STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
WITH FLEXIBLE CONTRIBUTIONS
issued by
LPLA SEPARATE ACCOUNT ONE
AND
LONDON PACIFIC LIFE & ANNUITY COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1996, FOR THE INDIVIDUAL
FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS WITH FLEXIBLE CONTRIBUTIONS
WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION FOR A PROSPECTIVE INVESTOR.
FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE COMPANY AT: P.O. BOX 29564,
RALEIGH, NORTH CAROLINA 27626; (800) 852-3152.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1996.
TABLE OF CONTENTS
PAGE
Company................................................................. 3
Experts................................................................. 3
Legal Opinions.......................................................... 3
Distributor............................................................. 3
Yield Calculation For Salomon Money Market Sub-Account.................. 3
Performance Information................................................. 4
Annuity Provisions...................................................... 6
Financial Statements.................................................... 7
COMPANY
Information regarding London Pacific Life & Annuity Company (the "Company")
and its ownership is contained in the Prospectus.
The Company contributed the initial capital to the Separate Account. As of
April 1, 1996, the initial capital contributed by the Company represented
approximately 99.2% of the total assets of the Separate Account. The Company
currently intends to remove these assets from the Separate Account on a pro
rata basis in proportion to money invested in the Separate Account by Owners.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995, included in
this Statement of Additional Information have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
London Pacific Financial and Insurance Services acts as the distributor.
London Pacific Financial and Insurance Services is an affiliate of the
Company. The offering is on a continuous basis.
YIELD CALCULATION FOR THE SALOMON MONEY MARKET SUB-ACCOUNT
The Salomon Money Market Sub-Account of the Separate Account will calculate
its current yield based upon the seven days ended on the date of calculation.
As of December 31, 1995, the Salomon Money Market Sub-Account had not
commenced operations.
The current yield of the Salomon Money Market Sub-Account is computed daily by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Sub-Account at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, the Administrative Charge, the Distribution
Charge and the Contract Maintenance Charge, dividing the difference by the
value of the Owner account at the beginning of the same period to obtain the
base period return and multiplying the result by (365/7).
The Salomon Money Market Sub-Account computes its effective compound yield by
determining the net changes (exclusive of capital change) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Sub-Account at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, the Administrative Charge, the Distribution
Charge and the Contract Maintenance Charge and dividing the difference by the
value of the Owner account at the beginning of the base period to obtain the
base period return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result, according to the following formula: Effective Yield = ((Base
Period Return +1) 365/7)-1. The current and the effective yields reflect the
reinvestment of net income earned daily on the Salomon Money Market
Sub-Account's assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of
the Salomon Money Market Sub-Account in the future since the yield is not
fixed. Actual yields will depend not only on the type, quality and maturities
of the investments held by the Salomon Money Market Sub-Account and changes
in the interest rates on such investments, but also on changes in the Salomon
Money Market Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Salomon
Money Market Sub-Account and for providing a basis for comparison with other
investment alternatives. However, the Salomon Money Market Sub-Account's yield
fluctuates, unlike bank deposits or other investments which typically pay a
fixed yield for a stated period of time.
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. Any such advertisement will include total return figures for
the time periods indicated in the advertisement. Such total return figures
will reflect the deduction of a 1.25% Mortality and Expense Risk Charge, a
.15% Administrative Charge, a .10% Distribution Charge, the investment
advisory fee and expenses for the underlying Portfolio being advertised and
any applicable Contract Maintenance Charge.
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charge to arrive at the ending hypothetical value. The
average annual total return is then determined by computing the fixed interest
rate that a $1,000 purchase payment would have to earn annually, compounded
annually, to grow to the hypothetical value at the end of the time periods
described. The formula used in these calculations is:
n
P (1+T) = ERV
<TABLE>
<CAPTION>
<S> <C> <C>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the time periods used.
</TABLE>
In addition to total return data, the Company may include yield information in
its advertisements. For each Sub-Account (other than the Salomon Money Market
Sub-Account) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the
most recent balance sheet of the Separate Account included in the registration
statement, computed by dividing the net investment income per Accumulation
Unit earned during the period by the maximum offering price per Unit on the
last day of the period, according to the following formula:
6
Yield = 2 [ ( a-b + 1) - 1 ]
--
cd
<TABLE>
<CAPTION>
<S> <C> <C>
Where:
a = Net investment income earned during the period by the Portfolio
attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the
last day of the period.
</TABLE>
The Company may also advertise performance data which may be computed
on a different basis.
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
ANNUITY PROVISIONS
Variable Annuity Payments reflect the investment performance of the Separate
Account in accordance with the allocation of the Adjusted Contract Value to
the Sub-Accounts during the Annuity Period. Annuity Payments also depend upon
the Age of the Annuitant and any Joint Annuitant and the assumed interest
factor utilized. The Annuity Table used will depend upon the Annuity Option
chosen. The dollar amount of Variable Annuity Payments for each applicable
Sub-Account after the first Variable Annuity Payment is determined as follows:
1. The dollar amount of the first Variable Annuity Payment is divided by
the value of an Annuity Unit for each applicable Sub-Account as of the Annuity
Date. This sets the number of Annuity Units for each monthly payment for the
applicable Sub-Account. The number of Annuity Units remains fixed during the
Annuity Period.
2. The fixed number of Annuity Units per payment in each Sub-Account is
multiplied by the Annuity Unit Value for that Sub-Account for the last
Valuation Period of the month preceding the month for which the payment is
due. This result is the dollar amount of the payment for each applicable
Sub-Account.
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the applicable portion of the
Contract Maintenance Charge.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account was
arbitrarily set initially at $10.
