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UNITED STATES
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS - 333-77441 AND 333-77437
SAGE LIFE ASSURANCE OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0258372
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
300 ATLANTIC STREET, STAMFORD, CONNECTICUT 06901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
(203) 602-6500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of March 29, 2000 there were 1,000 shares of outstanding common stock, par
value $25 per share, of the registrant. All outstanding shares were owned by
Sage Life Holdings of America, Inc.
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The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor"
for forward-looking statements. This Report may include forward-looking
statements, as do other publicly available Company documents, including reports
on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission
and other written or oral statements made by or on behalf of the Company, its
officers and employees. When made, such forward-looking statements reflect the
then-current views of the Company or its management with respect to future
events and financial performance. There are known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those contemplated or indicated by such forward-looking
statements. These include, but are not limited to, risks and uncertainties
inherent in or relating to (i) general economic conditions, including interest
rate movements, inflation and cyclical industry conditions, (ii) governmental
and regulatory policies, as well as the judicial environment, and (iii)
increasing competition in the market segments in which the Company operates. The
words "believe", "expect", "anticipate", "project", and similar expressions
identify forward-looking statements, which speak only as of their dates. Neither
the Company nor its management undertakes any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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SAGE LIFE ASSURANCE OF AMERICA, INC.
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
Part 1
Item 1. Business 4
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 10
Item 8. Financial Statements 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 10
Part III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
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PART I
ITEM 1. BUSINESS
Sage Life Assurance of America, Inc. ("Sage Life" or "the Company") is
a stock life insurance company domiciled in Delaware with its principal
offices in Stamford, Connecticut. Sage Life has licenses in 49 states
and the District of Columbia. Although the Company is not licensed in
New York, it's wholly-owned subsidiary, Sage Life Assurance Company of
New York ("Sage New York") is in the process of being licensed to
conduct business in New York.
The Company is a wholly-owned subsidiary of Sage Life Holdings of
America, Inc. ("Sage Life Holdings"). Sage Insurance Group, Inc.
("SIGI"), currently owns all of the common stock of Sage Life Holdings.
Life Re Corporation ("Life Re"), a wholly-owned subsidiary of Swiss Re
Life and Health America, Inc. ("Swiss Re"), has invested $12.5 million
in non-voting non-redeemable cumulative preferred stock of Sage Life
Holdings. Swiss Re's ultimate parent is Swiss Reinsurance Company,
Switzerland, one of the world's largest life and health reinsurance
groups.
SIGI is a wholly-owned indirect subsidiary of Sage Group Limited ("Sage
Group"), a South African corporation quoted on the Johannesburg Stock
Exchange. Sage Group is a holding company with a thirty-year history of
extensive operating experience in mutual funds, life assurance and
investment management. Sage Group has directly and indirectly engaged
in insurance marketing activities in the United States since 1977
through its financial interests in Independent Financial Marketing
Group Inc., a financial planning and bank insurance marketing company.
Sage Group sold its interest in Independent Financial Marketing Group
in March 1996 to the Liberty Financial Companies of Boston.
Effective December 31, 1996, SIGI purchased all of the outstanding
stock of Fidelity Standard Life Insurance Company ("Fidelity
Standard"), a Delaware domiciled life insurance company licensed to
sell fixed and variable annuity contracts, from Security First Life
Insurance Company ("SFLIC"). Following the purchase, Fidelity Standard
was renamed Sage Life Assurance of America, Inc. Prior to the purchase
and effective October 31, 1996, Fidelity Standard entered into a
modified coinsurance arrangement to cede all of its separate account
liabilities to its then parent, SFLIC. Assets equal to the total
reserves and related liabilities were transferred to SFLIC. The
remaining general account liabilities were ceded under a 100%
coinsurance arrangement with SFLIC. In connection with the purchase of
Fidelity Standard, the Company entered into a service agreement with
SFLIC to provide all necessary administrative services for all ceded
business. Effective September 31, 1998, all of the in-force business of
the Company was novated to SFLIC.
The ongoing business strategy of the Company is to focus on the
development, underwriting, and marketing of variable annuity and
variable life insurance products. The obligations under these contracts
are supported by (1) variable accounts -- determined by the value of
investments held in separate accounts, and (2) fixed accounts -- backed
by investments held in separate accounts. The assets of these separate
accounts that equal the reserves and other liabilities supporting the
contracts to which they relate, are "walled off" from other obligations
or creditors of the Company. Since its inception in 1997, the Company
has been designing its products, administrative systems and procedures
in anticipation of its entry into the marketplace.
The Company will initially market its products through financial
institutions such as banks that are permitted directly, or through
affiliates, to sell annuities and life insurance. The Company
eventually intends to expand its distribution channels to include
regional broker-dealers, wirehouses and independent financial planners.
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During the fourth quarter of 1999, the Company began presenting its
products and services to banks in an effort to expand its distribution
channel. The Company has entered into selling agreements with several
banks. During the first quarter of 2000, the Company will begin
aggressively marketing its products through banks and other financial
institutions for which it has entered into agreements.
