................................................... 7.5 7.1 --
--------- -------- --------
Net cash used in investing activities............................................ (202.2) (139.3) (739.0)
--------- -------- --------
Cash flows from financing activities:
Proceeds from issue of investment contracts.............................................. 415.6 810.3 994.9
Redemption and benefit payments on investment contracts.................................. (807.6) (1,469.2) (1,220.6)
Cash distributed in conjunction with dividend of GE Capital Assurance.................... -- (31.5) --
Short-term borrowings.................................................................... -- -- (5.0)
--------- -------- --------
Net cash used in financing activities............................................ (392.0) (690.4) (230.7)
--------- -------- --------
Net decrease in cash and cash equivalents........................................ (23.8) (57.9) (89.0)
Cash and cash equivalents at beginning of year............................................. 30.0 87.9 176.9
--------- -------- --------
Cash and cash equivalents at end of year................................................... $ 6.2 $ 30.0 $ 87.9
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN MILLIONS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP) for stock life insurance
companies, which vary in several respects from accounting practices prescribed
or permitted by the Insurance Commissioner of the State of Washington, where
Great Northern Insured Annuity Corporation (GNA or the Company) is domiciled.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. Actual results could differ from those estimates.
Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation. These
reclassifications have no effect on reported net income or shareholder's
interest.
(B) ACQUISITIONS
Effective April 1, 1993, General Electric Capital Corporation (GE Capital),
all of whose common stock is indirectly owned by General Electric Company,
completed the acquisition of GNA's parent company, GNA Corporation. Effective
July 14, 1993, GE Capital acquired 100% of the issued and outstanding capital
stock of United Pacific Life Insurance Company and four of its seven
wholly-owned subsidiaries (collectively, the Acquisitions). During 1994, United
Pacific Life Insurance Company was renamed General Electric Capital Assurance
Company (GE Capital Assurance).
(C) REORGANIZATION
Effective October 1, 1995, the Company was party to a reorganization (the
Reorganization) involving GNA Corporation and certain of its life insurance
company subsidiaries. The Reorganization allows all life insurance company
subsidiaries of GNA Corporation to file a consolidated federal tax return.
Prior to the Reorganization, GE Capital Assurance's voting common stock was
owned by GNA and its preferred and nonvoting common stock was owned by GNA
Corporation, thus resulting in minority interest. As part of the Reorganization,
GNA became a wholly-owned subsidiary of GE Capital Assurance and GE Capital
Assurance became a wholly-owned subsidiary of GNA Corporation. Consequently,
there was no minority interest recorded on the balance sheets of GNA as of
December 31, 1996 and 1995. In order for GE Capital Assurance to become the
direct parent of GNA, GNA Corporation contributed all of the stock of GNA to GE
Capital Assurance in exchange for voting shares of GE Capital Assurance. On
October 1, 1995, GNA distributed its holdings of GE Capital Assurance common
stock to GE Capital Assurance with the result that GE Capital Assurance is now
wholly-owned by GNA Corporation and a decrease in shareholder's interest of
$186.5.
The accompanying consolidated financial statements include the accounts of
GNA and its subsidiaries prior to the Reorganization, GE Capital Assurance and
First GNA Life Insurance Company of New York (First GNA), owned 48% by GNA and
52% by GE Capital Assurance. The results subsequent to the Reorganization
include GNA, as well as its proportionate share of First GNA, accounted for
under the equity method. Effective February 1, 1996, First GNA was renamed GE
Capital Life Assurance Company of New York (GE Capital Life of New York).
Following are pro forma results of operations of GNA for the year ended
December 31, 1995, as if the Reorganization had occurred at the beginning of the
period presented:
<TABLE>
<S> <C>
Total revenues.......................................................................... $ 631.4
Net income.............................................................................. 26.7
Total assets............................................................................ 6,926.5
Total shareholders' interest............................................................ 661.6
</TABLE>
14
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
(D) PRODUCTS
The primary products of the Company are investment type deferred annuities
and structured settlement immediate annuities. The Company considers the sale of
annuity and life insurance products to be a single segment/line of business. GNA
primarily sells its products through banks, thrifts and other financial
institutions.
(E) STATEMENTS OF CASH FLOWS
All highly liquid investments with an original maturity of three months or
less are classified as short-term investments on the consolidated balance sheets
and considered cash equivalents in the consolidated statements of cash flows.
During the years ended December 31, 1996, 1995, and 1994, the Company paid
federal and state income taxes of $50.4, $1.7 and $6.8, respectively.