The Sub-Account Annuity Unit Value at the end of any subsequent Valuation
Period is determined as follows:
1. The Net Investment Factor for the current Valuation Period is
multiplied by the value of the Annuity Unit for the Sub-Account for the
immediately preceding Valuation Period. The Net Investment Factor is equal to
the Accumulation Unit Value for the current Valuation Period divided by the
Accumulation Unit Value for the immediately preceding Valuation Period.
2. The result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Assumed Investment Rate for the number of
days since the preceding Valuation Date. The Assumed Investment Rate is equal
to an effective annual rate of 4%.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
(See "Annuity Provisions" in the Prospectus.)
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
LONDON PACIFIC LIFE
& ANNUITY COMPANY
(A wholly-owned subsidiary
of London Pacific Group
Limited)
STATUTORY BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
Statutory Basis Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants............................................ 1
AUDITED FINANCIAL STATEMENTS
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus.... 3
Statutory Statements of Operations........................................... 4
Statutory Statements of Changes in Capital and Surplus....................... 5
Statutory Statements of Cash Flows........................................... 6-7
Notes to Statutory Financial Statements...................................... 8-17
SUPPLEMENTARY INFORMATION
Report of Independent Accountants' on Supplemental Schedule of
Assets and Liabilities................................................ 19
Schedule 1 - Supplemental Schedule of Assets and Liabilities................. 20-22
</TABLE>
Report of Independent Accountants
February 8, 1996
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
We have audited the accompanying Statutory Statements of Admitted Assets,
Liabilities, Capital and Surplus of London Pacific Life & Annuity Company (a
wholly-owned subsidiary of London Pacific Group Limited) as of December 31,
1995 and 1994, and the related Statutory Statements of Operations, of Changes
in Capital and Surplus, and of Cash Flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards; however, as discussed in the following paragraph, we were not
engaged to determine or audit the effects on these financial statements of the
variances between statutory accounting practices and generally accepted
accounting principles. Generally accepted auditing 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.
As described in Note 1, the Company prepared these financial statements in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of North Carolina. When financial statements prepared
in conformity with accounting practices prescribed by a regulatory agency are
presented for purposes other than for filing with the regulatory agency,
generally accepted auditing standards require that an auditor's report on them
state whether they are presented in conformity with generally accepted
accounting principles. The accounting practices used by the Company to
prepare these financial statements vary from generally accepted accounting
principles as described in Note 2. The Company has not
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
Page 2
February 8, 1996
We determined the effects on these financial statements of the
variances. Accordingly, we were not engaged to audit, and we did not audit,
the effects on these financial statements of the variances. As the
financial statements referred to above do not purport to be a
presentation in conformity with generally accepted accounting principles, we
are not in a position to express, and do not express, an opinion on the
financial statements referred to above as to fair presentation of financial
position, results of operations, or cash flows in conformity with generally
accepted accounting principles.
In our opinion, however, the financial statements audited by us present
fairly, in all material respects, the admitted assets, liabilities, capital
and surplus of London Pacific Life & Annuity Company at December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, on the basis of accounting
described in Note 1.
/s/ PRICE WATERHOUSE LLP
- ------------------------
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
___________________________________________________________________________
DECEMBER 31,
<S> <C> <C>
1995 1994
--------------- ---------------
ASSETS
Investments:
Bonds $1,057,481,158 $ 981,232,212
Preferred stock 9,912,720 9,478,047
Common stock 1,430,013 575,195
Short-term investments 69,747,096 -
Policy loans 4,455,976 2,999,312
--------------- ---------------
Total investments 1,143,026,963 994,284,766
Cash 2,664,850 11,790,032
---------------
Total cash and investments 1,145,691,813 1,006,074,798
Investment income due and accrued 17,492,346 14,678,500
Electronic data processing equipment, net 609,886 895,106
Federal income tax recoverable - 3,243,665
Amount due from broker-dealers 12,527,500 -
Receivable from affiliates 4,608,663 29,011
Other assets 1,741,100 42,502
--------------- ---------------
Total assets $1,182,671,308 $1,024,963,582
--------------- ---------------
LIABILIITES, CAPITAL AND SURPLUS
Aggregate reserves for life policies and contracts $1,066,977,854 $ 945,045,048
Policy and contract claims 417,570 515,433
Accrued dividends to policyholders 527,418 568,672
Interest maintenance reserve 10,376,170 9,887,040
Federal income taxes payable 2,007,817 -
Remittances and items not allocated 219,649 652,913
Asset valuation reserve 30,546,857 29,395,572
Payable to affiliates 3,325 9,843
Amounts due to broker-dealers 20,930,752 305,126
Accounts payable, accrued expenses and other liabilities 1,053,398 1,262,331
--------------- ---------------
Total liabilities 1,133,060,810 987,641,978
--------------- ---------------
Capital and surplus:
Capital stock - $10 par value, 1,000,000 shares
authorized; 200,000 shares issued and outstanding 2,000,000 2,000,000
Paid-in and contributed surplus 48,394,120 46,938,570
Unassigned deficit (783,622) (11,616,966)
--------------- ---------------
Total capital and surplus 49,610,498 37,321,604
Commitments and contingent liabilities
Total liabilities, capital and surplus $1,182,671,308 $1,024,963,582
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF OPERATIONS
___________________________________________________________________________
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1995 1994 1993
------------- ------------- ------------
REVENUES
Insurance premiums and annuity
considerations $203,233,606 $210,373,366 $223,273,108
Net investment income 88,960,512 79,812,665 71,063,605
Amortization of interest maintenance reserve (185,844) 945,197 1,584,804
Other income 1,255 0 108,980
------------- ------------ ------------
Total revenues 292,009,529 291,131,228 296,030,497
------------ ------------- ------------
BENEFITS AND EXPENSES