The Company also intends to enter into a coinsurance reinsurance
arrangement with Swiss Re, pursuant to which Swiss Re will reinsure a
significant portion of the liabilities under the variable insurance
contracts.
The Company is engaged in a business that is highly competitive due to
the large number of stock and mutual life insurance companies as well
as other entities marketing insurance products comparable to its
products. There are approximately 1,600 stock, mutual and other types
of insurers in the life insurance business in the United States, a
substantial number of which are significantly larger than the Company.
The Company is unique in that it is one of the few life insurers
confining its activities to the marketing of separate account variable
insurance products.
As of December 31, 1999, the Company had 27 full-time salaried
employees.
ITEM 2. PROPERTIES
The Company maintains its corporate offices in space leased by SIGI.
The Company currently leases approximately 10,000 square feet.
Effective January 3, 2000, SIGI has entered into a lease for additional
space of approximately 7,500 square feet for use by the Company.
ITEM 3. LEGAL PROCEEDINGS
Sage Life and its subsidiaries, as of the date of this filing, are not
involved in any lawsuits. However, Sage Life's direct and indirect
parent companies, like other companies, are involved in lawsuits. In
some lawsuits involving insurers, substantial damages have been sought
and/or material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with certainty, Sage Life
believes that at the present time there are no pending or threatened
lawsuits that are reasonably likely to have a material adverse impact
on the Variable Account, the Fixed Account, the General Account, or
Sage Life.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's outstanding shares are owned by Sage Life
Holdings, a subsidiary of SIGI. The Company did not pay any dividends
to its parent in 1999 and 1998.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the
operations of the Company. The selected financial data should be read
in conjunction with the financial statements and the notes thereto and
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. As the Company is effectively a new company
since January 1997, results prior to that time are not applicable to
the Company and its operations. For this reason, only three years of
data is shown.
1999 1998 1997
---------------------- -------------------- ------------------
INCOME STATEMENT DATA:
Revenues:
Net investment income $ 1,290,196 $ 1,243,522 $ 989,494
Administrative service fees 37,671 - -
Annuity charges and fees 861 - -
---------------------- -------------------- ------------------
Total revenues 1,328,728 1,243,522 989,494
Benefits and Expenses:
Salaries and benefits expenses 972,048 741,979 497,426
Development expenses 3,827,887 - -
Insurance expenses and taxes 721,247 521,699 518,448
Amortization expenses 234,468 548,818 325,406
---------------------- -------------------- ------------------
Total benefits and expenses 5,755,654 1,812,496 1,341,280
---------------------- -------------------- ------------------
Loss before cumulative effect adjustment (4,426,926) (568,974) (351,786)
Cumulative effect adjustment (4,269,488) - -
---------------------- -------------------- ------------------
Net loss $ (8,696,414) $(568,974) $(351,786)
====================== ==================== ==================
BALANCE SHEET DATA:
Total Assets $ 31,736,580 $ 36,542,531 $ 36,688,739
Total Liabilities $ 233,435 $ 70,474 $ 3,486,311
Stockholder's Equity $ 31,503,145 $ 36,472,057 $ 33,202,428
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net loss for 1999 was $8.7 million, compared to losses of $.6 million
in 1998 and $.4 million in 1997. The large increase in losses for 1999
is due to the adoption of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 required the Company
to charge to expense all start-up costs incurred, as well as write-off
any unamortized capitalized development costs on January 1, 1999. The
development costs incurred during 1999 of $3.8 million and the
write-off of unamortized capitalized development costs of $4.3 million
produced an additional $8.1 million of losses over the prior year
results.
As the Company continued in the development phase during the year,
revenues continue to be derived primarily from investment income earned
on Company investments. Net investment income earned during 1999 was
$1.3 million, compared to $1.2 million and $1.0 million in 1998 and
1997, respectively. The Company's investments consist entirely of U.S.
Government securities and highly rated corporate bonds. Investment
yields of 5.4%, 5.1% and 4.9% were earned in 1999, 1998 and 1997,
respectively. The Company's other sources of income are administrative
service fees and policy charges and fees. Administrative service fees
are asset-based charges that the Company receives on contract owner
funds invested with various investment fund managers. Policy charges
and fees are asset-based fees charged to each contract owner. As the
Company broadens its distribution of products during 2000, these policy
charges and fees are anticipated to become a major source of revenue.
The policy charges and fees earned during 1999 were minimal as there
were a very limited number of contracts issued during the year.
With the adoption of SOP 98-5, the Company's primary expenses during
1999 were those non-recurring expenses incurred in the development of
products and systems. Expenses incurred for development costs in 1999
were $3.8 million. Prior to 1999, these expenses were capitalized and
amortized over fifteen years. As these expenses are no longer
amortized, amortization expenses decreased to $.2 million in 1999 from
$.5 million in 1998. The amortization expenses for 1999 relate entirely
to the goodwill associated with the purchase of the Company. Salaries
and benefits expenses for 1999 were $1.0 million, compared to $.7
million and $.5 million in 1998 and 1997, respectively. Insurance
expenses and taxes were $.2 million, $.5 million and $.3 million in
1999, 1998 1997, respectively. These overhead expenses include rent,
professional fees, office expenses and statutory filing fees.
