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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
-------------------------------- ----------------------------------
Commission file number 333-1173
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GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
- ----------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0467907
- --------------------------------------------------------------------- ---------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
8515 East Orchard Road, Greenwood Village, CO 80111
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(Address of principal executive offices)
(Zip Code)
[303] 737-4128
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------------- -----------------
Indicate by check mark whether the registrant is an accelerated filer as defined
in ss.240.12(b)-2 of this chapter.
Yes No X
----------------- -----------------
The public may read and copy any of the registrant's reports filed with the SEC
at the SEC's Public Reference Room, 450 Fifth Street NW, Washington DC 20549,
telephone 1-800-SEC-0330 or online at (http://www.sec.gov).
As of November 1, 2004, 7,032,000 shares of the registrant's common stock were
outstanding, all of which were owned by the registrant's parent company.
NOTE: This Form 10-Q is filed by the registrant only as a consequence of
the sale by the registrant of a market value adjusted annuity
product.
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION Page
-----------
Item 1 Financial Statements 3
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Consolidated Statements of Stockholder's Equity 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 22
Item 4 Controls and Procedures 23
Part II OTHER INFORMATION 24
Item 1 Legal Proceedings 24
Item 6 Exhibits and Reports on Form 8-K 24
Signature 24
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
[Dollars in Thousands]
======================================================================================================================
[Unaudited]
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
REVENUES: 2004 2003 2004 2003
--------------- --------------- --------------- ---------------
(Restated - (Restated -
see Note 3) see Note 3)
Premium (net of premiums ceded
totaling $125,667, $269,710,
$566,407 and $313,950) $ 184,925 $ 1,495,728 $ 387,859 $ 2,003,324
Fee income 232,985 209,900 674,164 632,375
Net investment income 277,152 252,737 796,613 673,482
Net realized (losses) gains on
investments 14,459 (9,149) 43,769 41,701
--------------- --------------- --------------- ---------------
709,521 1,949,216 1,902,405 3,350,882
--------------- --------------- --------------- ---------------
BENEFITS AND EXPENSES:
Life and other policy benefits
(net of reinsurance recoveries
totaling $99,357, $274,402,
$292,272 and $296,812) 154,636 (22,726) 595,069 353,955
Increase (decrease) in reserves 13,014 1,466,034 (250,047) 1,520,203
Interest paid or credited to
contractholders 133,516 113,776 344,959 358,367
Provision for policyholders' share
of earnings on participating
business 4,119 (2,867) 10,670 2,779
Dividends to policyholders 21,939 30,175 79,414 70,704
--------------- --------------- --------------- ---------------
327,224 1,584,392 780,065 2,306,008
--------------- --------------- --------------- ---------------
Commissions 46,536 46,893 145,486 127,000
Operating expenses 194,528 189,711 581,330 525,016
Premium taxes 9,653 8,903 24,612 24,116
--------------- --------------- --------------- ---------------
577,941 1,829,899 1,531,493 2,982,140
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME
TAXES 131,580 119,317 370,912 368,742
PROVISION FOR INCOME
TAXES:
Current 29,085 48,451 121,883 109,805
Deferred 12,421 (8,910) (1,361) 13,871
--------------- --------------- --------------- ---------------
41,506 39,541 120,522 123,676
--------------- --------------- --------------- ---------------
NET INCOME $ 90,074 $ 79,776 $ 250,390 $ 245,066
=============== =============== =============== ===============
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
[Dollars in Thousands]
======================================================================================================================
September 30, December 31,
ASSETS 2004 2003
- ------
-------------------- ---------------------
[unaudited]
INVESTMENTS:
Fixed maturities available-for-sale, at fair value
(amortized cost $12,493,302 and $12,757,614) $ 12,829,080 $ 13,136,564
Mortgage loans on real estate (net of allowances
of $25,889 and $31,889) 1,610,383 1,885,812
Equity investments, at fair value (cost $557,761 and
$407,797) 595,562 427,810
Real estate 9,497 7,912
Policy loans 3,490,023 3,389,534
Short-term investments, available-for-sale
(cost approximates fair value) 1,044,478 852,198
-------------------- ---------------------
Total investments 19,579,023 19,699,830
OTHER ASSETS:
Cash 111,749 188,329
Reinsurance receivable
Related party 304,834 1,312,139
Other 1,103,321 320,744
Deferred policy acquisition costs 291,949 284,866
Deferred ceding commission 92,244 285,165
Investment income due and accrued 149,693 165,417
Amounts receivable related to uninsured accident
and health plan claims (net of allowances of
$26,185 and $32,329) 142,749 129,031
Premiums in course of collection (net of allowances
of $8,029 and $9,768) 57,655 75,809
Deferred income taxes 112,361 119,971
Other assets 813,873 754,160
SEPARATE ACCOUNT ASSETS 13,323,594 13,175,480
-------------------- ---------------------
TOTAL ASSETS $ 36,083,045 $ 36,510,941
==================== =====================
(continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
[Dollars in Thousands]
======================================================================================================================
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2004 2003
- ------------------------------------
-------------------- ---------------------
[unaudited]
POLICY BENEFIT LIABILITIES:
Policy reserves $ 18,013,039 $ 18,650,078
Policy and contract claims 365,636 418,930
Policyholders' funds 342,283 368,076
Provision for policyholders' dividends 85,560 89,121
Undistributed earnings on participating business 190,841 177,175
GENERAL LIABILITIES:
Due to GWL 21,701 30,950
Due to GWL&A Financial Inc. 137,829 175,691
Repurchase agreements 571,592 389,715
Commercial paper 97,042 96,432
Other liabilities 902,808 1,052,667
SEPARATE ACCOUNT LIABILITIES 13,323,594 13,175,480
-------------------- ---------------------
Total liabilities 34,051,925 34,624,315
-------------------- ---------------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value, 50,000,000 shares
authorized; 0 shares issued and outstanding
Common stock, $1 par value; 50,000,000 shares
authorized; 7,032,000 shares issued and outstanding 7,032 7,032
Additional paid-in capital 724,168 722,365
Accumulated other comprehensive income 120,193 127,820
Retained earnings 1,179,727 1,029,409
