Form: 10-Q

Quarterly report [Sections 13 or 15(d)]

10-Q: Quarterly report [Sections 13 or 15(d)]

Published on

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the quarterly period ended March 31, 2002

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission file number 333-18053

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)

(973) 802-3274
--------------------------------------------
(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 14, 2002. Common stock, par value of $5 per share:
400,000 shares outstanding

Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction (H) (1) (a) and (b) on Form 10-Q and is therefore filing
this Form with the reduced disclosure format.

================================================================================





PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS



Page No.
--------

Cover Page -
Index 2
PART I - Financial Information
------------------------------

Item 1. (Unaudited) Financial Statements

Statements of Financial Position
As of March 31, 2002 and December 31, 2001 3

Statements of Operations and Comprehensive Income
Three months ended March 31, 2002 and 2001 4

Statements of Changes in Stockholder's Equity
Periods ended March 31, 2002 and December 31, 2001 and 2000 5

Statements of Cash Flows
Three months ended March 31, 2002 and 2001 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 6. Exhibits and Reports on Form 8-K 11
Signature Page 12


Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q,
including but not limited to those in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Words such as "expects," "believes," "anticipates," "includes,"
"plans," "assumes," "estimates," "projects," or variations of such words are
generally part of forward-looking statements. Forward-looking statements are
made based on management's current expectations and beliefs concerning future
developments and their potential effects upon Pruco Life Insurance Company of
New Jersey ("the Company"). There can be no assurance that future developments
affecting the Company will be those anticipated by management. These
forward-looking statements are not a guarantee of future performance and involve
risks and uncertainties, and there are certain important factors that could
cause actual results to differ, possibly materially, from expectations or
estimates reflected in such forward-looking statements, including without
limitation: general economic, market and political conditions, including the
performance of financial markets, interest rate fluctuations and the continuing
impact of the events of September 11; volatility in the securities markets;
reestimates of our reserves for future policy benefits and claims; our exposure
to contingent liabilities; catastrophe losses; investment losses and defaults;
changes in our claims-paying or credit ratings; competition in our product lines
and for personnel; fluctuations in foreign currency exchange rates and foreign
securities markets; risks to our international operations; the impact of
changing regulation or accounting practices; adverse litigation results; and
changes in tax law. The Company does not intend, and is under no obligation to,
update any particular forward-looking statement included in this document.

2



Pruco Life Insurance Company of New Jersey

Statements of Financial Position (Unaudited)
As of March 31, 2002 and December 31, 2001 (In Thousands)
- --------------------------------------------------------------------------------



March 31, December 31,
2002 2001
----------------- ----------------


ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 2001: $498,091;
and 2000: $478,996) $ 504,685 $ 490,734
Policy loans 159,443 158,754
Short-term investments 14,972 32,983
Other long-term investments 2,943 2,614
----------- -----------
Total investments 682,043 685,085
Cash and cash equivalents 78,171 58,212
Deferred policy acquisition costs 129,655 118,975
Accrued investment income 11,387 10,399
Receivables from affiliate 16,984 17,270
Other assets 5,099 3,919
Separate Account assets 1,638,843 1,631,113
----------- ----------
TOTAL ASSETS $ 2,562,182 $ 2,524,973
=========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 479,157 $ 457,172
Future policy benefits and other policyholder liabilities 120,817 119,400
Cash collateral for loaned securities 49,295 36,092
Securities sold under agreements to repurchase 18,422 18,514
Income taxes payable 35,980 36,012
Other liabilities 11,304 19,298
Separate Account liabilities 1,638,843 1,631,113
----------- -----------
Total liabilities $ 2,353,818 $ 2,317,601
----------- -----------
Contingencies - (See Footnote 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
March 31, 2002 and December 31, 2001 2,000 2,000
Paid-in-capital 128,689 128,689
Retained earnings 75,447 72,959
Accumulated other comprehensive income 2,228 3,724
----------- -----------
Total stockholder's equity 208,364 207,372
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,562,182 $ 2,524,973
=========== ===========


See Notes to Financial Statements

3


Pruco Life Insurance Company of New Jersey

Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended March 31, 2002 and 2001 (In Thousands)
- --------------------------------------------------------------------------------


Three months ended
March 31,

2002 2001
---------------- -----------------

REVENUES

Premiums $ 4,083 $ 2,912
Policy charges and fee income 13,283 10,648
Net investment income 11,179 14,053
Realized investment (losses) gains, net (2,132) 980
Asset management fees 33 162
Other income 146 193
---------- -----------

