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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000.
Commission file numbers 33-87272, 333-51353, 333-28765, 333-28681, 333-28743,
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333-51949, 333-65009, 333-66745, 333-76941, 333-76945,
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333-35592, 333-95511, 333-30186, 333-40596, 333-33924,
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333-95457
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 41-0991508
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1475 Dunwoody Drive
West Chester, Pennsylvania 19380-1478
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(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, including area code: (610) 425-3400
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Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
N/A N/A
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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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X].
As of March 28, 2001, 250,000 shares of Common Stock, $10 Par Value, are issued
and outstanding.
NOTE: WHEREAS GOLDEN AMERICAN LIFE INSURANCE COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION I (1)(a) AND (b) OF FORM 10-K, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I (2).
DOCUMENTS INCORPORATED BY REFERENCE
See exhibit index - page 48. Page 1 of 116
PART I
ITEM 1. BUSINESS.
OVERVIEW
Golden American Life Insurance Company ("Golden American"), a wholly owned
subsidiary of Equitable of Iowa Companies, Inc. ("EIC"), is a stock life
insurance company organized under the laws of the State of Delaware. EIC is an
indirect wholly owned subsidiary of ING Groep N.V. ("ING"), a global financial
services holding company based in The Netherlands. Golden American offers
variable insurance products and is authorized to do business in the District of
Columbia and all states except New York. Golden American's wholly owned life
insurance subsidiary, First Golden American Life Insurance Company of New York
("First Golden," and collectively with Golden American, the "Companies"), is
licensed as a life insurance company under the laws of the States of New York
and Delaware. See Note 9 of the financial statements for further information
regarding related party transactions.
On October 24, 1997 ("the merger date"), PFHI Holding, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of Equitable of Iowa
Companies ("Equitable") according to the terms of an Agreement and Plan of
Merger dated July 7, 1997 among Equitable, PFHI, and ING Groep N.V. ("ING").
PFHI is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of this transaction, Equitable was
merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"), a Delaware corporation.
PRODUCTS
The Companies offer a portfolio of variable insurance products designed to meet
customer needs for tax-advantaged saving for retirement and protection from
death. The Companies believe longer life expectancies, an aging population, and
growing concern over the stability and availability of the Social Security
system have made retirement planning a priority for many Americans. The target
market for all products is consumers and corporations throughout the United
States.
Variable insurance products currently offered by the Companies include seven
variable annuity products. During the year 2000, Golden American began selling a
new product, GoldenSelect Guarantee Annuity. In August 1999, Golden American
discontinued offering variable life products. Variable annuities are long-term
savings vehicles in which contractowner premiums (purchase payments) are
recorded and maintained in a fixed account or variable separate accounts
registered as unit investment trusts. At December 31, 2000, funds on deposit in
the Companies' variable insurance product separate and fixed accounts totaled
$9.8 billion and $1.1 billion, respectively. Variable insurance products provide
the Companies with fee based revenues including charges for mortality and
expense risk, contract administration, and surrender charges. In addition, some
contracts provide for a distribution fee collected for a limited number of years
after each premium deposit.
MARKETING AND DISTRIBUTION
The Companies continued to expand distribution systems during 2000. Broad-based
distribution networks are key to realizing a growing share of the wealth
accumulation marketplace. The principal distributors of the Companies' variable
insurance products include national and regional wirehouses, life insurance
companies with captive agency sales forces, independent insurance agents, banks,
and independent National Association of Securities Dealers, Inc. ("NASD") firms
with licensed registered representatives. The Companies plan to establish new
relationships and increase penetration with key distributors in existing
channels. In addition, growth opportunities exist through increased utilization
of the ING broker/dealer network.
2
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: low
levels of inflation, moderate interest rate levels, a growing U.S. economy; an
aging U.S. population that is increasingly concerned about retirement, estate
planning, and maintaining their standard of living in retirement; and potential
reductions in government and employer-provided benefits at retirement, as well
as lower public confidence in the adequacy of those benefits.
REGULATION
The Companies' insurance operations are conducted in a highly regulated
environment. Both Golden American and First Golden are subject to the insurance
laws of the state in which they are organized and of the other jurisdictions in
which they transact business. The primary regulator of the Golden American
insurance operations is the Commissioner of Insurance for the State of Delaware.
First Golden is subject to the regulation of the Superintendent of Insurance for
the State of New York. The Companies are also regulated by the Securities and
Exchange Commission and the NASD. See Item 7, Management's Discussion and
Analysis of Results of Operations.
ITEM 2. PROPERTIES.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Previously, Golden American's business
operations were housed in leased facilities located in Wilmington, Delaware and
leased facilities in Pennsylvania. During 2000, Golden American occupied 105,000
square feet of leased space; and an affiliate occupied 20,000 square feet in the
same facilities. First Golden's business operations are housed in a leased
facility in New York, New York. Property and equipment primarily represent
leasehold improvements, office furniture, certain other equipment, and
capitalized computer software and are not considered to be significant to the
Companies' overall operations. Property and equipment are reported at cost less
allowances for depreciation.
ITEM 3. LEGAL PROCEEDINGS.
The Companies, like other insurance companies, may be named or otherwise
involved in lawsuits, including class action lawsuits and arbitrations. In some
class action and other actions involving insurers, substantial damages have been
sought and/or material settlement or award payments have been made. The
Companies currently believe no pending or threatened lawsuits or actions exist
that are reasonably likely to have a material adverse impact on the Companies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Information called for by this item is omitted pursuant to General Instruction I
(2)(c) of Form 10-K.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant is a wholly owned subsidiary of EIC. There is no public trading
market for the Registrant's common stock.
Under the provisions of the insurance laws of certain states in which Golden
American is licensed to sell insurance products, Golden American is required to
maintain a minimum total statutory-basis capital and surplus of at least $5
3
million. The ability of Golden American to pay dividends to the Parent is
restricted. Prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limit. During
2001, Golden American cannot pay dividends to the Parent without prior approval
of statutory authorities. Golden American did not pay common stock dividends
during 2000, 1999 or 1998.
First Golden is required to maintain a minimum total statutory-basis capital and
surplus of no less than $6 million under the provisions of the insurance laws of
the State of New York in which it is presently licensed to sell insurance
products. Under the provisions of the insurance laws of the State of New York,
First Golden cannot distribute any dividends to its stockholder, Golden
American, unless a notice of its intent to declare a dividend and the amount of
the dividend has been filed with the New York Insurance Department at least
thirty days in advance of the proposed declaration. If the Superintendent of the
New York Insurance Department finds the financial condition of First Golden does
not warrant the distribution, the Superintendent may disapprove the distribution
by giving written notice to First Golden within thirty days after the filing.
First Golden did not pay common stock dividends during 2000, 1999 or 1998.
ITEM 6. SELECTED FINANCIAL DATA.
Information called for by this item is omitted pursuant to General Instruction I
(2)(a) of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American") consolidated results of operations. In
addition, some analysis and information regarding financial condition and
liquidity and capital resources is provided. This analysis should be read
jointly with the consolidated financial statements, related notes, and the
Cautionary Statement Regarding Forward-Looking Statements, which appear
elsewhere in this report. Golden American reports financial results on a
consolidated basis. The consolidated financial statements include the accounts
of Golden American and its wholly owned subsidiary, First Golden American Life
Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies").
RESULTS OF OPERATIONS
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PREMIUMS
Percentage Dollar
Year Ended December 31 2000 Change Change 1999
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(Dollars in millions)
Variable annuity premiums:
Separate account........................................ $1,307.3 (48.0)% $(1,204.4) $2,511.7
Fixed account........................................... 793.1 2.9 22.4 770.7
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Total variable annuity premiums............................ 2,100.4 (36.0) (1,182.0) 3,282.4
Variable life premiums..................................... 1.6 (81.8) (7.0) 8.6
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Total premiums............................................. $2,102.0 (36.1)% $(1,189.0) $3,291.0
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For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums decreased 48.0% in 2000. Excluded
from the variable annuity separate account premiums above are $1,787.9 million
and $97.9 million for the years ended December 31, 2000 and 1999, respectively,
related to modified coinsurance agreements. The fixed account portion of the
Companies' variable annuity premiums increased 2.9% in 2000. Excluding the
4
effect of the modified coinsurance agreements, the increase in premiums resulted
from increased sales of existing annuity products and from the introduction of a
new annuity product during 2000 called GoldenSelect Guarantee Annuity.
Variable life premiums decreased 81.8% in 2000. In August 1999, Golden American
discontinued offering variable life products, but the Companies continue to
accept additional premiums from existing policyholders.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the year ended
December 31, 2000, totaled $235.3 million, or 11% of total net premiums compared
to $918.4 million, or 28%, from two significant broker/dealers for the year
ended December 31, 1999. Gross premiums for variable products from two
significant broker/dealers having at least ten percent of total sales for the
year ended December 31, 2000, totaled $831.0 million, or 21% of total gross
premiums compared to $1,018.9 million, or 30%, from two significant
broker/dealers for the year ended December 31, 1999.
REVENUES
Percentage Dollar
Year Ended December 31 2000 Change Change 1999
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(Dollars in millions)
Annuity and interest sensitive life product charges........ $144.9 74.7% $62.0 $82.9
Management fee revenue..................................... 23.0 106.4 11.9 11.1
Net investment income...................................... 64.1 8.4 4.9 59.2
Realized gains (losses) on investments..................... (6.6) (124.2) (3.7) (2.9)
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$225.4 50.0% $75.1 $150.3
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Total revenues increased 50.0%, or $75.1 million, to $225.4 million in 2000.
Annuity and interest sensitive life product charges increased 74.7%, or $62.0
million, to $144.9 million in 2000, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"), a wholly owned subsidiary of EIC. The fee paid to Golden
American for these services, which is calculated as a percentage of average
assets in the variable separate accounts, was $21.3 million for 2000 and $10.1
million for 1999. This increase is due to the increasing assets in the separate
accounts and renegotiation of the fee paid by DSI to Golden American.
Net investment income increased 8.4%, or $4.9 million, to $64.1 million in 2000
from $59.2 million in 1999, due to increasing investment yields, as well as a
larger average amount of assets backing the fixed account options within the
variable products.
During 2000, the Companies had net realized losses on investments of $6.6
million, mainly due to sales of fixed maturities, including a $142,000 write
down of an impaired fixed maturity. In 1999, the Companies had net realized
losses on investments of $2.9 million, including a $1.6 million write down of
two impaired fixed maturities.
5
EXPENSES
Percentage Dollar
Year Ended December 31 2000 Change Change 1999
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(Dollars in millions)
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances................ $195.1 11.3% $19.8 $175.3
Benefit claims incurred in excess of account
balances........................................... 4.9 (22.4) (1.4) 6.3
Underwriting, acquisition, and insurance expenses:
Commissions.......................................... 213.7 13.4 25.3 188.4
General expenses..................................... 84.9 41.1 24.7 60.2
Insurance taxes, state licenses, and fees............ 4.5 12.5 0.5 4.0
Policy acquisition costs deferred.................... (168.4) (51.4) 178.0 (346.4)
Expenses and charges reimbursed under modified
coinsurance agreements............................. (225.8) 2,341.7 (216.6) (9.2)
Amortization:
Deferred policy acquisition costs.................. 55.2 66.5 22.1 33.1
Value of purchased insurance in force.............. 4.8 (23.0) (1.4) 6.2
Goodwill........................................... 3.8 -- -- 3.8
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$172.7 41.9% $51.0 $121.7
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Total insurance benefits and expenses increased 41.9%, or $51.0 million, in 2000
from $121.7 million in 1999. Interest credited to account balances increased
11.3%, or $19.8 million, in 2000 from $175.3 million in 1999. The premium credit
on the Premium Plus variable annuity product increased $8.2 million to $132.0
million at December 31, 2000. The remaining increase in interest credited
relates to higher average account balances and higher average credited rates
associated with the Companies' fixed account options within the variable
products.
Commissions increased 13.4%, or $25.3 million, in 2000 from $188.4 million in
1999 due to increased sales of the fixed and separate account options in 2000.
