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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 33-18053
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-2426091
- -------------------------------------------- ---------------------------------
(State or other (IRS Employer Identification No.)
jurisdiction, incorporation or organization)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 802-6000
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
--- ---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 13, 2004. Common stock, par value of $5
per share: 400,000 shares outstanding
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION (H) (1) (A) AND (B) ON FORM 10-Q AND
IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page No.
--------
Cover Page -
Index 2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. (Unaudited) Financial Statements
Statements of Financial Position
As of March 31, 2004 and December 31, 2003 3
Statements of Operations and Comprehensive Income
Three months ended March 31, 2004 and 2003 4
Statements of Stockholder's Equity
Periods ended March 31, 2004 and December 31, 2003 and 2002 5
Statements of Cash Flows
Three months ended March 31, 2004 and 2003 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 4. Controls and Procedures 10
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
FORWARD-LOOKING STATEMENT DISCLOSURE
Certain of the statements included in this Quarterly Report on Form 10-Q,
including but not limited to those in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Words such as "expects," "believes," "anticipates," "includes,"
"plans," "assumes," "estimates," "projects," "intends", or variations of such
words are generally part of forward-looking statements. Forward-looking
statements are made based on management's current expectations and beliefs
concerning future developments and their potential effects upon Pruco Life
Insurance Company of New Jersey ("the Company"). There can be no assurance that
future developments affecting the Company will be those anticipated by
management. These forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties, and there are certain important
factors that could cause actual results to differ, possibly materially, from
expectations or estimates reflected in such forward-looking statements,
including without limitation: general economic, market and political conditions,
including the performance of financial markets, interest rate fluctuations and
the continuing negative impact of the current economic environment; various
domestic or international military or terrorist activities or conflicts;
volatility in the securities markets; reestimates of our reserves for future
policy benefits and claims; changes in our assumptions related to deferred
policy acquisition costs; our exposure to contingent liabilities; catastrophe
losses; investment losses and defaults; changes in our claims-paying or credit
ratings; competition in our product lines and for personnel; fluctuations in
foreign currency exchange rates and foreign securities markets; the impact of
changing regulation or accounting practices; adverse litigation results; and
changes in tax law. The Company does not intend, and is under no obligation, to
update any particular forward-looking statement included in this document.
2
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2004 2003
----------- -----------
ASSETS
Fixed maturities available for sale,
at fair value (amortized cost, 2004: $828,526; and 2003: $746,370) $ 878,131 $ 782,685
Policy loans 153,106 154,659
Short-term investments 34,192 44,571
Other long-term investments 2,024 2,765
----------- -----------
Total investments 1,067,453 984,680
Cash and cash equivalents 56,454 72,547
Deferred policy acquisition costs 176,408 176,529
Accrued investment income 15,623 13,635
Reinsurance recoverable 21,380 17,850
Receivables from affiliates 17,604 17,173
Other assets 11,317 9,954
Separate account assets 1,934,227 1,926,301
----------- -----------
TOTAL ASSETS $ 3,300,466 $ 3,218,669
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 733,029 $ 675,823
Future policy benefits and other policyholder liabilities 167,417 158,752
Cash collateral for loaned securities 58,979 78,855
Securities sold under agreements to repurchase 23,962 14,483
Income taxes payable 56,454 51,383
Other liabilities 22,477 20,317
Separate account liabilities 1,934,227 1,926,301
----------- -----------
TOTAL LIABILITIES 2,996,545 2,925,914
----------- -----------
CONTINGENCIES - (SEE FOOTNOTE 2)
STOCKHOLDER'S EQUITY
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
March 31, 2004 and December 31, 2003 2,000 2,000
Paid-in-capital 168,760 168,742
Deferred compensation (262) (108)
Retained earnings 115,855 108,943
Accumulated other comprehensive income 17,568 13,178
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 303,921 292,755
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,300,466 $ 3,218,669
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
3
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2004 2003
-------- --------
REVENUES
Premiums $ 11,770 $ 9,498
Policy charges and fee income 18,338 15,630
Net investment income 12,610 10,643
Realized investment gains (losses), net 499 (1,745)
Asset management fees 1,200 950
Other income 490 434
-------- --------
TOTAL REVENUES 44,907 35,410
