10-Q/A: Quarterly report [Sections 13 or 15(d)]
Published on
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________
FORM 10-Q/A
(Amendment No. 1)
___________________________
(Mark One)
 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | |
| OF 1934 | ||
For the quarterly period ended June 30, 2005
OR
 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | |
| OF 1934 | ||
Commission file number 33-18053
________________________________
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) | (Zip Code) |
| (973) 802-6000 |
| (Registrant’s Telephone Number, including area code) |
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 NO
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO
Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
As of August 12, 2005, 400,000 shares of the registrant’s Common Stock (par value $5), were outstanding. As of such date, Pruco Life Insurance Company, an Arizona company and an indirect wholly owned subsidiary of Prudential Financial, Inc., a New Jersey Corporation, owned all of the registrant’s Common Stock.
Pruco Life Insurance Company of New Jersey meets the conditions set
forth in General Instruction (H)(1)(a) and (b) on Form 10-Q/A and
is therefore filing this Form with the reduced disclosure format.
TABLE OF CONTENTS
| Page Number | ||
| Explanatory Note | ||
| PART I – FINANCIAL INFORMATION | 2 | |
| Item 1. Financial Statements (Unaudited): | ||
| Interim Statements of Financial Position, | ||
| As of June 30, 2005 and December 31, 2004 | 3 | |
| Interim Statements of Operations and Comprehensive Income, | ||
| Three and six months ended June 30, 2005 and 2004 | 4 | |
| Interim Statement of Stockholder’s Equity, | ||
| Six months ended June 30, 2005 | 5 | |
| Interim Statements of Cash Flows (Restated), | ||
| Six months ended June 30, 2005 and 2004 | 6 | |
| Notes to Interim Financial Statements | 7 | |
| Item 4. Controls and Procedures | 11 | |
| PART II – OTHER INFORMATION | ||
| Item 6.Exhibits | 12 | |
| Signatures | 13 | |
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A is being filed for the purpose of amending Items 1 and 4 of Part I of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 of Pruco Life Insurance Company of New Jersey to reflect the restatement of Pruco Life Insurance Company of New Jersey ’s Unaudited Interim Statements of Cash Flows for the six months ended June 30, 2005 and 2004, as described in Footnote 1 to the Unaudited Interim Financial Statements included in this Form 10-Q/A. All other Items of the original filing on Form 10-Q made on August 12, 2005, are unaffected by the changes to the Unaudited Interim Statements of Cash Flows and such Items have not been included in this Amendment. Information in this Form 10-Q/A is generally stated as of June 30, 2005 and does not reflect any subsequent information or events other than the restatement of the Unaudited Interim Statements of Cash Flows. More current information with respect to Pruco Life Insurance Company of New Jersey is contained within its Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and other filings with the Securities and Exchange Commission.
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| PART I – FINANCIAL INFORMATION |
| Item 1. Financial Statements |
| Pruco Life Insurance Company of New Jersey |
| Interim Statements of Financial Position |
| As of June 30, 2005 and December 31, 2004 (in thousands) |
| June 30, 2005 (Unaudited) |
December 31, 2004 |
|||||
| ASSETS | ||||||
| Fixed maturities available for sale, at fair value amortized cost, 2005: $984,105 and 2004: $874,200) |
$ | 1,009,251 | $ | 903,685 | ||
| Policy loans | 154,472 | 153,359 | ||||
| Short-term investments | 22,269 | 44,549 | ||||
| Other long-term investments | 3,108 | 1,977 | ||||
| Total investments | 1,189,100 | 1,103,570 | ||||
| Cash and cash equivalents | 72,366 | 108,117 | ||||
| Deferred policy acquisition costs | 191,958 | 183,219 | ||||
| Accrued investment income | 16,428 | 15,045 | ||||
| Reinsurance recoverable | 81,351 | 67,411 | ||||
| Receivables from affiliates | 10,018 | 17,152 | ||||
| Other assets | 14,899 | 13,789 | ||||
| Separate account assets | 2,148,240 | 2,112,866 | ||||
