10-Q: Quarterly report [Sections 13 or 15(d)]
Published on
UNITED STATES
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 period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-18117-01
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Exact name of Registrant as specified in its charter)
New Jersey 22-2426091
- - ------------------------------ ---------------------------------
(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)
213 Washington Street, Newark, New Jersey 07102
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 802-3780
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of September 30, 1997. Common stock, par value
of $5 per share: 400,000 shares outstanding
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
COVER PAGE 1
INDEX 2
PART I -- FINANCIAL STATEMENTS
- - ------------------------------
ITEM 1. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
FINANCIAL STATEMENTS:
STATEMENTS OF FINANCIAL POSITION -- SEPTEMBER 30, 1997
(UNAUDITED) AND DECEMBER 31, 1996 3
STATEMENTS OF OPERATIONS (UNAUDITED) -- THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 4
STATEMENTS OF CHANGES IN EQUITY -- NINE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 5
STATEMENTS OF CASH FLOWS (UNAUDITED) -- NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 6
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
PART II -- OTHER INFORMATION
- - ----------------------------
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 12
2
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF FINANCIAL POSITION
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(000's)
ASSETS
Fixed maturities
Available for sale $ 553,628 $ 555,898
Policy loans 124,131 113,918
Short term investments 87,747 17,002
---------- ----------
Total invested assets 765,506 686,818
---------- ----------
Cash 1,697 3,928
Deferred policy acquisition costs 107,250 106,965
Accrued investment income 14,400 12,908
Other assets 5,171 1,736
Separate Account assets 1,089,606 883,261
---------- ----------
TOTAL ASSETS $1,983,630 $1,695,616
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Future policy benefits and other
policyholders' liabilities $ 107,164 $ 100,663
Policyholders' account balances 379,364 375,448
Federal income tax payable 10,673 1,970
Deferred federal income tax payable 24,663 24,175
Payable to affiliate 8,751 6,059
Cash collateral for loaned Securities 26,188 --
Other liabilities 26,655 11,990
Separate Account liabilities 1,087,768 880,065
---------- ----------
TOTAL LIABILITIES 1,671,226 1,400,370
---------- ----------
CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at September 30,
1997 and December 31, 1996 2,000 2,000
Paid-in-capital 125,000 125,000
Net unrealized investment gains 2,670 2,032
Retained earnings 182,734 166,214
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 312,404 295,246
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,983,630 $1,695,616
========== ==========
SEE NOTES TO THE FINANCIAL STATEMENTS
3
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(000's)
REVENUES
Premiums $ 708 $ 1,637 $ 318 $ 785
Policy charges and fee income 39,846 40,872 13,055 13,602
Net investment income 34,304 32,333 12,828 10,870
Realized investment gains 1,328 576 882 470
Other income 3,408 3,044 1,480 1,037
------- ------- ------- -------
TOTAL REVENUES 79,594 78,462 28,563 26,764
------- ------- ------- -------
BENEFITS AND EXPENSES
Policyholders' benefits 23,133 21,362 7,799 7,945
Interest credited to policyholders'
account balances 14,371 14,654 4,886 4,761
Other operating costs and expenses 16,451 3,854 4,368 (6,698)
------- ------- ------- -------
TOTAL BENEFITS AND EXPENSES 53,955 39,870 17,053 6,008
------- ------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 25,639 38,592 11,510 20,756
Income tax provision 9,119 13,507 4,106 7,265
------- ------- ------- -------
NET INCOME $16,520 $25,085 $ 7,404 $13,491
======= ======= ======= =======
SEE NOTES TO THE FINANCIAL STATEMENTS
4
5
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------- ---------
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,520 $ 25,085
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other
policyholders' liabilities 6,501 8,753
General account policy fee income (5,922) (4,661)
Interest credited to policyholders'
account balances 14,371 14,654
Net decrease (increase) in Separate Accounts 1,358 (2,086)
Net realized investment gains (1,328) (576)
Policy loans (10,213) (11,332)
Amortization and other non-cash items 416 11,922
Change in:
Accrued investment income (1,492) (1,736)
Deferred policy acquisition costs (285) (16,605)
Other assets (3,435) 182
Payable to affiliate 2,692 1,136
Federal income tax payable 8,703 2,856
Deferred federal income tax payable 488 (757)
Other liabilities 14,665 6,826
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES 43,039 33,661
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 564,841 746,459
Payments for the purchase of:
Fixed maturities:
Available for sale (561,021) (779,266)
Net cash collateral for loaned securities 26,188 --
Net (payments) proceeds for short
term investments (70,745) 10,283
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES (40,737) (22,524)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 87,354 13,860
Withdrawals (net of transfers to/from
separate accounts) (91,887) (25,023)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES (4,533) (11,163)
-------- ---------
Net decrease in Cash (2,231) (26)
Cash, beginning of year 3,928 0
-------- ---------
CASH, END OF PERIOD $ 1,697 $ (26)
======== =========
SEE NOTES TO THE FINANCIAL STATEMENTS
6
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
SEPTEMBER 30, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. GENERAL
Pruco Life Insurance Company of New Jersey (the Company), a stock life insurance
company domiciled in the state of New Jersey, is an indirect subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual life insurance
company, and a direct subsidiary of Pruco Life Insurance Company (Pruco Life), a
stock life insurance company domiciled in the state of Arizona. The Company
markets individual life insurance and deferred annuities through Prudential's
sales force.
B. BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the other information and disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K for that year.
The accompanying financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards, but in the
opinion of management such financial statements include all adjustments,
consisting only of normal recurring accruals, necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the nine months ended September 30, 1997 may not be indicative of
the results that may be expected for the year ending December 31, 1997.
C. INVESTMENTS
Fixed Maturities--Where the Company may not have the positive intent to hold
fixed maturities until maturity, the securities are classified as "Available for
Sale." These securities are reported at market value based principally on their
quoted market prices. The associated unrealized gains and losses, net of income
taxes and deferred policy acquisition costs, are included as a component of
equity or if deemed to be other than temporary, are included as a realized loss.
These securities may be sold prior to maturity as part of the Company's
asset/liability management strategy in response to changes in interest rates,
resultant prepayments risk, and similar factors.
Short-term investments are fixed maturities that mature within one year, and are
reported at estimated fair value.
Securities lending--The Company has instituted a securities lending program
during the third quarter of 1997 whereby large blocks of securities are loaned
to third parties, primarily brokerage firms. As of September 30, 1997, the
estimated fair values of loaned securities were $26.0 million. Company policy
and statutory regulations both require a minimum of 102% of the fair value of
the domestic loaned securities to be separately maintained as collateral for the
loans. Cash collateral received is invested in short-term investments and is
recorded in Cash collateral for loaned securities in the amount of $26.2
million at September 30, 1997. Non-cash collateral is not reflected in the
consolidated financial statements.
7
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
SEPTEMBER 30, 1997
(UNAUDITED)
The following reconciles the Net unrealized investment gains recorded in
Stockholder's equity at September 30, 1997 and December 31, 1996.
SEPT. 30, DEC. 31,
1997 1996
-------- --------
(000's)
Fixed maturities:
Fair Value $553,628 $555,898
Amortized cost 547,333 551,728
-------- --------
Unrealized investment gains 6,295 4,170
Related adjustments:
Deferred policy acquisition costs (2,512) (1,209)
Policyholders' account balances 371 212
Deferred federal income tax liability (1,484) (1,141)
-------- --------
(3,625) (2,138)
Net unrealized investment gains $ 2,670 $ 2,032
======== ========
D. RECLASSIFICATIONS
To facilitate comparisons with the current year, certain amounts in the prior
periods have been reclassified.
2. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies and are based on complaints about sales
practices engaged in by Prudential, the Company and agents appointed by
Prudential and the Company. Prudential has agreed to indemnify the Company for
any and all losses resulting from such litigation.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Pruco Life Insurance Company of New Jersey (the Company) is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
The Company is an indirect subsidiary of The Prudential Insurance Company of
America (Prudential), and a direct subsidiary of Pruco Life Insurance Company
(Pruco Life). Pruco Life is a stock life insurance company domiciled in the
state of Arizona. The Company markets individual insurance and annuities through
Prudential's sales force.
The Company's assets were $2.0 billion at September 30, 1997 compared to $1.7
billion at December 31, 1996. The Company recorded net income of $16.5 million
for the period ended September 30, 1997, a decrease of $8.6 million in
comparison to the $25.1 million earned in the same period in 1996.