-------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 12,213 13,572
Interest credited to policyholders' account balances 6,612 4,749
General, administrative and other expenses 16,281 13,783
-------- --------
TOTAL BENEFITS AND EXPENSES 35,106 32,104
-------- --------
Income from operations before income taxes 9,801 3,306
Income tax expense 2,705 673
-------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 7,096 2,633
Cumulative effect of change in accounting
principle, net of tax (184) -
-------- --------
NET INCOME 6,912 2,633
-------- --------
Change in net unrealized investment gains, net of taxes 3,843 1,353
Cumulative effect of accounting change, net of tax 547 -
-------- --------
Other comprehensive income, net of tax 4,390 1,353
-------- --------
TOTAL COMPREHENSIVE INCOME $ 11,302 $ 3,986
======== ========
SEE NOTES TO FINANCIAL STATEMENTS
4
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF STOCKHOLDER'S EQUITY
PERIODS ENDED MARCH 31, 2004 AND DECEMBER 31, 2003 AND 2002 (IN THOUSANDS)
- --------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMMON PAID - IN - RETAINED DEFERRED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS COMPENSATION INCOME (LOSS) EQUITY
----------- ----------- -------- ------------ ------------- -------------
BALANCE, JANUARY 1, 2002 2,000 128,689 72,959 - 3,724 207,372
Net income - - 15,368 - - 15,368
Adjustments to policy
credits issued to eligible
policyholders - - (1) - - (1)
Change in net unrealized
investment gains, net of taxes - - - - 5,971 5,971
-------- --------- --------- --------- -------- ---------
BALANCE, DECEMBER 31, 2002 2,000 128,689 88,326 - 9,695 228,710
Net income - - 20,617 - - 20,617
Contribution from Parent - 40,000 - - - 40,000
Stock-based compensation
programs - 53 - (108) - (55)
Change in net unrealized
investment gains, net of taxes - - - - 3,483 3,483
-------- --------- --------- --------- -------- ---------
BALANCE, DECEMBER 31, 2003 2,000 168,742 108,943 (108) 13,178 292,755
Net income - - 6,912 - - 6,912
Stock-based compensation
programs - 18 - (154) - (136)
Cumulative effect of change
in accounting principle,
net of taxes - - - - 547 547
Change in net unrealized
investment gains, net of taxes - - - - 3,843 3,843
-------- --------- --------- --------- -------- ---------
BALANCE, MARCH 31, 2004 $ 2,000 $ 168,760 $ 115,855 $ (262) $ 17,568 $ 303,921
======== ========= ========= ========= ======== =========
SEE NOTES TO FINANCIAL STATEMENTS
5
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED,
MARCH 31,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,912 $ 2,633
Adjustments to reconcile net income to net cash (used in)
provided by
Operating activities:
Policy charges and fee income (4,465) (3,641)
Interest credited to policyholders' account balances 6,612 4,749
Realized investment (gains) losses, net (499) 1,745
Amortization and other non-cash items (8,317) (1,221)
Cumulative effect of accounting change 184 -
Change in:
Future policy benefits and other policyholders'
liabilities 7,010 4,295
Reinsurance recoverable (3,530) (1,752)
Accrued investment income (1,362) (668)
Policy loans 1,553 687
Receivable from affiliates (431) 6,328
Deferred policy acquisition costs 509 (6,115)
Income taxes payable 5,174 7,402
Other, net 668 1,531
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES 10,018 15,973
--------- ---------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities available for sale 13,098 73,844
Payments for the purchase of:
Fixed maturities available for sale (57,247) (118,400)
Cash collateral for loaned securities, net (19,876) 6,793
Securities sold under agreements to repurchase, net 9,479 24,767
Other long-term investments (23) (58)
Short term investments, net 12,650 5,177
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES (41,919) (7,877)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 53,735 26,899
Withdrawals (37,927) (8,342)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES 15,808 18,557
--------- ---------
Net (decrease) increase in Cash and cash equivalents (16,093) 26,653
Cash and cash equivalents, beginning of year 72,547 61,482
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 56,454 $ 88,135
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
6
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") on a
basis consistent with reporting interim financial information in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. These interim financial statements are unaudited but
reflect all adjustments which, in the opinion of management, are necessary to
provide a fair presentation of the results of operations and financial condition
of the Pruco Life Insurance Company of New Jersey ("the Company"), for the
interim periods presented. The Company is a wholly owned subsidiary of the Pruco
Life Insurance Company ("Pruco Life") which in turn is a wholly-owned subsidiary
of The Prudential Insurance Company of America ("Prudential Insurance").
Prudential Insurance is a wholly owned subsidiary of Prudential Financial, Inc
("Prudential Financial"). All such adjustments are of a normal recurring nature.
The results of operations for any interim period are not necessarily indicative
of results for a full year. Certain amounts in the Company's prior year
financial statements have been reclassified to conform to the current year
presentation.
