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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 333-25269
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 93-1225432
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
125 Wolf Road, Albany, New York 12205
(Address of principal executive offices) (Zip Code)
(518) 437-1816
(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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of March 1, 2001, the aggregate market value of the registrant's voting stock
held by non-affiliates of the registrant was $0.
As of March 1, 2001, 2,500 shares of the registrant's common stock were
outstanding, all of which were owned by the registrant's parent company.
Note: This Form 10-K 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
Item 1. Business..............................................................
A. Organization and Corporate Structure.........................
B. Business of the Company .....................................
C. Employee Benefits ...........................................
D. Financial Services......................................................
E. Investments ............................................................
F. Regulation...................................................
G. Ratings......................................................
H. Miscellaneous................................................
Item 2. Properties............................................................
Item 3. Legal Proceedings.....................................................
Item 4. Submission of Matters to a Vote of Security Holders...................
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................................
A. Equity Security Holders and Market Information...............
B. Dividends....................................................
Item 6. Selected Financial Data...............................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................
A. Company Results of Operations................................
B. Employee Benefits Results of Operations......................
C. Financial Services Results of Operations.....................
D. Investments..................................................
E. Liquidity and Capital Resources..............................
F. Accounting Pronouncements....................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............
Item 8. Financial Statements and Supplementary Data...........................
26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................................
PART III
Item 10. Directors and Executive Officers of the Registrant....................
A. Identification of Directors..................................
B. Identification of Executive Officers.........................
Item 11. Executive Compensation................................................
A. Compensation of Executive Officers...........................
B. Compensation of Directors....................................
Item 12. Security Ownership of Certain Beneficial Owners and Management........
A. Security Ownership of Certain Beneficial Owners..............
B. Security Ownership of Management.............................
Item 13. Certain Relationships and Related Transactions........................
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......
A. Index to Financial Statements................................
B. Index to Exhibits............................................
C. Reports on Form 8-K..........................................
Signatures......................................................................
PART I
ITEM 1. BUSINESS
A. ORGANIZATION AND CORPORATE STRUCTURE
First Great-West Life & Annuity Insurance Company (the "Company") is a stock
life insurance company organized under the laws of the State of New York in
1996.
The Company is a wholly-owned subsidiary of Great-West Life & Annuity Insurance
Company ("GWL&A"), a life insurance company domiciled in Colorado. GWL&A is a
wholly-owned subsidiary of GWL&A Financial Inc. ("GWL&A Financial"), a Delaware
holding company. GWL&A Financial is an indirect wholly-owned subsidiary of
Great-West Lifeco Inc. ("Lifeco"), a Canadian holding company. Lifeco is a
subsidiary of Power Financial Corporation ("Power Financial"), a Canadian
holding company with substantial interests in the financial services industry.
Power Financial Corporation is a subsidiary of Power Corporation of Canada
("Power Corporation"), a Canadian holding and management company. Mr. Paul
Desmarais, through a group of private holding companies, which he controls, has
voting control of Power Corporation.
Shares of Great-West Lifeco, Power Financial and Power Corporation are traded
publicly in Canada.
B. BUSINESS OF THE COMPANY
The Company is authorized to engage in the sale of life insurance, annuities,
and accident and health insurance. The Company became licensed to do business in
New York and Iowa in 1997.
The Company operates in the following two business segments:
Employee Benefits - life, health, and 401(k) products for group clients
Financial Services - savings products for both public and non-profit
employers and individuals and life insurance products for individuals
and businesses
The table that follows summarizes premiums and deposits for the years indicated.
For further information concerning the Company, see Item 6 (Selected Financial
Data), and Item 8 (Financial Statements and Supplementary Data). For commentary
on the information in the following table, see Item 7 (Management's Discussion
and Analysis of Financial Condition and Results of Operations).
For the years ended
---------------------------------------------
[Thousands] (1) 2000 1999 1998
------------ ------------ -------------
Premiums Income
Employee Benefits
Group Life & Health $ 13,467 $ 9,195 $
------------ ------------ -------------
Total Employee Benefits 13,467 9,195
------------ ------------ -------------
Financial Services
Savings (11) (8) (4)
Individual Insurance 109 (43) (61)
------------ ------------ -------------
Total Financial Services 98 (51) (65)
------------ ------------ -------------
Premium Income $ 13,565 $ 9,144 $ (65)
============ ============ =============
Fee Income
Employee Benefits
Group Life & Health $ 6,213 $ 430 $
401(k) 2
------------ ------------ -------------
Total Employee Benefits 6,215 430
------------ ------------ -------------
Financial Services
Savings 362 262 143
Individual Insurance
------------ ------------ -------------
Total Financial Services 362 262 143
------------ ------------ -------------
Fee Income $ 6,577 $ 692 $ 143
============ ============ =============
Deposits for investment-type
contracts (2)
Financial Services $ 37,344 $ 20,000 $ 62,528
------------ ------------ -------------
Total Investment-type
deposits $ 37,344 $ 20,000 $ 62,528
============ ============ =============
Deposits to Separate Accounts
Employee Benefits $ 3,249 $ $
Financial Services 11,189 9,389 12,776
------------ ------------ -------------
Total separate accounts
deposits $ 14,438 $ 9,389 $ 12,776
============ ============ =============
============ ============ =============
Self-funded equivalents (3) $ 16,225 $ $
============ ============ =============
(1) All information in the above table and other tables herein is derived from
information that has been prepared in conformity with accounting principles
generally accepted in the United States of America, unless otherwise
indicated.
(2) Investment-type contracts are contracts which include significant cash
build-up features, as discussed in FASB Statement No. 97.
(3) Self-funded equivalents generally represent paid claims under minimum
premium and administrative services only contracts, which amounts
approximate the additional premiums that would have been earned under such
contracts if they had been written as traditional indemnity or HMO
programs.
C. EMPLOYEE BENEFITS
1. Principal Products
The Employee Benefits segment of the Company provides a full range of employee
benefits products. The Company began operating in this segment as of December 1,
1999 by entering into an assumption reinsurance agreement with Anthem Health &
Life Insurance Company of New York ("AH&L NY"), to acquire a block of life and
health insurance business. The business primarily consists of administration
services only and stop loss policies. In 2000, the Company began writing new
employee benefits business and reported a 5.2% increase in health insurance
annualized premium equivalents to $41.7 million. In 2001, the Company will
continue its focus on writing new employee benefits business.
The Company offers customers a variety of health plan options to help them
maximize the value of their employee benefits package. The majority of the
Company's health care business is self-funded, whereby the employer assumes all
or a significant portion of the risk. For companies with better than average
claims experience, this can result in significant health care cost savings.
The Company offers employers a total benefits solution - an integrated package
of group life and disability insurance, managed care programs, and flexible
spending accounts. The Company began marketing 401(k) savings plans in 2000 to
complement its group life and health products. Through integrated pricing,
administration, funding, and service, the Company helps employers provide
cost-effective benefits that will attract and retain quality employees, and at
the same time, helps employees reach their personal goals by offering benefit
choices, along with information needed to make appropriate choices. Many
customers also find this integrated approach appealing because their benefit
plans are administered through a single company with linked systems that provide
on-line administration and account access, for enhanced efficiency and
simplified plan administration.
The Company offers a choice of managed care products including Preferred
Provider Organization ("PPO") plans and Point of Service ("POS") plans. PPO
plans offer members a greater choice of physicians and hospitals. Members do not
need to enroll with a primary care physician - they simply select a contracted
PPO provider at the time of the service to receive the highest level of
benefits. If members seek care outside of the PPO network, they receive a lower
level of benefits.