Insurance taxes, state licenses, and fees increased 12.5%, or $0.5 million, in
2000 from $4.0 million in 1999. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Most costs incurred as the result of
sales have been deferred, thus having very little impact on current earnings.
General expenses increased 41.1%, or $24.7 million, in 2000 from $60.2 million
in 1999. Management expects general expenses to continue to increase in 2001 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life Insurance Company of
Iowa ("Equitable Life"), an affiliate, ING Mutual Funds Management Co., LLC, an
affiliate, Security Life of Denver Insurance Company, an affiliate, Southland
Life Insurance Company, an affiliate, and United Life & Annuity Insurance
Company, an affiliate, for certain advisory, computer, and other resources and
services provided by Golden American.
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
value of purchased insurance in force ("VPIF"), and unearned revenue reserve
were eliminated and a new asset of $44.3 million representing VPIF was
established for all policies in force at the merger date. During 2000, VPIF
established at the merger date of the Companies' Parent and ING, was adjusted to
reduce amortization by $1.6 million to reflect changes in the assumptions
related to the timing of estimated gross profits. During 1999, VPIF was adjusted
to increase amortization by $0.7 million to reflect changes in the assumptions
related to the timing of future gross profits. Amortization of DPAC increased
6
$22.1 million, or 66.5%, in 2000. This increase resulted from a growth in
deferred policy acquisition costs generated by expenses associated with the
large sales volume experienced since December 31, 1999. Deferred policy
acquisition costs decreased $178.0 million or 51.4% for the year ended December
31, 2000. This decrease was due to a modified coinsurance agreement which was
entered into during the second quarter of 2000, and which resulted in a $223.7
million decrease in deferred policy acquisition costs. Based on current
conditions and assumptions as to the impact of future events on acquired
policies in force, the expected approximate net amortization relating to VPIF as
of December 31, 2000, is $3.9 million in 2001, $3.6 million in 2002, $3.0
million in 2003, $2.4 million in 2004, and $1.9 million in 2005. Actual
amortization may vary based upon changes in assumptions and experience.
Expenses and charges reimbursed under modified coinsurance agreements increased
by $216.6 million to $225.8 million during 2000 as compared to the year ended
December 31, 1999. This was primarily due to a modified coinsurance agreement
which was entered into during the second quarter of 2000, with an affiliate,
Equitable Life, covering a part of the business issued after January 1, 2000.
This reinsurance agreement contributed $218.8 million to expenses and charges
reimbursed under modified coinsurance agreements during the year ended December
31, 2000. This was offset by a corresponding decrease in deferred policy
acquisition costs and reimbursement of non-deferrable costs related to policies
reinsured under this agreement.
Interest expense increased 123.4%, or $11.0 million, in 2000 from $8.9 million
in 1999. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 2000,
unchanged from the same period of 1999. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.4 million
for the year ended December 31, 2000, unchanged from the same period of 1999.
Interest expense on a $75 million surplus note, issued September 30, 1999 and
expiring September 29, 2029 was $5.8 million for the year ended December 31,
2000, and $1.5 million for the year ended December 31, 1999. Interest expense on
a $50 million surplus note, issued December 1999 and expiring December 2029 was
$4.1 million for the year ended December 31, 2000. Interest expense on a $35
million surplus note issued December 1999 and expiring December 2029 was $3.0
million for the year ended December 31, 2000. Golden American also paid $0.4
million in 2000 and $0.8 million in 1999 to ING America Insurance Holdings, Inc.
("ING AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.1 million and $0.2
million for the years ended December 31, 2000 and 1999, respectively.
INCOME
Net income for 2000 was $19.2 million, an increase of $8.0 million from $11.2
million for 1999.
Comprehensive income for 2000 was $24.3 million, an increase of $21.3 million
from comprehensive income of $3.0 million for 1999.
FINANCIAL CONDITION
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RATINGS
Currently, the Companies' ratings are A+ by A. M. Best Company, AA+ by Fitch
IBCA, Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS
The financial statement carrying value and amortized cost basis of the
Companies' total investments decreased slightly in 2000. All of the Companies'
investments, other than mortgage loans on real estate, are carried at fair value
in the Companies' financial statements. The decrease in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of fixed maturities, offset by net sales. The
decrease in the cost basis of the Companies' investment portfolio resulted from
7
the sale of assets to support net transfers of policyholders from the Companies'
fixed account options to the separate account options, and a shift towards
short-term investments. The Companies manage the growth of insurance operations
in order to maintain adequate capital ratios. To support the fixed account
options of the Companies' variable insurance products, cash flow was invested
primarily in fixed maturities, short-term investments and mortgage loans on real
estate.
At December 31, 2000, the Companies investments had a yield of 6.7%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 99.3% of amortized cost value at December 31,
2000.
FIXED MATURITIES: At December 31, 2000, the Companies had fixed maturities with
an amortized cost of $798.8 million and an estimated fair value of $792.6
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $6.2 million comprised of gross
appreciation of $5.8 million and gross depreciation of $12.0 million.
Depreciation of $1.5 million was included in stockholder's equity at December
31, 2000 (net of adjustments of $0.8 million to VPIF, $3.1 million to DPAC, and
$0.9 million to deferred taxes).
The individual securities in the Companies' fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's ($519.9 million or 65.1%), that are rated BBB+ to
BBB- by Standard & Poor's ($117.9 million or 14.7%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($53.5 million or 6.7%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($106.9 million or 13.4%) and investments with a rating of 6 on
which impairment writedowns have been recognized ($0.6 million or 0.1%). The
Companies' fixed maturity investment portfolio had a combined yield at amortized
cost of 6.8% December 31, 2000. Fixed maturities rated BBB+ to BBB- may have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than is the case with higher rated fixed
maturities.
At December 31, 2000, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $65.1 million, or 6.4%, of the Companies' investment portfolio.
The Companies intend to purchase additional below investment grade securities,
but do not expect the percentage of the portfolio invested in such securities to
exceed 10% of the investment portfolio. At December 31, 2000, the yield at
amortized cost on the Companies' below investment grade portfolio was 8.2%
compared to 6.6% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $60.2 million, or 92.6% of amortized cost value, at December 31, 2000.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as a recession
or increasing interest rates, than are investment grade issuers. The Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e. if it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
8
received, which may necessitate future write-downs of securities in the
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
In 2000, fixed maturities designated as available for sale with a combined
amortized cost of $211.3 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $6.1 million in 2000, excluding the $142,000 pre-tax loss
recognized in June 2000 to reduce the carrying value of an impaired bond to its
net realizable value of $315,000.
EQUITY SECURITIES: Equity securities at market represent 0.7% of the fair value
of the Companies' investment portfolio. At December 31, 2000, the Companies
owned equity securities with a cost of $8.6 million and an estimated fair value
of $6.8 million. Net unrealized depreciation of equity securities was comprised
entirely of gross depreciation of $1.8 million. Equity securities are primarily
comprised of investments in shares of the mutual funds underlying the Companies'
registered separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.9% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $99.9 million at December 31, 2000 with an estimated fair value of $100.5
million. The Companies' mortgage loan portfolio includes 56 loans with an
average size of $1.8 million and average seasoning of 0.6 years if weighted by
the number of loans. The Companies' mortgage loans on real estate are typically
secured by occupied buildings in major metropolitan locations and not
speculative developments and are diversified by type of property and geographic
location. Mortgage loans on real estate have been analyzed by geographical
location with concentrations by state identified as California (15% in 2000 and
12% in 1999), and Utah (9% in 2000, 10% in 1999). There are no other
concentrations of mortgage loans on real estate in any state exceeding ten
percent at December 31, 2000 and 1999. Mortgage loans on real estate have also
been analyzed by collateral type with significant concentrations identified in
office buildings (29% in 2000, 34% in 1999), industrial buildings (35% in 2000,
33% in 1999), retail facilities (18% in 2000, 19% in 1999), and multi-family
apartments (10% in 2000 and 10% in 1999). At December 31, 2000, the yield on the
Companies' mortgage loan portfolio was 7.3%.
At December 31, 2000, no mortgage loan on real estate was delinquent by 90 days
or more. The Companies' loan investment strategy is consistent with other life
insurance subsidiaries of ING in the United States. The Companies have
experienced a historically low default rate in their mortgage loan portfolios.
OTHER ASSETS
Reinsurance recoverables increased $19.1 million during 2000, due largely to an
increase of $14.6 million in reinsurance reserves from an intercompany
reinsurance agreement between Golden American and Security Life of Denver
International Limited. On December 28, 2000, effective January 1, 2000, Golden
American entered into a reinsurance agreement with Security Life of Denver
International Limited, an affiliate, covering variable annuity minimum
guaranteed death benefits and minimum guaranteed living benefits. The remainder
of the increase was mainly due to an increase in reinsurance receivable from
surrenders, and was consistent with an increase in ceded premiums from 1999 to
2000.
Amounts due from affiliates increased by $38.1 million during 2000 due mainly to
a capital contribution receivable of $35.0 million from the parent company at
December 31, 2000. The remainder of the increase was an increased receivable for
management fee revenues. The increase was due to higher management fees in the
current year as well as the timing of the receivable settlement.
Accrued investment income decreased $1.6 million during 2000, due to a shift
from long-term to short-term investments at December 31, 2000 as compared to
9
December 31, 1999. DPAC represents certain deferred costs of acquiring new
insurance business, principally first year commissions and interest bonuses,
premium credits, and other expenses related to the production of new business
after the merger. Any expenses which vary directly with the sales of the
Companies' products are deferred and amortized. The Companies' previous balances
of DPAC and VPIF were eliminated as of the merger date, and an asset
representing VPIF was established for all policies in force at the merger date.
VPIF is amortized into income in proportion to the expected gross profits of in
force acquired business in a manner similar to DPAC amortization. At December
31, 2000, the Companies had DPAC and VPIF balances of $635.1 million and $25.9
million, respectively, as compared to DPAC and VPIF balances of $529.0 million
and $31.7 million at December 31, 1999.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the merger
date. Accumulated amortization of goodwill as of December 31, 2000 was $11.9
million.
Other assets increased $29.5 million during 2000, due mainly to an increase in
the receivable for securities sold.
At December 31, 2000, the Companies had $9.8 billion of separate account assets
compared to $7.6 billion at December 31, 1999. The increase in separate account
assets resulted from sales of the Companies' variable annuity products, net of
redemptions and reinsurance, and from net policyholder transfers to the separate
account options from the fixed account options within the variable products. The
increase was partially offset by negative equity market returns.
At December 31, 2000, the Companies had total assets of $11.9 billion, a 26.2%
increase from December 31, 1999.
LIABILITIES
Future policy benefits for annuity and interest sensitive life products
increased $29.2 million, or 2.8%, to $1.1 billion reflecting mainly an increase
in reserves due to the introduction of minimum guaranteed living benefits as new
riders available to policyholders as of February, 2000 on certain variable
products. Sales, net of redemptions and reinsurance, and increased transfer
activity to the separate account options accounted for the $2.2 billion, or
30.0%, increase in separate account liabilities to $9.8 billion at December 31,
2000.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH
assigned the surplus note to Equitable Life.
On December 30, 1998, Golden American issued a $60 million, 7.25% surplus note
to Equitable Life, which matures on December 29, 2028.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note
to Equitable, which matures on December 17, 2026. As a result of the merger of
Equitable into EIC, the surplus note is now payable to EIC.
Amounts due to affiliates increased by $7.2 million from $12.7 million at
December 31, 1999 to $19.9 million at December 31, 2000. This was mainly due to
the overpayment of the cash settlement for the modified coinsurance agreement
with an affiliate.
10
Other liabilities increased $16.2 million from $53.2 million at December 31,
1999, due primarily to the timing of the settlement of account transfers, an
increase in outstanding checks, and an increased pension liability, partly
offset by a decrease in the payable for securities purchased.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $2.3 billion, or 26.0%, during 2000 and totaled $11.2
billion at December 31, 2000.