Total revenues 26,592 28,948
---------- -----------

BENEFITS AND EXPENSES

Policyholders' benefits 7,978 7,727
Interest credited to policyholders' account balances 4,801 5,145
General, administrative and other expenses 10,346 9,679
---------- -----------

Total benefits and expenses 23,125 22,551
---------- -----------

Income from operations before income taxes 3,467 6,397
---------- -----------

Income tax provision 979 2,114
---------- -----------

NET INCOME
2,488 4,283

Net unrealized investment (losses) gains on
securities, net of reclassification adjustment
and taxes (1,496) 3,884
---------- -----------

TOTAL COMPREHENSIVE INCOME $ 992 $ 8,167
========== ===========



See Notes to Financial Statements

4


Pruco Life Insurance Company of New Jersey

Statements of Changes in Stockholder's Equity (Unaudited)
Periods ended March 31, 2002 and December 31, 2001 and 2000 (In Thousands)
- --------------------------------------------------------------------------------




Accumulated
other Total
Common Paid - in - Retained comprehensive stockholder's
stock capital earnings income (loss) equity
--------- ----------- ----------- ------------- -------------


Balance, January 1, 2000 $ 2,000 $ 125,000 $ 230,057 $ (6,088) $ 350,969

Net income - - 23,584 - 23,584

Change in net unrealized
investment losses, net of
reclassification and taxes - - - 5,325 5,325
Contribution - 3,689 - - 3,689
-------- --------- ---------- ---------- ---------
Balance, December 31, 2000 2,000 128,689 253,641 (763) 383,567

Net income - - 15,593 - 15,593

Change in net unrealized
investment gains, net of
reclassification and taxes - - - 4,487 4,487

Policy credits issued to
eligible policyholders - - (10,275) - (10,275)

Dividend to Parent - - (186,000) - (186,000)
-------- --------- ---------- ---------- ---------
Balance, December 31, 2001 2,000 128,689 72,959 3,724 207,372




Net income - - 2,488 - 2,488
Change in net unrealized
investment gains, net of
reclassification and taxes - - - (1,496) (1,496)
-------- --------- ---------- ---------- ---------
Balance, March 31, 2002 $ 2,000 $ 128,689 $ 75,447 $ 2,228 $ 208,364
======== ========= ========== ========== =========


See Notes to Financial Statements


5



Pruco Life Insurance Company of New Jersey

Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2002 and 2001 (In Thousands)
- --------------------------------------------------------------------------------


Three months ended,
March 31,

2002 2001
-----------------------------

CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES:
Net income $ 2,488 $ 4,283
Adjustments to reconcile net income to net cash (used in)
provided by
Operating activities:
Policy charges and fee income (2,721) (2,506)
Interest credited to policyholders' account balances 4,801 5,145
Realized investment losses (gains), net 2,132 (980)
Amortization and other non-cash items 3,368 (9,738)
Change in:
Future policy benefits and other policyholders' 1,417 697
liabilities
Accrued investment income (988) (326)
Policy loans (689) (2,571)
Receivable from affiliates 286 2,153
Deferred policy acquisition costs (10,680) 5,268
Income taxes payable (32) 4,219
Other, net (178) 3,124
-------- ---------
Cash Flows (Used in) From Operating Activities (796) 8,768
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities available for sale 45,125 229,229
Payments for the purchase of:
Fixed maturities available for sale (66,176) (248,654)
Cash collateral for loaned securities, net 13,203 17,284
Securities sold under agreements to repurchase, net (92) (9,754)
Other long-term investments (480) 37
Short term investments, net 18,011 23,191
-------- ---------
Cash Flows From Investing Activities 9,591 11,333
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 34,794 27,034
Withdrawals (14,634) (21,171)
Cash payments to eligible policyholders (8,996) -
-------- ---------
Cash Flows From Financing Activities 11,164 5,863
-------- ---------
Net increase in Cash and cash equivalents 19,959 25,964
Cash and cash equivalents, beginning of year 58,212 65,237
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 78,171 $ 91,201
======== =========

See Notes to Financial Statements


6



Pruco Life Insurance Company of New Jersey

Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

The accompanying interim financial statements have been prepared pursuant to the
rules and regulations for reporting on Form 10-Q on the basis of accounting
principles generally accepted in the United States. These interim financial
statements are unaudited but reflect all adjustments which, in the opinion of
management, are necessary to provide a fair presentation of the results of
operations and financial condition of the Pruco Life Insurance Company of New
Jersey ("the Company"), for the interim periods presented. The Company is a
wholly-owned subsidiary of the Pruco Life Insurance Company ("Pruco Life") which
in turn is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"). Prudential is a wholly owned subsidiary of Prudential
Financial, Inc. All such adjustments are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
results for a full year. Certain amounts in the Company's prior year financial
statements have been reclassified to conform to the 2002 presentation. These
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.