POS plans require that a member enroll with a primary care physician who is
responsible for coordinating the member's health care. Members receive the
highest benefit coverage and the lowest out-of-pocket costs when they use their
primary care physician to coordinate their health care. Members can seek care
outside of the primary physician's direction, at a reduced level of benefits.
Some benefits may not be covered outside the in-network POS plan.
The Company offers Internal Revenue Code Section 125 plans which enable
participants to set aside pre-tax dollars to pay for non reimbursed medical
expenses and dependent care expenses. This creates tax efficiencies for both the
employer and its employees.
The Company offers group life insurance. Sales of group life insurance consist
principally of renewable term coverage, the amounts of which are usually linked
to individual employee wage levels. Group life insurance in force prior to
reinsurance ceded to other insurance enterprises for the year ended December 31,
2000 totaled $674 million.
The Company offers disability insurance which is a type of health insurance
designed to compensate insured people for a portion of the income they lose
because of a disabling injury or illness. Generally, benefits are in the form of
monthly payments.
The Company's 401(k) product is offered by way of a group fixed and variable
deferred annuity contract. The product provides a variety of funding and
distribution options for employer-approved retirement plans that qualify under
Internal Revenue Code Section 401(k).
The 401(k) product investment options for the employer include guaranteed
interest rates for various lengths of time and variable investment options. For
the fully guaranteed option, the difference between the income earned on
investments in the Company's general account and the interest credited to the
participant's account balance flows through to operating income.
Variable investment options utilize separate accounts to provide participants
with a vehicle to assume the investment risks. Assets held under these options
are invested, as designated by the participant, in separate accounts which in
turn invest in shares of underlying funds managed by a subsidiary of the Company
or by selected external fund managers.
The Company is compensated by the separate accounts for bearing expense risks
pertaining to the variable annuity contract, and for providing administrative
services.
Customer retention is a key factor for the profitability of the Company's 401(k)
product. The annuity contract imposes a charge for termination during a
designated period of time after the contract's inception. The charge is
determined in accordance with a formula in the contract. Existing federal tax
penalties on distributions prior to age 59 1/2 provide an additional
disincentive to premature surrenders of account balances, but do not impact
rollovers to products of competitors.
The Company offers a rollover Individual Retirement Account, which allows
individuals to move retirement funds from a 401(k) plan to a qualified
Individual Retirement Account.
2. Method of Distribution
The Company distributes its products and services through affiliated sales
staff. Each sales office works with insurance brokers, agents, and consultants
in their local market.
3. Competition
The employee benefits industry is highly competitive. The United States health
care industry continues to experience mergers and consolidations. A number of
larger carriers have dropped out of the group health market entirely. Although
there are still many different carriers in the marketplace, it has become
dominated by an increasingly smaller number of carriers.
The highly competitive marketplace creates pricing pressures, which encourage
employers to seek competitive bids each year. Although most employers are
looking for affordably priced employee benefits products, they want to offer
product choices because employee needs differ. In many cases, it is more
cost-effective and efficient for an employer to contract with a carrier such as
the Company, which offers multiple product lines and centralized administration.
In addition to price, there are a number of other factors, which influence
employer decision-making. These factors include quality of service; scope,
cost-effectiveness and quality of provider networks; product responsiveness to
customers' needs; cost-containment services; and effectiveness of marketing and
sales.
4. Reserves
For group term insurance products, policy reserve liabilities are equal to the
present value of future benefits and expenses less the present value of future
net premiums using best estimate assumptions for interest, mortality, and
expenses (including margins for adverse deviation). For disability waiver of
premium contracts, the policy reserves equal the present value of future
benefits and expenses using best estimate assumptions for interest, mortality,
and expenses (including margins for adverse deviation). Reserves for long-term
disability products are established for lives currently in payment status, or
which are approved for payment but are in a waiting period, using industry and
Company morbidity factors, and interest rates based on Company experience. In
addition, reserves are held for claims that have been incurred but not reported.
For medical, dental, and vision insurance products, reserves reflect the
ultimate cost of claims including, on an estimated basis, (i) claims that have
been reported but not settled, and (ii) claims that have been incurred but not
reported. Claim reserves are based upon factors derived from past experience.
Reserves also reflect retrospective experience rating that is done on certain
types of business.
Assumptions for mortality and morbidity experience are periodically reviewed
against published industry data and company experience.
The above mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, pay expected death surrender requests, and to generate profits.
5. Reinsurance
The Company seeks to limit its exposure on any single insured and to recover a
portion of benefits paid by ceding risks to other insurance enterprises under
excess coverage and coinsurance contracts. The maximum amount of group life
insurance retained on any one life is $250 thousand.
D. FINANCIAL SERVICES
1. Principal Products
The Financial Services segment primarily markets savings products to public and
not-for-profit employers and individuals and offers life insurance products to
individuals and businesses.
The Company's fixed annuity product is a Guarantee Period Fund, which was
established as a non-unitized Separate account in which the owner does not
participate in the performance of the assets. The assets accrue solely to the
benefit of the Company and any gain or loss in the Guarantee Period Fund is
borne entirely by the Company. Guarantee period durations of one to ten years
are currently being offered by the Company. Distributions from the amounts
allocated to a Guarantee Period Fund more than six months prior to the maturity
date results in a market value adjustment ("MVA"). The MVA reflects the
relationship as of the time of its calculation between the current U.S. Treasury
Strip ask side yield and the U.S. Treasury Strip ask side yield at the inception
of the contract.
The Company's variable annuity products offer a number of investment options.
This product provides the opportunity for contractholders to assume the risks
of, and receive all the benefits from, the investment of retirement assets. The
variable product assets are invested, as designated by the participant, in a
separate account which in turn invests in shares of underlying funds managed by
selected external fund managers.
The fixed annuity product generates earnings from the investment spreads on
guaranteed investment returns. The variable annuity product generates earnings
from the fees collected for mortality and expense risks associated with the
variable options.
The amount of annuities in-force is measured by account balances. At December
31, 2000, annuity account balances were $141 thousand for fixed annuities and
$44.1 million for variable annuities. At December 31, 1999, annuity account
balances were $119 thousand for fixed annuities and $39.9 million for variable
annuities.
During 1998, the Company began selling life insurance products in the
Business-Owned Life Insurance ("BOLI") market. These products are
interest-sensitive whole life products which fund post-retirement benefits for
bank employees. BOLI deposits of $37 million were received in 2000, representing
$468.5 million of life insurance in-force.
2. Method of Distribution
The Company distributes its annuity products through Charles Schwab & Co., Inc.
pursuant to a distribution agreement. The Company's BOLI product is currently
marketed through one broker, Clark/Bardes, Inc.
3. Competition
The individual life and annuity insurance marketplace is highly competitive. The
Company's competitors include mutual fund companies, insurance companies, banks,
investment advisors and certain service and professional organizations. No one
competitor or small number of competitors is dominant. Competition focuses on
service, technology, cost, variety of investment options, investment
performance, product features, price and financial strength as indicated by
ratings issued by nationally recognized agencies. For more information on the
Company's ratings see Item 1(G) - Ratings.
4. Reserves
Reserves for interest-sensitive whole life products are equal to cumulative
deposits less withdrawals and charges plus credited interest. For all life
insurance contracts, reserves are established for claims that have been incurred
but not reported based on factors derived from past experience.
Reserves for investment contracts (deferred annuities and immediate annuities
without life contingent payouts) are equal to cumulative deposits plus credited
interest less withdrawals and other charges.