| TOTAL ASSETS | $ | 3,724,360 | $ | 3,621,169 | ||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||
| Liabilities | ||||||
| Policyholders’ account balances | 815,801 | 796,421 | ||||
| Future policy benefits and other policyholder liabilities | 208,269 | 189,673 | ||||
| Cash collateral for loaned securities | 65,964 | 74,527 | ||||
| Securities sold under agreements to repurchase | 25,611 | 24,754 | ||||
| Income taxes payable | 67,836 | 76,878 | ||||
| Short-term debt | 35,000 | — | ||||
| Other liabilities | 25,697 | 27,788 | ||||
| Separate account liabilities | 2,148,240 | 2,112,866 | ||||
| Total liabilities | 3,392,418 | 3,302,907 | ||||
| Contingencies (See Note 2) | ||||||
| Stockholder’s Equity | ||||||
| Common stock, $5 par value; 400,000 shares, authorized; issued and outstanding at June 30, 2005 and December 31, 2004 |
2,000 | 2,000 | ||||
| Additional paid-in capital | 168,867 | 168,810 | ||||
| Deferred compensation | (186 | ) | (152 | ) | ||
| Retained earnings | 149,123 | 134,358 | ||||
| Accumulated other comprehensive income | 12,138 | 13,246 | ||||
| Total stockholder’s equity | 331,942 | 318,262 | ||||
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY |
$ | 3,724,360 | $ | 3,621,169 | ||
See Notes to Interim Financial Statements
3
| Pruco Life Insurance Company of New Jersey |
| Interim Statements of Operations and Comprehensive Income (Unaudited) |
| Three and Six Months Ended June 30, 2005 and 2004 (in thousands) |
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| REVENUES | ||||||||||||
| Premiums | $ | 2,194 | $ | 12,092 | $ | 4,240 | $ | 23,862 | ||||
| Policy charges and fee income | 17,537 | 20,955 | 34,921 | 39,293 | ||||||||
| Net investment income | 14,572 | 13,039 | 28,576 | 25,649 | ||||||||
| Realized investment gains (losses), net | 1,238 | (1,526 | ) | (313 | ) | (1,027 | ) | |||||
| Asset management fees | 1,792 | 1,209 | 3,131 | 2,409 | ||||||||
| Other income | 514 | 528 | 1,147 | 1,018 | ||||||||
| Total revenues | 37,847 | 46,297 | 71,702 | 91,204 | ||||||||
| BENEFITS AND EXPENSES | ||||||||||||
| Policyholders’ benefits | 4,612 | 12,674 | 10,693 | 24,887 | ||||||||
| Interest credited to policyholders’ account balances | 7,843 | 7,427 | 14,614 | 14,039 | ||||||||
| General, administrative and other expenses | 14,376 | 19,545 | 28,422 | 35,826 | ||||||||
| Total benefits and expenses | 26,831 | 39,646 | 53,729 | 74,752 | ||||||||
| Income from operations before income taxes and cumulative effect of change in accounting principle | 11,016 | 6,651 | 17,973 | 16,452 | ||||||||
| Income tax expense | 3,182 | 1,877 | 3,208 | 4,582 | ||||||||
| Net Income Before Cumulative Effect of Change in Accounting Principle | 7,834 | 4,774 | 14,765 | 11,870 | ||||||||
| Cumulative effect of change in accounting principle, net of tax | — | — | — | (184 | ) | |||||||
| NET INCOME | 7,834 | 4,774 | 14,765 | 11,686 | ||||||||
| Change in net unrealized investment gains, shadow DAC and other shadow reserves, net of taxes | 4,816 | (10,666 | ) | (1,108 | ) | (6,823 | ) | |||||
| Cumulative effect of accounting change, net of taxes | — | — | — | 547 | ||||||||
| Other comprehensive income (loss), net of tax | 4,816 | (10,666 | ) | (1,108 | ) | (6,276 | ) | |||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 12,650 | $ | (5,892 | ) | 13,657 | $ | 5,410 | ||||
See Notes to Interim Financial Statements (unaudited)
4
| Pruco Life Insurance Company of New Jersey |
| Interim Statements of Stockholder’s Equity |
| Six Months Ended June 30, 2005 (in thousands) |
| Common stock |
Additional paid – in capital |
Deferred compensation |
Retained earnings |
Accumulated other comprehensive income (loss) |
Total stockholder’s equity |
|||||||||||||
| Balance, December 31, 2004 | $ | 2,000 | $ | 168,810 | $ | (152 | ) | $ | 134,358 | $ | 13,246 | $ | 318,262 | |||||
| Net income | — | — | — | 14,765 | — | 14,765 | ||||||||||||
| Stock-based compensation programs | — | 57 | (34 | ) | — | — | 23 | |||||||||||
| Change in net unrealized investment gains, shadow DAC and other shadow reserves, net of taxes | — | — | — | — | (1,108 | ) | (1,108 | ) | ||||||||||
| Balance, June 30, 2005 | $ | 2,000 | $ | 168,867 | $ | (186 | ) | $ | 149,123 | $ | 12,138 | $ | 331,942 | |||||
