SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-5014
FIRST SUNAMERICA LIFE INSURANCE COMPANY
Incorporated in New York 06-0992729
IRS Employer
Identification No.
733 Third Avenue, 4th Floor, New York, New York 10017
Registrant's telephone number, including area code (800) 272-3007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the securities exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
---- ----
The number of shares outstanding of the registrant's common stock on
August 13, 1998 was as follows:
Common Stock (par value $10,000.00 per share) 300 shares outstanding
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INDEX
Page
Number(s)
---------
Part I - Financial Information
Item 1 - Financial Information
Balance Sheet (Unaudited) -
June 30, 1998 and September 30, 1997 3 - 4
Income Statement (Unaudited) -
Three Months and Nine Months Ended
June 30, 1998 and 1997 5
Statement of Cash Flows (Unaudited) -
Nine Months Ended June 30, 1998 and 1997 6 - 7
Notes to Financial Statements (Unaudited) 8 - 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 24
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 25
Part II - Other Information 26
<TABLE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands - unaudited)
<CAPTION>
June 30, September 30,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 55,502,000 $ 50,585,000
Bonds and notes available for sale,
at fair value (amortized cost:
June 1998, $1,284,917,000;
September 1997, $1,459,112,000) 1,322,343,000 1,499,253,000
Mortgage loans 195,119,000 131,117,000
Other invested assets 7,392,000 9,277,000
--------------- ---------------
Total investments 1,580,356,000 1,690,232,000
Variable annuity assets held in separate
accounts 280,276,000 171,475,000
Accrued investment income 18,874,000 22,243,000
Deferred acquisition costs 91,344,000 96,516,000
Other assets 1,994,000 4,024,000
--------------- ---------------
TOTAL ASSETS $ 1,972,844,000 $ 1,984,490,000
=============== ===============
</TABLE>
See accompanying notes
3
<TABLE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET (Continued)
(In thousands - unaudited)
<CAPTION>
June 30, September 30,
1998 1997
--------------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 1,476,778,000 $ 1,556,656,000
Payable to brokers for purchases of
securities 4,686,000 12,460,000
Income taxes currently payable 8,064,000 2,236,000
Other liabilities 16,107,000 68,601,000
--------------- ---------------
Total reserves, payables
and accrued liabilities 1,505,635,000 1,639,953,000
--------------- ---------------
Variable annuity liabilities related to
separate accounts 280,276,000 171,475,000
--------------- ---------------
Deferred income taxes 5,099,000 4,984,000
--------------- ---------------
Shareholder's equity:
Common Stock 3,000,000 3,000,000
Additional paid-in capital 144,428,000 144,428,000
Retained earnings 28,129,000 14,826,000
Net unrealized gains on debt and equity
securities available for sale 6,277,000 5,824,000
--------------- ---------------
Total shareholder's equity 181,834,000 168,078,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,972,844,000 $ 1,984,490,000
=============== ===============
</TABLE>
See accompanying notes
4
<TABLE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands - unaudited)
<CAPTION>
Three Months Nine Months
------------------------- -------------------------
1998 1997 1998 1997
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Investment income $29,212,000 $ 29,719,000 $ 88,663,000 $35,820,000
----------- ------------ ------------ -----------
Interest expense on:
Fixed annuity contracts (19,875,000) (20,407,000) (61,497,000) (25,145,000)
Senior indebtedness (10,000) (237,000) (38,000) (237,000)
----------- ------------ ------------ -----------
Total interest expense (19,885,000) (20,644,000) (61,535,000) (25,382,000)
----------- ------------ ------------ -----------
NET INVESTMENT INCOME 9,327,000 9,075,000 27,128,000 10,438,000
----------- ------------ ------------ -----------
NET REALIZED INVESTMENT
GAINS 2,060,000 2,482,000 4,530,000 3,007,000
----------- ------------ ------------ -----------
Fee income:
Variable annuity fees 1,002,000 455,000 2,522,000 1,116,000
Surrender charges 1,345,000 56,000 3,437,000 170,000
----------- ------------ ------------ -----------
TOTAL FEE INCOME 2,347,000 511,000 5,959,000 1,286,000
----------- ------------ ------------ -----------
GENERAL AND ADMINISTRATIVE
EXPENSES (115,000) (144,000) (2,145,000) (905,000)
----------- ------------ ------------ -----------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (4,360,000) (4,435,000) (12,580,000) (5,031,000)
----------- ------------ ------------ -----------
ANNUAL COMMISSIONS (131,000) (141,000) (270,000) (150,000)
----------- ------------ ------------ -----------
PRETAX INCOME 9,128,000 7,348,000 22,622,000 8,645,000
Income tax expense (3,785,000) (2,561,000) (9,318,000) (3,053,000)
----------- ------------ ------------ -----------
NET INCOME $ 5,343,000 $ 4,787,000 $ 13,304,000 $ 5,592,000
=========== ============ ============ ===========
</TABLE>
See accompanying notes
5
<TABLE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(In thousands - unaudited)
<CAPTION>
Nine Months Ended June 30,
--------------------------------
1998 1997
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,304,000 $ 5,592,000
Adjustments to reconcile net income to
cash provided by operating activities:
Interest credited to fixed annuity
contracts 61,497,000 25,145,000
Net realized investment gains (4,530,000) (3,007,000)
Amortization of net discounts
on investments (784,000) (812,000)
Amortization of goodwill 43,000 42,000
Provision for deferred income taxes (129,000) 2,281,000
Change in:
Deferred acquisition costs 3,572,000 (8,887,000)