The above-mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, and pay expected death or retirement benefits or surrender requests.
5. Reinsurance
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 coinsurance contracts. The Company retains
a maximum of $250 thousand of coverage per individual life.
E. INVESTMENTS
GWL&A manages the Company's general and separate accounts in support of cash and
liquidity requirements of the Company's insurance and investment products.
Invested assets under management at year-end 2000 totaled $213.9 million,
comprised of $166.5 million of general account assets and $47.4 million of
separate account assets. Invested assets under management at year-end 1999
totaled $152.7 million, comprised of $112.8 million of general account assets
and $39.9 million of separate account assets.
The invested assets of the Company include a broad range of asset classes, such
as public and privately placed corporate bonds, government bonds and
mortgage-backed and asset-backed securities. The assets of the Company are
managed to reflect the underlying characteristics of related insurance products.
The assets of the Company are routinely monitored and evaluated in light of
current economic conditions, trends in capital markets and other factors. These
other factors include investment size, quality, concentration by industry and
other diversification considerations for fixed maturity investments.
F. REGULATION
1. Insurance Regulation
The Company must comply with the insurance laws of New York and Iowa. These laws
govern the admittance of assets, premium rating methodology, policy forms,
establishing reserve requirements and solvency standards, maximum interest rates
on life insurance policy loans and minimum rates for accumulation of surrender
values and the type, amounts and valuation of investments permitted.
The Company's operations and accounts are subject to examination by the New York
Insurance Department at specified intervals.
New York has adopted the National Association of Insurance Commissioners'
risk-based capital rules and other financial ratios for life insurance
companies. Based on the Company's December 31, 2000 statutory financial reports,
the Company has risk-based capital well in excess of that required.
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles (Codification). The
Codification, which is intended to standardize accounting and reporting to state
insurance departments, is effective January 1, 2001. However, statutory
accounting principles will continue to be established by individual state laws
and permitted practices. The New York Insurance Department will require adoption
of Codification with certain modifications for the preparation of statutory
financial statements effective January 1, 2001.
2. Insurance Holding Company Regulation
The Company is subject to and complies with insurance holding company
regulations in New York. These regulations contain certain restrictions and
reporting requirements for transactions between an insurer and its affiliates,
including the payments of dividends. They also regulate changes in control of an
insurance company.
3. Securities Regulation
The Company is subject to various levels of regulation under federal securities
laws. The Company's separate accounts and annuity products are registered under
the Investment Company Act of 1940 and the Securities Act of 1933.
4. Potential Legislation
United States federal and state legislation and administrative regulation in
various areas, including pension, financial services, health care and insurance
could significantly and adversely affect the Company in the future. Congress has
from time to time considered legislation relating to health care reform and
managed care issues (including patients' rights, privacy of medical records and
managed care plan or enterprise liability), changes in the deferral of taxation
on the accretion of value within certain annuities and life insurance products,
changes in regulation for the Employee Retirement Income Security Act of 1974,
as amended, and changes as to the availability of Section 401(k) for individual
retirement accounts.
It is not possible to predict whether future legislation or regulation adversely
affecting the business of the Company will be enacted and, if enacted, the
extent to which such legislation or regulation will have an effect on the
Company and its competitors.
G. RATINGS
The Company is rated by a number of nationally recognized rating agencies. The
ratings represent the opinion of the rating agencies on the financial strength
of the Company and its ability to meet the obligations of its insurance
policies. The ratings take into account an agreement whereby GWL&A has
undertaken to provide the Company with certain financial support related to
maintaining required statutory surplus and liquidity.
Rating Agency Measurement Rating
----------------------------------- ----------------------------- --------------
A.M. Best Company Financial Condition and AA+ *
Operating Performance
Fitch, Inc. Claims Paying Ability AAA *
Standard & Poor's Corporation Financial Strength AA **
Moody's Investors Service Financial Strength Aa3 ***
* Highest ratings available.
** Third highest rating out of 21 rating categories. *** Fourth highest
rating out of 21 rating categories.
H. MISCELLANEOUS
Significant BOLI deposits were received during 2000. Although the Company's BOLI
business is comprised of a few customers, which account for the majority of the
total deposits, the BOLI contracts allow for no more than 20% surrenders in any
given year.
The Company and GWL&A have administrative services agreements whereby GWL&A
administers, distributes, and underwrites business for the Company and
administers the Company's investment portfolio.
ITEM 2. PROPERTIES
The Company leases its home office in Albany, New York.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 2000 to a vote of security
holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. EQUITY SECURITY HOLDERS AND MARKET INFORMATION
There is no established public trading market for the Company's common equity.
B. DIVIDENDS
The Company has not paid dividends on its common shares.
Under New York law, the Company may distribute a dividend if the total of all
dividends paid in any calendar year does not exceed the lesser of (i) 10% of
surplus to policyholders as of the preceding December 31; or (ii) the net gain
from operations for the preceding calendar year, not including realized capital
gains. The Company cannot distribute any greater dividend amount unless a notice
of its intention to declare such dividend and the amount thereof has been filed
with the New York Superintendent of Insurance not less than thirty days in
advance of such proposed declaration. The Superintendent may disapprove of such
distribution by giving written notice to the Company within thirty days after
such filing stating that he finds the financial condition of the Company does
not warrant such distribution.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain financial data of the Company. This
summary has been derived in part from, and should be read in conjunction with,
the consolidated financial statements of the Company included in Item 8
(Financial Statements and Supplementary Data).
For the
Period from
April 4, 1997
(inception)
through
(Dollars in Thousands) For the years ended December 31, December 31,
---------------------------------------
2000 1999 1998 1998
----------- ---------- ---------- - ---------------
INCOME STATEMENT DATA
Premium income $ 13,565 $ 9,144 $ (65) $ 21
Fee income 6,577 692 143
Net investment income 10,333 6,278 3,367 243
Realized investment
gains (losses) 67 (6) 74
----------- ---------- ---------- - ---------------
----------- ---------- ---------- - ---------------
Total Revenues 30,542 16,108 3,519 264
----------- ---------- ---------- - ---------------
----------- ---------- ---------- - ---------------
Total benefits and expenses 27,152 14,444 2,124 213
Income tax expense 1,346 641 603 18
----------- ---------- ---------- - ---------------
Net Income $ 2,044 $ 1,023 $ 792 $ 33
=========== ========== ========== = ===============
Deposits for investment-
type contracts $ 37,344 $ 20,000 $ 62,528 $
Deposits to separate
accounts 14,438 9,389 12,776
Self-funded premium
equivalents 16,225
BALANCE SHEET DATA
Investment assets $ 166,538 $ 112,799 $ 80,353 $ 5,381
Separate account assets 47,359 39,881 23,836 9,045
Total assets 247,806 171,710 107,095 16,154
Total policyholder 141,770 98,421 64,445 84
liabilities
Total stockholder's equity 36,074 30,614 16,642 6,538
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements. Forward-looking statements
are statements not based on historical information and which 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 the
Company's products, investment spreads or yields, or the earnings or
profitability of the Company's 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
the Company's investment portfolio, and other factors. Readers are also directed
to consider other risks and uncertainties discussed in documents filed by the
Company with the Securities and Exchange Commission.
Management's discussion and analysis of financial condition and results of
operations of the Company for the years ended 2000 and 1999 follows.