See Notes to Interim Financial Statements (unaudited)
5
| Pruco Life Insurance Company of New Jersey |
| Interim Statements of Cash Flows (Unaudited, Restated) |
| Six Months Ended June 30, 2005 and 2004 (in thousands) |
| Six months ended, June 30 | ||||||||||||||||||
| 2005 | 2004 | |||||||||||||||||
| CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | ||||||||||||||||||
| Net income | $ | 14,765 | $ | 11,686 | ||||||||||||||
| Adjustments to reconcile net income to net cash (used in) provided by | ||||||||||||||||||
| Operating activities: | ||||||||||||||||||
| Policy charges and fee income | (6,982 | ) | (8,081 | ) | ||||||||||||||
| Interest credited to policyholders’ account balances | 11,711 | 14,039 | ||||||||||||||||
| Realized investment (gains) losses, net | 313 | 1,023 | ||||||||||||||||
| Amortization and other non-cash items | 2,622 | (35,896 | ) | |||||||||||||||
| Cumulative effect of accounting change, net of taxes | — | 184 | ||||||||||||||||
| Change in: | ||||||||||||||||||
| Future policy benefits and other insurance liabilities | 19,452 | 16,168 | ||||||||||||||||
| Reinsurance recoverable | (13,940 | ) | (6,848 | ) | ||||||||||||||
| Accrued investment income | (1,383 | ) | (1,025 | ) | ||||||||||||||
| Receivable from affiliates | 7,134 | 65 | ||||||||||||||||
| Payable to affiliates | (534 | ) | (22 | ) | ||||||||||||||
| Deferred policy acquisition costs | (5,915 | ) | (16,817 | ) | ||||||||||||||
| Income taxes payable | (8,445 | ) | 18,353 | |||||||||||||||
| Other, net | (6,188 | ) | (3,135 | ) | ||||||||||||||
| Cash Flows From (Used In) Operating Activities | 12,610 | (10,306 | ) | |||||||||||||||
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | ||||||||||||||||||
| Proceeds from the sale/maturity/prepayment of: | ||||||||||||||||||
| Fixed maturities, available for sale | 536,993 | 213,990 | ||||||||||||||||
| Policy loans | 8,431 | 10,489 | ||||||||||||||||
| Payments for the purchase of: | ||||||||||||||||||
| Fixed maturities, available for sale | (652,769 | ) | (260,778 | ) | ||||||||||||||
| Policy loans | (6,156 | ) | (5,457 | ) | ||||||||||||||
| Commercial loans | (1,000 | ) | — | |||||||||||||||
| Other long-term investments, net | (131 | ) | (141 | ) | ||||||||||||||
| Short-term investments, net | 22,263 | 17,325 | ||||||||||||||||
| Cash Flows (Used in) Investing Activities | (92,369 | ) | (24,572 | ) | ||||||||||||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | ||||||||||||||||||
| Policyholders’ account deposits | 80,305 | 119,227 | ||||||||||||||||
| Policyholders’ account withdrawals | (66,870 | ) | (82,977 | ) | ||||||||||||||
| Proceeds from short-term debt issued | 40,000 | — | ||||||||||||||||
| Repayments of short-term debt | (5,000 | ) | — | |||||||||||||||
| Cash collateral for loaned securities, net | (8,563 | ) | (15,321 | ) | ||||||||||||||
| Securities sold under agreements to repurchase, net | 857 | 18,591 | ||||||||||||||||
| Net change in financing arrangements (maturities 90 days or less) | 3,279 | 1,022 | ||||||||||||||||
| Cash Flows From Financing Activities | 44,008 | 40,542 | ||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (35,751 | ) | 5,664 | |||||||||||||||
| Cash and cash equivalents, beginning of year | 108,117 | 72,547 | ||||||||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 72,366 | $ | 78,211 | ||||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||||
| Income taxes paid (received) | $ | 11,653 | $ | (13,774 | ) | |||||||||||||
See Notes to Interim Financial Statements (unaudited)
6
| Pruco Life Insurance Company of New Jersey |
| Notes to Interim Financial Statements (Unaudited) |
| 1. | BASIS OF PRESENTATION |
Restatement of Statements of Cash Flows
The Statements of Cash Flows for the six months ended June 30, 2005 and 2004 have been restated to reflect the following:
Changes in the net receivable/payable from unsettled investment purchases and sales, previously classified within “adjustments to reconcile net income to cash provided by operating activities,” have been reclassified to cash flows from (used in) investing activities, to the extent such balances pertained to investments classified as available for sale.