2. CONTINGENCIES AND LITIGATION

Prudential and the Company are subject to legal and regulatory actions in the
ordinary course of our businesses, including class actions. Pending legal and
regulatory actions include proceedings relating to aspects of our businesses and
operations that are specific to the Company and Prudential and that are typical
of the businesses in which the Company and Prudential operate. Some of these
proceedings have been brought on behalf of various alleged classes of
complainants. In certain of these matters, the plaintiffs are seeking large
and/or indeterminate amounts, including punitive or exemplary damages.

Beginning in 1995, regulatory authorities and customers brought significant
regulatory actions and civil litigation against the Company and Prudential
involving individual life insurance sales practices. In 1996, Prudential, on
behalf of itself and many of its life insurance subsidiaries including the
Company entered into settlement agreements with relevant insurance regulatory
authorities and plaintiffs in the principal life insurance sales practices class
action lawsuit covering policyholders of individual permanent life insurance
policies issued in the United States from 1982 to 1995. Pursuant to the
settlements, the companies agreed to various changes to their sales and business
practices controls, to a series of fines, and to provide specific forms of
relief to eligible class members. Virtually all claims by class members filed in
connection with the settlements have been resolved and virtually all aspects of
the remediation program have been satisfied. While the approval of the class
action settlement is now final, Prudential and the Company remain subject to
oversight and review by insurance regulators and other regulatory authorities
with respect to its sales practices and the conduct of the remediation program.
The U.S. District Court has also retained jurisdiction as to all matters
relating to the administration, consummation, enforcement and interpretation of
the settlements.

As of March 31, 2002, Prudential and/or the Company remained a party to
approximately 42 individual sales practices actions filed by policyholders who
"opted out" of the class action settlement relating to permanent life insurance
policies issued in the United States between 1982 and 1995. In addition, there
were 18 sales practices actions pending that were filed by policyholders who
were members of the class and who failed to "opt out" of the class action
settlement. Prudential and the Company believe that those actions are governed
by the class settlement release and expect them to be enjoined and/or dismissed.
Additional suits may be filed by class members who "opted out" of the class
settlements or who failed to "opt out" but nevertheless seek to proceed against
Prudential and/or the Company. A number of the plaintiffs in these cases seek
large and/or indeterminate amounts, including punitive or exemplary damages.
Some of these actions are brought on behalf of multiple plaintiffs. It is
possible that substantial punitive damages might be awarded in any of these
actions and particularly in an action involving multiple plaintiffs.

Prudential has indemnified the Company for any liabilities incurred in
connection with sales practices litigation covering policyholders of individual
permanent life insurance policies issued in the United States from 1982 to 1995.

The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially effected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.

7




Pruco Life Insurance Company of New Jersey

Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

3. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.

Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses and retail distribution expenses.

The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential to
process transactions on behalf of the Company. Prudential and the Company
operate under service and lease agreements whereby services of officers and
employees, supplies, use of equipment and office space are provided by
Prudential.

The Company is allocated estimated distribution expenses from Prudential's
retail agency network for both its domestic life and annuity products. The
estimate of allocated distribution expenses is intended to reflect a market
based pricing arrangement. The Company has capitalized the majority of these
distribution expenses as deferred policy acquisition costs.

Corporate Owned Life Insurance
The Company has sold a Corporate Owned Life Insurance ("COLI") policy to
Prudential. The cash surrender value included in Separate Accounts was $169.1
million and $165.7 million at March 31, 2002 and December 31, 2001,
respectively.

Reinsurance
The Company currently has a reinsurance agreement in place with Prudential ("the
reinsurer"). The reinsurance agreement is a yearly renewable term agreement in
which the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net income
for the periods ended March 31, 2002 and 2001.

Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding LLC, a wholly-owned subsidiary of Prudential. There is no
outstanding debt relating to this credit facility as of March 31, 2002 or
December 31, 2001.


8


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction H(1)(a) and (b) on Form 10-Q and is filing this form with
reduced disclosure.

1. Analysis of Financial Condition

Total assets of the Company increased $37.2 million from $2,525.0 million to
$2,562.2 million during the first three months of 2002. Cash and cash
equivalents increased $20.0 million mainly from increased securities lending
activities. Deferred acquisition costs ("DAC") increased $10.7 million from
capitalization of commissions. Separate Account assets increased by $7.7 million
primarily from the payment of policy credits to Separate Account Policyholders.