A. COMPANY RESULTS OF OPERATIONS
1. Consolidated Results
The Company's consolidated net income increased $1.0 million in 2000 when
compared to 1999, reflecting growth in the Employee Benefits and Financial
Services segments during 2000. The Employee Benefits segment contributed $921
thousand to the improved consolidated results and the Financial Services segment
contributed a $100 thousand increase. Of total consolidated net income in 2000
and 1999, the Employee Benefits segment contributed 67% and 44%, respectively,
while the Financial Services segment contributed 33% and 56%, respectively.
The Employee Benefits segment began operations in 1999 by entering into an
assumption reinsurance agreement on December 1, 1999 with AH&L NY to acquire a
block of life and health insurance business. The subsequent operations resulting
from this agreement resulted in net income of $1.4 million and $446 thousand
being recorded in 2000 and 1999, respectively.
The Financial Services net income increased in 2000 primarily due to realized
gains on fixed maturities in 2000 of $67 thousand compared to realized losses in
1999 of $6 thousand and increased margins and fees on larger asset balances from
BOLI sales in 2000.
The Company's consolidated net income increased $231 thousand in 1999 when
compared to 1998. The increase in 1999 was primarily due to the acquisition of
AH&L NY and higher investment income resulting from increased BOLI sales.
In 2000, total revenues increased $14.4 million to $30.5 million when compared
to 1999. The growth in revenues in 2000 was comprised of increased premium and
fee income of $10.3 million, increased net investment income of $4.1 million and
increased realized gain on investments of $73 thousand.
The increased premium and fee income in 2000 was comprised of growth in Employee
Benefits and Financial Services premium and fee income of $10.1 million and $249
thousand, respectively.
Net investment income grew to $10.3 million and $6.3 million in 2000 and 1999,
respectively, from $3.4 million in 1998, primarily due to BOLI sales each year,
as well as a capital infusion from GWL&A of $16 million in 1999. The growth in
both years was primarily in the Financial Services segment.
Realized investment income from fixed maturities increased from $6 thousand in
1999 to $67 thousand in 2000. The realized investment gain in 2000 was the
result of sales of U.S. Treasury securities while the increase in interest rates
in 1999 contributed to fixed maturity losses.
Total benefits and expenses increased $12.7 million in 2000 when compared to
1999. The Employee Benefits segment contributed $9.6 million of the increase in
2000 compared to the Financial Services segment, which contributed $3.1 million.
The increase in total benefits and expenses was $12.3 million in 1999. The
increase in total benefits and expenses in the Employee Benefits segment in 2000
and 1999 resulted from the acquisition of the group health and life business
from AH&L NY in December 1999. The increases in Financial Services in both years
relates to higher interest credits on BOLI account balances and increased
operating expenses associated with growth in the Company's business.
Income tax expense increased $705 thousand in 2000 when compared to 1999. Income
tax expense increased $38 thousand in 1999 when compared to 1998. The increase
in income tax expense in 2000 reflected higher net earnings. The increase in
income tax expense from 1998 to 1999 reflected higher earnings in 1999. The
Company's effective tax rate was 39.7% in 2000 compared to 38.5% in 1999, due to
higher state income taxes in 2000. The Company's effective tax rate was 38.5% in
1999 compared to 43.2% in 1998, due to lower state income taxes in 1999 compared
to 1998.
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 equivalents. Self-funded equivalents generally
represent paid claims under minimum premium and administrative services only
contracts, which amounts approximate the additional premiums that would have
been earned under such contracts if they had been written as traditional
indemnity or HMO programs.
Deposits for investment-type contracts increased $17.3 million in 2000 when
compared to 1999, primarily due to BOLI deposits of $20.0 million in 1999
compared to $37.3 million in 2000. Deposits for investment-type contracts
decreased $42.5 million in 1999 when compared to 1998 due to a single premium of
$50.0 million on one case in 1998. BOLI sales are single premium and very large
in nature, and therefore, can vary from year to year.
Deposits for separate accounts increased $5.0 million in 2000 when compared to
1999. Deposits for separate accounts decreased $3.4 million in 1999 when
compared to 1998. This fluctuation is expected in the small market in which the
Company operates.
Self-funded premium equivalents were $16,225 in 2000, the first full year of
operations resulting from the AH&L NY assumption reinsurance agreement.
Total assets and liabilities increased $76.1 million or 44% when compared to
1999. The increase is primarily attributable to BOLI business.
2. Other Matters
On October 6, 1999, GWL&A entered into an agreement with First Allmerica
Financial Corporation ("Allmerica") to acquire, via reinsurance, Allmerica's
group life and health insurance business on March 1, 2000. The Allmerica
policies resident in the State of New York are expected to be underwritten and
retained by the Company upon each policy renewal date. This business primarily
consists of administrative services only and stop loss policies. The purchase
price is based on a percentage of the premium and administrative fees in force
at March 1, 2000 and March 1, 2001. Management does not expect the purchase
price to have a material impact on the Company's financial statements.
B. EMPLOYEE BENEFITS RESULTS OF OPERATIONS
On December 1, 1999, the Employee Benefits segment entered into a reinsurance
transaction with AH&L NY. The results below reflect the operations for the
Employee Benefits segment for the following periods:
(Thousands) Years Ended December 31,
-----------------------------------
2000 1999
--------------- ----------------
INCOME STATEMENT DATA
Premium income $ 13,467 $ 9,195
Fee income 6,215 430
Net investment income 1,111
--------------- ----------------
Total Revenues 20,793 9,625
--------------- ----------------
--------------- ----------------
Policyholder benefits 14,431 8,378
Operating expenses 4,087 506
--------------- ----------------
Total benefits and expenses 18,518 8,884
--------------- ----------------
Income from operations 2,275 741
Income tax expense 908 295
--------------- ----------------
Net Income $ 1,367 $ 446
Deposits to separate accounts 3,249
Self-funded premium equivalents 16,225
During 2000, the Employee Benefits segment had an overall increase in its
results of operations. The increases are due to the inclusion of a full year of
operating results in 2000, versus only one month in 1999, due to the AH&L NY
acquisition in December 1999. The Company also began marketing 401(k) savings
plans to customers to complete the overall product offering in the Employee
Benefits segment.
In 2001, the Company will continue to build upon the acquisition of the AH&L NY
business though new sales and the addition of the Allmerica group life and
health business.
C. FINANCIAL SERVICES RESULTS OF OPERATIONS
The following is a summary of certain financial data of the Financial Services
segment:
(Thousands) Years Ended December 31,
----------------------------------------
INCOME STATEMENT DATA 2000 1999 1998
------------ ----------- -----------
Premium income $ 98 $ (51) $ (65)
Fee income 362 262 143
Net investment income 9,222 6,278 3,367
Realized investment gains 67 (6) 74
(losses)
------------ ----------- -----------
Total Revenues 9,749 6,483 3,519
Policyholder benefits 7,261 4,600 1,737
Operating expenses 1,373 960 387
------------ ----------- -----------
Total benefits and expenses 8,634 5,560 2,124
------------ ----------- -----------
Income from operations 1,115 923 1,395
Income tax expense 438 346 603
------------ ----------- -----------
Net Income $ 677 $ 577 $ 792
============ =========== ===========
Deposits for investment-type
Contracts $ 37,344 $ 20,000 $ 62,528
Deposits to separate accounts 11,189 9,389 12,776
Net income for Financial Services increased $100 thousand in 2000 and decreased
$215 thousand in 1999. The realized investment gains increase of $73 thousand in
2000 was due primarily to realized gains on fixed maturities. The additional
earnings in 2000 reflected larger earnings from an increased asset base, an
increase in investment margins, and additional realized gains on fixed
maturities. The decrease in 1999 was due primarily to higher benefits related to
BOLI products and realized losses on fixed maturities in 1999 compared to
realized gains in 1998.
