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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-18053
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
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(Exact name of Registrant as specified in its charter)
New Jersey 22-2426091
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(State or other jurisdiction, (IRS Employer
incorporation or organization) Identification No.)
213 Washington Street, Newark, New Jersey 07102
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(Address of principal executive offices) (Zip Code)
(973) 802-2859
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(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 May 15, 1998. 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.
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COVER PAGE 1
INDEX 2
PART I -- FINANCIAL INFORMATION
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ITEM 1. (UNAUDITED) FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION -- MARCH 31, 1998
AND DECEMBER 31, 1997 3
STATEMENTS OF OPERATIONS -- THREE MONTHS
ENDED MARCH 31, 1998 AND 1997 4
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY --
MARCH 31, 1998 AND DECEMBER 31, 1997 5
STATEMENTS OF CASH FLOWS -- THREE MONTHS
ENDED MARCH 31, 1998 AND 1997 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II -- OTHER INFORMATION
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 13
2
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
MARCH 31, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS)
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MARCH 31, DECEMBER 31,
1998 1997
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ASSETS
Fixed maturities
Available for sale, at fair value
(amortized cost, 1998: $560,770;
1997: $585,109) $ 566,700 $ 592,361
Policy loans 131,603 127,306
Short-term investments 75,938 52,464
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Total investments 774,241 772,131
Cash 5,527 3
Deferred policy acquisition costs 102,366 101,625
Accrued investment income 14,092 14,075
Other assets 11,811 4,037
Separate Account assets 1,274,457 1,110,561
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TOTAL ASSETS $2,182,494 $2,002,432
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 383,841 $ 379,744
Future policy benefits and other
policyholder liabilities 109,105 108,077
Cash collateral for loaned securities 28,144 33,663
Income taxes payable 16,066 12,963
Deferred income tax liability 21,227 22,188
Payable to affiliates 8,951 4,307
Other liabilities 22,822 17,103
Separate Account liabilities 1,272,612 1,108,994
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TOTAL LIABILITIES 1,862,768 1,687,039
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CONTINGENCIES (SEE NOTE 4)
STOCKHOLDER'S EQUITY
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
March 31, 1998 and December 31, 1997 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 191,393 185,437
Net unrealized investment gains 1,333 2,956
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TOTAL STOCKHOLDER'S EQUITY 319,726 315,393
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TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,182,494 $2,002,432
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS
3
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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1998 1997
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REVENUES
Premiums $ 363 $ 260
Policy charges and fee income 13,067 14,150
Net investment income 11,879 11,173
Realized investment gains, net 1,142 329
Other income 1,891 416
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TOTAL REVENUES 28,342 26,328
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BENEFITS AND EXPENSES
Policyholders' benefits 7,991 18,232
Interest credited to policyholders' account balances 5,322 4,780
General, administrative and other expenses 5,795 7,724
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TOTAL BENEFITS AND EXPENSES 19,108 30,736
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Income (loss) from operations before income taxes 9,234 (4,408)
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Income taxes
Current 3,181 3,257
Deferred 97 (4,671)
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Total income taxes 3,278 (1,414)
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NET INCOME (LOSS) $ 5,956 $(2,994)
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SEE NOTES TO FINANCIAL STATEMENTS
4
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
SEE NOTES TO FINANCIAL STATEMENTS
5
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
SEE NOTES TO FINANCIAL STATEMENTS
6
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. BUSINESS
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.
It is licensed to sell individual life insurance and deferred annuities (the
Contracts) only in the states of New Jersey and New York.
The Company is a wholly owned subsidiary of Pruco Life Insurance Company (Pruco
Life), a stock life insurance company organized in 1971 under the laws of the
state of Arizona. Pruco Life, in turn, is a wholly owned subsidiary of The
Prudential Insurance Company of America (Prudential).
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with 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, 1997 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 three months ended March 31, 1998 may not be indicative of
the results that may be expected for the year ending December 31, 1998.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentations.
3. INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. The amortized cost of fixed maturities are written down to estimated
fair value when considered impaired and the decline in value is considered to be
other than temporary. Unrealized gains and losses on fixed maturities "available
for sale", net of income tax, the effect on deferred policy acquisition costs
and participating annuity contracts that would result from the realization of
unrealized gains and losses are included in a separate component of equity, "Net
unrealized investment gains."
7
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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3. INVESTMENTS (continued)
The following reconciles the Net unrealized investment gains recorded in
Stockholder's equity at March 31, 1998 and December 31, 1997.
4. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies 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.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS.
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The Company markets individual life insurance, variable life insurance, variable
annuities and deferred annuities through Prudential's sales force in New Jersey
and New York.