(F) INVESTMENTS
The Company has designated its fixed maturities as available for sale. The
fair value for fixed maturities and equity securities is based on quoted market
prices, where available. For securities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, call
features and maturity of the investments, as applicable. Changes in the market
values of fixed maturities, net of the effect on deferred policy acquisition
costs, present value of future profits and deferred federal income taxes, and
market values of equity securities, net of deferred federal income taxes, are
reflected as unrealized appreciation and depreciation in a separate component of
shareholder's interest and, accordingly, have no effect on net income.
Unrealized losses that are other than temporary are recognized in earnings.
The Company does not engage in derivatives trading, market-making or other
speculative activities. The Company had no significant open or outstanding
derivative transactions during the years 1996, 1995 or 1994.
Mortgage and policy loans are stated at the unpaid principal balance of
such loans, net of allowances for probable uncollectible balances.
(G) DEFERRED ACQUISITION COSTS
Acquisition costs include costs and expenses which vary with and are
primarily related to the acquisition of insurance and investment contracts, such
as commissions, direct advertising and printing, and certain support costs such
as underwriting and policy issue expenses. Acquisition costs capitalized are
determined by actual costs and expenses incurred by product in the year of
issue.
(H) INTANGIBLE ASSETS
PRESENT VALUE OF FUTURE PROFITS
In conjunction with the Acquisitions, a portion of the purchase price was
assigned to the right to receive future gross profits arising from existing
insurance and investment contracts. This intangible asset, called the present
value of future profits (PVFP), is actuarially determined based on the present
value of projected future gross profits on contracts acquired.
GOODWILL
Goodwill is amortized over its estimated period of benefit on a
straight-line basis. No amortization period exceeds 25 years. Goodwill in excess
of associated expected operating undiscounted cash flows is considered to be
impaired and is written down to fair value.
15
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
(I) FUTURE ANNUITY AND CONTRACT BENEFITS
Future annuity and contract benefits are comprised of the liabilities for
life insurance policies and immediate and deferred annuity contracts. Depending
on the type of contract, these liabilities are calculated based upon actuarial
assumptions as to mortality, interest, expense and withdrawals, with experience
for adverse deviation where appropriate.
(J) REVENUES
Investment income is recorded when earned. Investment gains and losses are
calculated on the basis of specific identification. Premiums on long-duration
insurance products are recognized as earned when due or, in the case of life
contingent annuities, when the contracts are issued. Premiums received under
annuity contracts without significant mortality risk are not reported as
revenues but as future annuity benefit liabilities. Surrender charges are
recognized as income when the policy is surrendered.
(K) FEDERAL INCOME TAX
The Company is included with GE Capital Assurance in a life insurance
consolidated federal income tax return. Current and deferred taxes are allocated
by applying the asset and liability method of accounting for deferred income
taxes to members of the group as if each member was a separate taxpayer.
Intercompany balances are settled annually.
(L) SEPARATE ACCOUNTS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company receives
mortality risk fees and administration fees from the variable annuity mutual
fund portfolios and separate account assets.
(2) INVESTMENTS
For the years ended December 31, the sources of investment income of the
Company were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Fixed maturities...................................................... $353.0 $662.9 $724.9
Mortgage loans........................................................ 102.8 122.3 105.7
GE Capital Life of New York equity method income...................... 7.6 1.3 --
Other................................................................. 2.4 4.9 13.7
------ ------ ------
Gross investment income............................................... 465.8 791.4 844.3
Investment expenses................................................... (3.3) (6.7) (6.5)
------ ------ ------
Net investment income................................................. $462.5 $784.7 $837.8
------ ------ ------
------ ------ ------
</TABLE>
(A) FIXED MATURITIES
For the years ended December 31, the Company realized sales proceeds, gross
investment gains and losses as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Sales proceeds........................................................ $192.8 $998.9 $860.1
------ ------ ------
Gross realized investment:
Gains................................................................. $ 8.1 $ 16.6 $ 17.5
Losses................................................................ (5.0) (31.0) (11.2)
------ ------ ------
Net realized investment gains (losses)................................ $ 3.1 $(14.4) $ 6.3
------ ------ ------
------ ------ ------
</TABLE>
The additional proceeds from investments in fixed maturities in the
consolidated statements of cash flows result from principal collected on
mortgage-backed securities, maturities, calls and sinking fund payments.