-------------------- ---------------------
Total stockholder's equity 2,031,120 1,886,626
-------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 36,083,045 $ 36,510,941
==================== =====================
See notes to consolidated financial statements. (Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Dollars in Thousands]
======================================================================================================================
[Unaudited]
Nine Months Ended
September 30,
---------------------------------------------
OPERATING ACTIVITIES: 2004 2003
-------------------- ---------------------
(Restated -
see Note 3)
Net income $ 250,390 $ 245,066
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Earnings allocated to participating policyholders 10,670 2,779
Amortization of investments 32,053 (38,819)
Net realized gains on investments
and write-downs of mortgage loans and real estate (43,769) (41,701)
Depreciation and amortization 54,954 25,039
Deferred income taxes (1,361) 13,871
Changes in assets and liabilities:
Policy benefit liabilities (265,746) 786,810
Reinsurance receivable 104,853 31,464
Accrued interest and other receivables 13,598 (7,823)
Other, net (157,513) 109,066
-------------------- ---------------------
Net cash (used in) provided by operating activities (1,871) 1,125,752
-------------------- ---------------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and redemptions of investments: Fixed
maturities available-for-sale:
Sales 6,334,760 7,845,946
Maturities and redemptions 4,040,872 2,361,996
Mortgage loans 269,983 125,116
Real estate 1,434 3,000
Common stock 74,265 34,866
Purchases of investments:
Fixed maturities held-to-maturity (10,075,221) (10,743,450)
Mortgage loans (25,553) (18,700)
Real estate (178) (522)
Common stock (218,438) (8,809)
Net change in short-term investments (192,280) (477,149)
Other, net (85,320) 8,480
Acquisitions, net of cash acquired (128,636)
-------------------- ---------------------
Net cash provided by (used in) investing activities 124,324 (997,862)
-------------------- ---------------------
(continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Dollars in Thousands]
======================================================================================================================
[Unaudited]
Nine Months Ended
September 30,
---------------------------------------------
FINANCING ACTIVITIES: 2004 2003
-------------------- ---------------------
Contract withdrawals, net of deposits $ (234,337) $ (460,723)
Net GWL repayments (9,249) (8,422)
Net GWL&A Financial (repayments) borrowings (37,862) 42,350
Dividends paid (100,072) (54,666)
Commercial paper borrowings, net 610 2,978
Repurchase agreements borrowings, net 181,877 325,862
-------------------- ---------------------
Net cash used in financing activities (199,033) (152,621)
-------------------- ---------------------
NET DECREASE IN CASH (76,580) (24,731)
CASH, BEGINNING OF PERIOD 188,329 154,600
-------------------- ---------------------
CASH, END OF PERIOD $ 111,749 $ 129,869
==================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 123,799 $ 66,997
Interest 11,443 11,565
See notes to consolidated financial statements. (Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 [Dollars and Shares in Thousands]
====================================================================================================================================
[Unaudited]
Accumulated Other
Comprehensive Income (Loss)
-------------------------------
Unrealized Minimum
Preferred Stock Common Stock Additional Gains Pension
--------------------- ------------------- Paid-in (Losses) on Liability Retained
Shares Amount Shares Amount Capital Securities Adjustment Earnings Total
-------- -------- ---------- -------- ---------- ------------ --------- ---------- ---------
BALANCE, JANUARY 1, 2004 0 $ 0 7,032 $ 7,032 $ 722,365 $ 137,131 $ (9,311) $ 1,029,409 $ 1,886,626
Net income 250,390 250,390
Other comprehensive income (7,627) (7,627)
---------
Total comprehensive income 242,763
----------
Dividends (100,072) (100,072)
Income tax benefit on stock
compensation 1,803 1,803
-------- -------- ---------- -------- ---------- ------------ --------- ---------- ---------
BALANCE, SEPTEMBER 30, 2004 0 $ 0 7,032 $ 7,032 $ 724,168 $ 129,504 $ (9,311) $ 1,179,727 $ 2,031,120
======== ======== ========== ======== ========== ============ ========= ========== =========
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Amounts in Thousands]
================================================================================
[Unaudited]
1. BASIS OF PRESENTATION
The consolidated financial statements and related notes of Great-West
Life & Annuity Insurance Company (the Company) have been prepared in
accordance with accounting principles generally accepted in the United
States of America (GAAP) applicable to interim financial reporting and
do not include all of the information and footnotes required for
complete financial statements. However, in the opinion of management,
these statements include all normal recurring adjustments necessary for
a fair presentation of the results. These financial statements should
be read in conjunction with the audited consolidated financial
statements and the accompanying notes included in the Company's latest
annual report on Form 10-K for the year ended December 31, 2003.
Operating results for the nine months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 2004.
Great-West Lifeco Inc., of which the Company is an indirect
wholly-owned subsidiary, has a stock option plan (the plan) that
provides for the granting of options on its common shares to certain of
its officers and employees and those of its subsidiaries, including the
Company. The Company accounts for options granted under the plan in
accordance with the recognition and measurement principles of APB
Opinion No. 25 "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under the plan had an exercise
price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income
if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, "Accounting for Stock-Based Compensation" to
stock-based employee compensation.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
Proforma Disclosures 2004 2003 2004 2003
------------------------------------ ------------- ------------- ------------- -------------
Net income as reported $ 90,074 $ 79,776 $ 250,390 $ 245,066
Less compensation for fair value
of stock options, net of related
tax effects 934 818 2,854 2,219
------------- ------------- ------------- -------------
Proforma net income $ 89,140 $ 78,958 $ 247,536 $ 242,847
============= ============= ============= =============
Certain reclassifications (in addition to the restatement discussed in
Note 3) have been made to the 2003 consolidated financial statements to
conform to the 2004 presentation. These changes in classification had
no effect on previously reported stockholder's equity or net income.