Premium and fee income increased $249 thousand in 2000 compared to an increase
of $133 thousand in 1999. The increase in 2000 was driven by higher fee income
related to growth in the separate accounts.
Deposits for investment type contracts included BOLI deposits of $37.3 million
in 2000 compared to $20.0 million in 1999. The nature of this type of product
leads to large fluctuations from year to year.
In 2000, the deposits for separate accounts increased $1.8 million to $11.2
million. Deposits for separate accounts decreased $3.4 million in 1999 to $9.4
million. The separate account assets have increased by $7.5 million and $16.0
million in 2000 and 1999, respectively, due to the new deposits.
Net investment income increased $2.9 million in 2000 compared to 1999 and $2.9
million in 1999 compared to 1998 primarily due to BOLI sales, as well as a
capital infusion from GWL&A of $16 million in 1999.
Total benefits and expenses increased $3.1 million in 2000 compared to $3.4
million in 1999 primarily due to additional interest credits on BOLI balances
and increased operating expenses.
D. INVESTMENTS
The Company's primary investment objective is to acquire assets whose durations
and cash flows reflect the characteristics of the Company's 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 are
designed to ensure that even in changing interest rate environments, the
Company's assets will always be able to meet the cash flow and income
requirements of its liabilities. Using dynamic modeling to analyze the effects
of a wide range of possible market changes upon investments and policyholder
benefits, the Company ensures that its investment portfolio is appropriately
structured to fulfill financial obligations to its policyholders.
A summary of the Company's general account invested assets follows:
(Dollars in Thousands) 2000 1999
--------------- ----------------
Fixed maturities, available for sale, at fair $ 150,631 $ 74,149
value
Fixed maturities, held-to-maturity, at amortized 37,050
cost
Short-term investments 15,907 1,600
--------------- ----------------
Total invested assets $ 166,538 $ 112,799
=============== ================
During 2000, the Company transferred all securities classified as
held-to-maturity into the available-for-sale category. The Company recorded a
$645 unrealized gain associated with this transfer in other comprehensive
income, net of tax.
Fixed maturity investments include public and privately placed corporate bonds,
government bonds and mortgage-backed and asset-backed securities. Private
placement investments, which are primarily in the held-to-maturity category, are
generally less marketable than publicly traded assets, yet they typically offer
covenant protection which 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 distribution of the fixed maturity portfolio by credit rating is summarized
as:
Credit Rating 2000 1999
-------------
-------------- --------------
AAA 62.8% 57.4%
AA 14.3 11.2
A 7.3 10.1
BBB 15.6 21.3
-------------- --------------
TOTAL 100.0% 100.0%
============== ==============
E. LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that are dependent upon the
principal product lines currently offered. Life insurance and pension plan
reserves are primarily long-term liabilities. Life insurance and pension plan
reserve requirements are usually stable and predictable, and are supported by
long-term, fixed income investments.
Generally, the Company has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio. Liquidity for the
Company is strong, as evidenced by significant amounts of short-term investments
and cash, which totaled $24.4 million and $7.0 million as of December 31, 2000
and 1999, respectively.
The Company and GWL&A have an agreement whereby GWL&A has undertaken to provide
the Company with certain financial support related to maintaining required
statutory surplus and liquidity.
F. ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", which
provides guidance with respect to revenue recognition issues and disclosures. As
amended by SAB No. 101 no later than the fourth quarter of the fiscal year
ending December 31, 2000. The adoption of SAB No. 101 did not affect the
Company's revenue recognition practices.
See Note 1 to the Consolidated Financial Statements for additional information
regarding accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE 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.
To manage interest rate risk, the Company invests in assets that are suited to
the products that it sells. For products with uncertain timing of benefit
payments such as 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 can then react to changing interest rates as these assets
mature for reinvestment.
The Company has estimated the possible effects of interest rate changes at
December 31, 2000. If interest rates increased by 100 basis points (1%), the
fair value of the fixed income assets would decrease by approximately $8
million. The cash flow projections are shown in the table below. The table shows
cash flows rather than expected maturity dates because many of the Company's
assets have substantial expected principal payments prior to the final maturity
date. The fair value shown in the table below was calculated using spot discount
interest rates that varied by the year in which the cash flow was expected to be
received. These spot rates in the benchmark calculation ranged from 7.14% to
8.01%.
Projected Cash Flows by Calendar Year ($ millions)
There- Undiscounted Fair
2000 2001 2002 2003 2004 after Total Value
------- ------- -------- ------- ------- --------- --------------- ---------
Benchmark 13 13 19 14 19 139 219 144
Interest Rates
up 1% 13 13 19 14 18 142 221 136
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are the Company's Financial Statements for the years ended
December 31, 2000 and 1999 and the Independent Auditors' Report thereon.
First Great-West Life & Annuity Insurance Company
(A wholly-owned subsidiary of Great-West Life & Annuity Insurance Company)
Financial Statements for the Years Ended
December 31, 2000, 1999, and 1998
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
First Great-West Life & Annuity Insurance Company:
We have audited the accompanying balance sheets of First Great-West Life &
Annuity Insurance Company (a wholly-owned subsidiary of Great-West Life &
Annuity Insurance Company) as of December 31, 2000 and 1999, and the related
statements of income, stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 2000. 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 of America. 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, such financial statements present fairly, in all material
respects, the financial position of First Great-West Life & Annuity Insurance
Company as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for the each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
DELOITE & TOUCHE LLP
Denver, Colorado
January 29, 2001
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
==============================================================================================
(Dollars in Thousands, except for Share Information)
ASSETS 2000 1999
- ------
----------------- -----------------
INVESTMENTS:
Fixed maturities:
Held-to-maturity, at amortized cost
(fair value $35,335) $ $ 37,050
Available-for-sale, at fair value
(amortized cost $148,522 and $77,740) 150,631 74,149
Short-term investments, available-for-sale (cost
approximates fair value) 15,907 1,600
----------------- -----------------
Total Investments 166,538 112,799
OTHER ASSETS:
Cash 8,462 5,443
Reinsurance receivable 1,924 1,426
Deferred policy acquisition costs 1,717 1,702
Investment income due and accrued 1,325 1,204
Amounts receivable related to uninsured
accident and health plans 2,069
Other assets 4,596 3,366
Premiums in course of collection
(net of allowances of $776 and $580) 2,502 537
Deferred income taxes 1,107 2,050
Due from Parent Corporation 10,207 3,302
SEPARATE ACCOUNT ASSETS 47,359 39,881
----------------- -----------------
TOTAL ASSETS $ 247,806 $ 171,710
================= =================
(Continued)
==============================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 137,657 $ 93,434
Policy and contract claims 3,851 4,894
Policyholder funds 262 93
GENERAL LIABILITIES:
Bank overdrafts 8,954 1,508
Contract deposits 7,761
Other liabilities 5,888 1,286
SEPARATE ACCOUNT LIABILITIES 47,359 39,881
----------------- -----------------
Total Liabilities 211,732 141,096
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value, 2,500 shares
Authorized, issued, and outstanding 2,500 2,500
Additional paid-in capital 28,600 28,600
Accumulated other comprehensive income (loss) 1,082 (2,334)
Retained earnings 3,892 1,848
----------------- -----------------
Total Stockholder's Equity 36,074 30,614
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 247,806 $ 171,710
================= =================
See notes to financial statements. (Concluded)
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
==============================================================================================
(Dollars in Thousands)
2000 1999 1998
--------------- --------------- --------------
REVENUES:
Premium income, net of premium ceded
of $109, $64, and $65 $ 13,565 $ 9,144 $ (65)
Fee income 6,577 692 143
Net investment income 10,333 6,278 3,367