The net change in the policy loans receivable, previously reported in cash flows from operating activities, is now reported as a component of cash flows (used in) investing activities.
Changes in the presentation of bank overdrafts and various other items previously reported in cash flows operating activities, are now reported as a component of cash flows from financing activities.
As a result of the restatements, previously reported cash flows from operating activities, cash flows used in investing activities and cash flows from (used in) financing activities were increased or reduced for the six months ended June 30, 2005 and 2004, 2003 and 2002 as follows:
| Six Months Ended June 30, | ||||||
| 2005 | 2004 | |||||
| Cash flows from (used in) operating activities: | ||||||
| As originally reported | $ | 14,879 | $ | (6,921 | ) | |
| Impact of restatements | (2,269 | ) | (3,385 | ) | ||
| Revised for restatements | $ | 12,610 | $ | (10,306 | ) | |
| Cash flows from (used) in investing activities: | ||||||
| As originally reported: | $ | (91,512 | ) | $ | (26,352 | ) |
| Impact of restatements | (857 | ) | 1,780 | |||
| Revised for restatements | $ | (92,369 | ) | $ | (24,572 | ) |
| Cash flows from financing activities: | ||||||
| As originally reported: | $ | 40,882 | $ | 38,937 | ||
| Impact of restatements | 3,126 | 1,605 | ||||
| Revised for restatements | $ | 44,008 | $ | 40,542 | ||
The restatements had no impact on the total change in cash and cash equivalents within the Statements of Cash Flows or on the Statements of Operations or Statements of Financial Position.
Basis of Presentation
Pruco Life Insurance Company of New Jersey, or the “Company,” is a wholly owned subsidiary of the Pruco Life Insurance Company, or “Pruco Life,” which in turn is a wholly owned subsidiary of The Prudential Insurance Company of America, or “Prudential Insurance.” Prudential Insurance is a wholly owned subsidiary of Prudential Financial, Inc., or “Prudential Financial.”
The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or “GAAP,” on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q/A and Article 10 of Regulation S-X of the Securities and Exchange Commission. These interim financial statements are unaudited but reflect all adjustments that, in the opinion of management, are necessary to provide a fair presentation of the results of operations and financial condition of the Company for the interim periods presented. 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 current year presentation.
The Company has extensive transactions and relationships with Prudential Insurance 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. These unaudited 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, 2004.
7
| Pruco Life Insurance Company of New Jersey |
| Notes to Interim Financial Statements (Unaudited) |
| 2. | CONTINGENCIES AND LITIGATION |
Contingencies
On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing and other customer interface procedures and practices and may recommend modifications or enhancements. In certain cases, if appropriate, we may offer customers remediation and may incur charges, including the cost of remediation, administrative costs and regulatory fines.
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 affected as a result of payments in connection with the matters discussed above, depending, in part, upon the results of operations or cash flow for that period. Management believes, however, that the ultimate payments in connection with currently pending matters should not have a material adverse effect on the Company’s financial position.
Litigation and Regulatory Matters
The Company is subject to legal and regulatory actions in the ordinary course of its operations, including class actions. Pending legal and regulatory actions include proceedings relating to aspects of the businesses and operations that are specific to the Company and that are typical of the businesses in which the Company operates. Class action and individual lawsuits involve a variety of issues and/or allegations, which include sales practices, underwriting practices, claims payments and procedures, premium charges, policy servicing and breach of fiduciary duties to customers. The Company is also subject to litigation arising out of its general business activities, such as its investments and third party contracts. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages.