Income taxes currently payable 5,828,000 772,000
Other, net 14,488,000 35,103,000
------------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 93,289,000 56,229,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes (541,391,000) (688,940,000)
Mortgage loans (80,354,000) ---
Other investments, excluding
short-term investments (11,000) ---
Sales of:
Bonds and notes 664,655,000 394,932,000
Mortgage loans --- 88,371,000
Other investments, excluding
short-term investments 472,000 140,000
Redemptions and maturities of:
Bonds and notes 48,694,000 35,968,000
Mortgage loans 15,588,000 3,818,000
Other investments, excluding
short-term investments --- 299,000
------------- ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 107,653,000 (165,412,000)
------------- ------------
</TABLE>
See accompanying notes
6
<TABLE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
(In thousands - unaudited)
<CAPTION>
Nine Months Ended June 30,
--------------------------------
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity
contracts $ 99,635,000 $ 89,676,000
Net exchanges from the fixed accounts
of variable annuity contracts (37,120,000) (13,294,000)
Withdrawal payments on fixed annuity
contracts (176,185,000) (37,831,000)
Claims and annuity payments on fixed
annuity contracts (26,838,000) (10,087,000)
Net receipts from (repayments of) other
short-term financings (20,741,000) 243,000
Cession of non-annuity product lines (34,776,000) ---
------------- ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (196,025,000) 28,707,000
------------- ------------
NET CASH PROVIDED BY MERGER --- 98,189,000
------------- ------------
NET INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 4,917,000 17,713,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 50,585,000 6,707,000
------------- ------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 55,502,000 $ 24,420,000
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 38,000 $ 237,000
============= ============
Income taxes paid $ 3,620,000 $ 500,000
============= ============
</TABLE>
See accompanying notes
7
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(In thousands - unaudited)
1. Basis of Presentation
---------------------
First SunAmerica Life Insurance Company (the "Company") is an indirect
wholly owned subsidiary of SunAmerica Inc. (the "Parent"). In the
opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of June
30, 1998 and September 30, 1997, the results of its operations for the
three months and nine months ended June 30, 1998 and 1997 and its cash
flows for the nine months ended June 30, 1998 and 1997. The results of
operations for the three months and nine months ended June 30, 1998 are
not necessarily indicative of the results to be expected for the full
year. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements for the fiscal year
ended September 30, 1997, contained in the Company's Annual Report on
Form 10-K. The 1997 financial statements have been restated to reflect
the merger with John Alden Life Insurance Company of New York (see Note
2). Certain other 1997 items have been reclassified to conform to the
1998 presentation.
2. Business Combination
--------------------
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent
of the Company, completed the acquisition of all of the outstanding stock
of John Alden Life Insurance Company of New York ("JANY"). On October
31, 1997, JANY was merged with and into the Company. The income
statement for the nine months ended June 30, 1998 includes the results
of JANY's operations for the full period between October 1, 1997 and June
30, 1998. The balance sheet at June 30, 1997 and the income statement
and statement of cash flows for the nine months ended June 30, 1997 have
been restated from those originally contained in the June 30, 1997 Form
10-Q to include the assets and liabilities of JANY and the results of
JANY's operations and cash flows for the three-month period between April
1, 1997 and June 30, 1997. On a pro forma basis, assuming the
acquisition and merger had occurred on October 1, 1996, the beginning of
the earliest period presented herein, revenues (investment income, net
realized investment gains and fee income) would have been $91,339,000 and
net income would have been $8,709,000 for the nine months ended June 30,
1997.
3. Subsequent Event
----------------
On July 15, 1998, an affiliate of the Company entered into a definitive
agreement to acquire the individual life business and the individual and
group annuity business of MBL Life Assurance Corporation ("MBL Life") via
a 100% coinsurance transaction for approximately $130,000,000 in cash.
The transaction will include approximately $2,000,000,000 of universal
life reserves and $3,000,000,000 of fixed annuity reserves. A large
portion of the mortality risk associated with the acquired block of
universal life business will be reinsured to a non-affiliated company.
Completion of this acquisition is expected by the end of calendar year
8
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(In thousands - unaudited)
3. Subsequent Event (Continued)
---------------------------
1998 and is subject to customary conditions and required approvals.
Included in this block of business is approximately $250,000,000 of
individual life business and $500,000,000 of group annuity business whose
contract owners are residents of New York State ("the New York
Business"). Approximately six months subsequent to completion of the
transaction, the New York Business will be acquired by the Company via
an assumption reinsurance agreement between the Company and MBL Life,
which will supersede the coinsurance agreement. The $130,000,000
purchase price will be allocated between the Company and its affiliate
based on their respective assumed reserves.