The Company has extensive transactions and relationships with Prudential
Insurance and other affiliates. It is possible that the terms of these
transactions are not the same as those that would result from transactions among
wholly unrelated parties. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
2. CONTINGENCIES AND LITIGATION
CONTINGENCIES
On an ongoing basis, our internal supervisory and control functions review the
quality of our sales, marketing and other customer interface procedures and
practices and may recommend modifications or enhancements. In certain cases, if
appropriate, we may offer customers remediation and may incur charges, including
the cost of such remediation, administrative costs and regulatory fines.
Prudential Insurance and its affiliates have received formal requests for
information relating to their variable annuity business from regulators and
governmental authorities. The regulators and authorities include, among others,
the Securities and Exchange Commission, the NASD and the State of New York
Attorney General's Office. Prudential Insurance and its affiliates are
cooperating with all such inquiries and are conducting their own internal
review.
It is possible that the results of operations or the cash flow of the Company in
a particular quarterly or annual period could be materially affected as a result
of payments in connection with the matters discussed above depending, in part,
upon the results of operations or cash flow for such period. Management
believes, however, that the ultimate payments in connection with these matters
should not have a material adverse effect on the Company's financial position.
LITIGATION
The Company is subject to legal and regulatory actions in the ordinary course of
its businesses, including class actions. Pending legal and regulatory actions
include proceedings relating to aspects of the businesses and operations that
are specific to the Company and that are typical of the businesses in which the
Company operates. Class action and individual lawsuits involve a variety of
issues and/or allegations, which include sales practices, underwriting
practices, claims payment and procedures, premium charges, policy servicing and
breach of fiduciary duties to customers. We are also subject to litigation
arising out of our general business activities, such as our investments and
third party contracts. In certain of these matters, the plaintiffs are seeking
large and/or indeterminate amounts, including punitive or exemplary damages.
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially affected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.
7
3. ADOPTION OF STATEMENT OF POSITION 03-01
In July 2003, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 03-01, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts". AcSEC
issued the SOP to address the need for interpretive guidance to be developed in
three areas: separate account presentation and valuation; the accounting
recognition given sales inducements (bonus interest, bonus credits, persistency
bonuses); and the classification and valuation of certain long-duration contract
liabilities.
The Company adopted the SOP effective January 1, 2004. The effect of initially
adopting SOP 03-1 was a net of tax charge of $0.2 million, reported as a
cumulative effect of accounting change in the results of operations for the
three months ended March 31, 2004. This charge reflects primarily the net impact
of converting certain individual market value adjusted annuity contracts from
separate account accounting treatment to general account accounting treatment
and the effect of establishing reserves for guaranteed minimum death benefit
("GMDB") provisions of the Company's annuity contracts. In addition, the Company
recorded an increase in other comprehensive income of $0.5 million after tax
related to recording the cumulative unrealized investment gains, net of shadow
deferred acquisition costs (DAC), on fixed maturities reclassified from the
separate account to the general account as of January 1, 2004.
In April 2004, the FASB issued a Proposed FASB Staff Position ("FSP") clarifying
the accounting for unearned revenue liabilities of certain universal-life
contracts under the SOP. The Proposed FSP, if adopted as issued, would not
change the Company's accounting for these unearned revenue liabilities, and,
therefore, would have no impact on the charge recorded at adoption of the SOP.
On the Statement of Cash Flows, the cumulative effect of the SOP is shown on one
line rather than on the individual asset and liability lines that were affected.
The major components of this line are increases in fixed maturities and
policyholder account balances of approximately $40 million related to the
reclassifications of annuity contracts from the separate account to the general
account. In addition, the establishment of the GMDB reserves of approximately
$1.6 million and the increase in DAC of $0.4 million are also shown on this
line. Other balance sheet accounts that were affected include other long-term
investments and deferred taxes payable.
8
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION H(1)(A) AND (B) ON FORM 10-Q AND IS FILING THIS FORM WITH
REDUCED DISCLOSURE.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of Pruco Life Insurance
Company of New Jersey as of March 31, 2004, compared with December 31, 2003, and
its results of operations for the three-month periods ended March 31, 2004 and
March 31, 2003. You should read the following analysis of our financial
condition and results of operations in conjunction with the Company's MD&A and
audited financial statements included in the Company's Report on Form 10-K for
the year ended December 31, 2003.
The Company sells interest-sensitive individual life insurance and variable life
insurance, term life insurance, and individual variable annuities primarily
through Prudential Insurance's sales force in New Jersey and New York. These
markets are subject to regulatory oversight with particular emphasis placed on
company solvency and sales practices. These markets are also subject to
increasing competitive pressure as the legal barriers, which have historically
segregated the markets of the financial services industry, have been changed
through both legislative and judicial processes. Regulatory changes have opened
the insurance industry to competition from other financial institutions,
particularly banks and mutual funds that are positioned to deliver competing
investment products through large, stable distribution channels.