Net realized gains (losses) on investments 67 (6) 74
--------------- --------------- --------------
30,542 16,108 3,519
--------------- --------------- --------------
BENEFITS AND EXPENSES:
Life and other policy benefits, net of
reinsurance recoveries of $964, $740,
and $75 15,625 4,391 50
(Decrease) increase in reserves (944) 4,003
Interest paid or credited to
Contractholders 7,011 4,584 1,687
General and administrative expenses 5,460 1,466 387
--------------- --------------- --------------
27,152 14,444 2,124
--------------- --------------- --------------
INCOME BEFORE INCOME TAXES 3,390 1,664 1,395
PROVISION FOR INCOME TAXES:
Current 2,307 65 1,920
Deferred (961) 576 (1,317)
--------------- --------------- --------------
1,346 641 603
--------------- --------------- --------------
NET INCOME $ 2,044 $ 1,023 $ 792
=============== =============== ==============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
==============================================================================================
(Dollars in Thousands, except for Share Information)
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income (Loss) Earnings Total
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, JANUARY 1, 1998 2,500 $ 2,500 $ 4,000 $ 5 $ 33 $ 6,538
Net income 792 792
Other comprehensive income 712 712
-------------
Comprehensive income 1,504
-------------
Capital contribution 8,600 8,600
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,500 2,500 12,600 717 825 16,642
Net income 1,023 1,023
Other comprehensive income (3,051) (3,051)
(loss)
-------------
Comprehensive income (loss) (2,028)
-------------
Capital contribution 16,000 16,000
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 2,500 2,500 28,600 (2,334) 1,848 30,614
Net income 2,044 2,044
Other comprehensive income 3,416 3,416
-------------
Comprehensive income 5,460
------------- ------------- ------------- --------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 2,500 $ 2,500 $ 28,600 $ 1,082 $ 3,892 $ 36,074
============= ============= ============= =============== ============= =============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
==============================================================================================
(Dollars in Thousands)
2000 1999 1998
------------ ------------ -------------
OPERATING ACTIVITIES:
Net income $ 2,044 $ 1,023 $ 792
Adjustments to reconcile net income to net cash
Provided by operating activities
Amortization of investments (1,032) 59 12
Realized (losses) gains on sale of (67) 6 (74)
investments
Amortization of deferred acquisition costs 213 112
Deferred income taxes (961) 576 (1,317)
Changes in assets and liabilities:
Accrued interest and other receivables (2,086) (1,046) (671)
Policy benefit liabilities 5,902 13,389 1,859
Reinsurance receivable (498) (1,303) (123)
Bank overdrafts 7,446 1,508
Contract deposits 7,761
Other, net 695 (2,765) (1,361)
------------ ------------ -------------
Net cash provided by (used in)
operating activities 19,417 11,559 (883)
------------ ------------ -------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and redemptions of investments:
Fixed maturities:
Held-to-maturity 667 447
Available-for-sale 50,107 15,683 73,340
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,144) (23,000) (14,500)
Available-for-sale (83,570) (31,066) (131,924)
------------ ------------ -------------
Net cash used in investing activities $ (46,940) $ (37,936) $ (73,084)
------------ ------------ -------------
See notes to financial statements. (Continued)
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
==============================================================================================
(Dollars in Thousands)
2000 1999 1998
------------ ------------ -------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 37,447 20,494 62,502
Due (from) to Parent Corporation (6,905) (5,379) 1,922
Capital contributions 16,000 8,600
------------ ------------ -------------
Net cash provided by financing activities 30,542 31,115 73,024
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH 3,019 4,738 (943)
CASH, BEGINNING OF YEAR 5,443 705 1,648
------------ ------------ -------------
CASH, END OF YEAR $ 8,462 $ 5,443 $ 705
============ ============ =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid (received) during the year for:
Income taxes $ 2,217 $ (1,073) $ 2,390
See notes to financial statements. (Concluded)
45
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
================================================================================
(Dollars in Thousands)
1. ORGANIZATION
First Great-West Life & Annuity Insurance Company (the Company) is a
wholly-owned subsidiary of Great-West Life & Annuity Insurance Company
(the Parent Corporation). The Company was incorporated as a stock life
insurance company in the State of New York and was capitalized on April
4, 1997, through a $6,000 cash investment from the Parent Corporation
for 2,000 shares of common stock. On December 29, 1997, the Company
issued an additional 500 shares of common stock to the Parent
Corporation for $500. The Company was licensed as an insurance company
in the State of New York on May 28, 1997. The Company does business in
New York through two business segments, as discussed in Note 9.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and
disclosure of contingent 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.
Cash - Cash includes only amounts in demand deposit accounts.
Investments - Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and ability to
hold the securities to maturity. Held-to-maturity securities are stated
at amortized cost unless fair value is less than cost and the decline is
deemed to be other than temporary, in which case they are written down
to fair value and a new cost basis is established (See Note 5).
Fixed maturities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the net unrealized gains and losses reported as accumulated
other comprehensive income (loss) in stockholder's equity.
The amortized cost of fixed maturities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and
accretion of discounts using the effective interest method over the
estimated life of the related bonds. Such amortization is included in
net investment income. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net realized gains
(losses) on investments.
Short-term investments include securities purchased with initial
maturities of one year or less and are carried at amortized cost. The
Company considers short-term investments to be available-for-sale and
amortized cost approximates fair value.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
primarily consist of sales commissions related to the production of new
and renewal business, have been deferred to the extent recoverable.
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. Amortization of deferred policy acquisition
costs was $213, $112, and $0 in 2000, 1999, and 1998, respectively.
Separate Accounts - Separate account assets and related liabilities are
carried at fair value. The Company's separate accounts invest in shares
of various external mutual funds. Investment income and realized capital
gains and losses of the separate accounts accrue directly to the
contractholders and, therefore, are not included in the Company's
statements of income. Revenues to the Company from the separate accounts
consist of contract maintenance fees, administration fees, and mortality
and expense risk charges.
Policy Reserves - Life insurance reserves of $137,516 and $93,315 at
December 31, 2000 and 1999, respectively, 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 of $141
and $119 are carried at contractholders' account value at December 31,
2000 and 1999, respectively.
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.
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.
Revenue Recognition - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," which provides guidance with
respect to revenue recognition issues and disclosures. As amended by SAB
No. 101B, the Company was required to implement the provisions of SAB
No. 101 no later than the fourth quarter of the fiscal year ending
December 31, 2000. The adoption of SAB No. 101 did not affect the
Company's revenue recognition policies.
Recognition of Premium Income and Expenses - Life insurance premiums are
recognized when due. Accident and health premiums are earned on a
monthly pro rata basis. Revenues for annuity and other contracts without
significant life contingencies consist of contract charges for the cost
of insurance, contract administration, and surrender fees that have been
assessed against the contract account balance during the period, and are
realized as assessed and earned. Fee income is derived primarily from
contracts for claim processing or other administrative services related
to uninsured business and from assets under management. Fees from
contracts for claim processing or other administrative services are
recorded as the services are provided. Fees from assets under
management, which consist of contract maintenance fees, administration
fees and mortality and expense risk charges, are recognized when due.
Benefits and expenses on policies with life contingencies impact income
by means of the provision for future policy benefit reserves, resulting
in recognition of profits over the life of the contracts.