The Company has no federal income tax expenses for the three year
period ended December 31, 1999. The Company has a net operating loss
carryforward of approximately $10.3 million at the end of 1999.
Liquidity and Capital Resources
Since the beginning of 1997, the Company has needed money primarily to
develop our insurance products and related infrastructure, and to fund
our daily operations. The Company has met our cash needs through
interest income and capital contributions from SIGI.
During 2000, the Company expects its cash needs will continue to
increase as its underwriting and marketing activities begin. As
discussed below, the Company intends to enter into a reinsurance
arrangement with Swiss Re that will provide an additional source of
cash. The Company still anticipates that we will be unable to meet all
of its liquidity requirements in 2000 without capital contributions
from SIGI. However, Swiss Re has made an equity investment in Sage Life
Holdings that will provide an additional source of funds for new
business expenses. In addition, although not required to do so, the
Company believes that SIGI will continue to provide capital for the
non-recurring costs associated with new products and business
development during 2000. The Company's future marketing efforts could
be
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hampered in the unlikely event that Swiss Re, SIGI and/or their
affiliates are unwilling to commit additional funding.
Segment Information
The Company plans to conduct our business as a single segment, and
anticipate that this segment will eventually include all of the
following products: 1) Combination fixed and variable deferred
annuities; 2) Combination fixed and variable immediate annuities; and
3) Combination fixed and variable life insurance products.
Reinsurance
The Company intends to enter into a coinsurance reinsurance arrangement
with Swiss Re, pursuant to which Swiss Re will reinsure a significant
portion of the liabilities under the variable insurance contracts. This
arrangement provides the Company with additional capacity for growth of
the variable insurance business.
In addition, the Company has entered into a reinsurance arrangement
that reinsures certain mortality risks associated with the guaranteed
minimum death benefit and accidental death benefit features of the
Contracts. The Company intends to use only highly rated reinsurance
companies to reinsure these risks.
Reinsurance does not relieve the Company from its obligations to
contract owners. The Company remains primarily liable to the contract
owners to the extent that any reinsurer does not meet its obligations
under the reinsurance agreements.
Reserves
The insurance laws and regulations under which we operate obligate us
to carry on our books, as liabilities, actuarially determined reserves
to meet our obligations on outstanding contracts. We base our reserves
involving life contingencies on mortality tables in general use in the
United States. Where applicable, we compute our reserves to equal
amounts which, together with interest on such reserves computed
annually at certain assumed rates, will be sufficient to meet our
contract obligations at their maturities or in the event of the owner's
death. In the financial statements included in this Prospectus, all
reserves have been determined in accordance with generally accepted
accounting principles. At December 31, 1999 the Company held $93
thousand of reserves in its Separate Account. As previously noted, all
of Fidelity Standard's existing annuity business has been irrevocably
transferred to SFLIC, resulting in no remaining contract obligations at
December 31, 1998.
Investments
The Company's cash and invested assets of $24.1 million, $25.5 million
and $25.3 million at December 31, 1999, 1998 and 1997, respectively,
was invested entirely in investment grade securities and money market
funds. It is the stated policy of the Company to refrain from investing
in securities having speculative characteristics. The Company's entire
portfolio is classified as available-for sale, and is reported at fair
value, with resulting unrealized gains or losses included as a separate
component of stockholder's equity.
Dividend Restrictions
The Company is subject to state regulatory restrictions that limit the
maximum amount of dividends payable. Subject to certain net income
carryforward provisions as described below, the Company must obtain
approval of the Insurance Commissioner of the State of Delaware in
order to pay, in any 12-month period, "extraordinary" dividends which
are defined as those in excess of the greater of 10% of surplus as
regards policyholders as of the prior year-end and statutory net income
less realized capital gains for
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such prior year. Dividends may be paid by the Company only out of
earned surplus. In addition, the Company must provide notice to the
Insurance Commissioner of the State of Delaware of all dividends and
other distributions to stockholders within five business days after
declaration and at least ten days prior to payment. At December 31,
1999, the Company could not pay a dividend to SLHA without prior
approval from state regulatory authorities as the Company currently
does not have earned surplus.
Transactions with Affiliates
In 1997, the Company entered into a Cost Sharing Agreement with Sage
Insurance Group, Inc. (SIGI), the parent of SLHA, to share the
personnel costs, office rent and equipment costs. These costs are
allocated between the companies based upon the estimated time worked,
square footage of space utilized and upon monitored usage of the
equipment, respectively. Pursuant to this agreement, the Company has
received $.9 million and $.2 million from SIGI for the years ended
December 31, 1999 and 1998, respectively. The Company paid SIGI $.1
million for the period ended December 31, 1997. At December 31, 1999
the amount due from SIGI relating to this agreement was $.6 million.
There was no amount due at December 31, 1998. In addition, SIGI
provides funds to the Company to meet various operating expenses. As
these amounts are paid back to SIGI at the end of each quarter, no
amounts remained payable at December 31, 1999 and 1998.