The effects of inflation and changing prices on the Companies' financial
position are not material since insurance assets and liabilities are both
primarily monetary and remain in balance. An effect of inflation, which has been
low in recent years, is a decline in stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY
Additional paid-in capital increased $115.0 million, or 24.5%, from December 31,
1999 to $583.6 million at December 31, 2000, due to capital contributions from
the Parent.
11
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Companies' principal sources of cash are variable annuity premiums and
product charges, investment income, maturing investments, proceeds from debt
issuance, and capital contributions made by the Parent. Primary uses of these
funds are payments of commissions and operating expenses, interest and premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash provided by operating activities was $72.7 million in 2000 compared to
net cash used by operating activities of $74.0 million in 1999. The Companies
have predominantly had negative cash flows from operating activities since
Golden American started issuing variable insurance products in 1989. These
negative operating cash flows result primarily from the funding of commissions
and other deferrable expenses related to the continued growth in the sales of
variable annuity products. During 2000, these negative cash flows were offset by
the effects of a modified coinsurance agreement entered into with an affiliate
which resulted in the reimbursement of policy acquisition costs incorporated in
a net cash settlement of $218.8 million. This was partially offset also by the
use of cash from increases in reinsurance recoverable, due from affiliates and
other assets.
Net cash provided by investing activities was $28.0 million during 2000 as
compared to net cash used in investing activities of $177.5 million in 1999.
This increase is primarily due to lower purchases of fixed maturities during
2000 than in 1999. Net sales of fixed maturities totaled $51.1 million in 2000
versus net purchases of $124.0 million in 1999. This change was mainly due to
the relatively constant level policyholder account balances in the fixed account
options during 2000 as compared to an increase during 1999, combined with a
shift toward short-term investments.
Net cash used by financing activities was $51.9 million during 2000 as compared
to net cash provided by financing activities of $259.2 million during the prior
year. In 2000, net cash provided by financing activities was positively impacted
by net fixed account deposits of $660.4 million compared to $627.1 million in
1999. This increase was more than offset by net reallocations to the Companies'
separate accounts, which increased to $825.9 million from $650.3 million during
the prior year. In 2000, another important source of cash provided by financing
activities was $115.0 million in capital contributions from the Parent compared
to $121.0 million in 1999. Another source of cash provided by financing
activities during 1999 was $160.0 million in proceeds from surplus notes. No
surplus notes were issued during 2000.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 2001. Management believes
these sources of liquidity are adequate to meet the Companies' short-term cash
obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities, given the continued growth of the variable annuity sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or the use of modified coinsurance
agreements will cover these net cash outflows. ING AIH is committed to the
sustained growth of Golden American. During 2001, ING AIH will maintain Golden
American's statutory capital and surplus at the end of each quarter at a level
such that: 1) the ratio of Total Adjusted Capital divided by Company Action
Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital
(excluding surplus notes) divided by Company Action Level Risk Based Capital
exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the
"Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on
page 3, Line 13A of Golden American's statutory statement.
12
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Previously, Golden American's business
operations were housed in leased facilities located in Wilmington, Delaware and
leased facilities in Pennsylvania. During 2000, Golden American occupied 105,000
square feet of leased space; and an affiliate occupied 20,000 square feet in the
same facilities. Golden American's New York subsidiary is housed in leased space
in New York, New York. The Companies intend to spend approximately $3.9 million
on capital needs for 2001.
The ability of Golden American to pay dividends to its Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 2001, Golden
American cannot pay dividends to its Parent without prior approval of statutory
authorities.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department finds the financial condition of First Golden does not
warrant the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing. The
management of First Golden does not anticipate paying dividends to Golden
American during 2001.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to monitor the
capitalization of insurance companies based upon the type and mixture of risks
inherent in a company's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. The Companies
have complied with the NAIC's risk-based capital reporting requirements. Amounts
reported indicate that the Companies have total adjusted capital well above all
required capital levels.
REINSURANCE: At December 31, 2000, Golden American had reinsurance treaties with
six unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits under its variable contracts. Golden American remains liable to the
extent its reinsurers do not meet their obligations under the reinsurance
agreements.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued on or after
January 1, 2000, excluding those with an interest rate guarantee.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering variable
annuity minimum guaranteed death benefits and minimum guaranteed living benefits
of variable annuities issued on or after January 1, 2000. An irrevocable letter
of credit was obtained through Bank of New York in the amount of $10,500,000
related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued on or after January 1, 2000.
13
MARKET RISK AND RISK MANAGEMENT
- -------------------------------
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include contractholder behavior
and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable insurance products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed by
contractholders, not by the Companies (subject to, among other things, certain
minimum guarantees). The Companies' products also provide certain minimum death
and guaranteed living benefits that depend on the performance of the variable
separate accounts. Currently, the majority of death and living benefit risks are
reinsured, which protects the Companies from adverse mortality experience and
prolonged capital market decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material amount
of market risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
year end 2000 levels, variable separate account funds, which represent 90% of
the in force, pass the risk in underlying fund performance to the contractholder
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from year end 2000 levels, the remaining 10% of the
in force are fixed account funds and almost all of these have market value
adjustments which provide significant protection against changes in interest
rates.
14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the Companies or any of their officers, directors, or employees is
qualified by the fact that actual results of the Companies may differ materially
from such statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Companies to sell their products, the market
value and liquidity of the Companies' investments, fee revenue, and the
lapse rate of the Companies' policies, notwithstanding product design
features intended to enhance persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations, which may affect
the tax status of the Companies' products.
3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation, insurance
industry insolvencies, availability of competitive reinsurance on new
business, investment performance of the underlying portfolios of the
variable products, variable product design, and sales volume by significant
sellers of the Companies' variable products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The matters set forth under the caption "Market Risk and Risk Management" in
Management's Discussion and Analysis of Results of Operations (Item 7 of this
report) are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
15
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of Golden American
Life Insurance Company as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 2000. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golden American
Life Insurance Company at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
s/Ernst & Young LLP
Atlanta, Georgia
March 12, 2001
16
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
December 31, 2000 December 31, 1999
-----------------------------------------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $798,751; 1999 - $858,052)............................... $792,578 $835,321
Equity securities, at fair value (cost: 2000 - $8,611;
1999 - $14,952)........................................................ 6,791 17,330
Mortgage loans on real estate............................................ 99,916 100,087
Policy loans............................................................. 13,323 14,157
Short-term investments................................................... 106,775 80,191
-----------------------------------------------
Total investments........................................................... 1,019,383 1,047,086
Cash and cash equivalents................................................... 63,207 14,380
Reinsurance recoverable..................................................... 19,331 14,834
Reinsurance recoverable from affiliates .................................... 14,642 --
Due from affiliates......................................................... 38,786 637
Accrued investment income................................................... 9,606 11,198
Deferred policy acquisition costs........................................... 635,147 528,957
Value of purchased insurance in force....................................... 25,942 31,727
Current income taxes recoverable............................................ 511 35
Deferred income tax asset................................................... 9,047 21,943
Property and equipment, less allowances for depreciation
of $5,638 in 2000 and $3,229 in 1999..................................... 14,404 13,888
Goodwill, less accumulated amortization of $11,964 in 2000
and $8,186 in 1999....................................................... 139,163 142,941
Other assets................................................................ 32,019 2,514
Separate account assets..................................................... 9,831,489 7,562,717
-----------------------------------------------
Total assets................................................................ $11,852,677 $9,392,857
===============================================
See accompanying notes.
17
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
December 31, 2000 December 31, 1999
------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products......................... $1,062,891 $1,033,701
Unearned revenue reserve............................................. 6,817 6,300
Other policy claims and benefits........................................ 82 8
------------------------------------------------
1,069,790 1,040,009
Surplus notes............................................................. 245,000 245,000
Revolving note payable.................................................... - 1,400
Due to affiliates......................................................... 19,887 12,650
Other liabilities......................................................... 69,374 53,232
Separate account liabilities.............................................. 9,831,489 7,562,717
------------------------------------------------
11,235,540 8,915,008
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share, authorized,
issued, and outstanding 250,000 shares............................... 2,500 2,500
Additional paid-in capital.............................................. 583,640 468,640
Accumulated other comprehensive loss.................................... (4,046) (9,154)
Retained earnings....................................................... 35,043 15,863
------------------------------------------------
Total stockholder's equity................................................ 617,137 477,849
------------------------------------------------
Total liabilities and stockholder's equity................................ $11,852,677 $9,392,857
================================================
See accompanying notes.
18
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
---------------------------------------------------------
Revenues:
Annuity and interest sensitive life product charges........ $144,877 $82,935 $39,119
Management fee revenue..................................... 22,982 11,133 4,771
Net investment income...................................... 64,140 59,169 42,485
Realized losses on investments............................. (6,554) (2,923) (1,491)
---------------------------------------------------------
225,445 150,314 84,884
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances.................... 195,088 175,257 94,845
Benefit claims incurred in excess of account balances.... 4,943 6,370 2,123
Underwriting, acquisition, and insurance expenses:
Commissions.............................................. 213,719 188,383 121,171
General expenses......................................... 84,936 60,205 37,612
Insurance taxes, state licenses, and fees................ 4,528 3,976 4,140
Policy acquisition costs deferred........................ (168,444) (346,396) (197,796)
Amortization:
Deferred policy acquisition costs....................... 55,154 33,119 5,148
Value of purchased insurance in force................... 4,801 6,238 4,724
Goodwill................................................ 3,778 3,778 3,778
Expenses and charges reimbursed under modified coinsurance
agreements............................................... (225,787) (9,247) (5,604)
---------------------------------------------------------
172,716 121,683 70,141
Interest expense.............................................. 19,867 8,894 4,390
---------------------------------------------------------
192,583 130,577 74,531
---------------------------------------------------------
Income before income taxes.................................... 32,862 19,737 10,353
Income taxes.................................................. 13,682 8,523 5,279
---------------------------------------------------------
Net income ................................................... $19,180 $11,214 $5,074
=========================================================
See accompanying notes.
19
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Retained Total
Common Paid-in Comprehensive Earnings Stockholder's
Stock Capital Income (Loss) (Deficit) Equity
-----------------------------------------------------------------------------
Balance at December 31, 1997................... $2,500 $224,997 $241 $(425) $227,313
Comprehensive income:
Net income................................ -- -- -- 5,074 5,074
Change in net unrealized investment
gains (losses).......................... -- -- (1,136) -- (1,136)
-----------------
Comprehensive income........................ 3,938
Contribution of capital..................... -- 122,500 -- -- 122,500
Other....................................... -- 143 -- -- 143
-----------------------------------------------------------------------------
Balance at December 31, 1998................... 2,500 347,640 (895) 4,649 353,894
Comprehensive income:
Net income................................ -- -- -- 11,214 11,214
Change in net unrealized investment
gains (losses).......................... -- -- (8,259) -- (8,259)
-----------------
Comprehensive income........................ 2,955
Contribution of capital..................... -- 121,000 -- -- 121,000
-----------------------------------------------------------------------------
Balance at December 31, 1999................... $2,500 $468,640 $(9,154) $15,863 $477,849
Comprehensive income:
Net income................................ -- -- -- 19,180 19,180
Change in net unrealized investment
gains (losses) ......................... -- -- 5,108 -- 5,108
-----------------
Comprehensive income........................ 24,288
Contribution of capital..................... -- 115,000 -- -- 115,000
-----------------------------------------------------------------------------
Balance at December 31, 2000................... $2,500 $583,640 $(4,046) $35,043 $617,137
=============================================================================
See accompanying notes.