Policyholder benefits and changes in reserve 256,854,252 256,731,020 258,850,698
Commissions 14,237,877 22,125,145 16,352,492
Other operating expenses 10,358,955 10,020,230 10,587,846
------------- ------------- ------------
Total benefits and expenses 281,451,084 288,876,395 285,791,036
------------- ------------- ------------
Gain from operations before dividends to
policyholders, federal income taxes and
net realized capital gains (losses) 10,558,445 2,254,833 10,239,461
Dividends to policyholders 1,007,373 540,513 874,768
------------- ------------- ------------
Gains from operations, before federal income taxes
and net realized capital gains (losses) 9,551,072 1,714,320 9,364,693
Federal income tax expense (benefit) (excluding
tax on capital gains) 2,597,127 (961,168) 4,773,674
----------- ------------- ------------
Gain from operations before net realized capital
gains (losses) 6,953,945 2,675,488 4,591,019
Net realized capital gains (losses), less capital gains
tax of $1,931,162, ($2,174,832) and $8,281,326
and excluding $303,286, $2,316,416 and
3,514,550 transferred to the IMR in 1995, 1994
and 1993, respectively. 3,445,440 (6,538,149) 12,560,966
------------- ------------- ------------
Net income (loss) $ 10,399,385 ($3,862,661) $ 17,151,985
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
PAID-IN AND
CAPITAL CONTRIBUTED UNASSIGNED
STOCK SURPLUS SURPLUS TOTAL
---------- ------------ ------------ -------------
Balance as of
December 31, 1992 2,000,000 33,350,173 (3,656,176) 31,693,997
Net income 17,151,985 17,151,985
Increase in unrealized capital losses (62,299) (62,299)
Increase in non-admitted assets (316,924) (316,924)
Increase in asset valuation reserve (2,772,404) (2,772,404)
--------- ---------- ------------ -------------
Balance as of
December 31, 1993 2,000,000 33,350,173 10,344,182 45,694,355
Net loss (3,862,661) (3,862,661)
Increase in unrealized capital gains 1,726,451 1,726,451
Increase in non-admitted assets (695,915) (695,915)
Increase in asset valuation reserve (19,129,023) (19,129,023)
Capital contributions 13,588,397 13,588,397
--------- ------------ ----------- -------------
Balance as of
December 31, 1994 2,000,000 46,938,570 (11,616,966) 37,321,604
Net income 10,399,385 10,399,385
Increase in unrealized capital gains 9,403 9,403
Decrease in non-admitted assets 1,575,841 1,575,841
Increase in asset valuation reserve (1,151,285) (1,151,285)
Capital contributions 1,455,550 1,455,550
---------- ------------ ---------- -------------
Balance as of
December 31, 1995 $2,000,000 $ 48,394,120 ($783,622) $ 49,610,498
---------- ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF CASH FLOWS
_______________________________________________________________________________________
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1995 1994 1993
------------- ------------ -------------
CASH PROVIDED BY:
Premiums and annuity considerations
collected $203,233,606 $210,357,865 $223,279,108
Investment income received (excluding
realized gains/losses and net of investment
expenses) 86,134,922 78,892,896 72,466,842
Other income received 1,255 226,807 1,222,737
------------- ------------ -------------
Total cash provided by operations 289,369,783 289,477,568 296,968,687
----------- ------------ -------------
CASH USED FOR:
Life and accident and health claims paid 1,213,526 210,886 700,123
Surrender benefits and other fund
withdrawals paid 81,936,665 66,245,808 54,241,658
Other benefits to policyholders paid 51,869,119 42,541,134 31,564,604
------------- ------------ -------------
135,019,310 108,997,828 86,506,385
------------- ------------ -------------
Commissions and other expenses paid 24,818,407 28,228,679 26,962,242
------------- ------------ -------------
Dividends to policyholders paid 1,048,627 858,087 623,864
Federal income taxes (recoverable) paid
(excluding tax on capital gains) (2,654,355) 7,673,225 (420,256)
Net increase in policy loans 1,456,664 961,502 1,188,638
Other operating expenses paid 95,312 6,220,353 7,920,914
------------- ------------ -------------
(53,752) 15,713,167 9,313,160
------------- ------------ -------------
Total cash used for operations 159,783,965 152,939,674 122,781,787
------------- ------------ -------------
Net cash provided by operations 129,585,818 136,537,894 174,186,900
------------- ------------ -------------
PROCEEDS FROM INVESTMENTS SOLD, MATURED OR
REPAID:
Bonds 193,271,490 346,800,750 574,302,937
Stocks 11,228,210 120,257,956 139,321,860
Net gain on short-term investments - 17,915 29,041
Other proceeds 96,780 - 296,120
------------- ------------ -------------
204,596,480 467,076,621 713,949,958
Tax on capital gains (1,931,162) 2,174,832 (8,281,326)
------------- ------------ -------------
Total investment proceeds 202,665,318 469,251,453 705,668,632
</TABLE>
(continued on next page)
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENT OF CASH FLOWS (CONTINUED)
________________________________________________________________________________________
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1995 1994 1993
------------ -------------- ------------
OTHER CASH PROVIDED:
Capital and surplus paid in 1,455,550 13,588,397 -
Other sources 20,941,157 10,238,471 120,868
------------ -------------- ------------
Total other cash provided 22,396,707 23,826,868 120,868
------------ -------------- ------------
Total cash provided 354,647,843 629,616,215 879,976,400
------------ -------------- ------------
COST OF INVESTMENTS ACQUIRED:
Bonds 268,824,294 602,767,827 659,746,236
Stocks 6,872,362 125,375,796 126,378,133
Miscellaneous other 575,445 1,562,819 98,962
------------ -------------- ------------
Total investments acquired 276,272,101 729,706,422 786,223,331
Other cash applied 17,753,828 190,351 7,945,316
------------ -------------- ------------
Total cash applied 294,025,929 729,896,793 794,168,647
------------ -------------- ------------
Net change in cash and short-term investments 60,621,914 (100,280,578) 85,807,753
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 11,790,032 112,070,610 26,262,857
------------ -------------- ------------
End of year $ 72,411,946 $ 11,790,032 $112,070,610
------------ -------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Income taxes $ 2,524,651 $ 5,516,862 $ 7,837,097
</TABLE>
The accompanying notes are an integral part of these financial statements.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
London Pacific Life & Annuity Company (the Company) is domiciled in North
Carolina and is a wholly-owned subsidiary of The London Pacific Assurance
Group Limited (the Parent), a holding company domiciled in the state of
California, which is ultimately a wholly-owned subsidiary of London Pacific
Group Limited (formerly Govett & Company Limited). The Company has two
wholly-owned subsidiaries, LPIMC Insurance Marketing Services (the Marketing
Company) and London Pacific Financial & Insurance Services (the Broker
Dealer), an inactive broker-dealer. The Company is engaged primarily in the
development and marketing of annuity products and universal life insurance.