The Company has received formal requests for information relating to its variable annuity business from regulators, including, among others, the Securities and Exchange Commission and the State of New York Attorney General’s Office. As part of a broad initiative by the NAIC, the Company has received a request for information from the New Jersey Department of Banking and Insurance related to producer compensation and fee arrangements. It is possible that other regulators will issue similar requests.
Prudential Financial and its subsidiaries currently use reinsurance primarily to transfer mortality risk, to acquire or dispose of blocks of business and to manage capital more effectively. Given the recent publicity surrounding certain reinsurance transactions involving other companies in the insurance industry, Prudential Financial voluntarily commenced a review of the accounting for the reinsurance arrangements of Prudential Financial and its subsidiaries to confirm that it complied with applicable accounting rules. This review includes an inventory and examination of current and past arrangements. This review is ongoing and not yet complete. Subsequent to commencing this voluntary review, Prudential Financial and certain subsidiaries received formal requests for information from the Connecticut Attorney General, the Connecticut Insurance Department and the Securities and Exchange Commission requesting information regarding their participation in certain reinsurance transactions. Prudential Financial believes that a number of other insurance industry participants have also received similar requests. It is possible that Prudential Financial and its subsidiaries may receive additional requests from regulators relating to reinsurance arrangements. Prudential Financial and its subsidiaries intend to cooperate fully with all such requests.
The Company’s litigation and regulatory matters are subject to many uncertainties, and given their 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 affected 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.
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Adoption of Statement of Position 03-1
In July 2003, the Accounting Standards Executive Committee, or “AcSEC,” of the American Institute of Certified Public Accountants, or “AICPA,” issued Statement of Position, or “SOP,” 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts”. AcSEC issued the SOP to address the need for interpretive guidance to be developed in three areas: separate account presentation and valuation; the accounting recognition given sales inducements (bonus interest, bonus credits, persistency bonuses); and the classification and valuation of certain long-duration contract liabilities.
The Company adopted the SOP effective January 1, 2004. The effect of initially adopting SOP 03-1 was a net of tax charge of $0.2 million, reported as a cumulative effect of accounting change in the results of operations for the six months ended June 30, 2004. This charge primarily reflected the net impact of converting certain individual market value adjusted annuity contracts from separate account accounting treatment to general account accounting treatment and the effect of establishing reserves for
8
| Pruco Life Insurance Company of New Jersey |
| Notes to Interim Financial Statements (Unaudited) |
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
guaranteed minimum death benefit (“GMDB”) provisions of the Company’s annuity contracts. In addition, the Company recorded an increase in other comprehensive income of $0.5 million after tax related to recording the cumulative unrealized investment gains, net of shadow deferred acquisition costs, or “DAC,” on fixed maturities reclassified from the separate account to the general account as of January 1, 2004. Upon adoption of this SOP, reclassifications within the statement of financial position included increases in fixed maturities and policyholder account balances of approximately $40 million related to the reclassifications of annuity contracts from the separate account to the general account. This activity also includes the establishment of the GMDB reserves of approximately $1.6 million and the increase in DAC of $0.4 million. Other balance sheet accounts that were affected include other long-term investments and deferred taxes payable.
In June 2004, the FASB issued FASB Staff Position, or “FSP,” 97-1, “Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require an Accrual of an Unearned Revenue Liability.” FSP 97-1 clarifies the accounting for unearned revenue liabilities of certain universal-life contracts under SOP 03-1. The Company’s adoption of FSP 97-1 on July 1, 2004 did not change the accounting for unearned revenue liabilities and therefore had no impact on Company’s results of operations.
Stock Options
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” that replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) requires all entities to apply the fair value based measurement method in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. Under this method, compensation costs of awards to employees, such as stock options, are measured at fair value and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period). The Company had previously adopted the fair value recognition provision of the original SFAS No. 123, prospectively for all new stock options issued to employees on or after January 1, 2003. As issued, SFAS No. 123(R) is effective for interim and annual periods beginning after June 15, 2005. However, the SEC recently deferred the effective date and as a result the Company will adopt SFAS No. 123(R) on January 1, 2006. By that date, there will be no unvested stock options issued prior to January 1, 2003.
| 4. | RELATED PARTY TRANSACTIONS |
Corporate Owned Life Insurance
Prudential Insurance owns Corporate Owned Life Insurance Policies issued by the Company. The cash surrender value, which approximates the contract value of these policies, included in separate account liabilities was $463 million and $462 million at June 30, 2005 and December 31, 2004, respectfully. Fees related to the COLI policies in each the three months ended June 30, 2005 and June 30, 2004 were $1 million. Fees related to the COLI policies in the six months ended June 30, 2005 and June 30, 2004 were $3 million and $2 million, respectively.