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
---------------------------------------------------
OPERATING ACTIVITIES
Net income ................................................... $19,180 $11,214 $5,074
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Adjustments related to annuity and
interest sensitive life products:
Interest credited and other charges on
interest sensitive products............................ 195,088 175,257 94,845
Charges for mortality and administration................. (313) 524 (233)
Change in unearned revenues.............................. 517 2,460 2,651
Increase (decrease) in policy liabilities and accruals..... 74 8 (10)
Decrease (increase) in accrued investment income........... 1,592 (1,553) (3,222)
Policy acquisition costs deferred.......................... (168,444) (346,396) (197,796)
Amortization of deferred policy acquisition costs.......... 55,154 33,119 5,148
Amortization of value of purchased
insurance in force....................................... 4,801 6,238 4,724
Change in other assets, due to/from affiliates, other
liabilities, and accrued income taxes.................... (63,840) 24,845 9,979
Provision for depreciation and amortization................ 8,616 8,850 8,147
Provision for deferred income taxes........................ 13,728 8,523 5,279
Realized losses on investments............................. 6,554 2,923 1,491
---------------------------------------------------
Net cash provided by (used in) operating activities........... 72,707 (73,988) (63,923)
---------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale...................... 205,136 220,547 145,253
Mortgage loans on real estate.............................. 12,701 6,572 3,791
Equity securities.......................................... 6,128 -- --
Policy loans - net......................................... 834 -- --
---------------------------------------------------
224,799 227,119 149,044
Acquisition of investments:
Fixed maturities - available for sale...................... (154,028) (344,587) (476,523)
Equity securities.......................................... -- -- (10,000)
Mortgage loans on real estate.............................. (12,887) (9,659) (16,390)
Policy loans - net......................................... -- (2,385) (2,940)
Short-term investments - net............................... (26,584) (39,039) (26,692)
---------------------------------------------------
(193,499) (395,670) (532,545)
Issuance of reciprocal loan agreement receivables............. (16,900) -- --
Receipt of repayment of reciprocal loan agreement
receivables................................................ 16,900 -- --
Net purchase of property and equipment........................ (3,285) (8,968) (6,485)
---------------------------------------------------
Net cash provided by (used in) investing activities........... 28,015 (177,519) (389,986)
See accompanying notes.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
----------------------------------------------------
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement
borrowings................................................ $178,900 $396,350 $500,722
Repayment of reciprocal loan agreement
Borrowings................................................ (178,900) (396,350) (500,722)
Proceeds from revolving note payable......................... 67,200 220,295 108,495
Repayment of revolving note payable.......................... (68,600) (218,895) (108,495)
Proceeds from surplus note................................... -- 160,000 60,000
Repayment of line of credit borrowings....................... -- -- (5,309)
Receipts from annuity and interest
sensitive life policies credited to
account balances.......................................... 801,793 773,685 593,428
Return of account balances on annuity
and interest sensitive life policies...................... (141,440) (146,607) (72,649)
Net reallocations to separate accounts....................... (825,848) (650,270) (239,671)
Contributions of capital by parent........................... 115,000 121,000 103,750
----------------------------------------------------
Net cash provided by (used in) financing activities.......... (51,895) 259,208 439,549
----------------------------------------------------
Increase (decrease) in cash and cash
equivalents............................................... 48,827 7,701 (14,360)
Cash and cash equivalents at
beginning of period....................................... 14,380 6,679 21,039
----------------------------------------------------
Cash and cash equivalents at
end of period............................................. $63,207 $14,380 $6,679
====================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $22,444 $6,392 $4,305
Income taxes.............................................. 957 -- 99
Non-cash financing activities:
Non-cash adjustment to additional paid-in capital for
adjusted merger costs.................................... -- -- 143
Contribution of capital from parent to
repay line of credit borrowings......................... -- -- 18,750
See accompanying notes.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CONSOLIDATION
The consolidated financial statements include Golden American Life Insurance
Company ("Golden American") and its wholly owned subsidiary, First Golden
American Life Insurance Company of New York ("First Golden," and collectively
with Golden American, the "Companies"). All significant intercompany accounts
and transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa Companies, Inc.,
offers variable insurance products and is licensed as a life insurance company
in the District of Columbia and all states except New York. First Golden is
licensed to sell insurance products in New York and Delaware. The Companies'
variable annuity products are marketed by broker/dealers, financial
institutions, and insurance agents. The Companies' primary customers are
consumers and corporations.
On October 24, 1997 ("the merger date"), PFHI Holding, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of Equitable of Iowa
Companies ("Equitable") according to the terms of an Agreement and Plan of
Merger dated July 7, 1997 among Equitable, PFHI, and ING Groep N.V. ("ING").
PFHI is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of this transaction, Equitable was
merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"), a Delaware corporation.
INVESTMENTS
FIXED MATURITIES: The Companies account for their investments under the
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires fixed
maturities to be designated as either "available for sale," "held for
investment," or "trading." Sales of fixed maturities designated as "available
for sale" are not restricted by SFAS No. 115. Available for sale securities are
reported at fair value and unrealized gains and losses on these securities are
included directly in stockholder's equity, after adjustment for related changes
in value of purchased insurance in force ("VPIF"), deferred policy acquisition
costs ("DPAC"), and deferred income taxes. At December 31, 2000 and 1999, all of
the Companies' fixed maturities are designated as available for sale, although
the Companies are not precluded from designating fixed maturities as held for
investment or trading at some future date.
Securities determined to have a decline in value that is other than temporary
are written down to estimated fair value, which becomes the new cost basis by a
charge to realized losses in the Companies' Statements of Operations. Premiums
and discounts are amortized/accrued utilizing a method which results in a
constant yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and other asset-backed securities
incorporates a prepayment assumption to estimate the securities' expected lives.
EQUITY SECURITIES: Equity securities are reported at estimated fair value if
readily marketable. The change in unrealized appreciation and depreciation of
marketable equity securities (net of related deferred income taxes, if any) is
included directly in stockholder's equity. Equity securities determined to have
a decline in value that is other than temporary are written down to estimated
fair value, which becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
23
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate are reported at
cost adjusted for amortization of premiums and accrual of discounts. If the
value of any mortgage loan is determined to be impaired (i.e., when it is
probable the Companies will be unable to collect all amounts due according to
the contractual terms of the loan agreement), the carrying value of the mortgage
loan is reduced to the present value of expected future cash flows from the loan
discounted at the loan's effective interest rate, or to the loan's observable
market price, or the fair value of the underlying collateral. The carrying value
of impaired loans is reduced by the establishment of a valuation allowance,
which is adjusted at each reporting date for significant changes in the
calculated value of the loan. Changes in this valuation allowance are charged or
credited to income.
OTHER INVESTMENTS: Policy loans are reported at unpaid principal. Short-term
investments are reported at cost, adjusted for amortization of premiums and
accrual of discounts.
REALIZED GAINS AND LOSSES: Realized gains and losses are determined on the basis
of specific identification.
FAIR VALUES: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. Fair values of
private placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S. Treasury
bonds. Estimated fair values of equity securities, which consist of the
Companies' investment in its registered separate accounts, are based upon the
quoted fair value of the securities comprising the individual portfolios
underlying the separate accounts.
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the Companies
consider all demand deposits and interest-bearing accounts not related to the
investment function to be cash equivalents. All interest-bearing accounts
classified as cash equivalents have original maturities of three months or less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally first year
commissions and interest bonuses, premium credit, and other expenses related to
the production of new business ($63.8 million during 2000, $153.0 million during
1999, and $73.4 million during 1998), have been deferred. Acquisition costs for
variable insurance products are being amortized generally in proportion to the
present value (using the assumed crediting rate) of expected future gross
profits. This amortization is adjusted retrospectively when the Companies revise
their estimate of current or future gross profits to be realized from a group of
products. DPAC is adjusted to reflect the pro forma impact of unrealized gains
and losses on fixed maturities the Companies have designated as "available for
sale" under SFAS No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger, a portion of the purchase price was allocated to the
right to receive future cash flows from existing insurance contracts. This
allocated cost represents VPIF, which reflects the value of those purchased
policies calculated by discounting actuarially determined expected future cash
flows at the discount rate determined by the purchaser. Amortization of VPIF is
charged to expense in proportion to expected gross profits of the underlying
business. This amortization is adjusted retrospectively when the Companies
revise the estimate of current or future gross profits to be realized from the
insurance contracts acquired. VPIF is adjusted to reflect the pro forma impact
of unrealized gains and losses on available for sale fixed maturities.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, office
furniture, certain other equipment, and capitalized computer software and are
not considered to be significant to the Companies' overall operations. Property
and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily on the basis of the straight-line
method over the estimated useful lives of the assets.
24
GOODWILL
Goodwill was established as a result of the merger and is being amortized over
40 years on a straight-line basis.
FUTURE POLICY BENEFITS
Future policy benefits for divisions of the variable products with fixed
interest guarantees are established utilizing the retrospective deposit
accounting method. Policy reserves represent the premiums received plus
accumulated interest, less mortality and administration charges. Interest
credited to these policies ranged from 3.00% to 14.00% during 2000, 3.00% to
11.00% during 1999, and 3.00% to 10.00% during 1998. The unearned revenue
reserve represents unearned distribution fees. These distribution fees have been
deferred and are amortized over the life of the contracts in proportion to
expected gross profits.
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the accompanying
Balance Sheets represent funds separately administered principally for variable
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
products in shares of specified mutual funds. The assets and liabilities of the
separate accounts are clearly identified and segregated from other assets and
liabilities of the Companies. The portion of the separate account assets equal
to the reserves and other liabilities of variable contracts cannot be charged
with liabilities arising out of any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the underlying
investments and generally represent contractholder investment values maintained
in the accounts. Variable separate account liabilities represent account
balances for the variable contracts invested in the separate accounts; the fair
value of these liabilities is equal to their carrying amount. Net investment
income and realized and unrealized capital gains and losses related to separate
account assets are not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable insurance products
consist of charges applicable to each contract for mortality and expense risk,
cost of insurance, contract administration, and surrender charges. In addition,
some variable annuity and all variable life contracts provide for a distribution
fee collected for a limited number of years after each premium deposit. Revenue
recognition of collected distribution fees is amortized over the life of the
contract in proportion to its expected gross profits. The balance of
unrecognized revenue related to the distribution fees is reported as an unearned
revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred tax assets or liabilities are adjusted to
reflect the pro forma impact of unrealized gains and losses on equity securities
and fixed maturities the Companies have designated as available for sale under
SFAS No. 115. Changes in deferred tax assets or liabilities resulting from this
SFAS No. 115 adjustment are charged or credited directly to stockholder's
equity. Deferred income tax expenses or credits reflected in the Companies'
Statements of Operations are based on the changes in the deferred tax asset or
liability from period to period (excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is restricted. Prior
approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 2001, Golden
American cannot pay dividends to its Parent without prior approval of statutory
authorities. Under the provisions of the insurance laws of the State of New
York, First Golden cannot distribute any dividends to its stockholder, Golden
American, unless a notice of its intent to declare a dividend and the amount of
the dividend has been filed with the New York Insurance Department at least
thirty days in advance of the proposed declaration. If the Superintendent of the
New York Insurance Department finds the financial condition of First Golden does
not warrant the distribution, the Superintendent may disapprove the distribution
by giving written notice to First Golden within thirty days after the filing.
25
SEGMENT REPORTING
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Management is required to utilize historical experience and assumptions about
future events and circumstances in order to develop estimates of material
reported amounts and disclosures. Included among the material (or potentially
material) reported amounts and disclosures that require extensive use of
estimates and assumptions are: (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values of
policyholder liabilities, (2) policyholder liabilities, (3) deferred policy
acquisition costs and value of purchased insurance in force, (4) fair values of
assets and liabilities recorded as a result of merger, (5) asset valuation
allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits
(liabilities), and (8) estimates for commitments and contingencies including
legal matters, if a liability is anticipated and can be reasonably estimated.
Estimates and assumptions regarding all of the preceding items are inherently
subject to change and are reassessed periodically. Changes in estimates and
assumptions could materially impact the financial statements.
PENDING ACCOUNTING STANDARDS: DERIVATIVE FINANCIAL INSTRUMENTS
During 1998, the Financial Accounting Standards Board issued Statement No. 133
("SFAS 133"), Accounting for Derivative Financial Instruments and Hedging
Activities. SFAS 133 requires that all derivative instruments, including certain
derivative instruments embedded in other contracts, be recorded on the balance
sheet and measured at its fair value. The change in a derivative's fair value is
generally to be recognized in current period earnings.