Although the Company is licensed and sells its universal life and annuity
products in 40 states, its primary markets are California, Florida, Michigan,
Ohio, Texas and Washington.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known,
which could impact amounts reported and disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the North Carolina
Department of Insurance which is a comprehensive basis of accounting other
than generally accepted accounting principles. Significant differences
between statutory accounting principles and generally accepted accounting
principles (GAAP) are described in Note 2.
INVESTMENTS
Investments are recorded in accordance with the requirements of the
National Association of Insurance Commissioners (NAIC). Bonds not backed by
loans are reported at cost or amortized cost; the discount or premium on
bonds is amortized using the interest method. For loan-backed bonds,
anticipated prepayments are considered when determining the amortization of
discount or premium. Prepayment assumptions are obtained from dealer surveys
and are based on the current interest rate and economic development. The
retrospective adjustment method is used to value all such securities except
for interest-only securities, which are valued using the prospective method.
Preferred stocks are carried at NAIC Securities Valuation Office (SVO)
values. Common stocks are reported at market value as determined by the SVO
and the related unrealized capital gain/(loss) is reported in unassigned
surplus without any adjustment for federal income taxes. The Company's
subsidiaries are reported at equity in the underlying statutory basis of
their net assets. As of December 31, 1995, the carrying value of the
Company's investment in subsidiaries was $499,138. Short-term investments
are carried at cost which approximates market value.
INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap programs for the purpose of
minimizing exposure to fluctuations in interest rates. The notional amount
of the single matched swap in place at December 31, 1995 and 1994 was
$9,000,000. The unexpired term at December 31,1995 was one year and five
months. During the term of the swap, the net swap settlement amount is
accrued over time as an adjustment to other expense or other income.
Gains or losses on termination are deferred and amortized as an interest
adjustment over the remaining life of the underlying financial instrument.
There are no outstanding matched swaps at a loss position at December 31,
1995 and 1994. The Company does not act as an intermediary or broker in
interest rate swaps.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ELECTRONIC DATA PROCESSING EQUIPMENT
Electronic data processing equipment is recorded at cost, net of
accumulated depreciation of $1,511,059 and $1,209,852 at December 31, 1995
and 1994. Depreciation is provided using the straight-line method over the
estimated useful life of five years. Depreciation expense amounted to
$346,495, $361,961 and $314,475 for the years ended December 31, 1995, 1994
and 1993.
REMITTANCES AND ITEMS NOT ALLOCATED
Remittances and items not allocated consist primarily of cash received
with policy applications for policies that have not been issued.
POLICY AND CONTRACT CLAIMS
Policy and contract claims of $244,046 and $250,747 related to death
benefits payable on life and annuity contracts have been accrued at December
31, 1995 and 1994. The remaining policy and contract claims of $173,524 and
$264,686 at December 31, 1995 and 1994 relate to estimated incurred but
unreported claims on life contracts.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
2. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
STATUTORY ACCOUNTING PRINCIPLES
Statutory accounting principles vary in some respects from generally
accepted accounting principles. The more significant of these differences
are as follows:
INVESTMENTS
Market values of certain investments in bonds and stocks are based on
values specified by the NAIC, rather than on values provided by outside
broker confirmations or internally calculated estimates. For GAAP,
investments in bonds would be designated at purchase as held-to-maturity,
trading, or available-for-sale. Held-to-maturity investments would be
reported at amortized cost, and the remaining investments would be reported
at fair value with unrealized holding gains and losses reported in
operations for those designated as trading and as a separate component of
shareholders' equity for those designated as a available-for-sale. Realized
gains and losses are reported in income net of income tax rather than
on a pretax basis. The Asset Valuation Reserve is determined by an
NAIC prescribed formula and is reported as a liability rather than as a
valuation allowance or an appropriation of surplus. Beginning in
1992, under a formula prescribed by the NAIC, the Company defers the
portion of realized gains and losses on sales of investments in debt
securities, attributable to changes in the general level of interest
rates and amortizes those deferrals over the remaining period to maturity
based on the individual security sold.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred
rather than capitalized and amortized over the terms of the related policies.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
2. DIFFERENCE BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
STATUTORY ACCOUNTING PRINCIPLES
(CONTINUED)
NON-ADMITTED ASSETS
Certain assets designated as "non-admitted," principally furniture and
equipment, are excluded from the accompanying Statutory Statements of
Admitted Assets, Liabilities, Capital and Surplus and are charged directly to
unassigned surplus.
PREMIUMS
Single premium whole life, annuity and flexible premium variable life
insurance considerations are recognized as earned upon issuance of the
contract, whereas under GAAP, premium income consists of mortality charges,
surrender charges earned, policy fees earned and amounts deducted from
policyholder accounts.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than estimated expected experience
or actual account balances.
INCOME TAXES
Deferred income taxes are generally not provided for differences
between the financial statement amounts and the tax bases of assets and
liabilities.