Reinsurance with Affiliates
On August 1, 2004, the Company entered into an agreement to reinsure its term life insurance policies, known as Term Elite and Term Essential, or “Term,” with an affiliated company, Prudential Arizona Reinsurance Captive Company, or “PARCC.” The Company reinsured with PARCC 90 percent of the risks under such policies through a coinsurance agreement. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions. This coinsurance agreement replaced yearly renewable term agreements with external reinsurers that were previously in effect with respect to this block of business. There was no net cost associated with the initial transaction, which was accounted for in accordance with SFAS No. 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.” Reinsurance recoverable related to this agreement was $75 million as of June 30, 2005.
In December 2004, the Company recaptured the excess of loss reinsurance agreement with Prudential Insurance and replaced it with a revised yearly renewable term agreement to reinsure all risks, not otherwise reinsured. Reinsurance recoverable related to this agreement was $6 million as of June 30, 2005. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions.
9
| Pruco Life Insurance Company of New Jersey |
| Notes to Interim Financial Statements (Unaudited) |
| 4. | RELATED PARTY TRANSACTIONS (continued) |
Debt Agreements
The Company and its parent, Pruco Life, had a revolving line of credit facility of up to $800 million with Prudential Funding, LLC, a wholly owned subsidiary of Prudential Insurance. This credit facility was revised in July 2005 limit the total credit line available to the Company to $250 million, of which, the amount of borrowings cannot exceed $100 million. As of June 30, 2005 and December 31, 2004, there was $92 million and $99 million, respectively, of asset-based financing. There was $35 million of debt outstanding to Prudential Funding, LLC as of June 30, 2005 and none at December 31, 2004.
10
Item 4. Controls and Procedures
In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, previously reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of June 30, 2005. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer previously concluded that, as of June 30, 2005, our disclosure controls and procedures were effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), occurred during the quarter ended June 30, 2005, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. These conclusions are not affected by the misclassifications in the Company’s Statements of Cash Flows discussed in the following paragraph, which were identified subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
As reported in a Current Report on Form 8-K filed by the Company on February 7, 2006, management of the Company concluded that certain amounts were incorrectly classified in the Company’s audited Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 included in the Company’s 2004 Annual Report on Form 10-K (the “2004 Form 10-K”) and in the Company’s unaudited Statements of Cash Flows for the periods ended March 31 and June 30, 2005 and 2004 included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2005 (the “2005 Forms 10-Q”). In connection with the preparation of the Company’s financial statements for the year ended December 31, 2005, management of the Company concluded on February 1, 2006 that the Company should file a Form 10-K/A and Forms 10-Q/A, including this Form 10-Q/A, restating the Statements of Cash Flows included in the 2004 Form 10-K and in the 2005 Forms 10-Q. The restatements are limited in scope, relating principally to the classification of data collected and not to the collection of data or to the numerical accuracy of data collected. The Company has implemented enhancements to its internal control over financial reporting, primarily with respect to the periodic analysis and review of statements of cash flows, designed to provide reasonable assurance that errors of this type in the Company’s Statements of Cash Flows will not recur.
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PART II – OTHER INFORMATION
31.1 Section 302 Certification of the Chief Executive Officer.
31.2 Section 302 Certification of the Chief Accounting Officer.
32.1 Section 906 Certification of the Chief Executive Officer.
32.2 Section 906 Certification of the Chief Accounting Officer.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly.
Pruco Life Insurance Company of New Jersey
| By: /s/ John Chieffo |
| John Chieffo |
| Chief Accounting Officer |
| (Authorized Signatory and Principal Financial Officer) |
Date: February 9, 2006
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Exhibit Index
Exhibit Number and Description
31.1 Section 302 Certification of the Chief Executive Officer,
31.2 Section 302 Certification of the Chief Financial Officer,
32.1 Section 906 Certification of the Chief Executive Officer,
32.2 Section 906 Certification of the Chief Financial Officer.
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