16
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) INVESTMENTS -- CONTINUED
Fixed maturities are considered available for sale. Accordingly, fixed
maturities are accounted for at fair value, with the resulting unrealized gain
or loss recorded through shareholder's interest, net of the following
adjustments:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C>
Fixed maturities................................................................ $ 15.7 $122.4
Other invested assets........................................................... 5.4 5.2
Deferred acquisition costs...................................................... (3.6) (17.7)
Present value of future profits................................................. (6.4) (65.1)
Deferred income taxes........................................................... (4.1) (14.9)
------ ------
Net unrealized investment gains.......................................... $ 7.0 $ 29.9
------ ------
------ ------
</TABLE>
At December 31, the amortized cost, gross unrealized gains and losses, and
fair value of the Company's fixed maturities available-for-sale portfolio were
as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
1996 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------- --------- ------ ------ --------
<S> <C>
United States and agency........................................................... $ 144.5 $ 9.9 $ (1.4) $ 153.0
Foreign............................................................................ 200.9 6.7 (1.5) 206.1
Corporate securities............................................................... 3,065.0 10.1 (28.0) 3,047.1
Mortgage-backed securities......................................................... 1,844.0 36.5 (16.6) 1,863.9
--------- ------ ------ --------
Totals...................................................................... $5,254.4 $ 63.2 $(47.5) $5,270.1
--------- ------ ------ --------
--------- ------ ------ --------
<CAPTION>
1995
- -----------------------------------------------------------------------------------
<S> <C>
United States and agency........................................................... $ 140.6 $ 13.1 $ (.7) $ 153.0
Corporate securities............................................................... 3,162.2 99.5 (11.7) 3,250.0
Mortgage-backed securities......................................................... 1,639.4 44.2 (22.0) 1,661.6
--------- ------ ------ --------
Totals...................................................................... $4,942.2 $156.8 $(34.4) $5,064.6
--------- ------ ------ --------
--------- ------ ------ --------
</TABLE>
The maturity distribution of the fixed maturities portfolio at December 31
was as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C>
Due in one year or less........................................................ $ 471.9 $ 472.6 $ 345.8 $ 345.7
Due between one year through five years........................................ 1,585.1 1,529.2 1,873.6 1,916.2
Due between five years through ten years....................................... 650.1 663.3 636.7 655.6
Due after ten years............................................................ 703.3 741.1 446.7 485.5
--------- -------- --------- --------
Subtotals............................................................... 3,410.4 3,406.2 3,302.8 3,403.0
Mortgage-backed securities.............................................. 1,844.0 1,863.9 1,639.4 1,661.6
--------- -------- --------- --------
Totals.................................................................. $5,254.4 $5,270.1 $4,942.2 $5,064.6
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
At December 31, 1996, approximately 23.5%, 16.9% and 6.3% of the Company's
investment portfolio is comprised of securities issued by the manufacturing,
financial and utility industries, respectively, the vast majority of which are
rated investment grade, and which are senior secured bonds. This portfolio is
widely diversified among various geographic regions in the United States, and is
not dependent on the economic stability of one particular region.
17
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) INVESTMENTS -- CONTINUED
The fixed maturities portfolio at December 31 consisted of the following
classes of securities:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
FAIR FAIR
VALUE PERCENT VALUE PERCENT
-------- ------- -------- -------
<S> <C>
Agencies and treasuries............................................................. $1,400.5 26.6% $1,377.2 27.2%
AAA................................................................................. 476.7 9.0 283.7 5.6
AA.................................................................................. 284.6 5.4 214.7 4.3
A................................................................................... 1,412.7 26.8 1,546.3 30.5
BBB................................................................................. 1,275.1 24.2 1,225.6 24.2
BB.................................................................................. 40.7 .8 71.0 1.4
B................................................................................... -- -- 5.2 .1
Not rated........................................................................... 379.8 7.2 340.9 6.7
-------- ------- -------- -------
Totals....................................................................... $5,270.1 100.0% $5,064.6 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
Bonds with ratings ranging from AAA to BBB are generally regarded as
investment grade securities. Some agencies and treasuries (that is, those
securities issued by the United States government or an agency thereof) are not
rated, but all are considered to be investment grade securities. Finally, some
securities, such as private placements, have not been assigned a rating by any
rating service and are therefore categorized as "not rated;" this has neither
positive nor negative implications regarding the value of the security.
At December 31, 1996, there were no bonds in default as to interest and
principal.