9
FIRST SUNAMERICA LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations of First SunAmerica Life Insurance Company (the "Company") for
the three months and nine months ended June 30, 1998 and June 30, 1997 follows.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with
the Securities and Exchange Commission (the "SEC"). Forward-looking statements
are statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar
import generally involve forward-looking statements. Without limiting the
foregoing, forward-looking statements include statements which represent the
Company's beliefs concerning future levels of sales and redemptions of the
Company's products, investment spreads and yields, or the earnings and
profitability of the Company's activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such
as credit, volatility and other risks associated with the Company's investment
portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
NET INCOME totaled $5.3 million in the third quarter of 1998, compared
with $4.8 million in the third quarter of 1997. For the nine months, net
income amounted to $13.3 million in 1998, compared with $5.6 million in 1997.
On October 31, 1997, John Alden Life Insurance Company of New York ("JANY") was
merged with and into the Company. JANY was acquired by SunAmerica Life
Insurance Company, the Company's parent, on March 31, 1997 in a transaction
accounted for under the purchase method of accounting. Therefore, the results
of operations include those of JANY only from the date of acquisition. The
income statements for the three months and nine months ended June 30, 1998
include the results of JANY's operations for these periods, and the income
statements for the three months and nine months ended June 30, 1997 include
JANY's operating results only for the period of April 1, 1997 through June 30,
10
1997. Consequently, operating results for the nine months of 1998 and 1997 are
not comparable. On a pro forma basis, using the historical operating results
of JANY and assuming the merger had been consummated on October 1, 1996, the
beginning of the prior-year periods discussed herein, net income would have
been $8.7 million for the nine months of 1997.
PRETAX INCOME totaled $9.1 million in the third quarter of 1998 and $7.3
million in the third quarter of 1997. For the nine months, pretax income
totaled $22.6 million in 1998, compared with $8.6 million in 1997. The
improved pretax income for the third quarter of 1998 compared to the prior year
was primarily due to increased fee income. The significant improvement in the
nine months of 1998 over the prior year primarily resulted from increased net
investment income, fee income and net realized investment gains, which were
partially offset by increased amortization of deferred acquisition costs and
higher general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other interest-
bearing liabilities, increased to $9.3 million in the third quarter of 1998
from $9.1 million in the third quarter of 1997. These amounts equal 2.42% of
average invested assets (computed on a daily basis) of $1.54 billion in the
third quarter of 1998 and 2.28% of average invested assets of $1.59 billion in
the third quarter of 1997. For the nine months, net investment income
increased to $27.1 million in 1998 from $10.4 million in 1997, equalling 2.32%
of average invested assets of $1.56 billion in 1998 and 2.16% of average
invested assets of $643.7 million in 1997. On a pro forma basis, assuming the
merger had been consummated on October 1, 1996, net investment income on
related average invested assets would have been 2.05% for the nine months of
1997.
Net investment spreads include the effect of income earned on the excess
of average invested assets over average interest-bearing liabilities. This
excess amounted to $52.3 million in the third quarter of 1998, $31.3 million
in the third quarter of 1997, $44.4 million in the nine months of 1998 and
$17.0 million in the nine months of 1997. The difference between the Company's
yield on average invested assets and the rate paid on average interest-bearing
liabilities (the "Spread Difference") was 2.24% in the third quarter of 1998,
2.18% in the third quarter of 1997, 2.16% in the nine months of 1998 and 2.02%
in the nine months of 1997. On a pro forma basis, assuming the merger had been
consummated on October 1, 1996, the Spread Difference would have been 1.92% in
the nine months of 1997.
Investment income (and the related yields on average invested assets)
totaled $29.2 million (7.59%) in the third quarter of 1998, compared with $29.7
million (7.46%) in the third quarter of 1997. For the nine months, investment
income (and the related yields on average invested assets) totaled $88.7
million (7.57%) in 1998, compared with $35.8 million (7.42%) in 1997.
Investment income and the related yield in the nine months of 1997 reflect the
effects of the merger for only the three months ending June 30, 1997. Although
the invested assets associated with the merger included high-grade corporate
bonds, government and government/agency bonds and short-term investments, all
of which are generally lower-yielding than a significant portion of the
invested assets that comprise the remainder of the company's portfolio, they
11
also included higher-yielding mortgage loans which were sold shortly after the
date of the merger with proceeds temporarily invested in lower-yielding
securities. Consequently, on a pro forma basis, assuming the merger had been
consummated on October 1, 1996, the yield on related average invested assets
for the nine months of 1997 is 7.51%, which is higher than the actual yield for
the nine months of 1997. Yields for the 1998 periods have increased when
compared to those of the third quarter and nine months of 1997, and reflect a
partial reallocation of the lower-yielding invested assets into generally
higher-yielding asset classes in which the Company has historically invested
a portion of its portfolio.
Total interest expense equalled $19.9 million in the third quarter of
1998 and $20.6 million in the third quarter of 1997. For the nine months,
interest expense aggregated $61.5 million in 1998, compared with $25.4 million
in 1997. The average rate paid on all interest-bearing liabilities was 5.35%
in the third quarter of 1998, compared with 5.28% in the third quarter of 1997.
For the nine months, the average rate paid on fixed annuity contracts was 5.41%
for 1998, and with 5.40% in 1997. Interest-bearing liabilities averaged $1.49
billion during the third quarter of 1998, $1.56 billion during the third
quarter of 1997, $1.52 billion during the nine months of 1998 and $626.7
million during the nine months of 1997. On a pro forma basis, assuming the
merger had been consummated on October 1, 1996, the average rate paid on all
interest-bearing liabilities would have been 5.59% for the nine months of 1997.