3. ANALYSIS OF ASSETS
An analysis of the Company's ledger assets as compared with its net
admitted assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
-------------- ------------ ----------- ----------------
Bonds $1,057,607,158 $ 126,000 $ 1,057,481,158
Preferred stock 9,972,720 ($60,000) 9,912,720
Common stock 1,641,663 (114,209) 97,441 1,430,013
Policy loans 4,455,976 4,455,976
Cash 2,664,850 2,664,850
Short-term investments 69,747,096 69,747,096
Investment income due and accrued 17,492,346 17,492,346
Electronic data processing
equipment, net 609,886 609,886
Receivable from affiliates 4,608,663 4,608,663
Furniture and equipment 245,531 245,531
Deposits, prepaid expenses and
other assets 14,390,754 83,881 206,035 14,268,600
-------------- ------------ ----------- ----------------
$1,165,944,297 $17,402,018 $ 675,007 $ 1,182,671,308
-------------- ------------ ----------- ----------------
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
3. ANALYSIS OF ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
<S> <C> <C> <C> <C>
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
-------------- ------------ ----------- ----------------
Bonds $ 981,232,212 $ 981,232,212
Preferred stock 9,562,255 ($84,208) 9,478,047
Common stock 720,540 (145,345) 575,195
Policy loans 2,999,312 2,999,312
Cash 11,790,032 11,790,032
Investment income due and accrued 14,678,500 14,678,500
Electronic data processing
equipment, net 895,106 895,106
Federal income tax recoverable 3,243,665 3,243,665
Furniture and equipment 267,216 $267,216
Deposits, prepaid expenses and
other assets 1,966,805 42,400 1,937,692 71,513
-------------- ------------ ----------- ----------------
$1,009,433,478 $17,735,012 $ 2,204,908 $ 1,024,963,582
-------------- ------------ ----------- ----------------
</TABLE>
4. RELATED PARTIES
The Company had material transactions with its parent and affiliated
companies as follows:
CAPITAL CONTRIBUTIONS
The Company received capital contributions from its parent during the
years ended December 31, 1995, 1994 and 1993 totaling $1,455,550, $13,588,397
and $0, respectively, principally in the form of investments and accrued
interest. During 1995, the Company made a $575,446 capital contribution to
the Marketing Company in the form of common stock.
EXPENSES
The Company receives investment advisory services under the terms of an
investment management agreement with Berkeley Institutional Investment, Inc.
(BIII), an affiliate of London Pacific Group Limited. Fees charged to the
Company under the agreement amounted to $5,272,984, $4,401,840 and $3,247,481
during the years ended December 31, 1995, 1994, and 1993, respectively.
Commissions on insurance business produced for the Company by its agents
are paid by the Marketing Company, the master general agent for the Company.
Effective January 1, 1995, the Company directly paid all agents' commissions
via the Marketing Company. For the years ended December 31, 1995, 1994,
and 1993, the Company paid commissions of $14,237,877, $22,125,145
and $16,352,492, respectively, to the Marketing Company (and the Marketing
Company paid commissions to agents of approximately $14,237,877, $14,719,474
and $15,988,508, respectively). The 1994 commission payments to the
Marketing Company include an amount paid to extinguish the Company's
contingent commission liability related to a marketing agreement that was
terminated on December 31, 1994.
The Company has payables to affiliates of $3,325 and $9,843 at December
31, 1995 and 1994, respectively, relating to these transactions.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
4. RELATED PARTIES (CONTINUED)
On January 23, 1995, the Company acquired a $5,000,000 corporate bond
from BG Services Limited, an affiliate, issued by Two Count Company and on
December 31, 1995, sold a $2,992,058 corporate bond, plus accrued interest of
$243,000, issued by Orleander Group to BG Services Limited. The amount due
from BG Services Limited on the Orleander Group sale is included in the
receivable from affiliates balance.
5. FEDERAL INCOME TAXES
The provision for federal income taxes has been computed in accordance
with provisions of the Internal Revenue Code, as amended. The Company files
a separate federal income tax return and is not included in a consolidated
return with affiliated entities.
The Company's total tax expense differs from an amount computed by
applying the federal income tax of 35 percent to statutory income. The four
primary items required to reconcile taxable income and statutory income are:
(1) capitalization of policy acquisition costs, (2) differences in computing
reserves for statutory and tax purposes, (3) differences in statutory and tax
bases of assets sold, and (4) differences in timing for the deduction of
accrued expenses.
6. AGGREGATE RESERVES FOR LIFE POLICIES AND CONTRACTS
Aggregate reserves for life policies and contracts have generally been
computed using the Commissioners' Reserve Valuation Method (CRVM) or the
Commissioners' Annuity Reserve Valuation Method (CARVM) prescribed
by the North Carolina Department of Insurance. The aggregate reserves
for life policies and contracts were computed on a policy-by-policy basis.
Statutory reserves for policy benefits due under universal life and
accumulation annuity insurance contracts are computed using the CRVM and the
CARVM, respectively. The CRVM and CARVM reserves established for specific
contracts are the greater of a formula reserve or the cash surrender value of
the contract.
The formula reserves for the universal life policies are computed using
the 1980 Commissioners Standard Ordinary (CSO) mortality table and a 4.0%
discount rate. These assumptions are in compliance with the minimum
statutory requirements.
The accumulation annuity insurance contracts include a single premium
deferred annuity product and a flexible premium deferred annuity product.
The formula reserves for the single premium deferred annuity are higher than
the cash surrender value due to the one year interest rate guarantee
provision of these contracts. The Company computed reserves with an interest
rate of 6.00% for 1995 issues, 6.50%-5.50% for 1994 issues and 5.75%
for 1993 issues. These rates are the maximum statutory interest rates
for such contracts. For flexible premium deferred annuities, the cash
surrender value is never greater than the formula reserves, but may be
equal to the CARVM reserve due to the calendar quarter interest guarantee
provision of these contracts. The Company uses the same interest rates to
compute reserves as are used for single premium deferred annuities.