(B) MORTGAGE LOANS
At December 31, 1996 and 1995, the Company's mortgage loan portfolio
consisted of 1,044 and 1,161, respectively, first mortgage loans on commercial
real estate properties. The loans, which are originated by the Company through a
network of mortgage bankers, are made only on completed, leased properties and
have a maximum loan-to-value ratio of 75% at the date of origination. The
Company does not engage in construction lending or land loans.
The Company originated $12.5, $18.5 and $62.3 of mortgages secured by real
estate in California, which represent 29%, 13% and 16% of total originations for
the years ended December 31, 1996, 1995 and 1994, respectively. At December 31,
1996 and 1995, respectively, the Company held $449.0 and $519.2 in mortgages
secured by real estate in California; this is 38% of the total mortgage
portfolio for 1996 and 40% of the total portfolio for 1995.
"Impaired" loans are defined by generally accepted accounting principles as
loans for which it is probable that the lender will be unable to collect all
amounts due according to terms of the original contractual terms of the loan
agreement. That definition excludes, among other things, leases, or large groups
of smaller-balance homogeneous loans, and therefore applies principally to GNA's
commercial loans.
Under these principles, GNA has two types of "impaired" loans as of
December 31, 1996 and 1995: loans requiring allowances for losses ($1.7 and
$3.2, respectively) and loans expected to be fully recoverable because the
carrying amount has been reduced previously through charge-offs or deferral of
income recognition ($12.6 and $13.0, respectively); allowance for losses on
these loans were $0.8 and $0.1, respectively. Average investment during 1996 and
1995 was $15.6 and $11.3, respectively and interest income earned on these loans
while they were considered impaired was $.7 and $1.3, respectively.
The following table shows the activity in the allowance for losses during
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C>
Balance at January 1...................................................... $35.3 $32.0 $30.5
Dividend of GE Capital Assurance.......................................... -- (.3) --
Additions................................................................. 2.5 2.8 2.4
Amounts written off, net.................................................. (2.2) .8 (.9)
----- ----- -----
Balance at December 31.................................................... $35.6 $35.3 $32.0
----- ----- -----
----- ----- -----
</TABLE>
18
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) INVESTMENTS -- CONTINUED
The net write-offs represented 0.18% of average mortgage loans outstanding
during 1996, compared with 0.15% and 0.07% during 1995 and 1994, respectively.
The allowance for losses on mortgage loans at December 31, 1996 and 1995
represented 3.1% and 2.7% of total mortgage loans, respectively.
(C) INVESTMENT IN GE CAPITAL LIFE OF NEW YORK
A portion of other invested assets at December 31, 1996 and 1995 included
$121.0 and $123.6, respectively, for the Company's 48% investment in GE Capital
Life of New York, accounted for under the equity method. Investment income for
1996 includes $7.6 for equity in earnings of GE Capital Life of New York. For
1995, investment income includes $1.3 for equity in earnings of GE Capital Life
of New York subsequent to the Reorganization on October 1, 1995. Prior to the
Reorganization, GE Capital Life of New York was consolidated. Following is the
summarized financial information for GE Capital Life of New York as of and for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
Total revenue............................................................... $ 163.3 $ 102.0
Total expenses.............................................................. 137.6 84.1
Income before income taxes........................................... 25.7 17.9
Provision for income taxes.................................................. 9.8 8.4
-------- --------
Net income........................................................... $ 15.9 $ 9.5
-------- --------
-------- --------
Total investments........................................................... $1,554.1 $1,491.6
Other assets................................................................ 154.9 100.1
-------- --------
Total assets......................................................... $1,709.0 $1,591.7
-------- --------
-------- --------
Total liabilities........................................................... $1,459.8 $1,334.9
Shareholder's interest...................................................... 249.2 256.8
-------- --------
Total liabilities and shareholder's interest......................... $1,709.0 $1,591.7
-------- --------
-------- --------
</TABLE>
(3) DEFERRED ACQUISITION COSTS
For investment contracts, deferred acquisition costs are amortized based on
the present value of the anticipated gross profits from investments, interest
credited, surrender charges, mortality and maintenance expenses. As actual gross
profits vary from projected, the impact on amortization is included in net
income. For insurance contracts, the acquisition costs are amortized in relation
to the benefit payments or the present value of expected future premiums.
Recoverability of deferred acquisition costs is evaluated periodically by
comparing the current estimate of expected future gross profits to the
unamortized asset balances. If such comparison indicates that the expected gross
profits will not be sufficient to recover the asset, the difference is charged
to expense.