GROWTH IN AVERAGE INVESTED ASSETS between the nine month periods
primarily reflects the impact of the merger. The Company acquired $1.4 billion
of invested assets associated with the merger on March 31, 1997.
Average invested assets also increased as a result of sales of the
Company's fixed-rate products. Since June 30, 1997, fixed annuity premiums
have totaled $141.7 million. Fixed annuity premiums totaled $35.8 million in
the third quarter of 1998, $43.5 million in the third quarter of 1997, $99.6
million in the nine months of 1998 and $89.7 million in the nine months of
1997. On an annualized basis, these amounts represent 10%, 11%, 9% and 66% of
fixed annuity reserves at the beginning of the respective periods. On a pro
forma basis, assuming the merger had been consummated on October 1, 1996, fixed
annuity premiums would have represented 8% of fixed annuity reserves (on an
annualized basis) for the nine months of 1997. Fixed annuity premiums include
premiums for the fixed accounts of variable annuities totaling $26.7 million,
$9.2 million, $52.6 million and $54.9 million, respectively.
NET REALIZED INVESTMENT GAINS totaled $2.1 million in the third quarter
of 1998 compared with $2.5 million in the third quarter of 1997. For the nine
months, net realized investment gains totaled $4.5 million in 1998, compared
with $3.0 million in 1997.
The Company sold or redeemed invested assets, principally bonds and
notes, aggregating $280.1 million in the third quarter of 1998, $14.3 million
in the third quarter of 1997, $727.5 million in the nine months of 1998 and
$510.0 million in the nine months of 1997, respectively. Sales of investments
result from the active management of the Company's investment portfolio.
Because redemptions of investments are generally involuntary and sales of
investments are made in both rising and falling interest rate environments, net
12
gains and losses from sales and redemptions of investments fluctuate from
period to period, and represent 0.54%, 0.62%, 0.26% and 0.32% of average
invested assets on an annualized basis for the third quarter of 1998, the third
quarter of 1997, the nine months of 1998 and the nine months of 1997,
respectively. Active portfolio management involves the ongoing evaluation of
asset sectors, individual securities within the investment portfolio and the
reallocation of investments from sectors that are perceived to be relatively
overvalued to sectors that are perceived to be relatively undervalued. The
intent of the Company's active portfolio management is to maximize total
returns on the investment portfolio, taking into account credit and interest-
rate risk.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $1.0 million
in the third quarter of 1998 and $0.5 million in the third quarter of 1997.
For the nine months, variable annuity fees totaled $2.5 million in 1998,
compared with $1.1 million in 1997. These increased fees reflect growth in
average variable annuity assets, due to increased market values, the receipt
of variable annuity premiums and net exchanges into the separate accounts from
the fixed accounts of variable annuity contracts, partially offset by
surrenders. On an annualized basis, variable annuity fees represent 1.5% of
average variable annuity assets for each of the third quarters of 1998 and 1997
and for each of the nine months of 1998 and 1997. Variable annuity assets
averaged $261.1 million during the third quarter of 1998 and $119.3 million
during the third quarter of 1997. For the nine months, variable annuity assets
averaged $219.0 million in 1998, compared with $98.0 million in 1997.
Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, have aggregated $75.3 million since June
30, 1997. Variable annuity premiums increased to $23.3 million in the third
quarter of 1998 from $14.1 million in the third quarter of 1997. For the nine
months, variable annuity premiums increased to $59.0 million in 1998, compared
with $40.0 million in 1997. On an annualized basis, these amounts represent
38%, 55%, 46%, and 77% of variable annuity reserves at the beginning of the
respective periods. The lower percentages in the 1998 periods were due to
significantly higher reserve balances at the beginning of those periods
compared to the beginning of the 1997 periods. This growth in reserve balances
is due to the fact that the Company's flagship Polaris product is a relatively
new product which is only in its third year of distribution.
Sales of variable annuity products (which include premiums allocated to
the fixed accounts) ("Variable Annuity Product Sales") amounted to $50.0
million, $23.3 million, $111.6 million and $94.9 million in the third quarters
of 1998 and 1997 and the nine months of 1998 and 1997, respectively, and
primarily reflect sales of the Company's flagship variable annuity, Polaris.
Polaris is a multi-manager variable annuity that offers investors a choice of
26 variable funds and 7 guaranteed fixed-rate funds. Increases in Variable
Annuity Product Sales in the 1998 periods over those in the 1997 periods are
due, in part, to market share gains through enhanced distribution efforts and
growing consumer demand for flexible retirement savings products that offer a
variety of equity, fixed income and guaranteed fixed account investment
choices.
13
The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time,
Federal initiatives are proposed which could affect the taxation of variable
annuities and annuities generally (see "Regulation").
SURRENDER CHARGES on fixed and variable annuities totaled $1.3 million
(including $1.2 million attributable to the merger) in the third quarter of
1998 and $56,000 in the third quarter of 1997. For the nine months, surrender
charges on fixed and variable annuities totaled $3.4 million (including $3.1
million attributable to the merger) in 1998, compared with $170,000 in 1997.