All non-recurring development costs of the Company are paid by SIGI or
its parent, Sage Group Limited, and treated as capital contributions.
The amount of development costs paid for by affiliated companies at
December 31, 1999 , 1998 and 1997 were $7.1 million, $3.3 million and
$1.5 million, respectively.
State Regulation
The Company is subject to the laws of the State of Delaware governing
insurance companies and to the regulations of the Delaware Department
of Insurance (the "Insurance Department"). The Company files a detailed
financial statement in the prescribed form (the "Statement") with the
Insurance Department each year covering the operations for the
preceding year and our financial condition as of the end of that year.
Regulation by the Insurance Department means that the Insurance
Department may examine the books and records of the Company to
determine, among other things, whether contract liabilities and
reserves are stated correctly. The Insurance Department, under the
auspices of the National Association of Insurance Commissioners
("NAIC"), will periodically conduct a full examination of the Company's
operations.
In addition, the Company is are subject to regulation under the
insurance laws of all jurisdictions in which it operates. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to various matters, including
licensing to transact business, overseeing trade practices, licensing
agents, approving contract forms, establishing reserve requirements,
fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the
form and content of required financial statements and regulating the
type and amounts of investments permitted. The Company must file the
Statement with supervisory agencies in each of the jurisdictions in
which it does business, and its operations and accounts are subject to
examination by these agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve
the surveillance and financial analysis regarding the solvency of
insurance companies in general. These initiatives include the
development and implementation of a risk-based capital formula for
determining adequate levels of capital and surplus. Insurance companies
are required to calculate their risk-based capital in accordance with
this formula and to include the results in their Statements. The
Company anticipates that these standards will have no significant
effect upon its operations.
Further, many states regulate affiliated groups of insurers like Sage
Life and its affiliates, under insurance holding company legislation.
Under such laws, inter-company transfers of assets and dividend
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payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of the transfers and payments in
relation to the financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for contract
owner losses incurred when other insurance companies have become
insolvent. Most of these laws provide that an assessment may be excused
or deferred if it would threaten an insurer's own financial strength.
Although the federal government ordinarily does not directly regulate
the business of insurance, federal initiatives often have an impact on
the business in a variety of ways. The Company's insurance products are
subject to various federal securities laws and regulations. In
addition, current and proposed federal measures that may significantly
affect the insurance business include: 1) regulation of insurance; 2)
Company solvency; 3) employee benefit regulation; 4) tax law changes
affecting the taxation of insurance companies; and 5) tax treatment of
insurance products and its impact on the relative desirability of
various personal investment vehicles.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, the Company held in its general account $22.2
million of fixed maturity investments that are sensitive to changes in
interest rates. These securities are held in support of the Company's
target solvency surplus. The Company has a conservative investment
philosophy, with all investments being investment grade securities,
government agency or U.S. government securities. The Company performs
estimates of the market value of its portfolio based on increases or
decreases in interest rates. The Company has determined that a 100
basis point increase in interest rates would cause our portfolio to
decrease in market value to $21.6 million. A 200 basis point increase
would cause the market value to decrease to $21.0 million. Conversely,
a decrease in interest rates of 100 basis points would increase the
market value of the portfolio to $22.9 million, while a 200 basis point
increase would result in a market value of $23.6 million.
The primary equity market risk to the Company comes from the nature of
the variable annuity and variable life products to be sold. Various
fees and charges earned by the Company are substantially derived as a
percentage of the market value of the assets under management. In a
market decline, this income would be reduced. This could be further
compounded by customer withdrawals, net of any applicable surrender
charges, partially offset by transfers to the fixed investment option.
It also is not clear what the impact of a prolonged downturn in the
equity markets would have on ongoing sales. Customer's perceptions of a
downturn in equity markets coupled with rising interest rates could
move them into financial products other than variable insurance
products. The Company's products could potentially remain attractive to
consumers in relation to other long-term savings vehicles even after
such a decline.
ITEM 8. FINANCIAL STATEMENTS
The Company's audited financial statements begin on page F-1. Reference
is made to the Index to Financial Statements on page 12.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the Directors and Executive Officers of the Company:
Position with Sage, Year of
Name, Age Election Other Principal Positions for Past Five Years
- ---------------------- ---------------------------- ---------------------------------------------------------------
Ronald S. Scowby, 60 Director, 1/97 to present, Chairman and Trustee, Sage Life Investment Trust, 7/98 to
Chairman, 2/98 to present present; Director, Sage Life Assurance Company of New York,
5/98 to present; Deputy Chairman 2/98 to present, President, 1/97
to 2/98, Director 1/97 to present, Sage Insurance Group, Inc.;
Director, Sage Advisors, Inc., 1/98 to present; President, Chief
Executive Officer, Sage Life Assurance of America Inc., 1/97-2/98;
Director, Sage Distributors, Inc., 1/98 to present; Director,
President, Chief Executive Officer, Sage Management Services (USA),
Inc., 6/96 to present; Owner, Sheldon Scowby Resources 7/95-6/96;
Executive Vice President, Mutual of America Life Insurance Group,
6/91-7/95; President, Mutual of America Financial Services,
6/91-7/95
Robin I. Marsden, 34 Director, 1/97 to present, President and Trustee, Sage Life Investment Trust, 7/98 to
President and Chief present; Director, Sage Life Assurance Company of New York,
Executive Officer, 2/98 to 5/98 to present; Director, President, Sage Advisors, Inc.,
present 1/98 to present; Director, Sage Distributors, Inc., 1/98 to
present; Director, 1/97 to present, President and Chief
Executive Officer, 2/98 to present, Sage Insurance Group,
Inc.; Chief Investment Officer, Sage Life Holdings, Ltd.,
11/94-1/98
H. Louis Shill, 68 Director, 1/97 to present Director, Sage Life Assurance Company of New York, 5/98 to
present; Chairman, Sage Life Assurance of America, Inc.