Reserves for policy benefits due under immediate annuity insurance
contracts are based on a present value actuarial computation using a
statutory discount rate and a statutory mortality basis. The reserves are
based on the 83a table and with a discount rate of 7.25% for 1995, 6.50% for
1994 and 7.00% for 1993.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
6. AGGREGATE RESERVES FOR LIFE POLICIES AND CONTRACTS (CONTINUED)
The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995 1994
------ ------------
Subject to discretionary withdrawal at book
value less surrender charge of 5% or more $ 530,130,854 51.79% $700,347,943 77.23%
Subject to discretionary withdrawal at book
value less surrender charge greater than
0% but less than 5% 327,712,985 32.01% 52,995,888 5.84%
Subject to discretionary withdrawal at book
value with no surrender charge 6,736,768 0.66% 1,381,014 0.16%
Not subject to discretionary withdrawal 159,069,009 15.54% 152,055,826 16.77%
-------------- ------ ------------ ------
$1,023,649,616 100% $906,780,671 100%
============== ======= ============ ======
</TABLE>
7. INVESTMENTS
The Company records its investments in debt securities at cost or
amortized cost. The securities are designated investment grade (NAIC SVO
categories "1" and "2") or non-investment grade (categories "3", "4", "5",
and "6"). The NAIC 's highest ratings classification includes issues
normally rated investment grade by independent rating agencies.
The NAIC SVO classified the Company's debt securities as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C> <C> <C>
STATEMENT PERCENT STATEMENT PERCENT
NAIC CATEGORY VALUE OF TOTAL VALUE OF TOTAL
- ---------------------------------------------- -------------- --------- ------------ ---------
1 - Highest quality $ 465,956,793 44% $386,803,462 40%
2 - High quality 382,099,503 36 404,365,864 41
3 - Medium quality 90,540,167 9 89,890,621 9
4 - Low quality 85,136,505 8 79,444,805 8
5 - Lower quality 33,748,190 3 20,727,460 2
6 - Debt securities in or near default - - - -
-------------- --------- ------------ ---------
$1,057,481,158 100% $981,232,212 100%
-------------- --------- ------------ ---------
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
7. INVESTMENTS (CONTINUED)
The cost or amortized cost and the fair, or comparable value of
investments in debt securities are as follows:
COST OR GROSS UNREALIZED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 AMORTIZED COST GAINS LOSSES FAIR VALUE
- ----------------------------- --------------- ----------- ---------- --------------
U.S. Government
obligations $ 7,293,486 $ 163,613 ($3,498) $ 7,453,601
Obligations of states
and political subdivisions 2,364,678 55,072 0 2,419,750
Corporate securities 678,240,972 17,874,218 (649,005) 695,466,185
Other debt securities 58,473,851 637,910 (24,207) 59,087,554
Mortgage-backed securities 311,108,171 0 0 311,108,171
--------------- ----------- ---------- --------------
$ 1,057,481,158 $18,730,813 ($676,710) $1,075,535,261
--------------- ----------- ---------- --------------
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
<S> <C> <C> <C> <C>
DECEMBER 31, 1994 AMORTIZED COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------- --------------- -------- ------------- ------------
U.S. Government
obligations $ 7,397,191 $ 24,923 ($594,014) $ 6,828,100
Obligations of states
and political subdivisions 2,366,854 (245,204) 2,121,650
Corporate securities 617,557,758 725,229 (26,938,415) 591,344,572
Other debt securities 33,214,353 6,908 (1,325,379) 31,895,882
Mortgage-backed securities 320,696,056 320,696,056
--------------- ------- ------------ ------------
$ 981,232,212 $757,060 ($29,103,012) $952,886,260
--------------- -------- ------------- ------------
</TABLE>
Fair values are based on published quotations of the SVO of the NAIC.
Fair values generally represent quoted market value prices for securities
traded in the public marketplace, or analytically determined values using bid
or closing prices for securities not traded in the public marketplace.
However, for certain investments for which the NAIC does not provide a value,
the Company uses the amortized cost amount as a substitute for fair value in
accordance with prescribed guidance. As of December 31, 1995 and 1994, the
fair value of investments in debt securities includes $646,886,351 and
$645,396,359, respectively, of debt securities that were valued at amortized
cost.
The cost or amortized cost and the fair value of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without call or prepayment
penalties.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
7. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of the Company's
investment in debt securities at December 31, 1995, by contractual maturity,
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
COST OR
AMORTIZED COST FAIR VALUE
--------------- --------------
Maturity:
In 1996 $ 8,105,072 $ 8,108,447
In 1997-2000 118,777,166 121,516,342
In 2001-2005 485,142,725 496,395,991
After 2005 134,348,024 138,406,310
Mortgage-backed securities 311,108,171 311,108,171
--------------- --------------
Total $ 1,057,481,158 $1,075,535,261
--------------- --------------
</TABLE>
Proceeds from sales of investments in fixed maturities and related gross
gains and losses on those sales are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
------------------ ------------------ ------------------
Proceeds from sales $ 193,271,491 $ 236,920,286 $ 719,448,233
Gross realized gains $ 2,078,023 $ 4,413,014 $ 18,201,325
Gross realized losses $ 1,618,499 $ 1,704,392 $ 8,824,962
</TABLE>
At December 31, 1995, debt securities with an admitted asset value of
$9,673,866 were on deposit with state insurance departments to satisfy
regulatory requirements.