2. NEW ACCOUNTING PRONOUNCEMENTS
In January 2004, FASB issued Emerging Issues Task Force ("EITF") Issue
No. 03-1, The Meaning of Other-Than Temporary Impairment and Its
Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides
guidance on the disclosure requirements, which were effective as of
December 31, 2003, for other-than-temporary impairments of debt and
marketable equity investments that are accounted for under SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities
("SFAS 115"). EITF 03-1 also included guidance on the measurement and
recognition of other-than-temporary impairments of certain investments,
which was originally going to be effective during the quarter ended
September 30, 2004. However, in response to various concerns raised by
financial statement preparers and others, the measurement and
recognition provisions of EITF 03-1 were delayed. The staff of the
Financial Accounting Standards Board ("FASB") is currently evaluating
the guidance EITF 03-1 in the context of developing implementation
guidance for its measurement and recognition provisions. The Company is
continuing to evaluate potential other than temporary impairments under
SFAS 115 and SEC Staff Accounting Bulletin Topic 5-M, Other Than
Temporary Impairment Of Certain Investments In Debt and Equity
Securities. Due to the current uncertainty as to the implementation
guidance for EITF 03-1 by the FASB staff, the Company is unable to
evaluate the impact EITF 03-1 will ultimately have on its financial
position or results of operations.
3. RELATED-PARTY TRANSACTIONS
On July 10, 2003, Lifeco completed its acquisition of Canada Life
Financial Corporation (CLFC), the parent company of The Canada Life
Assurance Company (CLAC). Immediately thereafter, Lifeco transferred
all of the common shares of CLFC it acquired to its subsidiary, The
Great-West Life Assurance Company. On December 31, 2003, CLAC
transferred all of the outstanding common shares of Canada Life
Insurance Company of America (CLICA) and Canada Life Insurance Company
of New York (CLINY) owned by it to the Company.
The CLICA and CLNY acquisitions have been accounted for as a
"reorganization of businesses under common control." Accordingly, the
assets and liabilities of CLICA and CLINY were recorded at Lifeco's
cost basis, and the results of operations of CLICA and CLINY from July
10, 2003 through December 31, 2003 were included in the Company's 2003
annual financial statements.
As a result of the accounting as a "reorganization of businesses under
common control" the Company has restated the Statements of Income for
the three and nine month periods ended September 30, 2003 and Statement
of Cash Flows for the nine month period ended September 30, 2003 to
include the following related to CLICA and CLINY for the period from
July 10, 2003 to September 30, 2003:
Three and Nine Month
Periods Ended
September 30, 2003
---------------------------
Total revenues $ 49,859
Benefits 41,693
Operating expenses 5,791
---------------------------
Total benefits and
expenses 47,484
Income from operations 2,375
Income taxes 831
---------------------------
Net income $ 1,544
===========================
On August 31, 2003, the Company and CLAC, a wholly owned subsidiary of
CLFC, entered into an Indemnity Reinsurance Agreement pursuant to which
the Company reinsured 80% (45% coinsurance and 35% coinsurance with
funds withheld) of certain United States life, health and annuity
business of CLAC's U.S. branch. In the third quarter of 2004, the
deferred ceding commission asset and certain policy reserve liabilities
acquired as part of this reinsurance transaction were both decreased
$157 million based on the Company's final analysis of the policy
reserves acquired. CLAC's U.S. branch had not previously computed
policy liabilities under U.S. GAAP, which required the Company to
estimate the amount of liabilities assumed, which was approximately
$3.0 billion at September 1, 2003. These adjustments had no material
effect on the Company's consolidated financial position or results of
operations.
On February 29, 2004, CLAC recaptured the group life and health
business from the Company associated with the original Indemnity
Reinsurance Agreement dated August 31, 2003. The Company recorded $256
million of negative premium income and decrease in reserves associated
with these policies. The Company recorded, at fair value, the following
at February 29, 2004 as a result of this transaction:
Assets (In millions) Liabilities and Stockholder's Equity (In millions)
-------------------------------------------------------- ------------------------------------------------
Cash $ (126) Policy reserves $ (280)
Reinsurance receivable (148) Policy and contract claims (33)
Deferred ceding commission (24)
Premiums in course of
collection (15)
------------------- -----------------
$ (313) $ (313)
=================== =================
4. REINSURANCE
In addition to the Indemnity Reinsurance Agreement entered into with
CLAC (see Note 3 above), the Great-West Healthcare division of the
Company entered into a reinsurance agreement during 2003 with Allianz
Risk Transfer (Bermuda) Limited (Allianz) to cede 90% in 2003 and 75%
in 2004 of direct written group health stop-loss and excess loss
activity.