If certain conditions are met, a derivative may be specifically designated as a
hedge of an exposure to changes in fair value, variability of cash flows, or
certain foreign currency exposures. When designated as a hedge, the fair value
should be recognized currently in earnings or other comprehensive income,
depending on whether such designation is considered a fair value or as a cash
flow hedge. With respect to fair value hedges, the fair value of the derivative,
as well as changes in the fair value of the hedged item, are reported in
earnings. For cash flow hedges, changes in the derivatives fair value are
reported in other comprehensive income and subsequently reclassified into
earnings when the hedged item affects earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Companies adopted SFAS 133 on January 1, 2000. The cumulative effect of the
accounting change upon adoption was not material.
RECLASSIFICATIONS
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 financial statement presentation.
2. BASIS OF FINANCIAL REPORTING
- --------------------------------------------------------------------------------
The financial statements of the Companies differ from related statutory-basis
financial statements principally as follows: (1) acquisition costs of acquiring
new business are deferred and amortized over the life of the policies rather
than charged to operations as incurred; (2) an asset representing the present
value of future cash flows from insurance contracts acquired was established as
a result of the merger/acquisition and is amortized and charged to expense; (3)
future policy benefit reserves for divisions with fixed interest guarantees of
the variable insurance products are based on full account values, rather than
the greater of cash surrender value or amounts derived from discounting
methodologies utilizing statutory interest rates; (4) reserves are reported
before reduction for reserve credits related to reinsurance ceded and a
receivable is established, net of an allowance for uncollectible amounts, for
26
these credits rather than presented net of these credits; (5) fixed maturity
investments are designated as "available for sale" and valued at fair value with
unrealized appreciation/depreciation, net of adjustments to value of purchased
insurance in force, deferred policy acquisition costs, and deferred income taxes
(if applicable), credited/charged directly to stockholder's equity rather than
valued at amortized cost; (6) the carrying value of fixed maturities is reduced
to fair value by a charge to realized losses in the Statements of Operations
when declines in carrying value are judged to be other than temporary, rather
than through the establishment of a formula-determined statutory investment
reserve (carried as a liability), changes in which are charged directly to
surplus; (7) deferred income taxes are provided for the difference between the
financial statement and income tax bases of assets and liabilities; (8) net
realized gains or losses attributed to changes in the level of interest rates in
the market are recognized when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security; (9) a
liability is established for anticipated guaranty fund assessments, net of
related anticipated premium tax credits, rather than capitalized when assessed
and amortized in accordance with procedures permitted by insurance regulatory
authorities; (10) revenues for variable insurance products consist of policy
charges applicable to each contract for the cost of insurance, policy
administration charges, amortization of policy initiation fees, and surrender
charges assessed rather than premiums received; (11) the financial statements of
Golden American's wholly owned subsidiary are consolidated rather than recorded
at the equity in net assets; (12) surplus notes are reported as liabilities
rather than as surplus; and (13) assets and liabilities are restated to fair
values when a change in ownership occurs, with provisions for goodwill and other
intangible assets, rather than continuing to be presented at historical cost.
The net loss for Golden American as determined in accordance with statutory
accounting practices was $71,134,000 in 2000, $85,578,000 in 1999, and
$68,002,000 in 1998. Total statutory capital and surplus was $406,923,000 and
$368,928,000 at December 31, 2000 and 1999, respectively.
The National Association of Insurance Commissioners has revised the Accounting
Practices and Procedures Manual, the guidance that defines statutory accounting
principles. The revised manual will be effective January 1, 2001, and has been
adopted, at least in part, by the States of Delaware and New York, which are the
states of domicile for Golden American and First Golden, respectively. The
revised manual will result in changes to the accounting practices that the
Companies use to prepare their statutory-basis financial statements. Management
believes the impact of these changes to the Companies' statutory-basis capital
and surplus as of January 1, 2001 will not be significant.
3. INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
Year Ended December 31, 2000 1999 1998
----------------------------------------------------------
(Dollars in thousands)
Fixed maturities................................. $55,302 $50,352 $35,224
Equity securities................................ 248 515 --
Mortgage loans on real estate.................... 7,832 7,074 6,616
Policy loans..................................... 516 485 619
Short-term investments........................... 2,253 2,583 1,311
Other, net....................................... 543 388 246
----------------------------------------------------------
Gross investment income.......................... 66,694 61,397 44,016
Less investment expenses......................... (2,554) (2,228) (1,531)
----------------------------------------------------------
Net investment income............................ $64,140 $59,169 $42,485
==========================================================
27
Realized losses on investments follows:
Year Ended December 31, 2000 1999 1998
----------------------------------------------------------
(Dollars in thousands)
Fixed maturities, available for sale............. $(6,289) $(2,910) $(1,428)
Equity securities................................ (213) -- --
Mortgage loans on real estate.................... (52) (13) (63)
------------------ ---------------------------------------
Realized losses on investments................... $(6,554) $(2,923) $(1,491)
==========================================================
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
Year Ended December 31, 2000 1999 1998
----------------------------------------------------------
(Dollars in thousands)
Fixed maturities, available for sale............. $16,558 $(24,944) $1,100
Equity securities................................ (4,198) 5,301 (2,390)
----------------------------------------------------------
Unrealized appreciation (depreciation)
of securities................................. $12,360 $(19,643) $(1,290)
==========================================================
At December 31, 2000 and December 31, 1999, amortized cost, gross unrealized gains and losses, and estimated fair values of fixed
maturities, all of which are designated as available for sale, follows:
Gross Gross Estimated
December 31, 2000 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. government and governmental
agencies and authorities................. $18,607 $580 $(16) $19,171
Public utilities.......................... 54,132 294 (1,600) 52,826
Corporate securities...................... 355,890 1,318 (8,006) 349,202
Other asset-backed securities............. 223,787 2,166 (1,831) 224,122
Mortgage-backed securities................ 146,335 1,465 (543) 147,257
---------------------------------------------------------------------------
Total..................................... $798,751 $5,823 $(11,996) $792,578
===========================================================================
Gross Gross Estimated
December 31, 1999 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. government and governmental
agencies and authorities................. $21,363 -- $(260) $21,103
Public utilities.......................... 53,754 $25 (2,464) 51,315
Corporate securities...................... 396,494 53 (12,275) 384,272
Other asset-backed securities............. 207,044 850 (4,317) 203,577
Mortgage-backed securities................ 179,397 39 (4,382) 175,054
---------------------------------------------------------------------------
Total..................................... $858,052 $967 $(23,698) $835,321
===========================================================================
28
Short-term investments with maturities of 30 days or less have been excluded
from the above schedules. Amortized cost approximates fair value for these
securities. At December 31, 2000, net unrealized investment loss on fixed
maturities designated as available for sale totaled $6,173,000. Depreciation of
$1,447,000 was included in stockholder's equity at December 31, 2000 (net of
adjustments of $801,000 to VPIF, $3,146,000 to DPAC, and $779,000 to deferred
income taxes). At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes).
At December 31, 2000, net unrealized depreciation on equity securities was
comprised entirely of gross depreciation of $1,820,000. At December 31, 1999,
net unrealized appreciation on equity securities was comprised entirely of gross
appreciation of $2,378,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 2000 are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized Estimated
December 31, 2000 Cost Fair Value
- --------------------------------------------------------------------------------
(Dollars in thousands)
Due within one year...................... $51,001 $50,836
Due after one year through five years.... 323,753 317,862
Due after five years through ten years... 45,812 44,891
Due after ten years...................... 8,063 7,610
------------------------------------
428,629 421,199
Other asset-backed securities............ 223,787 224,122
Mortgage-backed securities............... 146,335 147,257
------------------------------------
Total.................................... $798,751 $792,578
====================================
29
An analysis of sales, maturities, and principal repayments of the Companies' fixed maturities portfolio follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31, 2000:
Scheduled principal repayments, calls, and
tenders.......................................... $91,158 $122 $(1) $91,279
Sales.............................................. 120,125 285 (6,553) 113,857
----------------------------------------------------------------
Total.............................................. $211,283 $407 $(6,554) $205,136
================================================================
FOR THE YEAR ENDED DECEMBER 31, 1999:
Scheduled principal repayments, calls, and
tenders.......................................... $141,346 $216 $(174) $141,388
Sales.............................................. 80,472 141 (1,454) 79,159
----------------------------------------------------------------
Total.............................................. $221,818 $357 $(1,628) $220,547
================================================================
FOR THE YEAR ENDED DECEMBER 31, 1998:
Scheduled principal repayments, calls, and
tenders.......................................... $102,504 $60 $(3) $102,561
Sales.............................................. 43,204 518 (1,030) 42,692
----------------------------------------------------------------
Total.............................................. $145,708 $578 $(1,033) $145,253
================================================================
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when an impairment in value
appears to be other than temporary.
During the second quarter of 2000, Golden American determined that the carrying
value of an impaired bond exceeded its estimated net realizable value. As a
result, on June 30, 2000, Golden American recognized a total pre-tax loss of
approximately $142,000 to reduce the carrying value of the bond to its net
realizable value of $315,000 at December 31, 2000.
During the fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During the year 2000, these bonds
had no further reduction in carrying value.
INVESTMENTS ON DEPOSIT: At December 31, 2000 and 1999, affidavits of deposits
covering bonds with a par value of $6,870,000 and $6,470,000, respectively, were
on deposit with regulatory authorities pursuant to certain statutory
requirements.
INVESTMENT DIVERSIFICATIONS: The Companies' investment policies related to the
investment portfolio require diversification by asset type, company, and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at December
31, 2000 and December 31, 1999. Fixed maturities included investments in basic
industrials (29% in 2000, 29% in 1999), conventional mortgage-backed securities
(20% in 2000, 22% in 1999), financial companies (14% in 2000, 16% in 1999), and
30
other asset-backed securities (20% in 2000, 19% in 1999). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (15% in 2000, 12% in 1999) and Utah (9% in 2000, 10% in
1999). There are no other concentrations of mortgage loans on real estate in any
state exceeding ten percent at December 31, 2000 and 1999. Mortgage loans on
real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (29% in 2000, 34% in 1999),
industrial buildings (35% in 2000, 33% in 1999), retail facilities (18% in 2000,
19% in 1999), and multi-family apartments (10% in 2000, 10% in 1999). Equity
securities are not significant to the Companies' overall investment portfolio.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of stockholder's
equity at December 31, 2000.
4. COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$606,000 for the year ended December 31, 2000 for First Golden and $(452,000)
and $1,015,000 for the years ended December 31, 1999 and 1998, respectively.
Other comprehensive income excludes net investment gains (losses) included in
net income, which merely represent transfers from unrealized to realized gains
and losses. These amounts total $(2,670,000), $(1,468,000) and $(2,133,000) in
the years ended December 31, 2000, 1999 and 1998, respectively. Such amounts,
which have been measured through the date of sale, are net of income taxes and
adjustments to VPIF and DPAC totaling $(4,742,000), $(1,441,000) and $705,000 in
the years ended December 31, 2000, 1999 and 1998, respectively.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of estimated fair value of all financial instruments, including both
assets and liabilities recognized and not recognized in a company's balance
sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," requires
additional disclosures about derivative financial instruments. Most of the
Companies' investments, investment contracts, and debt fall within the
standards' definition of a financial instrument. Fair values for the Companies'
insurance contracts other than investment contracts are not required to be
disclosed. In cases where quoted market prices are not available, estimated fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Accounting, actuarial, and
regulatory bodies are continuing to study the methodologies to be used in
developing fair value information, particularly as it relates to such things as
liabilities for insurance contracts. Accordingly, care should be exercised in
deriving conclusions about the Companies' business or financial condition based
on the information presented herein.