1. RESULTS OF OPERATIONS
1997 versus 1996
Premiums decreased by $.9 million to $.7 million for the nine months ended
September 30, 1997 from $1.6 million for the same period in 1996. This decrease
is primarily attributable to the loss of annuity premiums. As annuity products
mature, the policy becomes non-premium paying and converts to a pay out status.
Net investment income increased $2.0 million from $32.3 million for the period
ended September 30, 1996 to $34.3 million for the same period in 1997. This
increase is primarily due to overall growth of the investment portfolio as a
result of additional cash flows from operating activities along with a reduction
in expenses.
Realized investment gains increased by $.7 million from $.6 million for the
period ended September 30, 1996 to $1.3 million for the same period in 1997.
This increase is primarily driven by the sale of fixed maturities as a result of
normal investing activities during a period of declining interest rates.
Policyholders' benefits for the period ended September 30, 1997 were $23.1
million compared to $21.4 million for the same period in 1996. This increase of
$1.7 million is attributable to increased mortality costs associated with the
aging book of business.
Other operating costs and expenses increased $12.6 million from $3.9 million for
the nine months ended September 30, 1996 to $16.5 million for the same period in
1997. The increase relects factors including the refinement of estimated gross
profit margins used to amortize deferred policy acquisition costs (DAC).
Favorable mortality experience and reduction in cost of insurance charges
contributed to a net change in amortization. Favorable sales in 1997 were a
partial offset. The net change in the amortization of DAC was $(1.4) million and
$(9.0) million in 1997 and 1996, respectively. Also, increased operating costs
resulted from higher sales activity of Discovery Select and Discovery Preferred
annuity products, and technological advancements made in annuity processing,
customer service, and product development.
2. LIQUIDITY
For an insurance company, cash needs, for the purpose of paying current
benefits, making policy loans, and paying expenses, are met primarily from
premiums and investment income. Benefits and expenses incurred for the nine
months ended September 30, 1997, and 1996, were $54.0 million, and $39.9
million, respectively. Cash flows are anticipated to be sufficient to meet the
Company's liquidity needs for the foreseeable future.
3. CAPITAL RESOURCES
The primary components of the Company's total assets of $2.0 billion at
September 30, 1997 are as follows (as a percentage of total assets): fixed
income securities 27.9%, separate account assets (fixed income and equity
securities) 54.9%, policy loans 6.3%, and other assets 10.9%.
9
PART II
ITEM 1 LEGAL PROCEEDING
- - -----------------------
Pruco Life Insurance Company of New Jersey is not involved in any litigation
that is expected to have a material effect.
ITEM 2 CHANGES IN SECURITIES
- - ----------------------------
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- - --------------------------------------
Not Applicable
ITEM 4 SUBMISSION 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
- - ---------------------------------------
(a) (1) and (2) financial Statements of registrant are listed on pages 3-6
hereof and are filed as part of this Report.
(a) (3) Exhibits
--------
Regulation S-K
--------------
2. Not Applicable
3. Documents Incorporated by Reference
(i) The Articles of Incorporation of Pruco Life Insurance Company of New
Jersey, as amended March 11, 1983 are incorporated herein by reference to
Post-Effective Amendment No. 26 to Form S-6, Registration No. 2-89780,
filed April 28, 1997 on behalf of the Pruco Life Insurance Company of New
Jersey; (ii) Bylaws of Pruco Life Insurance Company of New Jersey, as
amended May 5, 1997 are incorporated herein by reference to Form 10-Q,
Registration No. 333-18117-01, filed August 15, 1997 on behalf of Pruco
Life Insurance Company of New Jersey.
4. Exhibits
Market-Value Adjustment Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No. 33-18053,
filed December 17, 1996.
10. None.
11. Not Applicable.
15. Not Applicable.
18. None.
10
19. Not Applicable.
20. Not Applicable.
22. None.
23. None.
24. Not Applicable.
25. Not Applicable.
27. Exhibit 27, Financial Data Schedule appended to this form in accordance
with EDGAR instructions.
99. Exhibit 99, Form SR
11
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 of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ESTHER H. MILNES
- - -------------------------- President and Director November 14, 1997
Esther H. Milnes
/s/ LINDA S. DOUGHERTY
- - -------------------------- Vice President and Comptroller November 14, 1997
Linda S. Dougherty and Chief Accounting Officer
12