5. COMPONENTS OF NET PERIODIC BENEFIT COST
The cost of employee benefit plans included in operating expenses is as
follows:
Post-Retirement
Pension Benefits Medical Plan
---------------------- ---------------------
For the Three Months Ended September 30,
2004 2003 2004 2003
---------------------------------------- --------- --------- --------- ---------
Service cost $ 2,144 $ 2,067 $ 722 $ 512
Interest cost 3,329 3,069 684 567
Expected return on plan assets (3,733) (3,238)
Amortization of transition obligation (379) (379)
Amortization of unrecognized prior
service cost 158 158 (178) (178)
Amortization of gain from earlier
periods 688 872 166 65
--------- --------- --------- ---------
Net periodic cost $ 2,207 $ 2,549 $ 1,394 $ 966
========= ========= ========= =========
Post-Retirement
Pension Benefits Medical Plan
---------------------- ---------------------
For the Nine Months Ended September 30,
2004 2003 2004 2003
---------------------------------------- --------- --------- --------- ---------
Service cost $ 6,432 $ 6,201 $ 2,166 $ 1,533
Interest cost 9,987 9,207 2,052 1,703
Expected return on plan assets (11,199) (9,716)
Amortization of transition obligation (1,137) (1,137)
Amortization of unrecognized prior
service cost 474 474 (534) (534)
Amortization of gain from earlier
Periods 2,064 2,618 498 195
--------- --------- --------- ---------
Net periodic cost $ 6,621 $ 7,647 $ 4,182 $ 2,897
========= ========= ========= =========
During the third quarter of 2004, the Company made a payment to fund
its 2004 pension plan obligation in the amount of $3.2 million. This
payment completely funded the 2004 obligation.
6. SEGMENT INFORMATION
The Company has two reportable segments: Great-West Healthcare and
Financial Services. The Great-West Healthcare segment markets group
life and health insurance to small and mid-sized corporate employers.
The Financial Services segment markets and administers savings products
to public and not-for-profit employers, corporations, and individuals
and offers life insurance products to individuals and businesses. The
Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each
segment has unique distribution channels.
The following table summarizes the financial results of the Company's
Great-West Healthcare segment for the three and nine months ended
September 30, 2004 and 2003:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
----------------------------------- ------------------------------------
2004 2003 2004 2003
------------------------------ ---------------- --------------- --------------- -----------------
Premium income $ 131,406 $ (8,322) $ 163,295 $ 418,433
Fee income 165,353 149,304 473,035 459,502
Net investment income 9,072 16,910 32,325 48,063
Realized investment
gains 5,381 1,238 11,106 10,971
---------------- --------------- --------------- -----------------
Total revenues 311,212 159,130 679,761 936,969
Total benefits and
expenses 260,095 91,325 521,025 731,343
Income tax expenses 16,767 24,615 52,542 71,126
---------------- --------------- --------------- -----------------
Net income $ 34,350 $ 43,190 $ 106,194 $ 134,500
================ =============== =============== =================
The following table summarizes the financial results of the Company's
Financial Services segment for the three and nine months ended
September 30, 2004 and 2003 (as restated, see Note 3):
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
----------------------------------- ------------------------------------
2004 2003 2004 2003
------------------------------ ---------------- --------------- --------------- -----------------
(Restated) (Restated)
Premium income $ 53,519 $ 1,504,050 $ 224,564 $ 1,584,890
Fee income 67,632 60,596 201,129 172,873
Net investment income 268,080 235,827 764,288 625,420
Realized investment
gains (losses) 9,078 (10,387) 32,663 30,729
---------------- --------------- --------------- -----------------
Total revenues 398,309 1,790,086 1,222,644 2,413,912
Total benefits and
expenses 317,846 1,738,573 1,010,467 2,250,796
Income tax expenses 24,739 14,927 67,981 52,550
---------------- --------------- --------------- -----------------
Net income $ 55,724 $ 36,586 $ 144,196 $ 110,566
================ =============== =============== =================
7. OTHER
The Company is involved in various legal proceedings that arise in the
ordinary course of its business. In the opinion of management, after
consultation with counsel, the resolution of these proceedings should
not have a material adverse effect on its consolidated financial
position or results of operations.
8. SUBSEQUENT EVENT
On November 4, 2004, the Company's parent, GWL&A Financial Inc. (GWL&A)
Financial), announced that $175 mlllion of deferrable debentures, due
in 2034, would be issued through an affiliated limited partnership
and offered to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933, as amended.
Upon the closing of the offering, and subject to the final approval of
Colorado Division of Insurance, GWL&A Financial intends to use the
proceeds of the offering to purchase a subordinated note from the
Company. The Company intends to use the proceeds from the sale of the
subordinated note to redeem its existing subordinated note payable to
GWL&A Financial and for general corporate purposes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This Form 10-Q contains forward-looking statements. Forward-looking
statements are statements not based on historical information and that
relate to future operations, strategies, financial results, or other
developments. In particular, statements using verbs such as "expect,"
"anticipate," "believe," or words of similar import generally involve
forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the
Company's beliefs concerning future or projected levels of sales of its
products, investment spreads or yields, or the earnings or
profitability of its activities. Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently
subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's
control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect
actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf
of, the Company. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and
unforeseeable events or developments, some of which may be national in
scope, such as general economic conditions and interest rates, some of
which may be related to the insurance industry generally, such as
pricing competition, regulatory developments, and industry
consolidation, and others of which may relate to the Company
specifically, such as credit, volatility, and other risks associated
with its investment portfolio, and other factors. Readers are also
directed to consider other risks and uncertainties discussed in
documents filed by the Company and certain of its subsidiaries with the
Securities and Exchange Commission.
The following discussion addresses the financial condition of the
Company as of September 30, 2004, compared with December 31, 2003, and
its results of operations for the three and nine months ended September
30, 2004, compared with the same periods last year. The discussion
should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations section
included in the Company's report on Form 10-K for the year ended
December 31, 2003, to which the reader is directed for additional
information.
