FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
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Commission file number 33-62674
GREAT NORTHERN INSURED ANNUITY CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 91-1127115
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
Two Union Square, Suite 5600
Seattle, Washington 98101
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(Address of principal executive offices) (Zip Code)
(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
The registrant meets the conditions set forth in general instructions H(1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...................................... 3
Item 2. Management's Discussion and Analysis of Results
of Operations........................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................... 9
Item 2. Changes in Securities..................................... 9
Item 3. Defaults Upon Senior Securities........................... 9
Item 4. Submission of Matters to a Vote of Security Holders....... 9
Item 5. Other Information......................................... 9
Item 6. Exhibits and Reports on Form 8-K.......................... 9
SIGNATURES 10
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GREAT NORTHERN INSURED ANNUITY CORPORATION
Balance Sheets
(Unaudited)
(Dollar amounts in millions)
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<CAPTION>
March 31, December 31,
1998 1997
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Assets
Investments:
Fixed maturities available for sale, at fair value $ 4,971.8 $ 5,056.9
Mortgage loans, net of valuation allowance 1,200.1 1,203.8
Real estate owned, net 4.1 4.1
Policy loans 3.3 3.3
Short-term investments .8 98.8
Other invested assets 265.4 256.0
-----------------------
Total investments 6,445.5 6,622.9
Cash 3.4 2.8
Accrued investment income 111.7 110.7
Deferred acquisition costs 100.5 97.7
Intangible assets 92.7 98.5
Other assets 153.7 109.6
Separate account assets 42.8 39.9
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Total assets $ 6,946.3 $ 7,082.1
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Liabilities and Shareholder's Interest
Liabilities:
Future annuity and contract benefits $ 5,885.0 $ 6,003.6
Other policyholder liabilities 10.1 18.7
Accounts payable and accrued expenses 186.8 215.1
Deferred income tax liability 10.0 12.3
Separate account liabilities 42.8 39.9
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Total liabilities 6,134.7 6,289.6
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Shareholder's interest:
Common stock 2.5 2.5
Additional paid-in capital 542.0 542.0
Net unrealized investment gains 44.2 38.3
Retained earnings 226.9 209.7
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Total shareholder's interest 815.6 792.5
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Total liabilities and shareholder's interest $ 6,950.3 $ 7,082.1
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</TABLE>
See accompanying note to financial statements.
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GREAT NORTHERN INSURED ANNUITY CORPORATION
Statements of Income and Retained Earnings
(Unaudited)
(Dollar amounts in millions)
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<CAPTION>
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Three months ended
March 31
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1998 1997
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Revenues:
Net investment income 116.7 $ 119.9
Net realized investment gains (losses) (.8) 8.4
Premiums 3.9 28.4
Policy fees and other income 1.7 2.4
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Total revenues 121.5 159.1
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Benefits and expenses:
Interest credited 69.0 74.5
Change in policy reserves 6.8 29.1
Annuity and surrender benefits 6.2 8.7
Commissions 1.7 4.9
General expenses 2.3 9.7
Amortization of intangibles, net 7.7 9.1
Change in deferred acquisition costs, net 2.0 (3.4)
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Total benefits and expenses 95.7 132.6
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Income before income taxes 25.8 26.5
Provision for income taxes 8.6 8.9
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Net income 17.2 17.6
Retained earnings at beginning of period 209.7 138.4
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Retained earnings at end of period 226.9 $ 156.0
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</TABLE>
See accompanying notes to financial statements.
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GREAT NORTHERN INSURED ANNUITY CORPORATION
Statements of Cash Flows
(Unaudited)
(Dollar amounts in millions)
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<CAPTION>
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Three months ended
March 31
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1998 1997
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Cash flows from operating activities:
Net income $ 17.2 $ 17.6
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Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (2.1) (1.9)
Increase in future policy benefits 75.8 103.6
Net realized investment (gains) losses 0.8 (8.4)
Amortization of investment premiums and discounts (0.4) 4.3
Amortization of intangibles, net 7.7 9.1
Change in certain assets and liabilities:
Decrease (increase) in:
Accrued investment income (1.0) 1.3
Deferred acquisition costs 2.0 (3.4)
Other assets (44.1) (12.0)
Increase (decrease) in:
Other policy-related balances (8.4) (6.9)
Accounts payable and accrued expenses (28.3) 13.9
Deferred income tax liability (3.2) (3.1)
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Total adjustments (1.2) 96.5
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Net cash provided by operating activities 16.0 114.1
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Cash flows from investing activities:
Proceeds from investments in fixed maturities and other invested assets 342.4 201.3
Principal collected on mortgage and policy loans 61.7 48.4
Purchases of fixed maturities and other invested assets (264.7) (223.0)
Mortgage loan originations (58.4) (22.3)
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Net cash provided by investing activities 81.0 4.4
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Cash flows from financing activities:
Proceeds from issue of investment contracts 30.7 80.1
Redemption and benefit payments on investment contracts (225.1) (193.6)
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Net cash used in financing activities (194.4) (113.5)
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Net increase (decrease) in cash and cash equivalents (97.4) 5.0
Cash and cash equivalents at beginning of period 101.6 6.2
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Cash and cash equivalents at end of period $ 4.2 $ 11.2
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION
Notes to Financial Statements
March 31, 1998
(Unaudited)
(1) Basis of Presentation
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.