Activity in deferred acquisition costs was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C>
Unamortized balance at January 1................................................. $106.5 $ 90.2 $27.1
Dividend of GE Capital Assurance................................................. -- (26.6) --
Costs deferred................................................................... 36.0 53.0 62.8
Amortization, net................................................................ (9.3) (10.1) .3
------ ------ -----
Unamortized balance at December 31............................................... 133.2 106.5 90.2
Cumulative effect of net unrealized investment (gains) losses.................... (3.6) (17.7) 1.9
------ ------ -----
Recorded balance................................................................. $129.6 $ 88.8 $92.1
------ ------ -----
------ ------ -----
</TABLE>
19
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) INTANGIBLE ASSETS
(A) PRESENT VALUE OF FUTURE PROFITS
The method used by the Company to value PVFP is summarized as follows: (1)
identify the future gross profits attributable to certain lines of business, (2)
identify the risks inherent in realizing those gross profits, and (3) discount
these gross profits at the rate of return that the Company believes it must earn
in order to accept the inherent risks.
After PVFP is determined, the amount is amortized, net of accreted
interest, based on the incidence of the expected gross profits. Interest
accretes at rates credited to policyholders on underlying contracts. As actual
gross profits for investment contracts vary from projection, the impact on
amortization is included in net income.
Recoverability of PVFP is evaluated periodically by comparing the current
estimate of expected future gross profits to the unamortized asset balances. If
such comparison indicates that the expected gross profits will not be sufficient
to recover PVFP, the difference is charged to expense.
The following table presents the activity in PVFP for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Unamortized balance at January 1............................................... $187.5 $313.9 $363.9
Dividend of GE Capital Assurance............................................... -- (74.0) --
Interest accrued at 5.4% in 1996, 4.8% in 1995 and 4.9% in 1994................ 10.0 15.4 17.8
Amortization................................................................... (42.4) (67.8) (67.8)
------ ------ ------
Unamortized balance at December 31............................................. 155.1 187.5 313.9
Cumulative effect of net unrealized investment gains (losses).................. (6.4) (65.1) 101.2
------ ------ ------
Recorded balance............................................................... $148.7 $122.4 $415.1
------ ------ ------
------ ------ ------
</TABLE>
The estimated percentage of the December 31, 1996 balance before the effect
of unrealized investment gains or losses to be amortized over the next five
years is as follows:
1997 19.3%
1998 16.3
1999 13.3
2000 10.7
2001 8.9
(B) GOODWILL
In conjunction with the acquisitions, $150.6 of goodwill was recorded. In
conjunction with the Reorganization, goodwill was reduced by $103.4. During the
years ended December 31, 1996, 1995 and 1994, $1.5, $4.8 and $7.8, respectively,
was amortized. As of December 31, 1996, the unamortized balance of goodwill was
$31.2.
(5) FUTURE ANNUITY AND CONTRACT BENEFITS
(A) INVESTMENT AND UNIVERSAL LIFE TYPE CONTRACTS
Investment contracts are broadly defined to include contracts without
significant mortality or morbidity risk. Payments received from sales of
investment and universal life type contracts are recognized by providing a
liability equal to the current account value of the policyholders' contracts.
Interest rates credited to these contracts are guaranteed for the policy term
with renewal rates determined by management. At December 31, 1996 and 1995,
investment contracts comprised $5,564.1 and $5,668.2, respectively.
20
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(5) FUTURE ANNUITY AND CONTRACT BENEFITS -- CONTINUED
(B) INSURANCE CONTRACTS
Insurance contracts are broadly defined to include contracts with
significant mortality and/or morbidity risk. The liability for future benefits
is the present value of such benefits based on mortality, and other assumptions
which were appropriate at the time the policies were issued. These assumptions
are periodically evaluated for potential premium deficiencies. At December 31,
1996 and 1995, insurance contracts comprised $511.0 and $309.7, respectively.
Interest rate assumptions used in calculating the present value of future
annuity and contract benefits for insurance contracts range from 6.1% to 9.9%.
(6) RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1996, 1995 and 1994, the Company
recognized $3.4, $1.6 and $2.6, respectively, from its affiliates, GNA
Securities, Inc. and GNA Distributors, Inc. for reimbursement of marketing,
administrative and general office expenses.
During the years ended December 31, 1996 and 1995, the Company received a
dividend from GE Capital Life of New York of $7.5 and $7.1, respectively.
Prior to the Reorganization, the Company received $3.6 from GE Capital Life
of New York and paid $31.2 to GE Capital Assurance for settlement of
intercompany tax payments.