Operating Summary Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
[In millions] 2004 2003 2004 2003
------------------------------- --------------- --------------- --------------- ---------------
(Restated) (Restated)
Premium income $ 185 $ 1,496 $ 388 $ 2,003
Fee income 233 209 674 632
Net investment income 277 253 796 674
Realized investment
gains (losses) 14 (9) 44 42
--------------- --------------- --------------- ---------------
Total revenues 709 1,949 1,902 3,351
Total benefits and
Expenses 578 1,830 1,531 2,982
Income tax expenses 41 39 121 124
--------------- --------------- --------------- ---------------
Net income $ 90 $ 80 $ 250 $ 245
=============== =============== =============== ===============
Deposits for investment-
type contracts $ 191 $ 144 $ 535 $ 413
Deposits to separate
Accounts 475 483 1,467 1,533
Self-funded premium
Equivalents 1,194 1,157 3,519 3,559
Balance Sheet September 30, December 31,
[In millions] 2004 2003
-------------------------------------------------------- ------------------- ----------------
Investment assets $ 19,579 $ 19,700
Separate account assets 13,324 13,175
Total assets 36,083 36,511
Total policy benefit liabilities 18,997 19,703
Due to Great-West Life Assurance Company 22 31
Due to GWL&A Financial Inc. 138 176
Total stockholder's equity 2,031 1,887
CONSOLIDATED RESULTS
The Company's consolidated net income increased $10 million or 13% for
the third quarter of 2004 when compared to the same period in 2003. The
net income increase reflects a $19 million increase in the Financial
Services segment offset by a $9 million decrease in the Great-West
Healthcare segment.
The Company's consolidated net income increased $5 million or 2% for
the first nine months of 2004 when compared to the same period in 2003.
The net income increase reflects a $34 million increase in the
Financial Services segment offset by a $29 million decrease in the
Great-West Healthcare segment.
Total revenues decreased $1,240 million or 64% for the third quarter of
2004 when compared to the same period in 2003. The decrease is a
combination of a $1,427 million decrease as a result of the Indemnity
Reinsurance Agreement entered into on August 31, 2003 with CLAC (see
Note 3 to the accompanying financial statements), an $18 million
decrease in the Financial Services segment (excluding Canada Life
activity), an increase in Canada Life activity (Canada Life activity)
during the period of $29 million and a $176 million increase in the
Great-West Healthcare segment (excluding Canada Life activity).
Total revenues decreased $1,449 million or 43% for the first nine
months of 2004 when compared to the same period in 2003. The decrease
is primarily due to a $1,380 million decrease as a result of the
Indemnity Reinsurance Agreement entered into on August 31, 2003 with
CLAC (see Note 3 to the accompanying financial statements) and Canada
Life activity during the period, a $44 million decrease in the
Financial Services segment (excluding Canada Life activity), and a $25
million decrease in the Great-West Healthcare segment (excluding Canada
Life activity).
Benefits and expenses decreased $1,252 million or 68% for the third
quarter of 2004 when compared to the same period in 2003. The decrease
in benefits and expenses is primarily due to a $1,411 million decrease
as a result of the Indemnity Reinsurance Agreement entered into on
August 31, 2003 with CLAC (see Note 3 to the accompanying financial
statements) and Canada Life activity (Canada Life activity) during the
period, a $29 million decrease in the Financial Services segment
(excluding Canada Life activity), offset by a $188 million increase in
the Great-West Healthcare segment (excluding Canada Life activity).
Benefits and expenses decreased $1,451 million or 49% for the first
nine months of 2004 when compared to the first nine months in 2003. The
decrease in benefits and expenses is primarily due to a $1,421 million
decrease as a result of the Indemnity Reinsurance Agreement entered
into on August 31, 2003 with CLAC (see Note 3 to the accompanying
financial above) and Canada Life activity (Canada Life activity) during
the period, a $51 million decrease in the Financial Services segment
(excluding CL activity), offset by a $21 million increase in the
Great-West Healthcare segment (excluding Canada Life activity).
In evaluating its results of operations, the Company also considers net
changes in deposits received for investment-type contracts, deposits to
separate accounts and self-funded premium equivalents. Self-funded
premium equivalents represent paid claims under minimum premium and
administrative services only contracts. These amounts approximate the
additional premiums, which would have been earned under such contracts
if they had been written as traditional indemnity or HMO programs.
Deposits for investment-type contracts increased $47 million or 33% and
$122 million or 30% for the third quarter and the nine months of 2004
when compared to the same periods in 2003.
Deposits for separate accounts decreased $8 million or 2% and $66
million or 4% for the third quarter and the first nine months of 2004,
respectively, when compared to the same periods in 2003.
Self-funded premium equivalents increased $37 million or 3% and
decreased $40 million or 1% for the third quarter and the first nine
months of 2004, respectively, when compared to the same periods in
2003.
The segment information below discusses the reasons for these changes.
SEGMENT RESULTS
Great-West Healthcare
The following is a summary of certain financial data of the Great-West
Healthcare segment:
Operating Summary Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
[In millions] 2004 2003 2004 2003
------------------------------- --------------- --------------- --------------- ---------------
Premium income $ 132 $ (8) $ 163 $ 418
Fee income 165 149 473 460
Net investment income 9 17 33 48
Realized investment gains 5 1 11 11
--------------- --------------- --------------- ---------------
Total revenues 311 159 680 937
Total benefits and
expenses 260 91 521 731
Income tax expenses 17 25 53 71
--------------- --------------- --------------- ---------------
Net income $ 34 $ 43 $ 106 $ 135
=============== =============== =============== ===============
Self-funded premium
equivalents $ 1,194 $ 1,157 $ 3,519 $ 3,559
The decrease in earnings for the third quarter and the first nine
months of 2004 compared to the same periods of 2003 is primarily due to
lower premium combined with lower aggregate stop loss recoveries on
prior year deficits.
Premium and fee income during the third quarter of 2004 increased by
$156 million when compared to the same period of 2003. The increase
related primarily to the Allianz reinsurance cession in the amount of
$171 million. The third quarter 2003 negative premiums include nine
months of cession due to the Allianz reinsurance agreement that was
executed in September 2003 retroactive to January 1, 2003. The Allianz
increase is offset by a $22 million decrease in Canada Life due to the
February 2004 recapture discussed in Note 3.