The Companies closely monitor the composition and yield of invested assets, the
duration and interest credited on insurance liabilities, and resulting interest
spreads and timing of cash flows. These amounts are taken into consideration in
the Companies' overall management of interest rate risk, which attempts to
minimize exposure to changing interest rates through the matching of investment
cash flows with amounts expected to be due under insurance contracts. These
assumptions may not result in values consistent with those obtained through an
actuarial appraisal of the Companies' business or values that might arise in a
negotiated transaction.
31
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
December 31 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Fixed maturities, available for sale............... $792,578 $792,578 $835,321 $835,321
Equity securities.................................. 6,791 6,791 17,330 17,330
Mortgage loans on real estate...................... 99,916 100,502 100,087 95,524
Policy loans....................................... 13,323 13,323 14,157 14,157
Short-term investments............................. 106,775 106,775 80,191 80,191
Cash and cash equivalents.......................... 63,207 63,207 14,380 14,380
Separate account assets............................ 9,831,489 9,831,489 7,562,717 7,562,717
LIABILITIES
Annuity products................................... 1,047,932 962,810 1,017,105 953,546
Surplus notes...................................... 245,000 204,455 245,000 226,100
Revolving note payable............................. -- -- 1,400 1,400
Separate account liabilities....................... 9,831,489 9,831,489 7,562,717 7,562,717
The following methods and assumptions were used by the Companies in estimating
fair values.
FIXED MATURITIES: Estimated fair values of conventional mortgage-backed
securities not actively traded in a liquid market and publicly traded securities
are estimated using a third party pricing process. This pricing process uses a
matrix calculation assuming a spread over U.S. Treasury bonds based upon the
expected average lives of the securities.
EQUITY SECURITIES: Estimated fair values of equity securities, which consist of
the Companies' investment in the portfolios underlying its separate accounts,
are based upon the quoted fair value of individual securities comprising the
individual portfolios. For equity securities not actively traded, estimated fair
values are based upon values of issues of comparable returns and quality.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting expected
cash flows, using interest rates currently offered for similar loans.
POLICY LOANS: Carrying values approximate the estimated fair value for policy
loans.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values reported
in the Companies' historical cost basis balance sheet approximate estimated fair
value for these instruments due to their short-term nature.
SEPARATE ACCOUNT ASSETS: Separate account assets are reported at the quoted fair
values of the individual securities in the separate accounts.
32
ANNUITY PRODUCTS: Estimated fair values of the Companies' liabilities for future
policy benefits for the divisions of the variable annuity products with fixed
interest guarantees and for supplemental contracts without life contingencies
are stated at cash surrender value, the cost the Companies would incur to
extinguish the liability.
SURPLUS NOTES: Estimated fair value of the Companies' surplus notes were based
upon discounted future cash flows using a discount rate approximating the
current market value.
REVOLVING NOTE PAYABLE: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at full
account value in the Companies' historical cost balance sheet. Estimated fair
values of separate account liabilities are equal to their carrying amount.
6. VALUE OF PURCHASED IN FORCE
- --------------------------------------------------------------------------------
As a result of the merger, a portion of the purchase price was allocated to the
right to receive future cash flows from existing insurance contracts. This
allocated cost represents VPIF, which reflects the value of those purchased
policies calculated by discounting actuarially determined expected future cash
flows at the discount rate determined by the purchaser. Interest was accrued at
a rate of 7.32% during 2000 (7.33% during 1999, and 7.29% during 1998).
A reconciliation of the change in the VPIF asset follows:
Year Ended December 31, 2000 1999 1998
---------------------------------------------------
(Dollars in thousands)
Beginning balance.............................. $31,727 $35,977 $43,174
Accretion of interest........................ 2,016 2,372 2,802
Amortization of asset........................ (6,817) (8,610) (7,526)
Adjustment for unrealized gains (losses) .... (984) 1,988 (203)
Purchase price adjustment to opening balance
sheet ..................................... -- -- (2,270)
---------------------------------------------------
Ending balance................................. $25,942 $31,727 $35,977
===================================================
Based on current conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization relating
to VPIF as of December 31, 2000, is $3.9 million in 2001, $3.6 million in 2002,
$3.0 million in 2003, $2.4 million in 2004, and $1.9 million in 2005. Actual
amortization may vary based upon changes in assumptions and experience.
7. INCOME TAXES
- --------------------------------------------------------------------------------
Golden American files a consolidated federal income tax return. Under the
Internal Revenue Code, a newly acquired insurance company cannot file as part of
the Parent's consolidated tax return for 5 years.
At December 31, 2000, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $189,656,000.
Approximately $5,094,000, $3,354,000, $50,449,000, $94,078,000 and $36,681,000
of these NOL carryforwards are available to offset future taxable income of the
Companies through the years 2011, 2012, 2018, 2019 and 2020, respectively.
33
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements follows:
Year Ended December 31, 2000 1999 1998
---------------------------------------------------
(Dollars in thousands)
Current................................... $(46) $-- $--
Deferred.................................. 13,728 8,523 5,279
---------------------------------------------------
$13,682 $8,523 $5,279
===================================================
The effective tax rate on income before income taxes is different from the prevailing federal income tax rate. A reconciliation of
this difference follows:
Year Ended December 31, 2000 1999 1998
----------------------------------------------------
(Dollars in thousands)
Income before income taxes...................... $32,862 $19,737 $10,353
====================================================
Income tax at federal statutory rate............ $11,502 $6,908 $3,624
Tax effect of:
Goodwill amortization......................... 1,322 1,322 1,322
Meals and entertainment....................... 292 199 157
Other items................................... 566 94 176
----------------------------------------------------
Income tax expense ............................. $13,682 $8,523 $5,279
====================================================
34
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred income tax assets and liabilities at December 31,
2000 and 1999 follows:
December 31 2000 1999
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value................................................... $637 $--
Net unrealized depreciation of available for sale fixed
maturities...................................................... 779 3,745
Future policy benefits............................................ 163,691 133,494
Goodwill.......................................................... 15,111 16,323
Net operating loss carryforwards.................................. 66,380 56,630
Other............................................................. 1,333 1,333
--------------------------------------------
247,931 211,525
Deferred tax liabilities:
Net unrealized appreciation of securities at fair value.............. -- (832)
Fixed maturity securities......................................... (17,774) (17,774)
Deferred policy acquisition costs................................. (184,743) (154,706)
Mortgage loans on real estate..................................... (715) (715)
Value of purchased insurance in force............................. (8,512) (10,462)
Other............................................................. (25,724) (1,348)
--------------------------------------------
(237,468) (185,837)
--------------------------------------------
Valuation allowance.................................................. (1,416) (3,745)
--------------------------------------------
Deferred income tax asset............................................ $9,047 $21,943
============================================
At December 31, 2000, the Company reported, for financial statement purposes,
unrealized losses on certain investments, which have not been recognized for tax
purposes. Since it is uncertain as to whether these capital losses, if ever
realized, could be utilized to offset capital gains, a valuation allowance has
been established for the tax effect of the financial statement losses.
8. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
- --------------------------------------------------------------------------------
DEFINED BENEFIT PLANS
In 2000, 1999 and 1998, the Companies were allocated their share of the pension
liability associated with their employees. The Companies' employees are covered
by the employee retirement plan of an affiliate, Equitable Life. Further,
Equitable Life sponsors a defined contribution plan that is qualified under
Internal Revenue Code Section 401(k).
35
The following tables summarize the benefit obligations and the funded status for pension benefits over the two-year period ended
December 31, 2000:
2000 1999
--------------------------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1.................................. $4,221 $4,454
Service cost..................................................... 1,569 1,500
Interest cost.................................................... 554 323
Actuarial (gain) loss............................................ 1,562 (2,056)
--------------------------------------------------
Benefit obligation at December 31................................ $7,906 $4,221
==================================================
Funded status:
Funded status at December 31.................................... $(7,906) $(4,221)
Unrecognized past service cost ................................. 141 --
Unrecognized net loss........................................... 1,627 210
--------------------------------------------------
Net amount recognized........................................... $(6,138) $(4,011)
==================================================
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 2000 1999
- -----------------------------------------------------------------------------
Discount rate........................... 7.75% 8.00%
Expected return on plan assets.......... 9.25 9.25
Rate of compensation increase........... 5.00 5.00
The following table provides the net periodic benefit cost for the fiscal years
2000, 1999, and 1998:
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
Service cost............................... $1,569 $1,500 $1,138
Interest cost.............................. 554 323 97
-----------------------------------------------------
Net periodic benefit cost.................. $2,123 $1,823 $1,235
=====================================================
There were no gains or losses resulting from curtailments or settlements during
2000, 1999, or 1998.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $7,906,000, $4,701,000, and $0, respectively, as of December
31, 2000 and $4,221,000, $2,488,000, and $0, respectively, as of December 31,
1999.
36
PHANTOM STOCK OPTION PLAN
The Phantom Stock Option Plan (the "Phantom Plan"), which covers certain key
employees, is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
During 2000, the Phantom Plan liability was transferred to ING. As of December
31, 2000, the Companies held no liabilities under the Phantom Plan. There were
no expenses incurred related to this plan during the year ended December 31,
2000.
9. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
OPERATING AGREEMENTS: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. For the
years ended December 31, 2000, 1999 and 1998, the Companies paid commissions to
DSI totaling $208,883,000, $181,536,000, and $117,470,000, respectively.
Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the years ended December 31, 2000,
1999 and 1998, the fee was $21,296,000, $10,136,000, and $4,771,000,
respectively.
Effective January 1, 1998, the Companies have an asset management agreement with
ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides
asset management and accounting services. Under the agreement, the Companies
record a fee based on the value of the assets under management. The fee is
payable quarterly. For the years ended December 31, 2000, 1999 and 1998, the
Companies incurred fees of $2,521,000, $2,227,000 and $1,504,000, respectively,
under this agreement.
37
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("Equitable Life"), an affiliate. In consideration of an annual fee,
payable June 30, Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the contractual claims
made under the provisions of Golden American's life insurance and annuity
contracts. The agreement is not, and nothing contained therein or done pursuant
thereto by Equitable Life shall be deemed to constitute, a direct or indirect
guaranty by Equitable Life of the payment of any debt or other obligation,
indebtedness, or liability, of any kind or character whatsoever, of Golden
American. The agreement does not guarantee the value of the underlying assets
held in separate accounts in which funds of variable life insurance and variable
annuity policies have been invested. The calculation of the annual fee is based
on risk based capital. On June 30, 2000, Golden American incurred a fee of
$7,000 under this agreement. No annual fee was paid in 1999.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $6,193,000, $6,107,000 and
$5,833,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $1,270,000, $1,251,000 and
$1,058,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
First Golden provided resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies, totaled
$223,000, $387,000, and $75,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $455,000 and $244,000 for the
years ended December 31, 2000 and 1999, respectively.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $593,000 and $460,000 for
the years ended December 31, 2000 and 1999, respectively.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $261,000 and $216,000 for
the years ended December 31, 2000 and 1999, respectively.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $115,000 and $103,000 for the years
ended December 31, 2000 and 1999, respectively.
38
In 2000, 1999, and 1998, the Companies received 11.3%, 10.0%, and 9.6% of total
premiums, net of reinsurance, for variable products sold through eight
affiliates as noted in the following table:
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
LSSI...................................... $127.0 $168.5 $122.9
Vestax Securities Corporation............. 47.2 88.1 44.9
DSI....................................... 1.4 2.5 13.6
Multi-Financial Securities Corporation.... 38.6 44.1 13.4
IFG Network Securities, Inc............... 23.1 25.8 3.7
Washington Square ........................ 44.6 -- --
Primevest................................. 6.2 -- --
Compulife................................. 2.7 -- --
-----------------------------------------------------
Total..................................... $290.8 $329.0 $198.5
=====================================================
MODIFIED COINSURANCE AGREEMENT: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued on or after January 1, 2000, excluding those with an
interest rate guarantee. The financial statements are presented net of the
effects of the agreement.
Under this agreement, Golden American received a net reimbursement of expenses
and charges of $218.8 million. This was offset by a decrease in deferred
acquisition costs of $223.7 million. As at December 31, 2000, Golden American
also had a payable to Equitable Life of $16.3 million due to the overpayment by
Equitable Life of the cash settlement for the modified coinsurance agreement.