Income Taxes - Income taxes are recorded using the asset and liability
approach, which requires, among other provisions, the recognition of
deferred tax assets and liabilities for expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all
expected future events (other than the enactments or changes in the tax
laws or rules) are considered.
Regulatory Requirements - In accordance with the requirements of the
State of New York, the Company must demonstrate adequate capital, as
defined. At December 31, 2000, the Company was in compliance with the
requirement.
The Company is also required to maintain an investment deposit in the
amount of $5,000 in cash or investment certificates with the New York
Insurance Commissioner for the protection of policyholders in the event
the Company is unable to satisfactorily meet its contractual
obligations. A United States Treasury obligation, whose cost
approximates market value, was designated to meet this requirement at
December 31, 2000.
Reclassifications - Certain amounts in the 1999 and 1998 financial
statements have been reclassified to conform to the 2000 presentation.
3. RELATED-PARTY TRANSACTIONS
The Company and the Parent Corporation have service agreements whereby
the Parent Corporation administers, distributes, and underwrites
business for the Company and administers the Company's investment
portfolio, and whereby, the Company provides certain services for the
Parent Corporation. The amounts recorded are based upon management's
best estimate of actual costs incurred and resources expended based upon
number of policies and/or certificates in force. These transactions are
summarized as follows:
Years Ended
December 31,
-------------------------------------
2000 1999 1998
============================================ ----------- ----------- -----------
Investment management expense
(included in net investment income) $ 128 $ 96 $ 47
Administrative services
(included in operating expenses) (19) (28) (48)
==============================================================================================
The Company and the Parent Corporation have an agreement whereby the
Parent Corporation has committed to provide certain financial support
related to maintaining adequate regulatory surplus and liquidity.
4. REINSURANCE
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 100% of
the first $50 of coverage per individual life and has a maximum
retention of $250 per individual life. Life insurance policies are first
reinsured to the Parent Corporation up to a maximum of $1,250 of
coverage per individual life. Any excess amount is reinsured to a third
party.
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; consequently, allowances are
established for amounts deemed uncollectible. 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. At December 31, 2000 and
1999, the reinsurance receivable had a carrying value of $1,924 and
$1,426, respectively.
Total reinsurance premiums ceded to the Parent Corporation in 2000,
1999, and 1998 were $77, $43, and $61, respectively.
On December 1, 1999, the Company entered into an assumption reinsurance
agreement with Anthem Health & Life Insurance Company of New York (AH&L
NY), to acquire a block of life and health insurance business. The
Company also agreed to the assignment of a coinsurance agreement between
the Parent and AH&L NY on certain policies that would not be transferred
to the Company via assumption reinsurance. The business primarily
consists of administration services only and stop loss policies. The
Company assumed $7,904 of policy reserves and miscellaneous assets and
liabilities in exchange for equal consideration from AH&L NY and the
Parent.
The following schedule details life insurance in force and life and
accident/health premiums:
Ceded Assumed Percentage
Primarily to Primarily of Amount
Gross the Other From Other Net Assumed
Amount Companies Companies Amount To Net
------------- ------------- ----------- ------------- -----------
December 31, 2000:
Life insurance in force:
Individual $ 468,463 $ 125,222 $ $ 343,241 0.0%
Group 623,454 623,454 0.0%
------------- ------------- ----------- -------------
Total $ 1,091,917 $ 125,222 $ $ 966,695
============= ============= =========== =============
Premium Income:
Life $ 3,193 $ 76 $ $ 3,117 0.0%
insurance
8,591 76 1,933 10,448 18.5%
Accident/health
------------- ------------- ----------- -------------
Total $ 11,784 $ 152 $ 1,933 $ 13,565
============= ============= =========== =============
December 31, 1999:
Life insurance in force:
Individual $ 329,346 $ 125,688 $ $ 203,658 0.0%
Group 1,075,000 1,075,000 0.0%
------------- ------------- ----------- -------------
Total $ 1,404,346 $ 125,688 $ $ 1,278,658
============= ============= =========== =============
Premium Income:
Life $ 685 $ 57 $ 93 $ 721 12.9%
insurance
9,471 1,064 23 8,430 0.3%
Accident/health
------------- ------------- ----------- -------------
Total $ 10,156 $ 1,121 $ 116 $ 9,151
============= ============= =========== =============
December 31, 1998:
Life insurance in force:
Individual $ 251,792 $ 173,773 $ $ 78,019 0.0%
Group 0.0%
------------- ------------- ----------- -------------
Total $ 251,792 $ 173,773 $ $ 78,019
============= ============= =========== =============
Premium Income:
Life $ $ $ $ 0.0%
insurance
61 (61) 0.0%
Accident/health
------------- ------------- ----------- -------------
Total $ $ 61 $ $ (61)
============= ============= =========== =============
5. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 2000 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- ----------- ----------- ---------- ----------
Available-for-Sale:
U.S. Government $ 52,169 $ 1,454 $ 25 $ 53,598 $ 53,598
Agencies
Collateralized
mortgage
obligations 9,953 237 9,716 9,716
Public utilities 7,000 218 7,218 7,218
Corporate bonds 29,029 160 991 28,198 28,198
Asset backed 50,371 1,743 213 51,901 51,901
securities
---------- ----------- ----------- ---------- ----------
$ 148,522 $ 3,575 $ 1,466 $ 150,631 $ 150,631
========== =========== =========== ========== ==========
Fixed maturities owned at December 31, 1999 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- ----------- ----------- ---------- ----------
Held-to-Maturity:
U.S. Government $ $ $ $ $
Agencies
Collateralized
mortgage
obligations
Public utilities 7,000 2 7,002 7,000
Corporate bonds 14,284 825 13,459 14,284
Asset backed 15,766 892 14,874 15,766
securities
---------- ----------- ----------- ---------- ----------
$ 37,050 $ 2 $ 1,717 $ 35,335 $ 37,050
========== =========== =========== ========== ==========
Available-for-Sale:
U.S. Government $ 22,917 $ $ 635 $ 22,282 $ 22,282
Agencies
Collateralized
mortgage
obligations 19,952 1,371 18,581 18,581
Public utilities
Corporate bonds 15,007 1,025 13,982 13,982
Asset backed 19,864 560 19,304 19,304
securities
---------- ----------- ----------- ---------- ----------
$ 77,740 $ $ 3,591 $ 74,149 $ 74,149
========== =========== =========== ========== ==========
The collateralized mortgage obligations consist primarily of sequential
and planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fifteen years.
Prepayments on all mortgage-backed securities are monitored monthly and
amortization of the premium and/or the accretion of the discount
associated with the purchase of such securities is adjusted by such
prepayments.
See Note 6 for additional information on policies regarding estimated
fair value of fixed maturities.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 2000, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Available-for-Sale
------------------------
Amortized Estimated
Cost Fair Value
----------- -----------
Due in one year or less $ 2,634 $ 2,767
Due after one year through five 18,102 18,815
years
Due after five years through ten 47,308 47,333
years
Due after ten years 2,298 2,254
Mortgage-backed securities 27,808 27,561
Asset-backed securities 50,372 51,901
----------- -----------
$ 148,522 $ 150,631
=========== ===========
Proceeds from sales of securities available-for-sale were $44,237,
$15,158, and $68,109 during 2000, 1999, and 1998, respectively. The
realized gains on such sales totaled $296, $15, and $201 for 2000, 1999,
and 1998, respectively. The realized losses totaled $229, $21, and $127
for 2000, 1999, and 1998, respectively.
During 2000, the Company transferred all securities classified as
held-to-maturity into the available-for-sale category. The Company
recorded a $645 unrealized gain associated with this transfer in other
comprehensive income, net of tax.