8. INVESTMENT INCOME
An analysis of the Company's net investment income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1995 1994 1993
------------ ------------ ------------
Interest on debt securities $91,585,614 $76,595,702 $65,535,483
Interest on short-term investments 554,252 397,098 393,877
Interest on cash on hand and on deposit 274,696 344,915 278,993
Equity in undistributed earnings of subsidiaries (285,874) 5,484,000
Other investment income 2,493,535 2,460,670 8,790,229
------------ ------------ ------------
Gross investment income 94,622,223 85,282,385 74,998,582
Less investment expenses (5,661,711) (5,469,720) (3,934,977)
------------ ------------ ------------
Net investment income $88,960,512 $79,812,665 $71,063,605
------------ ------------ ------------
</TABLE>
9. REINSURANCE
The maximum amount of direct universal life insurance retained on any
life is $250,000. Amounts in excess of $250,000 are ceded on a Yearly
Renewable Term basis of reinsurance. Life insurance ceded to other companies
for the years ended December 31, 1995 and 1994 totaled $53,210,000 and
$56,440,000
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
9. REINSURANCE (CONTINUED)
or 12.4% and 12.7% of life insurance in force, respectively. A
contingent liability exists with respect to insurance ceded which would
become a liability should the reinsurer be unable to meet the obligations
assumed under reinsurance agreements.
10. SURPLUS
Under the Insurance Code of the State of North Carolina, in a given
year the Company may make dividend distributions without prior approval of
the Insurance Commissioner up to the lesser of its net gain from operations
for the preceding year or 10% of surplus as of December 31 of the preceding
year. The maximum dividend that could be paid during 1996 without Insurance
Commissioner's approval is $4,761,050.
The NAIC has adopted Risk-Based Capital (RBC) requirements which
became effective December 31, 1993, that attempt to evaluate the adequacy of
a life insurance company's adjusted statutory capital and surplus in relation
to investment, insurance and other business risks. The RBC formula is used
by the states as an early warning tool to identify possible weakly
capitalized companies for the purpose of initiating regulatory action and is
not designed to be a basis for ranking the financial strength of insurance
companies. In states which have adopted the NAIC regulations, the new RBC
requirements provide for four different levels of regulatory attention
depending on the ratio of the company's adjusted capital and surplus to its
RBC. As of December 31, 1995, the adjusted capital and surplus of the
Company is substantially in excess of the minimum level of RBC that would
require regulatory response.
11. COMMITMENT AND CONTINGENT LIABILITIES
Rental expense for all leases was $722,359, $847,389 and $831,805
for 1995, 1994 and 1993, respectively. Future minimum rental commitments
under noncancelable operating leases for office space and equipment aggregate
$1,675,095 through 2000. The amounts due by year are $556,746 in 1996,
$481,205 in 1997, $281,141 in 1998, $267,002 in 1999 and $89,001 in 2000.
The Company has contingent liabilities resulting from anticipated state
guaranty association assessments for life insurers deemed insolvent during
the year. Although the total amount of this exposure is not known, a
substantial portion of the amount assessed will be recovered against future
premium taxes under current laws and regulations. As of December 31, 1995,
the Company estimates its net contingent liability for future state guaranty
association assessments is within range of $500,000 to $2,000,000. The
Company has not committed any surplus funds to reserve for the contingent
liability. The Company recognizes its obligation for guaranty fund
assessments when it receives notice that an amount is payable to a guaranty
fund. Expenses incurred for guaranty fund assessments were $1,075,244,
$431,456 and $306,826 in 1995, 1994 and 1993, respectively.
The Company has been named as a cross-defendant in a complaint filed by
The American Endeavour Fund Limited against the Company's ultimate parent and
the Company's Chairman. Management estimates the claims against the Company
cannot exceed $2 million and there are pending motions to dismiss or, in the
alternative, to stay the complaint. The Company believes that the alleged
claims are without merit. While these claims are being contested, the
outcome is not predictable with assurance. The Company believes that any
liability resulting from these claims should not have a material adverse
affect on the Company's statutory surplus.
12. ASSET VALUATION AND INTEREST MAINTENANCE RESERVES
The purpose of the AVR is to decrease the volatility of the incidence of
asset losses and to recognize the long term return expectations for equity
investments. The increase or decrease to this reserve is charged or credited
directly to surplus.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
___________________________________________________________________________
12. ASSET VALUATION AND INTEREST MAINTENANCE RESERVES (CONTINUED)
The purpose of the IMR is to minimize the effect of gains and losses
arising from gradual interest rate movements. All realized gains and losses
(net of tax) classified as interest related are accumulated and amortized
into net income over the remaining period to maturity of the security sold.
The effect of recording the IMR at December 31, 1995, 1994 and 1993 was to
defer total net capital gains of $10,190,326, $10,832,237 and $10,100,625,
respectively, and to recognize ($185,844), $945,197 and $1,584,804,
respectively, of IMR amortization into income.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair values of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosure about Fair Value
of Financial Instruments." The estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret
market data to develop these estimates. Accordingly, these estimates are not
necessarily indicative of the amounts which could be realized in a current
market exchange. The use of different market assumptions or estimation
methodologies may have a material effect on the estimated fair value amounts.
For financial instruments not separately disclosed below, the carrying value
is a reasonable estimate of fair value.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------------- -------------- ------------ ------------
Assets:
Debt securities $1,057,481,158 $1,090,099,356 $981,232,212 $914,143,123
Liabilities:
Insurance and annuity
reserves-investment-type
contracts $1,066,977,854 $1,094,695,606 $945,045,048 $948,989,798
</TABLE>
POLICY RESERVES
In accordance with SFAS No. 107, estimated fair values have been
calculated on policy reserves only for those products determined to be
investment-type. The estimated fair value of deferred annuity and universal
life contracts equals account value after deduction of surrender charges.
The estimated fair value of immediate annuity contracts is based on the
present value of expected benefits using a discount rate equal to the 5-year
Treasury rate.