Generally, policyholders who purchase the Company's products have the option of
investing in the separate accounts, segregated funds for which investment risks
are borne by the customer, or the Company's portfolio, referred to as the
General account. The Company earns its profits through policy fees charged to
separate account annuity and life policyholders and through the interest spread
for General account annuity and life products. Policy charges and fee income
consist mainly of three types, sales charges or loading fees on new sales,
mortality and expense charges ("M&E") assessed on fund balances, and mortality
and related charges based on total life insurance in-force business.
Policyholder fund values are affected by net sales (sales less withdrawals),
changes in interest rates and investment returns. The interest spread represents
the difference between the investment income earned by the Company on its
investment portfolio and the amount of interest credited to the policyholders'
accounts. Products that generate interest-spread primarily include general
account life insurance products, fixed annuities and the fixed-rate option of
variable annuities.
Besides policy charges and fee income, the Company also earns revenues from
insurance premiums from term life insurance and asset management fees on the
separate account fund balances. The Company's operating expenses principally
consist of insurance benefits provided, general business expenses, commissions
and other costs of selling and servicing the various products we sell and
interest credited on general account liabilities.
1. ANALYSIS OF FINANCIAL CONDITION
From December 31, 2003 to March 31, 2004 there was an increase of $81 million in
total assets from $3,219 million to $3,300 million. Fixed maturities increased
by $95 million partially as a result of the implementation of Statement of
Position 03-01 ("SOP 03-01"). SOP 03-01 requires among other things, that
certain individual market value adjusted annuity ("MVA") contracts be accounted
for under general account accounting treatment. As a result of the adoption,
approximately $40 million of fixed maturities were reclassified from separate
account assets to general account fixed maturities. Fixed maturities also
increased as a result of investing general account policyholder deposits and
positive cash flows from insurance operations into these investments and from
unrealized investment gains. Separate account assets increased by $8 million
despite the reclassification of approximately $40 million of assets to the
general account due to positive market performance of approximately $45 million
and positive net sales. A lower level of securities lending activity contributed
to the decrease in cash and cash equivalents of $16 million.
During this three-month period, liabilities increased by $71 million from $2,926
million to $2,997 million. Policyholder account balances increased by $57
million due primarily to the reclassification of MVA contracts as described
above and positive net sales. Corresponding with the asset change, separate
account liabilities increased by $8 million, as described above. Future policy
benefits increased by $9 million due to the establishment of guaranteed minimum
death benefit reserves ("GMDB") of $2 million and growth in the term insurance
business. Income taxes payable increased by $5 million as a result of tax
expense related to positive income and unrealized gains. A lower level of
securities lending activity decreased liabilities by $10 million.
9
2. RESULTS OF OPERATIONS
NET INCOME
Net income of $6.9 million for the first quarter of 2004 was $4.3 million higher
than for the first quarter of 2003. Net income before the cumulative change in
accounting principle related to the adoption of SOP 03-01 was $4.5 million
higher than the prior year quarter. The effect of the cumulative change in
accounting principle was a charge to income of $0.2 million after tax. This
charge is primarily the result of an increase in reserves for guaranteed minimum
death benefits relating to our individual variable annuity contracts and the
impact of converting certain individual MVA contracts from separate account
accounting treatment to general account accounting treatment. Further details
regarding the components of revenues and expenses are described in the following
paragraphs.
REVENUES
Revenues increased by $9.5 million from the prior year comparable period. Policy
charges and fee income, consisting primarily of mortality and expense, loading
and other insurance charges assessed on general and separate account
policyholder fund balances, increased by $2.7 million. The increase was a result
of a $2.2 million increase for individual life products and a $0.5 million
increase for annuity products. Mortality and sales based loading charges for
life products increased as a result of growth in the in-force business. The
in-force business (excluding term insurance) grew to $10.7 billion at March 31,
2004 from $9.2 billion at March 31, 2003 and $10.3 billion at December 31, 2003.
Annuity fees are mainly asset based fees which are dependent on the fund
balances which are affected by net sales as well as asset depreciation or
appreciation on the underlying investment funds in which the customer has the
option to invest. Annuity fund balances have increased as a result of favorable
market performance and positive net sales.
Premiums increased by $2.3 million from higher term insurance sales and renewals
of the Term Essential and Term Elite products of $3.3 million. Partially
offsetting this was a reduction in extended term premiums of $1.2 million due to
lower policy lapses as a result of favorable market conditions.