Surrender charges generally are assessed on annuity withdrawals at declining
rates during the first seven years of an annuity contract. Withdrawal
payments, which include surrenders and lump-sum annuity benefits, totaled $64.4
million (including $57.2 million attributable to the merger) in the third
quarter of 1998, compared with $5.8 million in the third quarter of 1997.
These payments, annualized, represent 15.0% (18.2% of average fixed annuity
reserves associated with the merger) and 8.0%, respectively, of average fixed
and variable annuity reserves. For the nine months, withdrawal payments
totaled $191.8 million (including $170.3 million associated with the merger)
in 1998 and $12.9 million in 1997 and, annualized, represent 15.0% (17.4% of
average fixed annuity reserves associated with the merger) and 6.8%,
respectively, of average fixed and variable annuity reserves. Withdrawals
include variable annuity withdrawals from the separate accounts totaling $3.1
million (4.8% of average variable annuity reserves), $1.5 million (5.2% of
average variable annuity reserves), $9.7 million (5.9% of average variable
annuity reserves) and $3.9 million (5.3% of average variable annuity reserves)
in the third quarters of 1998 and 1997 and the nine months of 1998 and 1997,
respectively. Consistent with the assumptions used in connection with the
merger, management anticipates that the level of withdrawal payments will
continue to reflect higher relative withdrawal rates in the near future because
of higher surrenders on the acquired annuity business.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $0.1 million in the third
quarters of 1998 and 1997. For the nine months, general and administrative
expenses totaled $2.1 million in 1998, compared with $0.9 million in 1997.
General and administrative expenses in the 1998 periods reflect the impact of
the merger. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $4.4 million in the
third quarters of 1998 and 1997. For the nine months, such amortization
totaled $12.6 million in 1998, compared with $5.0 million in 1997. The
increase in amortization for the nine months of 1998 primarily reflects the
amortization of the deferred acquisition costs attributable to the merger,
which aggregated $11.0 million in 1998 and $4.2 million in 1997. Amortization
has also increased due to additional fixed and variable annuity sales and the
subsequent amortization of related deferred commissions and other direct
selling costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in
arrears to maintain the persistency of certain of the Company's fixed and
14
variable annuity contracts. Annual commissions totaled $131,000 in the third
quarter of 1998, $141,000 in the third quarter of 1997, $270,000 in the nine
months of 1998 and $150,000 in the nine months of 1997. These increases are
primarily attributable to the fixed annuity contracts acquired in the merger.
Based on current sales, the Company estimates that such annual commissions will
increase in future periods.
INCOME TAX EXPENSE totaled $3.8 million in the third quarter of 1998,
compared with $2.6 million in the third quarter of 1997, and $9.3 million in
the nine months of 1998, compared with $3.1 million in the nine months of 1997,
representing effective tax rates of 41% for the third quarters of 1998 and 1997
and 35% for the nine months of 1998 and 1997, respectively.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 8.2% to $181.8 million at June 30, 1998
from $168.1 million at September 30, 1997, primarily due to $13.3 million of
net income recorded in the nine months of 1998 and a $0.5 million improvement
in net unrealized gains on bonds and notes available for sale (credited
directly to shareholder's equity).
INVESTED ASSETS at June 30, 1998 totaled $1.58 billion, compared with
$1.69 billion at September 30, 1997. The Company manages most of its invested
assets internally. The Company's general investment philosophy is to hold
fixed-rate assets for long-term investment. Thus, it does not have a trading
portfolio. However, the Company has determined that all of its portfolio of
bonds and notes (the "Bond Portfolio") is available to be sold in response to
changes in market interest rates, changes in relative value of asset sectors
and individual securities, changes in prepayment risk, changes in the credit
quality outlook for certain securities, the Company's need for liquidity and
other similar factors.
THE BOND PORTFOLIO, which constitutes 83% of the Company's total
investment portfolio (at amortized cost), had an aggregate fair value that
exceeded its amortized cost by $37.4 million at June 30, 1998, compared with
an excess of $40.1 million at September 30, 1997. The net unrealized gains on
the Bond Portfolio since September 30, 1997 principally reflect the lower
prevailing interest rates at June 30, 1998 and the corresponding effect on the
fair value of the Bond Portfolio.
At June 30, 1998, the Bond Portfolio (at amortized cost) included $1.28
billion of bonds rated by Standard & Poor's Corporation ("S&P"), Moody's
Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch
Investors Service, L.P. ("Fitch") or the National Association of Insurance
Commissioners ("NAIC") and $39.1 million of bonds rated by the Company pursuant
to statutory rating guidelines established by the NAIC. At June 30, 1998,
approximately $1.16 billion of the Bond Portfolio was investment grade,
including $454.8 million of U.S. government/agency securities and mortgage-
backed securities ("MBSs").
At June 30, 1998, the Bond Portfolio included $120.2 million (at
amortized cost with a fair value of $120.9 million) of bonds that were not
15
investment grade. Based on their June 30, 1998 amortized cost, these non-
investment-grade bonds accounted for 6.1% of the Company's total assets and
7.6% of its invested assets.
Non-investment-grade securities generally provide higher yields and
involve greater risks than investment-grade securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
15
conditions than investment-grade issuers. In addition, the trading market for
these securities is usually more limited than for investment-grade securities.
The Company had no material concentrations of non-investment-grade securities
at June 30, 1998.