(7) COMMITMENTS AND CONTINGENCIES
(A) MORTGAGE LOAN COMMITMENTS
As of December 31, 1996 and 1995, the Company was committed to fund $27.7
and $20.2, respectively, in mortgage loans.
(B) GUARANTY ASSOCIATION ASSESSMENTS
The Company is required by law to participate in the guaranty associations
of the various states in which it does business. The state guaranty associations
ensure payment of guaranteed benefits, with certain restrictions to
policyholders of impaired or insolvent insurance companies, by assessing all
other companies involved in similar lines of business.
There are currently several insurance companies which had substantial
amounts of annuity business, in the process of liquidation or rehabilitation.
The Company paid $3.9, $6.6 and $10.3 to various state guaranty associations
during the years ended December 31, 1996, 1995 and 1994, respectively. At
December 31, 1996 and 1995, accounts payable and accrued expenses include $34.4
and $38.2, respectively, related to estimated assessments. The Company expensed
$20.4 of related assessments during the fourth quarter of 1995.
(C) LEASES
The Company leases the office space used in its operations. Future minimum
commitments under operating leases as of December 31, 1996 aggregate to $11.5,
terminating in the year 2001.
Rates for certain office space leases are subject to inflationary
increases. The effect of such inflationary increases has not been reflected in
the future minimum commitments.
(D) LITIGATION
There is no material pending litigation to which the Company is a party or
of which any of the Company's property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against the Company of
which management has any knowledge.
21
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) INCOME TAXES
The total provision for income taxes for the years ended December 31
consisted of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C>
Current federal income tax provision.............................................. $ 34.3 $19.5 $12.0
Deferred federal income tax provision............................................. (10.1) 3.9 29.2
------ ----- -----
Subtotal -- federal provision................................................ 24.2 23.4 41.2
------ ----- -----
Current state income tax provision................................................ 1.0 1.0 2.5
Deferred state income tax provision............................................... (.3) .1 1.0
------ ----- -----
Subtotal -- state provision.................................................. .7 1.1 3.5
------ ----- -----
Total provision for income taxes............................................. $ 24.9 $24.5 $44.7
------ ----- -----
------ ----- -----
</TABLE>
The following reconciles the federal statutory tax rate of 35% to the
reported income tax provision (benefit):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C>
Statutory U.S. federal income tax rate........................................... 35.0% 35.0% 35.0%
Equity in earnings of GE Capital Life of New York................................ (3.5) (.7) --
State income tax................................................................. .6 1.2 2.2
Goodwill amortization............................................................ .7 2.7 2.5
Other, net....................................................................... -- 1.3 1.8
------ ------ -----
Effective rate.............................................................. 32.8% 39.5% 41.5%
------ ------ -----
------ ------ -----
</TABLE>
The components of the net deferred income tax benefit at December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C>
Assets:
Mortgage loans and real estate.......................................................... $ 6.2 $ 4.4
Future annuity and contract benefits.................................................... 68.2 58.5
Guaranty association assessments........................................................ 14.1 15.6
Other................................................................................... .7 1.5
------ ------
Total deferred tax assets............................................................ 89.2 80.0
------ ------
Liabilities:
Net unrealized gains on investment securities........................................... (4.1) (14.9)
Investments............................................................................. (2.0) --
Present value of future profits......................................................... (45.2) (55.7)
Deferred acquisition costs.............................................................. (16.4) (6.1)
Other................................................................................... (2.4) (5.5)
------ ------
Total deferred tax liabilities....................................................... (70.1) (82.2)
------ ------
Net deferred income tax benefit (liability).......................................... $ 19.1 $ (2.2)
------ ------
------ ------
</TABLE>
Based on an analysis of the Company's tax position, management believes it
is more likely than not that the results of future operations and tax planning
strategies will generate sufficient taxable income to realize deferred tax
assets. No valuation allowance for deferred tax assets was deemed necessary for
1996 or 1995.
22
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
On December 31, 1995, the Company adopted SFAS No. 119, DISCLOSURE ABOUT
DERIVATIVE FINANCIAL INSTRUMENTS. This statement required disclosures about
amounts, nature and trems of derivative financial instruments and modifies
existing disclosure requirements for other financial instruments.
The Company has no derivative financial instruments other than mortgage
loan commitments of $27.7 and $20.2 at December 31, 1996 and 1995, respectively.