1/97-2/98; Chairman, Sage Insurance Group, Inc., 1/97 to
present; Founder, Chairman, Sage Group Limited, 1965 to
present
Paul C. Meyer, 46 Director, 1/97 to present Director, Sage Life Assurance Company of New York, 5/98 to
present; Partner, Rogers & Wells, 1986 to present
Richard D. Starr, 54 Director, 1/97 to present Director, Sage Life Assurance Company of New York, 5/98 to
present; President, First Interstate Securities, 1/95-12/95;
Chairman & Chief Executive Officer, Financial Institutions
Group, Inc., 10/78 to present
Mitchell R. Katcher, 46 Director, 12/97 to present, Vice President, Sage Life Investment Trust, 7/98 to present;
Senior Executive Vice Director, Sage Life Assurance Company of New York, 5/98 to
President, Chief Financial present; Director, Treasurer, Sage Advisors, Inc., 1/98 to
Officer, Chief present; Director, Sage
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Actuary 5/97 to present Distributors, Inc., 1/98 to present;
Treasurer, 7/97 to present, Senior Executive Vice President,
12/97 to present, Sage Insurance Group, Inc.; Executive Vice
President, Golden American Life Insurance Company, 1/92-2/97
Lincoln B. Yersin, 36 Senior Vice President - President, AmSouth Investment Services, Inc., 6/93 - 5/99;
Marketing, 5/99 to present Senior Vice President, AmSouth Bancorporation, 6/93 - 5/99
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Chief Executive
Officer and the other Executive Officers of the Company:
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------------------- ----- ---------- --------- ------------- ----------------
Robin I. Marsden 1999 $322,500 $150,000 - -
(Chief Executive Officer) 1998 275,000 100,000 - $20,956
1997 - - - -
Ronald S. Scowby 1999 $350,000 $100,000 $4,167 $100,000
(Chairman) 1998 350,000 100,000 - 22,097
1997 337,500 100,000 - -
Mitchell R. Katcher 1999 $268,750 $150,000 - -
(Chief Financial Officer) 1998 250,000 125,000 - -
1997 114,583 265,000 - $19,037
Lincoln B. Yersin 1999 $116,666 $165,116 - -
(Senior Vice President) 1998 - - - -
1997 - - - -
The amount of other compensation paid to Mr. Scowby during 1999 relates to a
deferred bonus that was earned in a prior year. Other Compensation amounts
listed for 1998 and 1997 are related to payments for deferred compensation
earned in prior years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Page
Report of Independent Auditors F-1
Balance Sheets as of December 31, 1999 and 1998 F-2
Statements of Operations for the Years ended December 31, 1999, 1998 and 1997 F-3
Statements of Stockholder's Equity for the Years ended December 31, 1999, 1998 and 1997 F-4
Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997 F-5
Notes to Financial Statements F-6
Schedules are omitted because they are either not applicable or because the
information required therein is included in the Notes to Financial Statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
December 31, 1999
(c) Exhibits
The exhibits filed as part of this Report are listed on the Exhibit Index
immediately preceding the exhibits.
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Report of Independent Auditors
Board of Directors
Sage Life Assurance of America, Inc.
We have audited the accompanying balance sheets of Sage Life Assurance of
America, Inc. as of December 31, 1999 and 1998, and the related statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 financial position of Sage Life Assurance of America,
Inc. as at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Stamford, CT
February 24, 2000
F-1
15
Sage Life Assurance of America, Inc.