The table on the following page summarizes the Company's rated bonds by
rating classification as of June 30, 1998 (dollars in thousands):
16
<TABLE>
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
<CAPTION>
Issues not rated by S&P/Moody's/
Issues Rated by S&P/Moody's/DCR/Fitch DCR/Fitch, by NAIC Category Total
- ---------------------------------------------- ----------------------------------- -----------------------------------
S&P/(Moody's)/ Estimated NAIC Estimated Percent of Estimated
[DCR]/{Fitch} Amortized fair category Amortized fair Amortized invested fair
category (1) cost value (2) cost value cost assets(3) value
- ---------------- ----------- ----------- ---------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-} $ 807,521 $ 834,874 1 $ 140,316 $ 144,427 $ 947,837 61.43% $ 979,301
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} 196,737 201,313 2 20,190 20,871 216,927 14.06 222,184
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-} 2,493 2,459 3 2,382 2,495 4,875 0.32 4,954
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-} 99,076 99,222 4 16,202 16,682 115,278 7.47 115,904
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-} --- --- 5 --- --- --- 0.00 ---
CI to D
[DD]
{D} --- --- 6 --- --- --- 0.00 ---
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RATED ISSUES $1,105,827 $1,137,868 $ 179,090 $ 184,475 $1,284,917 $1,322,343
========== ========== ========== ========== ========== ==========
Footnotes appear on the following page.
</TABLE>
17
Footnotes to the table of Rated Bonds by Rating Classification
--------------------------------------------------------------
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-)
indicates the debt's relative standing within the rating category. A
security rated BBB- or higher is considered investment grade. Moody's
rates debt securities in rating categories ranging from Aaa (the highest)
to C (extremely poor prospects of ever attaining any real investment
standing). The number 1, 2 or 3 (with 1 the highest and 3 the lowest)
indicates the debt's relative standing within the rating category. A
security rated Baa3 or higher is considered investment grade. DCR rates
debt securities in rating categories ranging from AAA (the highest) to
DD (in payment default). A plus (+) or minus (-) indicates the debt's
relative standing within the rating category. A security rated BBB- or
higher is considered investment grade. Issues are categorized based on
the highest of the S&P, Moody's, DCR or Fitch ratings if rated by
multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5
(lowest) for nondefaulted bonds plus one category, 6, for bonds in or
near default. These six categories correspond with the
S&P/Moody's/DCR/Fitch rating groups listed above, with categories 1 and
2 considered investment grade. The NAIC categories include $39.1 million
(at amortized cost) of assets that were rated by the Company pursuant to
applicable NAIC rating guidelines.
(3) At amortized cost.
18
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $79.9 million at June 30, 1998. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At June 30, 1998, Secured Loans consisted of $66.5 million of
publicly traded securities and $13.4 million of privately traded securities.
These Secured Loans are composed of loans to 61 borrowers spanning 18
industries, with 26% of these assets (at amortized cost) concentrated in
utilities, 10% concentrated in aerospace-defense and 9% concentrated in
business services. No other industry concentration constituted more than 7%
of these assets.
While the trading market for the Company's privately traded Secured Loans
is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled the Company to improve its
investment yield. As a result of restrictive financial covenants, these
Secured Loans involve greater risk of technical default than do publicly traded
investment-grade securities. However, management believes that the risk of
loss upon default for these Secured Loans is mitigated by such financial
covenants and the collateral values underlying the Secured Loans. The
Company's Secured Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by
the Company, pursuant to comparable statutory ratings guidelines established
by the NAIC.
MORTGAGE LOANS aggregated $195.1 million at June 30, 1998 and consisted
of 192 commercial first mortgage loans with an average loan balance of
approximately $1.0 million, collateralized by properties located in 35 states.
Approximately 35% of this portfolio was retail, 26% was office, 15% was
industrial, 13% was multifamily residential and 11% was other types. At June
30, 1998, approximately 17%, 16% and 10% of this portfolio were secured by
properties located in New York, California and Michigan, respectively, and no
more than 8% of this portfolio was secured by properties located in any other
single state. At June 30, 1998, there was one mortgage loan with an
outstanding balance greater than $10 million, which represented approximately
5% of the portfolio. At June 30, 1998, approximately 33% of the mortgage loan
portfolio consisted of loans with balloon payments due before July 1, 2001.
During the third quarters and the nine months of 1998 and 1997, loans
delinquent by more than 90 days, foreclosed loans and restructured loans have
not been significant in relation to the total mortgage loan portfolio.
At June 30, 1998, approximately 59% of the mortgage loans were seasoned
loans underwritten to the Company's standards and purchased at or near par from
other financial institutions. Such loans generally have higher average
interest rates than loans that could be originated today. The balance of the
mortgage loan portfolio has been originated by the Company under strict
underwriting standards. Commercial mortgage loans on properties such as
offices, hotels and shopping centers generally represent a higher level of risk
than do mortgage loans secured by multifamily residences. This greater risk
is due to several factors, including the larger size of such loans and the more
immediate effects of general economic conditions on these commercial property
types. However, due to the seasoned nature of the Company's mortgage loan
portfolio and its strict underwriting standards, the Company believes that it
has prudently managed the risk attributable to its mortgage loan portfolio
while maintaining attractive yields.