The fair values of financial instruments presented in the applicable notes
to the Company's consolidated financial statements are estimates of the fair
values at a specific point in time using available market information and
appropriate valuation methodologies. These estimates are subjective in nature
and involve uncertainties and significant judgment in the interpretation of
current market data. Therefore, the fair values presented are not necessarily
indicative of amounts the Company could realize or settle currently. The Company
does not necessarily intend to dispose of or liquidate such instruments prior to
maturity. Financial instruments that, as a matter of accounting policy, are
reflected in the accompanying consolidated financial statements at fair value
are not included in the following disclosures. Such items include cash and cash
equivalents, investment securities, policy loans and other invested assets.
The fair value of mortgage loans is estimated by discounting the estimated
future cash flows using current loan origination rates adjusted for credit
risks.
The estimated fair value of investment contracts is the amount payable on
demand (cash surrender value) for deferred annuities and the net present value,
based on interest rates currently offered on similar contracts, for non-life
contingent immediate annuities. Fair value disclosures are not required for
insurance contracts.
At December 31, the carrying amounts and fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL INSTRUMENTS AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------- -------- -------- -------- --------
<S> <C>
Mortgage loans......................................... $1,159.7 $1,171.2 $1,282.4 $1,344.9
-------- -------- -------- --------
Investment contracts................................... $5,504.0 $5,364.5 $5,668.2 $5,514.9
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(10) STATUTORY BASIS DATA AND RESTRICTION OF RETAINED EARNINGS
The Company files financial statements with state insurance regulatory
authorities and the National Association of Insurance Commissioners (NAIC) that
are prepared on an accounting basis prescribed or permitted by such authorities
(statutory basis). Statutory accounting practices differ from GAAP in several
respects, causing differences in reported net income and shareholder's interest.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed but that have been specifically granted by state insurance
authorities. The Company, however, has no significant permitted accounting
practices which vary from prescribed accounting practices or GAAP.
Statutory net income for the years ended December 31, 1996, 1995 and 1994
was $65.4, $76.7 and $82.6, respectively. Statutory capital and surplus as of
December 31, 1996 and 1995 was $411.2 and $356.9, respectively.
The NAIC has adopted Risk-Based Capital (RBC) requirements to evaluate the
adequacy of statutory capital and surplus in relation to risks associated with:
(i) asset quality, (ii) insurance risk, (iii) interest rate risk, and (iv) other
business factors. The RBC formula is designed as an early warning tool for the
states to identify possible under-capitalized companies for the purpose of
initiating regulatory action. In the course of its operations, the Company
monitors the level of its RBC and it exceeds the minimum required levels.
The Company is restricted by Washington State as to the amount of dividends
it may pay within a given calendar year to its parent without regulatory
consent. That restriction is the greater of statutory net gain from operations
for the previous year or 10% of the statutory surplus at the end of the year,
subject to a maximum limit equal to statutory earned surplus. As of December 31,
1996, approximately $66.0 was available for dividend payments in 1997.
23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Shareholder's Interest for the Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is shown in the
financial statements or notes thereto.
(2) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- --------------------------------------------------- ---------------------------------------------------
<S> <C>
1 Underwriting Agreement between Great Northern Incorporated herein by reference to Exhibit (3)(i)
Insured Annuity Corporation and GNA Distributors, to registration statement under the Securities
Inc. Act of 1933 of GNA Variable Investment Account,
File No. 33-78810 filed May 11, 1994.
3.1 Articles of Incorporation of Great Northern Insured Incorporated herein by reference to Exhibit 3.1 to
Annuity Corporation. registration statement under the Securities Act
of 1933 of Great Northern Insured Annuity
Corporation, File No. 33-62674 filed May 14,
1993.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- --------------------------------------------------- ---------------------------------------------------
<S> <C>
3.2 By-laws of Great Northern Insured Annuity Incorporated herein by reference to Exhibit 3.2 to
Corporation. registration statement under the Securities Act
of 1933 of Great Northern Insured Annuity
Corporation, File No. 33-62674 filed May 14,
1993.
4.1 Specimen Group Deferred Variable Annuity and Incorporated herein by reference to Exhibit (4)(i)
Modified Guaranteed Annuity Contract. to registration statement on Form N-4 of GNA
Variable Investment Account, File No. 33-78810
filed September 15, 1994.
4.2 Specimen Certificate under Group Deferred Variable Incorporated herein by reference to Exhibit
Annuity and Modified Guaranteed Annuity Contract. (4)(iii) to registration statement on Form N-4 of
GNA Variable Investment Account, File No.
33-78810 filed September 15, 1994.