Balance Sheets
DECEMBER 31
1999 1998
------------------ ---------------------
ASSETS
Investments:
Fixed maturities available for sale, at fair value (amortized cost:
1999 - $17,296,410 and 1998 - $12,967,022) $16,179,750 $ 12,992,917
Short-term investments 5,972,494 10,975,402
------------------ --------------------
Total investments 22,152,244 23,968,319
Cash and cash equivalents 1,979,985 1,531,165
Accrued investment income 226,234 203,425
Receivable from affiliates 671,270 -
Deferred income taxes 376,461 -
Goodwill 6,228,146 6,565,134
Development costs - 4,269,488
Other assets 9,231 5,000
Separate account assets 93,009 -
------------------- ----------------------
Total assets $31,736,580 $36,542,531
=================== ======================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 140,426 $ 61,670
Deferred income taxes - 8,804
Separate account liabilities 93,009 -
------------------- ----------------------
Total liabilities 233,435 70,474
Stockholder's equity:
Common stock, $2,500 par value, 1,000 shares authorized, issued and
outstanding 2,500,000 2,500,000
Additional paid-in capital 39,351,096 34,875,727
Retained deficit (9,617,174) (920,760)
Accumulated other comprehensive (loss) income (730,777) 17,090
------------------- ----------------------
Total stockholder's equity 31,503,145 36,472,057
------------------- ----------------------
Total liabilities and stockholder's equity $31,736,580 $36,542,531
=================== ======================
See accompanying notes to financial statements.
F-2
16
Sage Life Assurance of America, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------- ------------------ -----------------
REVENUES
Investment income $ 1,290,196 $ 1,243,522 $ 989,494
Administrative service fees 37,671 - -
Policy charges and fees 861 - -
-------------------- ------------------ -----------------
Total revenues 1,328,728 1,243,522 989,494
EXPENSES
Salaries and benefits expenses 972,048 741,979 497,426
Development expenses 3,827,887 - -
Amortization expense 234,468 548,818 325,406
General and administrative expenses 721,247 521,699 518,448
-------------------- ------------------ -----------------
Total expenses 5,755,654 1,812,496 1,341,280
Loss before cumulative effect adjustment (4,426,926) (568,774) (351,786)
Cumulative effect adjustment for change in
accounting for development costs (4,269,488) - -
-------------------- ------------------ -----------------
Net loss $ (8,696,414) $ (568,974) $ (351,786)
==================== ================== =================
See accompanying notes to financial statements.
F-3
17
Sage Life Assurance of America, Inc.
Statements of Stockholder's Equity
ACCUMULATED OTHER
COMPREHENSIVE (LOSS)
ADDITIONAL PAID-IN RETAINED DEFICIT INCOME
COMMON STOCK CAPITAL TOTAL
--------------------------------------------------------------------------------------------
Balance at January 1, 1997 $2,500,000 $15,505,508 - - $18,005,508
Net loss $ (351,786) (351,786)
Change in unrealized gain on
investments, net of taxes $ 48,706 48,706
-------------
Comprehensive income (303,080)
Additional capital contributions 15,500,000 15,500,000
--------------------------------------------------------------------------------------------
Balance at January 1, 1998 2,500,000 31,005,508 (351,786) 48,706 33,202,428
Net loss (568,974) (568,974)
Change in unrealized gain on
investments, net of taxes (31,616) (31,616)
-------------
Comprehensive income (600,590)
Additional capital contributions 3,870,219 3,870,219
--------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,500,000 34,875,727 (920,760) 17,090 36,472,057
Net loss (8,696,414) (8,696,414)
Change in unrealized loss
on investments, net of taxes (747,867) (747,867)
-------------
Comprehensive income (9,444,281)
Purchase price adjustment (102,518) (102,518)
Additional capital contributions 4,577,887 4,577,887
--------------------------------------------------------------------------------------------
Balance at December 31, 1999 $2,500,000 $39,351,096 $(9,617,174) $(730,777) $31,503,145
============================================================================================
See accompanying notes to financial statements.
F-4
18
Sage Life Assurance of America, Inc.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------ -----------
OPERATING ACTIVITIES
Net loss $ (8,696,414) $ (568,974) $ (351,786)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization expense 234,468 548,818 325,406
Cumulative effect adjustment for change in accounting for
development costs 4,269,488 - -
Changes in:
Accrued investment income (22,809) (145,386) (29,638)
Receivable from affiliates (671,270) (128,425) 128,425
Other assets (4,231) 6,443 (11,443)
Accrued expenses 78,756 (118,772) 116,216
------------- -------------- ----------------
Net cash used in operating activities (4,812,012) (406,296) 177,180
INVESTING ACTIVITIES
Purchase of fixed maturity securities (4,319,964) (10,295,783) -
Proceeds from sales, maturities and repayments of fixed
maturity securities - 849,153 42,941
Net sales of short-term investments 5,002,909 10,555,486 (15,507,897)
------------- -------------- ----------------
Net cash provided by investing activities 682,945 1,108,856 (15,465,046)
FINANCING ACTIVITIES
Development costs paid by parent 3,827,887 - -
Capital contribution from the parent 750,000 600,000 15,500,000
------------- -------------- ----------------
Net cash provided by financing activities 4,577,887 600,000 15,500,000
------------- -------------- ----------------
Increase in cash and cash equivalents 448,820 1,302,560 212,134
Cash and cash equivalents at beginning of year 1,531,165 228,605 16,471
------------- -------------- ----------------
Cash and cash equivalents at end of year $ 1,979,985 $ 1,531,165 $ 228,605
============= ============== ================
See accompanying notes to financial statements.