Realized investment gains increased by $2.2 million mainly as a result of lower
impairments on fixed maturities in 2004 due to the improved credit environment.
Net investment income increased by $2.0 million as a result of increased income
from fixed maturities due to an increase in the portfolio balance from positive
operating and financing cash flows and the reclassification of fixed maturities
from the separate account to the general account. This was partially offset by
the effect of lower reinvestment rates for fixed maturities and short-term
investments.
BENEFITS AND EXPENSES
Policyholder benefits decreased by $1.4 million mainly as a result of lower
death benefits incurred on term insurance policies as a result of better
mortality experience in 2004 than in the prior year quarter.
Interest credited to policyholder account balances increased by $1.9 million due
to growth in policyholder account balances primarily from the reclassification
of the MVA annuity products from separate account to policyholder account
balances and from positive net sales.
General, administrative and other expenses increased by $2.5 million from the
prior year comparable period. There was an increase in commission expense and
general and administrative expenses of $1.8 million due to growth in the
business. In addition, DAC amortization for life products increased by $0.7
million as a result of the growing in-force business.
ITEM 4. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
In order to ensure that the information we must disclose in our filings with the
Securities and Exchange Commission is recorded, processed, summarized, and
reported on a timely basis, the Company's management, including our Chief
Executive Officer and Chief Financial Officer, have reviewed and evaluated the
effectiveness of our disclosure controls and procedures, as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e), as of March 31, 2004. Based on such
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of March 31, 2004, our disclosure controls and procedures
were effective in timely alerting them to material information relating to us
required to be included in our periodic SEC filings. There has been no change in
our internal control over financial reporting during the quarter ended March 31,
2004, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
10
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal and regulatory actions in the ordinary course of
its businesses, including class actions. Pending legal and regulatory actions
include proceedings relating to aspects of the businesses and operations that
are specific to the Company and that are typical of the businesses in which the
Company operates. Class action and individual lawsuits involve a variety of
issues and/or allegations, which include sales practices, underwriting
practices, claims payment and procedures, premium charges, policy servicing and
breach of fiduciary duties to customers. We are also subject to litigation
arising out of our general business activities, such as our investments and
third party contracts. In certain of these matters, the plaintiffs are seeking
large and/or indeterminate amounts, including punitive or exemplary damages.
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially affected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3(i)(a) The Articles of Incorporation (as amended through March 11,
1983) of Pruco Life Insurance Company of New Jersey are
incorporated by reference to Post-effective Amendment No. 26
to the Registration Statement on Form S-6 of Pruco Life of New
Jersey Variable Appreciable Account as filed April 28, 1997,
Registration No. 2-89780.
3(i)(b) Amendment to the Articles of Incorporation dated February 12,
1998 is incorporated by reference to Post-Effective Amendment
No. 12 to the Registration Statement on Form S-1, of Pruco
Life of New Jersey Variable Contract Real Property Account as
filed on April 16, 1999, Registration No. 33-20018.
3(ii) By-Laws of Pruco Life Insurance Company of New Jersey (as
amended through May 5, 1997) are incorporated by reference to
Form 10-Q as filed by the Company on August 15, 1997,
Registration No. 333-18053.
4(a) Market-Value Adjustment Annuity Contract (Discovery Select
variable annuity) is incorporated by reference to
Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-18053, filed December 18, 1996, on behalf of the Pruco
Life of New Jersey Flexible Premium Variable Annuity Account.
4(b) Market-Value Adjustment Annuity Contract (Strategic Partners
Select variable annuity) is incorporated by reference to
Pre-effective Amendment No. 1 to the Company's Form S-3,
Registration No. 333-62246, filed November 27, 2001.
4(c) Market-Value Adjustment Annuity Contract (Strategic Partners
Horizon annuity) is incorporated by reference to the Company's
Form S-3, Registration No. 333-100713, filed October 24, 2002.
4(d) Market-Value Adjustment Annuity Contract Endorsement
(Strategic Partners Annuity One variable annuity) is
incorporated by reference to the Company's registration
statement on Form S-3, Registration No. 333-103473, filed
February 27, 2003.
31.1 Section 302 Certification of the Chief Executive Officer
31.2 Section 302 Certification of the Chief Financial Officer
32.1 Section 906 Certification of the Chief Executive Officer
32.2 Section 906 Certification of the Chief Financial Officer
(b) REPORTS ON FORM 8K
None.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
By: /s/ William J. Eckert, IV
----------------------------
William J. Eckert, IV
Vice President and Chief Financial Officer
(Authorized Signatory and Principal Financial Officer)
Date: May 13, 2004
12