19
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. The
Company does not have a specific target rate of return. Instead, its rates of
return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced
over the yield curve, and general economic conditions. Its portfolio strategy
is constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. The Company's fixed-rate products incorporate surrender charges
or other restrictions in order to encourage persistency. Approximately 91% of
the Company's fixed annuity reserves had surrender penalties or other
restrictions at June 30, 1998.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect
its economic value and achieve a predictable spread between what it earns on
its invested assets and what it pays on its liabilities by designing its
fixed-rate products and conducting its investment operations to closely match
the duration of the fixed-rate assets to that of its fixed-rate liabilities.
The Company's fixed-rate assets include: cash and short-term investments;
bonds and notes; and mortgage loans. At June 30, 1998, these assets had an
aggregate fair value of $1.58 billion with a duration of 3.9. At June 30,
1998, the Company's fixed-rate liabilities consisted solely of fixed annuity
liabilities and had an aggregate fair value (determined by discounting future
contractual cash flows by related market rates of interest) of $1.38 billion
with a duration of 3.3. The Company's potential exposure due to a 10% increase
in prevailing interest rates from their June 30, 1998 levels is a loss of $9.0
million in fair value of its fixed-rate assets that is not offset by a decrease
in the fair value of its fixed-rate liabilities. Because the Company actively
manages its assets and liabilities and has strategies in place to minimize its
exposure to loss as interest rate changes occur, it expects that actual losses
would be less than the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity
of a fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the
Company will continue to utilize its existing strategies of pricing its fixed
annuity products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
The Company also seeks to provide liquidity from time to time by using
20
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. Reverse Repos
involve a sale of securities and an agreement to repurchase the same
securities at a later date at an agreed upon price and are generally over-
collateralized. MBSs are generally investment-grade securities collateralized
by large pools of mortgage loans. MBSs generally pay principal and interest
monthly. The amount of principal and interest payments may fluctuate as a
result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses
to provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Reverse Repos is
counterparty risk. The Company believes, however, that the counterparties to
its Reverse Repos are financially responsible and that the counterparty risk
associated with those transactions is minimal. It is the Company's policy that
these agreements are entered into with counterparties who have a debt rating
of A/A2 or better from both S&P and Moody's. The Company continually monitors
its credit exposure with respect to those agreements. The primary risk
associated with MBSs is that a changing interest rate environment might cause
prepayment of the underlying obligations at speeds slower or faster than
anticipated at the time of their purchase. As part of its decision to
purchase an MBS, the Company assesses the risk of prepayment by analyzing the
security's projected performance over an array of interest-rate scenarios.
Once an MBS is purchased, the Company monitors its actual prepayment experience
monthly to reassess the relative attractiveness of the security with the intent
to maximize total return.
INVESTED ASSETS EVALUATION is routinely conducted by the Company.
Management identifies monthly those investments that require additional
monitoring and carefully reviews the carrying values of such investments at
least quarterly to determine whether specific investments should be placed on
a nonaccrual basis and to determine declines in value that may be other than
temporary. In making these reviews for bonds, management principally considers
the adequacy of any collateral, compliance with contractual covenants, the
borrower's recent financial performance, news reports and other externally
generated information concerning the creditor's affairs. In the case of
publicly traded bonds, management also considers market value quotations, if
available. For mortgage loans, management generally considers information
concerning the mortgaged property and, among other things, factors impacting
the current and expected payment status of the loan and, if available, the
current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in
value that are other than temporary are reduced to net realizable value and,
in the case of bonds, no further accruals of interest are made. The provisions
for impairment on mortgage loans are based on losses expected by management to
be realized on transfers of mortgage loans to real estate, on the disposition
and settlement of mortgage loans and on mortgage loans that management believes
may not be collectible in full. Accrual of interest is suspended when
principal and interest payments on mortgage loans are past due more than 90
days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as
21
to the payment of principal or interest, totaled $1.2 million of mortgage loans
at June 30, 1998 (at amortized cost, with a fair value of $1.2 million), and
constituted 0.1% of total invested assets. At September 30, 1997, defaulted
investments totaled $2.3 million of mortgage loans and constituted 0.1% of
total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested
asset sales. At June 30, 1998, approximately $1.15 billion of the Company's
Bond Portfolio had an aggregate unrealized gain of $39.5 million, while
approximately $131.6 million of the Bond Portfolio had an aggregate unrealized
loss of $2.0 million. In addition, the Company's investment portfolio
currently provides approximately $14.5 million of monthly cash flow from
scheduled principal and interest payments. Historically, cash flows from
operations and from the sale of the Company's annuity products have been more
than sufficient in amount to satisfy the Company's liquidity needs. However
in the current period, withdrawal rates on the acquired JANY business have
necessitated the liquidation of certain invested assets in order to fund the
withdrawals. The Company expects that withdrawal rates will require the
continued modest liquidation of invested assets for the foreseeable future.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby
avoiding the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would
decrease over time, reflecting lower interest crediting rates on its fixed
annuities. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
The Company relies significantly on computer systems and applications in
its daily operations. Many of these systems and applications are not presently
year 2000 compliant. The Company's business, financial condition and results
of operations could be materially and adversely affected by the failure of the
Company's systems and applications (and those operated by third parties
interfacing with the Company's systems and applications) to properly operate
or manage dates beyond the year 1999. The Company's parent has a coordinated
plan to repair or replace these noncompliant systems and to obtain similar
assurances from third parties interfacing with the Company's systems and
applications and expects to significantly complete its plan by the end of
calendar year 1998. Testing of both the repaired and replacement systems will
be conducted during calendar 1999. The cost of these changes will be
22
substantially borne by the Company's affiliates and will not have a material
impact on the Company's results of operations.