F-5
19
Sage Life Assurance of America, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATION
Sage Life Assurance of America, Inc. (the "Company") is a wholly-owned
subsidiary of Sage Life Holdings of America, Inc. ("SLHA"), which is a
wholly-owned indirect subsidiary of Sage Group Limited, a South African company.
DESCRIPTION OF BUSINESS
Sage Life Assurance of America, Inc. (the "Company"), which is domiciled in
Delaware, is a wholly-owned subsidiary of Sage Life Holdings of America, Inc.,
which is a wholly-owned indirect subsidiary of Sage Group Limited (Sage Group),
a South African company.
The Company is in the process of developing and preparing to market variable
annuity and variable life insurance products. The sale of these products began
on a limited basis in the first quarter of 1999. The Company has mutually agreed
to enter into a coinsurance reinsurance arrangement with Swiss Re Life & Health
America (Swiss Re), pursuant to which Swiss Re will reinsure a significant
portion of the liabilities under the variable insurance contracts.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents are carried at cost, which approximates fair value.
INVESTMENTS
The Company has classified all of its fixed maturity investments as
available-for-sale. Those investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of stockholder's equity,
net of applicable deferred income taxes. Fair values are determined by quoted
market prices.
Short-term investments are carried at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined by the
specific identification method and are included in revenues.
F-6
20
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying balance
sheet represent funds that are separately administered, principally for the
benefit of certain policyholders who bear the investment risk. The separate
account assets and liabilities, as reported as of December 31, 1999, are carried
at fair value, based on quoted market prices. Revenues and expenses related to
the separate account assets and liabilities, to the extent of benefits paid or
provided to the separate account policyholders, are excluded from the amounts
reported in the accompanying statements of operations.
POLICY LIABILITIES
The Company has no policy liabilities in its General Account at December 31,
1999 and 1998. All policy liabilities are in the Separate Account and are
comprised of all payments received plus credited interest, less accumulated
policyholder charges, assessments and withdrawals related to annuities of a
nonguaranteed return nature.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over
thirty years. The carrying value of goodwill is regularly reviewed for
indications of impairment in value, which, in the view of management, is other
than temporary. Accumulated amortization at December 31, 1999 and December 31,
1998 was $703,403 and $468,935, respectively.
DEVELOPMENT COSTS
Pursuant to the adoption of Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities", (SOP 98-5), the Company is required to charge to
expense all start-up costs incurred. In addition, the Company was required to
write-off any unamortized capitalized development costs on January 1, 1999.
Development costs incurred for the year ended December 31, 1999 charged to
expense were $3,827,887. The one time write-off of the unamortized capitalized
development costs was $4,269,488.
ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires that management makes estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are accounted for using the liability method. Using this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
F-7
21
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial statement
amounts to conform to the 1999 presentation.
2. INVESTMENTS
Investments in fixed maturity securities as of December 31 consist of the
following:
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR
VALUE
----------------------------------------------------------------------------
1999
U.S. Government Obligations $ 9,260,132 $12,577 $ 641,663 $ 8,631,046
Corporate Obligations 8,036,278 - 487,574 7,548,704
----------------------------------------------------------------------------
$17,296,410 $12,577 $1,129,237 $16,179,750
============================================================================
1998
U.S. Government Obligations $ 9,356,479 $89,549 $ 54,974 $ 9,391,054
Corporate Obligations 3,610,543 4,282 12,962 3,601,863
============================================================================
$ 12,967,022 $93,831 $ 67,936 $12,992,917
============================================================================
The amortized cost and fair value of fixed maturity securities by contractual
maturity at December 31, 1999 are summarized below. Actual maturities will
differ from contractual maturities because certain borrowers have the right to
call or prepay obligations.
AMORTIZED FAIR
COST VALUE
-----------------------------------
Due in one year or less $ 2,550,942 $ 2,563,519
Due after one year through five years 5,129,073 4,896,658
Due after five years through ten years 9,616,395 8,719,573
===================================
Total $17,296,410 $16,179,750
===================================
F-8
22
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Investment income by major category of investment for the years ended December
31, 1999 and 1998 is summarized as follows:
1999 1998 1997
------------------------------------------------------------
Bonds $ 907,068 $ 261,781 $ 255,778
Short-term investments 438,951 787,873 720,556
Cash and cash equivalents 22,416 239,700 49,035
------------------------------------------------------------
Total investment income 1,368,435 1,289,354 1,025,369
Investment expenses 78,239 45,832 35,875
===========================================================
Net investment income $1,290,196 $ 1,243,522 $989,494
============================================================
At December 31, 1999 and 1998, investment securities with an amortized cost of
$6,602,056 and $6,678,745, respectively, and a fair value of $5,960,476 and
$6,623,770, respectively, are held by trustees in various amounts in accordance
with the statutory requirements of certain states in which the Company is
licensed to conduct business.
3. INCOME TAXES
The Company files a separate life insurance company Federal income tax return
and will continue to do so through the year 2001. Beginning in the year 2002,
the Company will be included in the consolidated Federal income tax return of
Sage Holdings (U.S.A.), Inc. and its subsidiaries.