REINSURANCE AGREEMENT COVERING MINIMUM GUARANTEED BENEFITS: On December 28,
2000, Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited, an affiliate, covering variable annuity minimum
guaranteed death benefits and minimum guaranteed living benefits of variable
annuities issued on or after January 1, 2000. An irrevocable letter of credit
was obtained through Bank of New York in the amount of $10,500,000 related to
this agreement. Under this agreement, Golden American recorded a reinsurance
recoverable of $14.6 million at December 31, 2000.
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval from the Department of Insurance of the
State of Delaware. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on
any ING AIH borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a similar duration.
Under this agreement, Golden American incurred interest expense of $481,000,
$815,000 and $1,765,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. At December 31, 2000, 1999 and 1998, Golden American did not have
any borrowings or receivables from ING AIH under this agreement.
39
LINE OF CREDIT: Golden American maintained a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Under this agreement, which became effective December 1, 1996
and expired December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's monthly
average aggregate cost of short-term funds plus 1.00%. Under this agreement,
Golden American incurred interest expense of $211,000 for the year ended
December 31, 1998. The outstanding balance was paid by a capital contribution
and with funds borrowed from ING AIH.
SURPLUS NOTES: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of the note and related accrued interest is
subordinate to payments due to policyholders, claimant and beneficiary claims,
as well as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance Commissioner. Under this
agreement, Golden American incurred interest expense of $4,112,000 for the year
ended December 31, 2000. Golden American incurred no interest expense during the
year ended December 31, 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of the note and related
accrued interest is subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of debtors, other
than surplus note holders, of Golden American. Any payment of principal and/or
interest made is subject to the prior approval of the Delaware Insurance
Commissioner. Under this agreement, Golden American incurred interest expense of
$2,961,000 and $0 for the years ended December 31, 2000 and 1999, respectively.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $5,813,000 in 2000 and $1,469,000 in 1999. On
December 30, 1999, ING AIH assigned the note to Equitable Life.
On December 30, 1998, Golden American issued a 7.25% surplus note in the amount
of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment
of the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 2000 and 1999. Golden American
incurred no interest in 1998.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable. The note matures on December 17, 2026. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors of Golden American. Any payment of principal made is
subject to the prior approval of the Delaware Insurance Commissioner. Golden
American incurred interest totaling $2,063,000 in 2000, unchanged from 1999 and
1998. On December 17, 1996, Golden American contributed the $25,000,000 to First
Golden acquiring 200,000 shares of common stock (100% of outstanding stock).
STOCKHOLDER'S EQUITY: During 2000, 1999 and 1998, Golden American received
capital contributions from its Parent of $80,000,000, $121,000,000 and
$122,500,000, respectively. As at December 31, 2000, Golden American also had a
receivable of $35,000,000 from capital contributions made by its Parent.
40
10. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
REINSURANCE: At December 31, 2000, the Companies had reinsurance treaties with
six unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits under its variable contracts. Golden American remains liable to the
extent reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance ceded in force for life mortality risks were
$105,334,000, and $119,575,000 at December 31, 2000 and 1999, respectively. At
December 31, 2000 and 1999, the Companies have a net receivable of $33,973,000
and $14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $16,462,000 and $493,000,
respectively, for claims recoverable from reinsurers, $4,007,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $21,518,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements, excluding the modified
coinsurance agreements, are net considerations to reinsurers of $21,655,000,
$9,883,000 and $4,797,000 and net policy benefits recoveries of $8,927,000,
$3,059,000 and $2,170,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued on or after
January 1, 2000, excluding those with an interest rate guarantee. At December
31, 2000, Golden American had received a total settlement of $218.8 million
under this agreement. The carrying value of the separate account liabilities
covered under this agreement represent 17.6% of total separate account
liabilities outstanding at December 31, 2000. Golden American remains liable to
the extent Equitable Life does not meet its obligations under the agreement. The
accompanying statement of operations, statement of changes in stockholder's
equity, and statement of cash flows are presented net of the effects of the
agreement.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering variable
annuity minimum guaranteed death benefits and guaranteed living benefits of
variable annuities issued on or after January 1, 2000. An irrevocable letter of
credit was obtained through Bank of New York in the amount of $10,500,000
related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued on or after January 1, 2000.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial statements
are presented net of the effects of the treaty which increased income by
$736,000, $1,729,000, $1,022,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
GUARANTY FUND ASSESSMENTS: Assessments are levied on the Companies by life and
health guaranty associations in most states in which the Companies are licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially recovered through a reduction in
future premium taxes. The Companies cannot predict whether and to what extent
legislative initiatives may affect the right to offset. The associated cost for
a particular insurance company can vary significantly based upon its fixed
account premium volume by line of business and state premiums as well as its
potential for premium tax offset. The Companies have established an undiscounted
reserve to cover such assessments, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000, $3,000 and
$1,123,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000 and 1999, the Companies have an undiscounted reserve of
$2,430,000, and $2,444,000, respectively, to cover estimated future assessments
(net of related anticipated premium tax credits) and have established an asset
totaling $733,000, and $618,000, respectively, for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments based
upon previous premiums and known insolvencies at this time.
41
LITIGATION: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations in
the investment portfolio (see Note 3 for further information). The Companies'
asset growth, net investment income, and cash flow are primarily generated from
the sale of variable insurance products and associated future policy benefits
and separate account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme fluctuations in
interest rates or stock market returns, which may result in higher lapse
experience than assumed, could cause a severe impact to the Companies' financial
condition. A broker/dealer, having at least ten percent of total net premiums,
generated 11% of the Companies' sales in 2000 (28% and 26% by two broker/dealers
during 1999 and 1998, respectively). Two broker dealers, having at least ten
percent of total gross premiums, generated 21% of the Companies' sales in 2000
(30% and 27% by two broker/dealers during 1999 and 1998, respectively). The
Premium Plus product generated 71% of the Companies' sales during 2000 (79%
during 1999 and 63% during 1998).
LEASES: The Companies lease their home office space, certain other equipment,
and capitalized computer software under operating leases which expire through
2020. During the years ended December 31, 2000, 1999 and 1998, rent expense
totaled $2,874,000, $2,273,000, and $1,241,000, respectively. At December 31,
2000, minimum rental payments due under all non-cancelable operating leases with
initial terms of one year or more are: 2001 - $3,790,000; 2002 - $3,257,000;
2003 - $2,611,000; 2004 - $2,419,000; 2005 - $2,419,000, and 2006 and thereafter
- - $38,700,000.
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies
established a revolving note payable with SunTrust Bank, Atlanta (the "Bank")
which expires July 30, 2001. The note was approved by the Boards of Directors of
Golden American and First Golden on August 5, 1998 and September 29, 1998,
respectively. The total amount the Companies may have outstanding is
$85,000,000, of which Golden American and First Golden have individual credit
sublimits of $75,000,000 and $10,000,000, respectively. The note accrues
interest at an annual rate equal to: (1) the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or (2) a rate quoted by the Bank
to the Companies for the advance. The terms of the agreement require the
Companies to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable state law or regulation. During the years
ended December 31, 2000, 1999 and 1998, the Companies incurred interest expense
of $87,000, $198,000 and $352,000, respectively. At December 31, 2000, there
were no amounts outstanding under this agreement. At December 31, 1999, the
Companies had a $1,400,000 note payable to the Bank under this agreement.
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEMS 10 - 13.
Information called for by items 10 through 13 of this part is omitted pursuant
to General Instruction I (2) (c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) Financial statements and schedules
The following consolidated financial statements of Golden American Life
Insurance Company are included in Item 8:
Page
----
Balance Sheets - December 31, 2000 and 1999...................................17
Statements of Operations - For the years ended
December 31, 2000, 1999 and 1998............................................19
Statements of Changes in Stockholder's Equity -
For the years ended December 31, 2000, 1999, and 1998.......................20
Statements of Cash Flows - For the years ended
December 31, 2000, 1999 and 1998............................................21
Notes to Financial Statements.................................................23
The following consolidated financial statement schedules of Golden American Life
Insurance Company are included in Item 14(d):
Page
----
Schedule I - Summary of investments -
other than investments in related parties...................................44
Schedule III - Supplementary insurance information............................45
Schedule IV - Reinsurance.....................................................46
All other schedules listed in Article 7 of Regulation S-X are not required under
the related instructions or are inapplicable and therefore have been omitted.
(a)(3), and (c) Exhibits
Exhibits filed are listed in the attached exhibit index.
(b) No reports on Form 8-K were filed for the quarter ended December 31, 2000.
43
ITEM 14(D). SCHEDULES.
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(Dollars in thousands)
BALANCE
SHEET
DECEMBER 31, 2000 COST(1) VALUE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States government and governmental agencies and
authorities......................................................... $18,607 $19,171 $19,171
Public utilities...................................................... 54,132 52,826 52,826
Corporate securities.................................................. 355,890 349,202 349,202
Other asset-backed securities......................................... 223,787 224,122 224,122
Mortgage-backed securities............................................ 146,335 147,257 147,257
--------------------------------------------
Total fixed maturities, available for sale............................ 798,751 792,578 792,578
Equity securities:
Common stocks: industrial, miscellaneous, and all other............... 8,611 6,791 6,791
Mortgage loans on real estate......................................... 99,916 99,916
Policy loans.......................................................... 13,323 13,323
Short-term investments................................................ 106,775 106,775
--------------- -------------
Total investments..................................................... $1,027,376 $1,019,383
=============== =============
Note 1: Cost is defined as original cost for common stocks, amortized cost for
bonds and short-term investments, and unpaid principal for policy loans and
mortgage loans on real estate, adjusted for amortization of premiums and accrual
of discounts.
44
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- ------------------------------------------------------------------------------------------------------------------------------------
FUTURE
POLICY AMORTIZA-
BENEFITS, OTHER BENEFITS TION OF
LOSSES, POLICY CLAIMS, DEFERRED
DEFERRED CLAIMS CLAIMS INSURANCE LOSSES POLICY
POLICY AND UNEARNED AND PREMIUMS NET AND ACQUI- OTHER
ACQUISITION LOSS REVENUE BENEFITS AND INVESTMENT SETTLEMENT SITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES RESERVE PAYABLE CHARGES INCOME EXPENSES COSTS EXPENSES* WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
Life insurance $635,147 $1,062,891 $6,817 $82 $144,877 $64,140 $200,031 $55,154 $143,300 --
YEAR ENDED DECEMBER 31, 1999:
Life insurance 528,957 1,033,701 6,300 8 82,935 59,169 182,221 33,119 (83,827) --
YEAR ENDED DECEMBER 31, 1998:
Life insurance 204,979 881,112 3,840 -- 39,119 42,485 96,968 5,148 (26,406) --
* This includes policy acquisition costs deferred for first year commissions and interest bonuses, premium credit, and other
expenses related to the production of new business. The costs related to first year interest bonuses and the premium credit are
included in benefits claims, losses, and settlement expenses.