Premium and fee income during the first nine months of 2004 declined by
$242 million when compared to the same period of 2003. The decrease
consists primarily of a $230 million premium and fee income decrease
associated with Canada Life results offset by a $16 million premium
increase associated with the Allianz reinsurance cession. Canada Life
premium includes a negative $207 million recorded in 2004 resulting
primarily from $256 million of premiums related to the February 2004
recapture discussed in Note 3, offset by $49 million of normal business
activity recorded before the recapture. Excluding these variances,
premium and fee income declined by $30 million or 3% when compared to
the nine month period of 2003. The decrease is primarily due to a
decline in membership during 2003 and during the first quarter of 2004.
The Great-West Healthcare segment experienced a 5% increase in total
health care membership from 1.856 million members at December 31, 2003,
to 1.948 million members at September 30, 2004. There was a 5% increase
in total health care membership from 1.856 million at September 30,
2003 to 1.948 million at September 30, 2004. This included 6,200 and
44,000 Canada Life stop loss members that renewed during the three and
nine month periods ended September 30, 2004,respectively. Despite
membership losses during the first quarter of 2004, there was
membership growth during the first nine months of 2004. The increase
was due primarily to higher persistency and higher sales associated
with sales and service efforts.
Total benefits and expenses increased $169 million during the third
quarter of 2004 compared to the same period of 2003. The increase is
primarily due to a $171 million increase associated with the Allianz
reinsurance cession offset by a decrease of $19 million associated with
Canada Life activity. The remaining increase of $17 million, or 3%, is
primarily due to lower stop loss recoveries of prior year deficits and
increased aggregate health claims in 2004.
Total benefits and expenses decreased $210 million for the first nine
months of 2004 compared to the same period of 2003. The decrease is
primarily due to a $231 million decrease of Canada Life activity. The
Canada Life decrease is offset by a $21 million increase in the Allianz
reinsurance cession. There was also an $11 million increase primarily
due to lower stop loss recoveries of prior year deficits and increased
aggregate health claims in 2004.
Canada Life total benefits and expenses include negative $210 million
recorded in 2004 primarily resulting from $255 million of change in
reserves as a result of the recapture discussed above offset by $45
million of normal business activity before the February 29, 2004
recapture.
Self-funded premium equivalents increased by $37 million, or 3%, and
decreased by $40 million, or 1%, for the third quarter and the first
nine months of 2004, respectively, when compared to the same periods of
2003. The increase in the current quarter is due to increased
membership. The decrease during the first nine months of 2004 compared
to the same period of 2003 is due to lower membership earlier in the
year.
Financial Services
The following is a summary of certain financial data of the Financial
Services segment.
Operating Summary Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
[In millions] 2004 2003 2004 2003
------------------------------- --------------- --------------- --------------- ---------------
(Restated) (Restated)
Premium income $ 54 $ 1,504 $ 224 $ 1,585
Fee income 68 60 201 172
Net investment income 268 236 764 626
Realized investment
gains (losses) 9 (10) 33 31
--------------- --------------- --------------- ---------------
Total revenues 399 1,790 1,222 2,414
Total benefits and
expenses 318 1,738 1,010 2,251
Income tax expenses 25 15 68 53
--------------- --------------- --------------- ---------------
Net income $ 56 $ 37 $ 144 $ 110
=============== =============== =============== ===============
Deposits for investment-
type contracts $ 191 $ 144 $ 535 $ 413
Deposits to separate
accounts 475 483 1,467 1,533
Effective July 10, 2003, the Company acquired CLICA and CLNY. The
results of operations for the life insurance and annuity business areas
for these subsidiaries have been included in the results of operations
for the third quarter and the first nine months of 2004 and 2003.
Net income for Financial Services increased $19 million or 51%, and
increased $34 million or 31%, in the third quarter and first nine
months, respectively, of 2004 when compared to the same periods of
2003. The increases in earnings in both periods were a combination of
positive results from the Individual Markets line of business which is
primarily related to Canada Life, and increases in Great-West
Retirement Services line of business reflecting higher fees and
improved investment margins from asset transfers from variable to fixed
funds. Canada Life net income has improved from 2003 due to expense
synergies generated from the consolidation of operations and the
reduction of new business strain from curtailing sales activity.
In addition, the Company entered into an Indemnity Reinsurance
Agreement with CLAC pursuant to which it reinsured 80% (45% coinsurance
and 35% coinsurance with funds withheld) of certain United States life,
health and annuity business of CLAC's U.S. branch as of August 31,
2003. The life insurance and annuity reinsurance transactions related
to this agreement have also been included in the results of operations
for the third quarter and the first nine months of 2004 and 2003. On
August 31, 2003, the Company recorded $1,427 million in premium income
and increase in reserves associated with this agreement.
Excluding the Canada Life activity, total premiums and deposits to
investment-type contracts and deposits to separate accounts, increased
$25 million or 1% for the first nine months of 2004 when compared to
the same period of 2003. Premiums and deposits have decreased $345
million or 53% in the Individual Markets area where sales were lower
for the first nine months of 2004 when compared to the first nine
months of 2003. The decrease in the Individual Markets area was offset
by a $370 million increase in the Retirement Services area, which is
primarily due to additional premiums and deposits on new business at
the end of 2003.
Retirement participant accounts including third-party administration
and institutional accounts increased 5.5% in 2004, from 2.266 million
at December 31, 2003 to 2.389 million at September 30, 2004.
Fee income has increased $24 million or 14%, excluding fee income
associated with Canada Life, for the first nine months of 2004 when
compared to the same period of 2003. Retirement products variable
asset-based fees fluctuate with fluctuations in participant account
values. Account values change due to cash flow and unrealized market
gains and losses associated with fluctuations in the U.S. equities
market.