REGULATION
The Company is subject to regulation and supervision by the States of New
York, New Mexico and Nebraska, the states in which the Company is authorized
to transact business. State insurance laws establish supervisory agencies with
broad administrative and supervisory powers. Principal among these powers are
granting and revoking licenses to transact business, regulating marketing and
other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve and valuation requirements,
prescribing the form and content of required financial statements and reports,
performing financial, market conduct and other examinations, determining the
reasonableness and adequacy of statutory capital and surplus, defining
acceptable accounting principles, regulating the type, valuation and amount of
investments permitted, and limiting the amount of dividends that can be paid
and the size of transactions that can be consummated without first obtaining
regulatory approval.
During the last decade, the insurance regulatory framework has been
placed under increased scrutiny by various states, the federal government and
the National Association of Insurance Commissioners ("NAIC"). Various states
have considered or enacted legislation that changes, and in many cases
increases, the states' authority to regulate insurance companies. Legislation
has been introduced from time to time in Congress that could result in the
federal government assuming some role in the regulation of insurance
companies or allowing combinations between insurance companies, banks and other
entities. In recent years, the NAIC has developed several model laws and
regulations designed to reduce the risk of insurance company insolvencies and
market conduct violations. These initiatives include investment reserve
requirements, risk-based capital ("RBC") standards, codification of insurance
accounting principles, new investment standards and restrictions on an
insurance company's ability to pay dividends to its stockholders. The NAIC is
also currently developing model laws or regulations relating to product design,
product reserving standards and illustrations of annuity products. Current
proposals are still being debated and the Company is monitoring developments
in this area and the effects any changes would have on the Company.
The RBC standards consist of formulas which establish capital
requirements relating to insurance, business, asset and interest rate risks,
and which help to identify companies which are under-capitalized and require
specific regulatory actions in the event an insurer's RBC falls below specified
levels. The Company has more than enough statutory capital to meet the NAIC's
RBC requirements as of the most recent calendar year-end. The state of New
York has adopted these RBC standards, and the Company is in compliance with
such laws. Further, for statutory reporting purposes, the annuity reserves of
the Company are calculated in accordance with statutory requirements and are
adequate under current cash-flow testing models.
From time to time, Federal initiatives are proposed that could affect the
Company's businesses. Such initiatives include employee benefit plan
23
regulations and tax law changes affecting the taxation of insurance companies
and the tax treatment of insurance and other investment products. Proposals
made in recent years to limit the tax deferral of annuities or otherwise modify
the tax rules related to the treatment of annuities have not been enacted.
While certain of these proposals, if implemented, could have an adverse effect
on the Company's sales of affected products, and consequently on its results
of operations, the Company believes such proposals have a small likelihood of
being enacted, because they would discourage retirement savings and there is
strong public and industry opposition to them.
24
FIRST SUNAMERICA LIFE INSURANCE COMPANY
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of the Management's
Discussion and Analysis of Financial Condition and Results of Operations on
pages 20 and 21.
25
FIRST SUNAMERICA LIFE INSURANCE COMPANY
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
----------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
EXHIBITS
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
No Current Report on Form 8-K was filed during the three months ended June 30,
1998. However, on July 15, 1998, the Company filed a current report on Form
8-K concerning its proposed acquisition of MBL Life Assurance Corp.
26
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.
FIRST SUNAMERICA LIFE INSURANCE COMPANY
---------------------------------------
Signature Title Date
- --------- ----- ----
/s/ SCOTT L. ROBINSON Senior Vice President, August 14, 1998
- ------------------------ Treasurer and Director ---------------
Scott L. Robinson (Principal Financial
Officer)
/s/ N. SCOTT GILLIS Senior Vice President and August 14, 1998
- ------------------------ Controller (Principal ---------------
N. Scott Gillis Accounting Officer)
27
FIRST SUNAMERICA LIFE INSURANCE COMPANY
LIST OF EXHIBITS FILED
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF FIRST SUNAMERICA LIFE INSURANCE COMPANY'S FORM 10-Q
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,322,343,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 31,000
<MORTGAGE> 195,119,000
<REAL-ESTATE> 750,000
<TOTAL-INVEST> 1,580,356,000
<CASH> 55,502,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 91,344,000
<TOTAL-ASSETS> 1,972,844,000
<POLICY-LOSSES> 1,476,778,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,000,000
0
0
<OTHER-SE> 178,834,000
<TOTAL-LIABILITY-AND-EQUITY> 1,972,844,000
0
<INVESTMENT-INCOME> 88,625,000
<INVESTMENT-GAINS> 4,530,000
<OTHER-INCOME> 5,959,000
<BENEFITS> 61,497,000
<UNDERWRITING-AMORTIZATION> 12,580,000
<UNDERWRITING-OTHER> 270,000
<INCOME-PRETAX> 22,622,000
<INCOME-TAX> 9,318,000
<INCOME-CONTINUING> 13,304,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,304,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