4.3 Endorsements to Contracts or Certificates under Incorporated herein by reference to Exhibit (4)(ii)
Group Deferred Variable Annuity and Modified to registration statement on Form N-4 of GNA
Guaranteed Annuity Contract. Variable Investment Account, File No. 33-78810
filed May 11, 1994.
4.4 Application for Group Deferred Variable Annuity and Incorporated herein by reference to Exhibit (5)(i)
Modified Guaranteed Annuity Contract. to registration statement on Form N-4 of GNA
Variable Investment Account, File No. 33-78810
filed May 11, 1994.
4.5 Application for Certificate under Group Deferred Incorporated herein by reference to Exhibit (5)(ii)
Variable Annuity and Modified Guaranteed Annuity to registration statement on Form N-4 of GNA
Contract. Variable Investment Account, File No. 33-78810
filed May 11, 1994.
4.6 Group Modified Guaranteed Annuity Contract. Incorporated herein by reference to Exhibit 4.1 to
Form S-1 on May 14, 1993.
4.7 Addendum to Contract or Certificate for Modified Incorporated herein by reference to Exhibit 4.2 to
Guaranteed Annuity. Form S-1 on May 14, 1993.
4.8 Certificate of Participation. Incorporated herein by reference to Exhibit 4.3 to
Form S-1 on May 14, 1993.
4.9 Addendum to Modified Guaranteed annuity Certificate Incorporated herein by reference to Exhibit 4.4 to
for 403(b) Annuity. Form S-1 on May 14, 1993.
4.10 Addendum to Modified Guaranteed Annuity Certificate Incorporated herein by reference to Exhibit 4.5 to
for Individual Retirement Annuity. Form S-1 on May 14, 1993.
10. Service Agreement between Great Northern Insured Incorporated herein by reference to Exhibit (8) to
Annuity Corporation and Delaware Valley Financial registration statement on Form N-4 of GNA
Services, Inc. Variable Investment Account, File No. 33-78812
filed September 15, 1994.
</TABLE>
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1996
No reports on Form 8-K were required to be filed by the Company for
the quarter ended December 31, 1996.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GREAT NORTHERN INSURED ANNUITY
CORPORATION
Registrant
<TABLE>
<S> <C>
March 27, 1997 By /s/GEOFFREY S. STIFF
-------------- -------------------------------
DATE GEOFFREY S. STIFF, DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
March 27, 1997 By /s/GEOFFREY S. STIFF
-------------- ------------------------------------------
DATE GEOFFREY S. STIFF, DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
March 27, 1997 By /s/STEPHEN P. JOYCE
-------------- ------------------------------------------
DATE STEPHEN P. JOYCE, DIRECTOR,
AND SENIOR VICE PRESIDENT
March 27, 1997 By /s/CHARLES A. KAMINSKI
-------------- ------------------------------------------
DATE CHARLES A. KAMINSKI, DIRECTOR
AND SENIOR VICE PRESIDENT
March 27, 1997 By /s/VICTOR C. MOSES
-------------- ------------------------------------------
DATE VICTOR C. MOSES, DIRECTOR, SENIOR
VICE PRESIDENT AND CHIEF ACTUARY
March 27, 1997 By /s/KENNETH F. STARR
-------------- ------------------------------------------
DATE KENNETH F. STARR, DIRECTOR
AND SENIOR VICE PRESIDENT
March 27, 1997 By /s/THOMAS W. CASEY
-------------- ------------------------------------------
DATE THOMAS W. CASEY, VICE PRESIDENT, CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER)
March 27, 1997 By /s/STEPHEN N. DEVOS
-------------- ------------------------------------------
DATE STEPHEN N. DEVOS, VICE PRESIDENT AND
CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GREAT NORTHERN INSURED ANNUITY CORPORATION FORM 10-K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 5,270 5,065
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 1,160 1,282
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 6,599 6,544
<CASH> 6 30
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 130 89
<TOTAL-ASSETS> 7,120 6,927
<POLICY-LOSSES> 6,172 6,067
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 48 74
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 687 659
<TOTAL-LIABILITY-AND-EQUITY> 7,120 6,927
200 177
<INVESTMENT-INCOME> 463 785
<INVESTMENT-GAINS> 3 (14)
<OTHER-INCOME> 8 17
<BENEFITS> 30 137
<UNDERWRITING-AMORTIZATION> (27) (43)
<UNDERWRITING-OTHER> 64 114
<INCOME-PRETAX> 76 62
<INCOME-TAX> 25 25
<INCOME-CONTINUING> 51 26
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 51 26
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