The Company markets its products in the life insurance and annuity sectors of
the insurance industry. These markets are faced with an increased tightening of
the regulatory environment with particular emphasis placed on company solvency
and sales practices. The legal barriers which have historically segregated the
markets of the financial services industry are being challenged through both
legislative and judicial processes. Regulatory changes which opened the
insurance industry to other financial institutions, particularly banks and
mutual funds, heightened competition in investment type products since those
institutions were positioned to deliver the same products through large, stable
distribution channels.
The Company held $2.2 billion in assets at March 31, 1998 compared to $2.0
billion at December 31, 1997, of which $1.3 billion and $1.1 billion were held
in Separate Accounts as of March 31, 1998 and December 31, 1997 under variable
life insurance policies and variable annuity contracts. The remaining assets
were held in the general account for investment primarily in bonds, short-term
investments and policy loans.
1. RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 amounted to $6.0 million,
compared to a loss of $3.0 million in the three months ended March 31, 1997.
1998 versus 1997
Separate Account activity was a major contributor to the increase in operating
results during the first quarter of 1998. Separate Account assets increased
14.7% as of March 31, 1998, from $1,111 million as of December 31, 1997 to
$1,274 million. Approximately 53% ($87 million) of the increase is due to sales
of the Company's variable products and the remaining 47% ($77 million) is a
result of portfolio appreciation due to the strong market conditions during the
first quarter of 1998. Premiums from sales of variable products primarily relate
to the Discovery Select product which was added to the Company's portfolio as of
January 1997. Separate Account asset-based charges such as mortality and expense
charges, administration fees and Separate Account gains are the elements
primarily attributable to these variances.
Net investment income increased $.7 million from $11.2 for the three months
ended March 31, 1997 to $11.9 million for the three months ended March 31, 1998.
This increase is primarily driven by Separate Account gains which are the gains
from market appreciation on the Company's investment in the Separate Accounts.
Other income increased $1.5 million from $.4 million for the three months ended
March 31, 1997 to $1.9 million for the three months ended March 31, 1998. This
is primarily attributable to the increase in investment management fees which
are received by the Company for services Prudential provides to The Prudential
Series Funds, an underlying investment option of the Separate Accounts.
Policyholders' benefits decreased $10.2 million from $18.2 million for the three
months ended March 31, 1997 to $8.0 million for the three months ended March 31,
1998. This decrease is mainly attributable to decreased policyholder surrender
activity.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in-force. The Company has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios. The Company anticipates funding all its cash requirements utilizing
cash from operations, normal investment maturities, and anticipated calls and
repayments, consistent with prior years. As of March 31, 1998, the Company's
assets included $624.5 million of cash, short-term investments and investment
grade publicly traded fixed maturity securities that could be liquidated if
funds were required.
The Company conducts a thorough review of the adequacy of statutory insurance
reserves and other actuarial liabilities. The review is performed to ensure that
the Company's statutory reserves are computed in accordance with accepted
actuarial standards, reflect all contractual obligations, meet the requirements
of state laws and regulations and include adequate provisions for any other
actuarial liabilities that need to be established. All significant reserve
changes are reviewed by the Board of Directors and are subject to approval by
the New Jersey Department of Banking and Insurance. The Company believes that
its statutory capital is adequate for its currently anticipated levels of risk
as measured by regulatory guidelines.
9
3. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Company's
products; and adverse litigation results. While the Company reassesses material
trends and uncertainties affecting its financial condition and results of
operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
10
PART II
ITEM 1 LEGAL PROCEEDINGS
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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
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Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Amendment dated February 12, 1998 to the Articles of Incorporation fixing the
address of the Company at 213 Washington Street, and naming Clifford Kirsch
agent for receipt of service of process.
ITEM 5 OTHER INFORMATION
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Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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(a) (1) and (2) Financial Statements of registrant are listed on pages
3-6 hereof and are filed as part of this Report. There have been no
8-K's filed during the first quarter of 1998.
(a) (3) Exhibits
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Regulation S-K
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2. Not Applicable
3. Documents Incorporated by Reference
(i) The Articles of Incorporation of Pruco Life Insurance Company of New
Jersey, as amended February 12, 1998 are attached hereto; (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.
333-18053, filed December 17, 1996.
10. None.
11. Not Applicable.
15. Not Applicable.
18. None.
19. Not Applicable.
20. Not Applicable.
22. None.
23. None.
11
PART II
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
12
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 May 15, 1998
Esther H. Milnes
/s/ JAMES M. SCHLOMANN
- ------------------------- Vice President and Comptroller May 15, 1998
James M. Schlomann and Chief Accounting Officer
13