The accompanying financial statements include the accounts of GNA, as
well as its 48% investment in GE Capital Life Assurance Company of New
York (GE Capital Life of New York), accounted for under the equity
method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates.
The condensed quarterly financial statements are unaudited. These
statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement
of the results of operations, financial position and cash flows. The
results reported in these condensed financial statements should not be
regarded as necessarily indicative of results that may be expected for
the entire year.
(2) Commitment and Contingencies
As of March 31, 1998 and December 31, 1997, the Company was committed to
fund $19.8 million and $94.8 million, respectively, in mortgage loans.
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.
(3) New Accounting Standards
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was adopted as of January 1, 1998. This Statement
requires reporting of changes in share owners' equity that do not result
directly from transactions with share owners. An analysis of these
changes follows:
Three Months Ended
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(Dollars in millions) March 31, 1998 March 31, 1997
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Net earnings $ 17.2 17.6
Unrealized gains (losses) on investment
Securities - net 5.9 (24.4)
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Total $ 23.1 (6.8)
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
RESULTS OF OPERATIONS
GNA's results of operations for the three months ended March 31, 1998 and 1997,
include the accounts of GNA, as well as its investment in GE Capital Life of New
York, accounted for under the equity method.
Net investment income decreased $3.2 million to $116.7 million during the first
three months of 1998 compared to 1997. The change is attributable to a reduction
in earning assets. Overall investment yields have also decreased due to a lower
interest rate environment.
Net realized investment gains/losses - Net realized investment losses were $0.8
million during the first three months of 1998, compared to $8.4 million in gains
during the same period in 1997. This change is related to the Company's
asset/liability risk management and varies with market and economic conditions.
Premiums decreased $24.5 million to $3.9 million during the first three months
of 1998. This decrease is due to lower sales of life contingent structured
settlement product primarily related to a shift in marketing focus to products
of GE Capital Assurance, an affiliated company.
Interest credited on policyholder deposits decreased $5.5 million to $69.0
million for the first three months of 1998 due to lower future annuity and
contract benefit liabilities and a lower interest rate environment.
Change in policy reserves decreased $22.3 million to $6.8 million during the
first three months of 1998. This decrease is largely due to surrenders of
policies as a result of the changing market conditions.
Annuity and surrender benefits decreased $2.5 million to $6.2 million primarily
due to lower benefit payments on life contingent structured settlement products.
Commissions decreased $3.2 million to $1.7 million. This decrease is due to
continued shift in marketing focus to GE Capital Assurance products.
General expenses decreased $7.4 million to $2.3 million for the first three
months of 1998. Decrease is due to the Company's continuing cost reduction
strategy and shift in marketing focus to products issued by GE Capital
Assurance.
Amortization of intangibles (net) decreased $1.4 million to $7.7 million. The
Company established goodwill and present value of future profits (PVFP) assets
in connection with GNA's acquisition. The decrease is primarily related to lower
PVFP amortization for the period ended March 31, 1998.
Change in deferred acquisition costs increased $5.4 million primarily as a
result of amortization of prior capitalized cost and lower current period
capitalization resulting from lower sales.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings.
Item 2. Changes in Securities
Omitted.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
<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.
GREAT NORTHERN INSURED ANNUITY CORPORATION
(Registrant)
, 1998 By /s/ Thomas W. Casey
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Date Thomas W. Casey, Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
, 1998 By /s/ Stephen N. DeVos
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Date Stephen N. DeVos, Vice President
and Controller
(Principal Accounting Officer)
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<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GREAT NORTHERN INSURED ANNUITY CORPORATION FORM 10-K AND ITS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<DEBT-HELD-FOR-SALE> 5,056 4,972
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 1,204 1,200
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 6,623 6,446
<CASH> 0 0
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 98 93
<TOTAL-ASSETS> 7,082 6,950
<POLICY-LOSSES> 6,004 5,885
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 19 10
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 790 813
<TOTAL-LIABILITY-AND-EQUITY> 7,082 6,950
61 4
<INVESTMENT-INCOME> 475 117
<INVESTMENT-GAINS> 20 (1)
<OTHER-INCOME> 8 2
<BENEFITS> 36 6
<UNDERWRITING-AMORTIZATION> (8) 2
<UNDERWRITING-OTHER> 42 4
<INCOME-PRETAX> 107 96
<INCOME-TAX> 36 9
<INCOME-CONTINUING> 71 17
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 71 17
<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
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</TABLE>