45
SCHEDULE IV
REINSURANCE
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- --------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000:
Life insurance in force................. $196,334,000 $105,334,000 -- $91,000,000 --
================================================================================
At December 31, 1999:
Life insurance in force................. $225,000,000 $119,575,000 -- $105,425,000 --
================================================================================
AT DECEMBER 31, 1998:
Life insurance in force................. $181,456,000 $111,552,000 -- $69,904,000 --
================================================================================
46
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 authorized.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Registrant)
DATE: MARCH 28, 2001 BY /s/ Chris D. Schreier
-----------------------
Chris D. Schreier
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE
----------------------------------- ----------------------------------------------|
|
/s/ Chris D. Schreier President |
----------------------------------- |
Chris D. Schreier |
(principal executive officer) |
|
/s/ Wayne R. Huneke Chief Financial Officer and Director |
----------------------------------- |
Wayne R. Huneke |
(principal financial officer) |
|
/s/ Paula Cludray-Engelke Secretary |
----------------------------------- |
Paula Cludray-Engelke |
|-- March 28, 2001
/s/ Cheryl Price Chief Accounting Officer |
----------------------------------- |
Cheryl Price |
(principal accounting officer) |
|
|
/s/ P. Randall Lowery |
----------------------------------- Director |
P. Randall Lowery |
|
|
/s/ Thomas J. McInerney |
----------------------------------- Director |
Thomas J. McInerney |
|
|
/s/ Robert C. Salipante |
----------------------------------- Director |
Robert C. Salipante |
|
|
/s/ Mark A. Tullis |
----------------------------------- Director |
Mark A. Tullis |
--------|
47
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
2 PLAN OF ACQUISITION
(a) Stock Purchase Agreement dated as of May 3, 1996, between Equitable of Iowa
Companies ("Equitable") and Whitewood Properties Corp. (incorporated by reference from
Exhibit 2 in Equitable's Form 8-K filed August 28, 1996)............................................. __
(b) Agreement and Plan of Merger dated as of July 7, 1997, among ING Groep N.V.,
PFHI Holdings, Inc., and Equitable (incorporated by reference from Exhibit 2 in Equitable's
Form 8-K filed July 11, 1997)........................................................................ __
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of Golden American Life Insurance Company ("Registrant"or "Golden
American") (incorporated by reference from Exhibit 3(a) to Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (the "SEC") on
June 30, 2000 (File No. 333-40596)).................................................................. __
(b)(i) By-laws of Golden American (incorporated by reference from Exhibit 3(b)(i) to Registrant's
Registration Statement on Form S-1 filed with the SEC on June 30, 2000 (File No. 333-40596))........ __
(ii) By-laws of Golden American, as amended (incorporated by reference from Exhibit 3(b)(ii)
to the Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(iii)Certificate of Amendment of the By-laws of MB Variable Life Insurance Company, as amended
(incorporated by reference from Exhibit 3(b)(iii) to Registrant's Registration Statement on
Form S-1 filed with the SEC on June 30, 2000 (File No. 333-40596))................................... __
(iv) By-laws of Golden American, as amended (12/21/93) (incorporated by reference
from Exhibit 3(b)(iv) to Registrant's Registration Statement on Form S-1 filed with the
SEC on June 30, 2000 (File No. 333-40596))........................................................... __
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity Contract (incorporated
by reference from Exhibit 4(a) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999
(File No. 333-51353))................................................................................ __
(b) Discretionary Group Deferred Combination Variable Annuity Contract (incorporated
by reference from Exhibit 4(b) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999
(File No. 333-51353))................................................................................ __
48
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(c) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 5 of Registrant's Registration Statement on
Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353))....................... __
(d) Individual Deferred Combination Variable and Fixed Annuity Application
(incorporated by reference from Exhibit 4(g) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(e) Group Deferred Combination Variable and Fixed Annuity Enrollment Form
(incorporated by reference from Exhibit 4(h) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(f) Individual Deferred Variable Annuity Application (incorporated by reference
from Exhibit 4(i) to Amendment No. 6 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353)).................... __
(g) Individual Retirement Annuity Rider Page (incorporated by reference from Exhibit 4(d) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(h) ROTH Individual Retirement Annuity Rider (incorporated by reference from Exhibit 4(g) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(i) Minimum Guaranteed Accumulation Benefit Rider (REV).................................................. 83
(j) Minimum Guaranteed Income Benefit Rider (REV)........................................................ 86
(k) Minimum Guaranteed Withdrawal Benefit Rider (REV).................................................... 89
(l) Living Benefit Rider Endorsement .................................................................... 92
(m) Death Benefit Endorsement Number 1 describing the 7% Solution Enhanced Death
Benefit (REV)........................................................................................ 93
(n) Death Benefit Endorsement Number 2 describing the Annual Ratchet Enhanced
Death Benefit (REV).................................................................................. 98
(o) Death Benefit Endorsement Number 3 describing the Standard Death Benefit (REV)....................... 102
(p) Death Benefit Endorsement Number 4 describing the Max 7 Enhanced Death Benefit (REV)................. 106
49
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(q) Death Benefit Endorsement Number 5 (Base Death Benefit).............................................. 112
(r) Death Benefit Endorsement Number 6 (Inforce Contracts)............................................... 114
(s) Individual Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(a) to Amendment No. 6 to Registrant's Registration
Statement filed with the SEC on or about December 3, 1999 (File No. 333-28765))...................... __
(t) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to Amendment
No. 6 to Registrant's Registration Statement filed with the SEC on or about December 3,
1999 (File No. 333-28765))........................................................................... __
(u) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 6 to Registrant's Registration Statement filed with
the SEC on or about December 3, 1999 (File No. 333-28765))........................................... __
(v) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(w) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a Registration
Statement for Golden American filed with the SEC on or about April 23, 1999
(File No. 333-76941))................................................................................ __
(x) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(y) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
(z) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a
Registration Statement for Golden American filed with the SEC on or about April 23,
1999 (File No. 333-76945))........................................................................... __
(aa) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
50
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(ab) Schedule Page to the Premium Plus Contract featuring the Galaxy VIP Fund
(incorporated by reference from Exhibit 4(i) to a Registration Statement for Golden
American on Form S-1 filed with the SEC on or about September 24, 1999
(File No. 333-76945))................................................................................ __
(ac) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to Amendment No. 3 to Registrant's Registration Statement filed
with the SEC on or about April 23, 1999 (File No. 333-66745))........................................ __
(ad) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to
Amendment No. 3 to Registrant's Registration Statement filed with the SEC on or
about April 23, 1999 (File No. 333-66745))........................................................... __
(ae) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 3 to Registrant's Registration Statement filed with
the SEC on or about April 23, 1999 (File No. 333-66745))............................................. __
(af) Single Premium Deferred Modified Guaranteed Annuity Contract (incorporated by reference to
Exhibit 4(a) to Amendment No. 1 to a Registration Statement on Form S-1 filed with the SEC
on September 13, 2000 (File No. 333-40596))........................................................... __
(ag) Single Premium Deferred Modified Guaranteed Annuity Master Contract (incorporated by
reference to Exhibit 4(b) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596)).............................................. __
(ah) Single Premium Deferred Modified Guaranteed Annuity Certificate (incorporated by reference
to Exhibit 4(c) to Amendment No. 1 to a Registration Statement on Form S-1 filed with the SEC
on September 13, 2000 (File No. 333-40596))........................................................... __
(ai) Single Premium Deferred Modified Guaranteed Annuity Application (incorporated by reference
to Exhibit 4(e) to Amendment No. 1 to a Registration Statement on Form S-1 filed with the SEC
on September 13, 2000 (File No. 333-40596))........................................................... __
(aj) Single Premium Deferred Modified Guaranteed Annuity Enrollment Form (incorporated by
reference to Exhibit 4(f) to Amendment No. 1 to a Registration Statement on Form S-1 filed with
the SEC on September 13, 2000 (File No. 333-40596))................................................... __
10 MATERIAL CONTRACTS
(a) Administrative Services Agreement, dated as of January 1, 1997, between Golden
American and Equitable Life Insurance Company of Iowa (incorporated by reference
from Exhibit 10(a) to a Registration Statement for Golden American on Form S-1 filed
with the SEC on April 29, 1998 (File No. 333-51353))................................................. __
51
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(b) Service Agreement, dated as of January 1, 1994, between Golden American and Directed
Services, Inc. (incorporated by reference from Exhibit 10(b) to a Registration Statement
for Golden American on Form S-1 filed with the SEC on April 29, 1998
(File No. 333-51353))................................................................................ __
(c) Service Agreement, dated as of January 1, 1997, between Golden American and
Equitable Investment Services, Inc. (incorporated by reference from Exhibit 10(c)
to a Registration Statement for Golden American on Form S-1 filed with the SEC on
April 29, 1998 (File No. 333-51353))................................................................. __
(d) Participation Agreement between Golden American and Warburg Pincus Trust
(incorporated by reference from Exhibit 8(a) to Amendment No. 54 to Separate
Account B of Golden American's Registration Statement on Form N-4 filed with
SEC on or about April 30, 1998 (File No. 333-28679 and 811-5626)).................................... __
(e) Participation Agreement between Golden American and PIMCO Variable Trust
(incorporated by reference from Exhibit 8(b) to Amendment No. 54 to Separate
Account B of Golden American's Registration Statement on Form N-4 filed with
the SEC on or about April 30, 1998 (File No. 333-28679 and 811-5626))................................ __
(f) Participation Agreement between Golden American and The Galaxy VIP Fund
(incorporated by reference from Exhibit 10(i) to a Registration Statement for
Golden American on Form S-1 filed with the SEC on or about September 24, 1999
(File No. 333-76945))................................................................................ __
(g) Asset Management Agreement, dated January 20, 1998, between Golden American
and ING Investment Management LLC (incorporated by reference from Exhibit 10(f)
to Golden American's Form 10-Q filed with the SEC on August 14, 1998
(File No. 33-87272))................................................................................. __
(h) Reciprocal Loan Agreement, dated January 1, 1998, as amended March 20, 1998,
between Golden American and ING America Insurance Holdings, Inc. (incorporated
by reference from Exhibit 10(g) to Golden American's Form 10-Q filed with the
SEC on August 14, 1998 (File No. 33-87272)).......................................................... __
(i) Underwriting Agreement between Golden American and Directed Services, Inc.
(incorporated by reference from Exhibit 1 to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on or about February 17, 1998
(File No. 33-87272))................................................................................. __
(j) Revolving Note Payable, dated July 27, 1998, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(i) to Golden American's
Form 10-Q filed with the SEC on November 13, 1998 (File No. 33-87272))............................... __
52
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(k) Revolving Note Payable, dated July 31, 1999, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(j) to Golden American's
Form 10-Q filed with the SEC on August 13, 1999 (File No. 33-87272))................................. __
(l) Surplus Note, dated December 17, 1996, between Golden American and Equitable of Iowa
Companies (incorporated by reference from Exhibit 10(l) to Golden American's
Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)................................... __
(m) Surplus Note, dated December 30, 1998, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(m) to Golden
American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)........................ __
(n) Surplus Note, dated September 30, 1999, between Golden American and ING America
Insurance Holdings, Inc. (incorporated by reference from Exhibit 10(n) to Golden American's
Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)................................... __
(o) Surplus Note, dated December 8, 1999, between Golden American and First
Columbine Life Insurance Company (incorporated by reference from Exhibit 10(g)
to Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(p) Surplus Note, dated December 30, 1999, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(h) to
Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(q) Reinsurance Agreement, effective January 1, 2000, between Golden American Life
Insurance Company and Security Life of Denver International Limited.................................. 55
(r) Participation Agreement between Golden American and Prudential Series Fund, Inc.
(incorporated by reference from Exhibit 10(l) to Registration Statement for Golden
American on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592)) ............ __
(s) Participation Agreement between Golden American and ING Variable Insurance Trust
(incorporated by reference from Exhibit 10(m) to Registration Statement for Golden American
on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592))...................... __
(t) Reinsurance Agreement, dated June 30, 2000, between Golden American Life Insurance
Company and Equitable Life Insurance Company of Iowa (incorporated by reference from
Exhibit 10(s) to Golden American's Form 10-Q filed with the SEC on August 11, 2000
(File No. 33-87272))..................................................................................... __
(u) Renewal of Revolving Note Payable, dated July 31, 2000, between Golden American and
SunTrust Bank, Atlanta (incorporated by reference from Exhibit 10(t) to Golden American's
Form 10-Q filed with the SEC on August 11, 2000 (File No. 33-87272))..................................... __
53
INDEX
Exhibits to Annual Report on Form 10-K
Year ended December 31, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(v) Amendment to the Participation Agreement between Golden American and Prudential
Series Fund, Inc. (incorporated by reference to Exhibit 10(m) to Amendment No. 10
to a Registration Statement on Form S-1 filed with the SEC on December 15, 2000
(File No. 333-28765)) ............................................................................... __
54