Total liabilities of the Company increased $36.2 million during the first three
months of 2002 from $2,317.6 million to $2,353.8 million. Policyholder Account
balances increased $22.0 million mainly from annuity deposits. Securities
lending activity increased by $13.1 million. Corresponding with the asset
change, Separate Account liabilities increased by $7.7 million primarily from
the payment of policy credits to Separate Account Policyholders. Other
liabilities decreased $8.0 million mainly due to the payment of policy credits
to Separate Account policyholders, which had been accrued in other liabilities
at December 31, 2001.


2. Results of Operations

Net Income
Net income for the three months ended March 31, 2002 was $2.5 million, a
decrease of $1.8 million from the first quarter of 2001. The main factors in the
decline in net income are realized investment losses and lower net investment
income offset partially by higher policy charges and premiums.

Revenues
Revenues decreased by $2.4 million from the prior year comparable period. The
change in realized investment losses/gains between the two periods decreased
income by $3.1 million. This change resulted primarily from the realization of
losses on sales of fixed maturities in 2002 from credit related sales compared
to gains on sales in the prior year as interest rates were declining in 2001.
Net investment income is lower by $2.9 million due to lower yields available and
a decrease in the portfolio size from March 2001, mainly from the $186 million
dividend paid in December 2001. Policy charges and fee income increased by $2.6
million primarily driven by an increase in charges for assuming mortality and
expense risks due to the growth in the in force business. Premiums increased
$1.2 million from higher term insurance sales and renewals of the Term Essential
and Term Elite products of $2.8 million. This was partially offset by decreased
term insurance issued under policy provisions to customers who previously had
lapsing variable life insurance with the Company.

Benefits and Expenses
Total benefits and expenses increased by $.6 million. General, administrative
and other expenses increased by $.7 million from the prior year comparable
period mainly from increases to salary expenses. Policyholder benefits increased
by $.3 million mainly as a result of higher death and surrender benefits and
increases for term insurance reserves. This was partially offset by lower
reserves as a result of the lower amount of term insurance issued in 2002 under
policy provisions to customers who previously had lapsing variable life
insurance with the Company. Interest credited to policyholder account balances
decreased by $.3 million despite growth in policyholder account balances as
interest crediting rates were decreased in reaction to the declining investment
portfolio yields.


9



3. Liquidity and Capital Resources

Principal cash flow sources are investment and fee income, investment maturities
and sales, and premiums and fund deposits. These cash inflows may be
supplemented by financing activities through other Prudential affiliates.

Cash outflows consist principally of benefits, claims and amounts paid to
policyholders in connection with policy surrenders, withdrawals and net policy
loan activity. Uses of cash also include commissions, general and administrative
expenses, and purchases of investments. Liquidity requirements associated with
policyholder obligations are monitored regularly so that the Company can manage
cash inflows to match anticipated cash outflow requirements.

The Company believes that cash flow from operations together with proceeds from
scheduled maturities and sales of fixed maturity investments, are adequate to
satisfy liquidity requirements based on the Company's current liability
structure.

The Company had $2.6 billion of assets at March 31, 2002 compared to $2.5
billion at December 31, 2001, of which $1.6 billion were held in Separate
Accounts at March 31, 2002 and December 31, 2001 under variable life insurance
policies and variable annuity contracts. The remaining assets consisted
primarily of investments and deferred policy acquisition costs.



10


PART II

Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------

(a) Exhibits
--------
3(i)(a) The Articles of Incorporation (as amended through March 11,
1983) of Pruco Life Insurance Company of New Jersey are
incorporated by reference to Post-effective Amendment No. 26
to the Registration Statement on Form S-6 of Pruco Life of New
Jersey Variable Appreciable Account as filed April 28, 1997,
Registration No. 2-89780.

3(i)(b) Amendment to the Articles of Incorporation dated February 12,
1998 is incorporated by reference to Post-Effective Amendment
No. 12 to the Registration Statement on Form S-1, of Pruco
Life of New Jersey Variable Contract Real Property Account as
filed on April 16, 1999, Registration No. 33-20018.

3(ii) By-Laws of Pruco Life Insurance Company of New Jersey (as
amended through May 5, 1997) are incorporated by reference to
Form 10-Q as filed by the Company on August 15, 1997.

4 Market-Value Adjustment Annuity Contract is incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-18053, as filed November 17, 1995.


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
- --------- ----- ----



_______________________________ Executive Vice President May 14, 2002
Andrew J. Mako


_______________________________ Vice President and May 14, 2002
William J. Eckert, IV Chief Accounting Officer





12