Excluding investment income associated with Canada Life activity,
investment income decreased $63 million or 10% for the first nine
months of 2004 when compared to the same period of 2003 primarily due
to lower investment earned rates.
Excluding total benefits and expenses associated with Canada Life
activity, total benefits and expenses remained flat for the first nine
months of 2004 when compared to the same period of 2003.
GENERAL ACCOUNT INVESTMENTS
The Company's primary investment objective is to acquire assets with
duration and cash flow characteristics reflective of its liabilities,
while meeting industry, size, issuer, and geographic diversification
standards. Formal liquidity and credit quality parameters have also
been established.
The Company follows rigorous procedures to control interest rate risk
and observes strict asset and liability matching guidelines. These
guidelines ensure that even under changing market conditions, the
Company's assets will meet the cash flow and income requirements of its
liabilities. Using dynamic modeling to analyze the effects of a range
of possible market changes upon investments and policyholder benefits,
the Company works to ensure that its investment portfolio is
appropriately structured to fulfill financial obligations to its
policyholders.
Fixed Maturities
Fixed maturity investments include public and privately placed
corporate bonds, government bonds, and mortgage-backed and asset-backed
securities. The Company's strategy related to mortgage-backed and
asset-backed securities is to focus on those investments with low
prepayment risk and minimal credit risk. The Company does not invest in
higher-risk collateralized mortgage obligations such as interest-only
and principal-only strips, and currently has no plans to invest in such
securities.
Private placement investments are generally less marketable than
publicly traded assets, yet they typically offer enhanced covenant
protection that allows the Company, if necessary, to take appropriate
action to protect its investment. The Company believes that the cost of
the additional monitoring and analysis required by private placements
is more than offset by their enhanced yield.
One of the Company's primary objectives is to ensure that its fixed
maturity portfolio is maintained at a high average quality, so as to
limit credit risk. If not externally rated, the securities are rated by
the Company on a basis intended to be similar to that of the rating
agencies.
The rating distribution of the Company's fixed maturity portfolio is
summarized as follows:
September 30, December 31,
2004 2003
---------------------- -----------------------
AAA 56.2 % 54.3 %
AA 8.3 % 8.7 %
A 14.7 % 16.0 %
BBB 18.1 % 18.4 %
BB and below (non-investment grade) 2.7 % 2.6 %
---------------------- -----------------------
TOTAL 100.0 % 100.0 %
====================== =======================
During the first nine months of 2004, net unrealized losses on fixed
maturities included in stockholder's equity, which is net of
policyholder-related amounts and deferred income taxes, decreased
stockholder's equity by $7.6 million.
ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Company's management to make a variety of estimates and
assumptions. These estimates and assumptions affect, among other
things, the reported amounts of assets and liabilities, the disclosure
of contingent liabilities and the reported amounts of revenues and
expenses. Actual results can differ from the amounts previously
estimated, which were based on the information available at the time
the estimates were made.
The critical accounting policies described below are those that the
Company believes are important to the portrayal of its financial
condition and results, and which require management to make difficult,
subjective and/or complex judgments. Critical accounting policies cover
accounting matters that are inherently uncertain because the future
resolution of such matters is unknown. The Company believes that
critical accounting policies include policy reserves, allowances for
credit losses, deferred policy acquisition costs, and valuation of
privately placed fixed maturities.
Policy Reserves
Life Insurance and Annuity Reserves - Life insurance and annuity policy
reserves with life contingencies are computed on the basis of estimated
mortality, investment yield, withdrawals, future maintenance and
settlement expenses, and retrospective experience rating premium
refunds. Annuity contract reserves without life contingencies are
established at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance companies are
carried as a reinsurance receivable on the balance sheet. The cost of
reinsurance related to long-duration contracts is accounted for over
the life of the underlying reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Reinsurance contracts do not relieve the Company from its obligations
to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. In the normal course of
business, the Company seeks to limit its exposure to loss on any single
insured and to recover a portion of benefits paid by ceding risks to
other insurance enterprises under excess coverage and co-insurance
contracts. The Company retains a maximum of $1.5 million of coverage
per individual life on direct business written and up to $2.8 million
of coverage per individual life on business reinsured from CLAC.
Policy and Contract Claims - Policy and contract claims include
provisions for reported life and health claims in process of
settlement, valued in accordance with the terms of the related policies
and contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Allowance For Credit Losses
The Company maintains an allowance for credit losses at a level that,
in management's opinion, is sufficient to absorb credit losses on its
amounts receivable related to uninsured accident and health plan claims
paid on behalf of policyholders and premiums in course of collection,
and to absorb credit losses on its impaired loans. Management's
judgment is based on past loss experience and current and projected
economic conditions, and extensive situational analysis of each
individual loan. The measurement of impaired loans is based on the fair
value of the collateral.
Deferred Policy Acquisition Costs
Policy acquisition costs, which primarily consist of sales commissions
and costs associated with the Company's sales representatives related
to the production of new business, have been deferred to the extent
deemed recoverable. These costs are variable in nature and are
dependent upon sales volume. Deferred costs associated with the annuity
products are being amortized over the life of the contracts in
proportion to the emergence of gross profits. Retrospective adjustments
of these amounts are made when the Company revises its estimates of
current or future gross profits. Deferred costs associated with
traditional life insurance are amortized over the premium paying period
of the related policies in proportion to premium revenues recognized.
Valuation Of Privately Placed Fixed Maturities
The estimated fair values of private placement fixed maturities have
been determined using available information and what management
believes are appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop estimates of
fair value. Accordingly, the estimates presented are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
To determine fair value for fixed maturities not actively traded, the
Company utilizes discounted cash flows calculated at current market
rates on investments of similar quality and term.