The provision for income taxes varies from the amount which would be computed
using the federal statutory income tax rate as follows:
1999 1998 1997
----------------------------------------------------------
Pre-tax loss $ (8,696,414) $(568,974) $(351,786)
Application of the federal statutory tax rate - 34% (2,956,781) (193,451) (119,607)
Change in valuation allowance 2,907,523 193,451 119,532
Other 49,258 - (75)
----------------------------------------------------------
Total income tax provision $ - $ - $ -
==========================================================
F-9
23
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1999 and 1998 are as follows:
1999 1998
-----------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 3,501,308 $ 1,967,528
Unrealized loss on depreciation of investments 376,461 -
-----------------------------------------
Total deferred tax assets 3,877,769 1,967,528
Deferred tax liabilities:
Unrealized gain on appreciation of investments - (8,804)
Amortization of goodwill and development costs (261,185) (1,634,928)
Other (19,617) (19,617)
-----------------------------------------
Total deferred tax liabilities (280,802) (1,663,349)
Valuation allowance for deferred tax assets (3,220,506) (312,983)
-----------------------------------------
Net deferred tax asset (liability) $ 376,461 $ (8,804)
=========================================
Based upon the lack of historical operating results and the uncertainty of
operating earnings in the future, management has determined that it is not more
likely than not that the deferred tax assets will be fully recognized.
Accordingly, a valuation allowance has been recorded.
The Company has a separate company net operating loss carryforward of
approximately $10.3 million as of December 31, 1999, of which $4.7 million
expires in the year 2019, $3.7 million which expires in 2018 and $1.9 million
which expires in the year 2012.
4. RETAINED DEFICIT AND DIVIDEND RESTRICTIONS
Statutory-basis net (loss) income and surplus of the Company are as follows:
1999 1998 1997
-------------- ------------- ----------
Net (loss) income $ (389,023) $ 27,002 $ 51,133
Surplus 23,473,747 23,109,097 25,017,752
The Company is subject to state regulatory restrictions that limit the maximum
amount of dividends payable. Subject to certain net income carryforward
provisions as described below, the Company must obtain approval of the Insurance
Commissioner of the State of Delaware in order to pay, in any 12-month period,
"extraordinary" dividends which are defined as those in excess of the greater of
10% of surplus as regards policyholders as of the prior year-end and statutory
net income less realized capital gains for such prior year. Dividends may be
paid by the Company only out of earned surplus. In addition, the Company must
provide notice to the Insurance Commissioner of the State of Delaware of all
dividends and other distributions to stockholders within five business days
after declaration and at least ten days prior to payment. At December 31, 1999,
the Company could not pay a dividend to SLHA without prior approval from state
regulatory authorities as the Company currently does not have earned surplus.
F-10
24
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a Cost Sharing Agreement with Sage Insurance
Group, Inc. (SIGI), the parent of SLHA, to share the personnel costs, office
rent and equipment costs. These costs are allocated between the companies based
upon the estimated time worked, square footage of space utilized and upon
monitored usage of the equipment, respectively. Pursuant to this agreement, the
Company has received $903,757 and $151,348 from SIGI for the years ended
December 31, 1999 and 1998, respectively. The Company paid SIGI $76,048 for the
year ended December 31, 1997. At December 31, 1999 the amount due from SIGI
relating to this agreement was $594,432. There was no amount due at December 31,
1998. In addition, SIGI provides funds to the Company to meet various operating
expenses. As these amounts are paid back to SIGI at the end of each quarter, no
amounts remained payable at December 31, 1999 and 1998.
All non-recurring development costs of the Company are paid by SIGI or its
parent, Sage Group Limited, and treated as capital contributions. The amount of
development costs paid for by affiliated companies at December 31, 1999 , 1998
and 1997 were $7,098,106 , $3,270,219 and $1,504,558, respectively.
6. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes information with respect to the operations of the
Company on a quarterly basis:
(in thousands) Three Months Ended
March 31 June 30 September 30 December 31
------------ ----------------- ------------------- -----------
1999
Net investment income $ 317 $ 315 $ 319 $ 339
Total revenues 317 330 332 350
Benefits and expenses 1,083 1,413 1,468 1,791
Net loss (5,036) (1,083) (1,136) (1,441)
1998
Net investment income $ 315 $ 316 $322 $ 291
Total revenues 315 316 322 291
Benefits and expenses 607 543 123 540
Net (loss) income (291) (227) 198 (249)
The large loss in the first quarter 1999 is due to the write-off of unamortized
capitalized development costs pursuant to the adoption of SOP 98-5.
7. IMPACT OF YEAR 2000 (UNAUDITED)
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expenses related to this effort were not material. The Company is not aware of
any material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
F-11
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sage Life Assurance of America, Inc.
/s/ Mitchell R. Katcher
Mitchell R. Katcher
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ James F. Renz
James F. Renz
Vice President - Accounting and Finance
(Chief Accounting Officer)
Date: March 30, 2000
F-12
26
EXHIBIT INDEX
Exhibit
Number Description
- -----------------------------------------------------
27 Financial Data Schedule