14. CONCENTRATIONS OF CREDIT RISK
At December 31, 1995, the Company held unrated or less-than-investment
grade corporate bonds of $209,424,862. Those holdings amounted to 19.8% of
the Company's investments in bonds and less than 17.7% of the Company's total
admitted assets. The holdings of less-than-investment grade bonds are widely
diversified and management believes are of satisfactory quality based on
the Company's investment policies and credit standards.
SUPPLEMENTARY INFORMATION
Report of Independent Accountants
on Supplemental Schedule of Assets and Liabilities
February 8, 1996
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
In our opinion, the accompanying Supplemental Schedule of Assets and
Liabilities is fairly stated in all material respects in relation to the basic
financial statements, taken as a whole, of London Pacific Life & Annuity
Company for the year ended December 31, 1995, which is covered by our report
dated February 8, 1996 presented in the first section of this document. Our
audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Assets
and Liabilities of London Pacific Life & Annuity Company as of and for the
year ended December 31, 1995 is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ PRICE WATERHOUSE LLP
- ------------------------
London Pacific Life & Annuity Company
Annual Statement for the Year Ended December 31, 1995
Schedule 1 - Supplemental Schedule of Assets and Liabilities
The following is a summary of certain financial data included in other
exhibits and schedules subjected to audit procedures by independent auditors
and utilized by actuaries in the determination of reserves.
Investment Income Earned
<TABLE>
<CAPTION>
<S> <C>
Government Bonds $419,725
------------
Other bonds (unaffiliated) 91,165,889
------------
Bonds of affiliates 0
------------
Preferred stocks (unaffiliated) 534,679
------------
Preferred stocks of affiliates 0
------------
Common stocks (unaffiliated) 265,384
------------
Common stocks of affiliates (285,874)
------------
Mortgage loans 0
------------
Real estate 0
------------
Premium notes, policy loans and liens 212,822
------------
Collateral loans 0
------------
Cash on hand and on deposit 274,696
------------
Short-term investments 554,252
------------
Other Invested Assets 0
------------
Derivative Instruments 195,860
------------
Aggregate write-ins for investment income 1,284,790
------------
Gross investment income $94,622,223
============
Real Estate Owned - Book Value less Encumbrances $0
============
Mortgage Loans - Book Value:
Farm mortgages $0
------------
Residential mortgages 0
------------
Commercial mortgages 0
------------
Total mortgage loans $0
============
Mortgage Loans By Standing - Book Value:
Good standing $0
============
Good standing with restructured terms $0
============
Interest overdue more than three months, not in foreclosure $0
============
Foreclosure in process $0
============
Other Long Term Assets - Statement Value $0
============
Collateral Loans $0
============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value
Bonds $0
============
Preferred Stocks $0
============
Common Stocks $499,138
============
</TABLE>
Schedule 1 - Supplemental Schedule of Assets and Liabilities (continued)
<TABLE>
<CAPTION>
<S> <C>
Bonds and Short-term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year less $ 34,432,263
--------------
Over 1 year through 5 years 233,064,260
--------------
Over 5 years through 10 years 590,576,447
--------------
Over 10 years through 20 years 108,279,381
--------------
Over 20 years 91,128,807
--------------
Total by Maturity $1,057,481,158
==============
Bonds by Class - Statement Value
Class 1 $ 465,956,793
--------------
Class 2 382,099,503
--------------
Class 3 90,540,167
--------------
Class 4 85,136,505
--------------
Class 5 33,748,190
--------------
Class 6 0
--------------
Total by Class $1,057,481,158
==============
Total Bonds Publicly Traded $ 834,844,807
==============
Total Bonds Privately Placed $ 222,636,351
==============
Preferred Stocks - Statement Value $ 9,912,722
==============
Common Stocks - Market Value $ 1,430,013
==============
Short Term Investments - Book Value $ 69,747,096
==============
Financial Options Owned - Statement Value $ 0
==============
Financial Options Written and In force - Statement Value $ 0
==============
Collar, Swap and Forward Agreements Open - Statement Value $ 0
==============
Financial Futures Contracts Open - Current Price $ 0
==============
Cash on Deposit $ 2,664,850
==============
Life Insurance In Force:
Industrial $ 0
==============
Ordinary $ 429,950,000
==============
Credit Life $ 0
==============
Group Life $ 0
==============
Amount of Accidental Death Insurance In Force Under Ordinary Policies $ 0
==============
Life Insurance Policies with Disability Provisions In Force:
Industrial $ 0
==============
Ordinary $ 58,092,000
==============
Credit Life $ 0
==============
Group Life $ 0
==============
</TABLE>
Schedule 1 - Supplemental Schedule of Asses and Liabilities (continued)
<TABLE>
<CAPTION>
<S> <C>
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit $ 0
============
Income Payable $ 15,050,486
============
Ordinary - Involving Life Contingencies
Income Payable $ 80,917
============
Group - Not Involving Life Contingencies
Amount of Deposit $ 0
============
Income Payable $ 0
============
Group - Involving Life Contingencies
Income Payable $ 0
============
Annuities:
Ordinary
Immediate - Amount of Income Payable $ 29,749,469
============
Deferred - Fully Paid Account Balance $304,257,178
============
Deferred - Not Fully Paid - Account Balance $615,778,334
============
Group
Amount of Income Payable $ 0
============
Fully Paid Account Balance $ 0
============
Not Fully Paid - Account Balance $ 0
============
Accident and Health Insurance - Premiums In Force:
Ordinary $ 0
============
Group $ 0
============
Credit $ 0
============
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance $ 0
============
Dividend Accumulations - Account Balance $ 0
============
Claim Payments 1995:
Group Accident and Health Year - Ended December 31, 1995 None
Other Accident and Health None
Other Coverages that use developmental methods to None
calculate claims reserves
</TABLE>