New Accounting Pronouncements
See Note 2 to the accompanying financial statements for a discussion of
new accounting pronouncements that the Company will be adopting in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that vary among
its principal product lines. Life insurance and pension plan reserves
are primarily long-term liabilities. Accident and health reserves,
including long-term disability, consist of both short-term and
long-term liabilities. Life insurance and pension plan reserve
requirements are usually stable and predictable, and are supported
primarily by long-term, fixed income investments. Accident and health
claim demands are stable and predictable but generally shorter term,
requiring greater liquidity.
Generally, the Company has met its operating requirements by
maintaining appropriate levels of liquidity in its investment portfolio
and utilizing positive cash flows from operations. Liquidity for the
Company has remained strong, as evidenced by significant amounts of
short-term investments and cash that totaled $1.2 billion and $1.0
billion as of September 30, 2004 and December 31, 2003, respectively.
In addition, 97% of the bond portfolio carried an investment grade
rating at September 30, 2004 and December 31, 2003, thereby providing
significant liquidity to the Company's overall investment portfolio.
Funds provided by premiums and fees, investment income and maturities
of investment assets are reasonably predictable and normally exceed
liquidity requirements for payment of claims, benefits, and expenses.
However, since the timing of available funds cannot always be matched
precisely to commitments, imbalances may arise when demands for funds
exceed those on hand. Also, a demand for funds may arise as a result of
the Company taking advantage of current investment opportunities. The
sources of the funds that may be required in such situations include
the issuance of commercial paper and equity securities.
The Company's financial strength provides the capacity and flexibility
to enable it to raise funds in the capital markets through the issuance
of commercial paper. The Company continues to be well-capitalized, with
sufficient borrowing capacity to meet the anticipated needs of its
business. The Company had $97.0 million and $96.4 million of commercial
paper outstanding at September 30, 2004 and December 31, 2003,
respectively. The commercial paper has been given a rating of A-1+ by
Standard & Poor's and a rating of P-1 by Moody's Investors Service,
each being the highest rating available. In addition, the Company
issued a surplus note to GWL&A Financial in 1999. The surplus note
bears interest at 7.25% and is due June 20, 2048.
Capital resources provide protection for policyholders and financial
strength to support the underwriting of insurance risks, and allow for
continued business growth. The amount of capital resources that may be
needed is determined by the Company's senior management and Board of
Directors, as well as by regulatory requirements. The allocation of
resources to new long-term business commitments is designed to achieve
an attractive return, tempered by considerations of risk and the need
to support the Company's existing business.
Item 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
The Company's assets are purchased to fund future benefit payments to
its policyholders and contractholders. The primary risk of these assets
is exposure to rising interest rates. The Company's exposure to foreign
currency exchange rate fluctuations is minimal as only nominal foreign
investments are held.
To manage interest rate risk, the Company invests in assets that are
suited to the products that it sells. For products with fixed and
highly predictable benefit payments such as certificate annuities and
payout annuities, the Company invests in fixed income assets with cash
flows that closely match these products' liability cash flows. The
Company is then protected against interest rate changes, as any change
in the fair value of the assets will be offset by a similar change in
the fair value of the liabilities. For products with uncertain timing
of benefit payments such as portfolio annuities and life insurance, the
Company invests in fixed income assets with expected cash flows that
are earlier than the expected timing of the benefit payments.
The Company also manages risk with interest rate derivatives such as
interest rate caps that would pay it investment income if interest
rates rise above the level specified in the cap. These derivatives are
only used to reduce risk and are not used for speculative purposes.
To manage foreign currency exchange risk, the Company uses currency
swaps to convert foreign currency back to United States dollars. These
swaps are purchased each time a foreign currency denominated asset is
purchased.
As a result of the coinsurance with funds withheld element of the
Company's reinsurance of business of CLAC's US branch, it has recorded
a derivative financial instrument to account for the different credit
risks and other characteristics of the reinsurance receivable and the
investment assets of CLAC that underlie that receivable. This
derivative is carried at fair value and changes in fair value are
included in net investment income as a non-cash charge or credit.
Therefore, the Company's operating results are exposed to volatility,
reflecting changes in the fair value of the underlying investment
portfolio, which is exposed to interest rate, market and credit risk. A
gain in the amount of $4.7 million and a loss in the amount of $2.3
million net of tax, were included in net income for the third quarter
and the first nine months of 2004, respectively, as a result of this
derivative.
Item 4. CONTROLS AND PROCEDURES
Based on their evaluation as of September 30, 2004, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective at the reasonable
assurance level in ensuring that information relating to the Company
and its subsidiaries which is required to be disclosed in reports filed
under the Securities Exchange Act of 1934 is (i) recorded, processed,
summarized and reported in a timely manner; and is (ii) accumulated and
communicated to the Company's senior management, including the
President and Chief Executive Officer and the Executive Vice President
and Chief Financial Officer, so that timely decisions may be made
regarding disclosure.
The Chief Executive Officer and Chief Financial Officer hereby confirm
that there were no significant changes in its internal control over
financial reporting that occurred during the Company's most recent
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
any of its subsidiaries are a party or of which any of their property
is the subject.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit Number Title Page
31.1 Rule 13a-14(a)/15d-14(a) Certification 25
31.2 Rule 13a-14(a)/15d-14(a) Certification 26
32 18 U.S.C. 1350 Certification 27
(b) Reports on Form 8-K
A report on Form 8-K, dated July 28, 2004, was filed
disclosing the Company's results of operations as of June 30,
2004.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BY: /s/Glen R. Derback DATE: November 12, 2004
--------------------------------------------------------------------- ---------------------------
Glen R. Derback, Senior Vice President and Controller
(Duly authorized officer and chief accounting officer)