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
December 31,
--------------------------------------------------
2000 1999
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
ASSETS:
Fixed maturities and short-term
Investments $ 166,538 $ 166,538 $ 112,799 $ 111,084
LIABILITIES:
Annuity contract reserves
without
life contingencies 141 141 119 119
The estimated fair value of financial instruments have been determined
using available information and appropriate valuation methodologies.
However, considerable judgement 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.
The estimated fair value of fixed maturities that are publicly traded
are obtained from an independent pricing service. To determine fair
value for fixed maturities not actively traded, the Company utilized
discounted cash flows calculated at current market rates on investments
of similar quality and term.
The fair value of annuity contract reserves without life contingencies
are estimated by discounting the cash flows to maturity of the
contracts, utilizing current credited rates for similar products.
The carrying amounts for receivables and liabilities reported in the
balance sheet approximate fair value due to their short-term nature.
7. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
2000 1999 1998
----------- ----------- ------------
Federal tax rate 35.0 % 35.0 % 35.0 %
Change in tax rate resulting from:
State taxes 5.6 4.6 6.8
Other (0.9) (1.1) 1.4
----------- ----------- ------------
Total 39.7 % 38.5 % 43.2 %
=========== =========== ============
Temporary differences, which give rise to the deferred tax assets and
liabilities as of December 31, 2000 and 1999, are as follows:
2000 1999
-------------------- --------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Asset Liability Asset Liability
--------- --------- --------- ---------
Policy reserves $ 204 $ 128
Deferred policy
acquisition costs $ 601 $ 596
Deferred acquisition
cost proxy tax 2,226 1,312
Investment assets 753 1,254
State taxes 31 48
--------- --------- --------- ---------
Total deferred taxes $ 2,461 $ 1,354 $ 2,694 $ 644
========= ========= ========= =========
Amounts related to investment assets above include $738 and $(1,256)
related to the unrealized gains (losses) on the Company's fixed
maturities available-for-sale at December 31, 2000, and 1999,
respectively. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset will be
realized.
The Company and its Parent have entered into an income tax allocation
agreement whereby the Parent could file a consolidated federal income
tax return. Under the agreement the Company is responsible for and will
receive the benefits of any income tax liability or benefit computed on
a separate basis. In 2000, the Company will file on a consolidated basis
with its Parent.
8. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income".
This Statement establishes new rules for reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholder's
equity. This Statement requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income (loss).
Other comprehensive income (loss) at December 31, 2000 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-------------- -------------- ---------------
Unrealized gains on
available-for-sale securities:
Unrealized holding gains
arising during the period $ 5,700 $ (1,995) $ 3,705
-------------- -------------- ---------------
Net unrealized gains 5,700 (1,995) 3,705
Reserve and DAC adjustment (444) 155 (289)
-------------- -------------- ---------------
Other comprehensive income (loss) $ 5,256 $ (1,840) $ 3,416
============== ============== ===============
Other comprehensive income (loss) at December 31, 1999 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-------------- -------------- ---------------
Unrealized gains on
available-for-sale securities:
Unrealized holding gains
Arising during the period $ (5,425) $ 1,900 $ (3,525)
-------------- -------------- ---------------
Net unrealized gains (5,425) 1,900 (3,525)
Reserve and DAC adjustment 729 (255) 474
-------------- -------------- ---------------
Other comprehensive income (loss) $ (4,696) $ 1,645 $ (3,051)
============== ============== ===============
Other comprehensive income at December 31, 1998 is summarized as
follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-------------- -------------- ---------------
Unrealized gains on
available-for-sale securities:
Unrealized holding gains
Arising during the period $ 1,826 $ (639) $ 1,187
-------------- -------------- ---------------
Net unrealized gains 1,826 (639) 1,187
Reserve and DAC adjustment (730) 255 (475)
-------------- -------------- ---------------
Other comprehensive income $ 1,096 $ (384) $ 712
============== ============== ===============
9. SEGMENT INFORMATION
During 2000 and 1999, the Company had two reportable segments: Employee
Benefits and Financial Services. During 1998, the Company had only one
reportable segment, Financial Services. 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 Employee Benefits segment markets group life
and health and 401(k) products to small and mid-sized corporate
employers. The Financial Services segment primarily markets products to
public and not-for-profit employers and individuals and offers life
insurance products to individuals and businesses. In both 2000 and 1999
the Financial Services segment sold large dollar bank-owned life
insurance policies to a limited number of customers. Accordingly, these
transactions account for the majority of the investment assets and
reserves, and significantly impact the results of operations, of this
segment.
The accounting policies of the segments are the same as those described
in Note 2. The Company evaluates performance based on profit or loss
from operations after income taxes.
The Company's operations are not materially dependent on one or a few
customers, brokers, or agents.
Summarized segment financial information for the year ended and as of
December 31, 2000 was as follows:
Operations: Employee Financial
Benefits Services Total
-------------- -------------- ---------------
Revenue:
Premium income $ 13,467 $ 98 $ 13,565
Fee income 6,215 362 6,577
Net investment income 1,111 9,222 10,333
Realized investment gains 67 67
-------------- -------------- ---------------
Total revenue 20,793 9,749 30,542
Benefits and Expenses:
Benefits 14,431 7,261 21,692
Operating expenses 4,087 1,373 5,460
-------------- -------------- ---------------
Total benefits and expenses 18,518 8,634 27,152
Net operating income before
Income taxes 2,275 1,115 3,390
Income taxes 908 438 1,346
-------------- -------------- ---------------
Net income $ 1,367 $ 677 $ 2,044
============== ============== ===============
Assets:
Investment assets $ 16,906 $ 149,284 $ 166,538
Other assets 24,207 10,050 33,909
Separate account assets 47,359 47,359
-------------- -------------- ---------------
Total assets $ 41,113 $ 206,693 $ 247,806
============== ============== ===============
Summarized segment financial information for the year ended and as of
December 31, 1999 was as follows:
Operations: Employee Financial
Benefits Services Total
-------------- -------------- ---------------
Revenue:
Premium income $ 9,195 $ (51) $ 9,144
Fee income 430 262 692
Net investment income 6,278 6,278
Realized investment gains (losses) (6) (6)
-------------- -------------- ---------------
Total revenue 9,625 6,483 16,108
Benefits and Expenses:
Benefits 8,378 4,600 12,978
Operating expenses 505 961 1,466
-------------- -------------- ---------------
Total benefits and expenses 8,883 5,561 14,444
Net operating income before
Income taxes 741 923 1,664
Income taxes 295 346 641
-------------- -------------- ---------------
Net income $ 446 $ 577 $ 1,023
============== ============== ===============
Assets:
Investment assets $ $ 112,799 $ 112,799
Other assets 7,851 11,179 19,030
Separate account assets 39,881 39,881
-------------- -------------- ---------------
Total assets $ 7,851 $ 163,859 $ 171,710
============== ============== ===============
10. ACQUISITION
On October 6, 1999, the Parent entered into a purchase and sale
agreement (the Agreement) with First Allmerica Financial
Corporation (Allmerica) to acquire, via assumption reinsurance,
Allmerica's group life and health insurance business on March 1,
2000. The policies resident in the State of New York have been
assigned to the Company as part of the Agreement. This business
primarily consists of administrative services only and stop loss
policies. The in-force business will be immediately coinsured
back to Allmerica and is expected to be underwritten and retained
by the Company upon each policy renewal date. The purchase price,
as defined in the Agreement, will be based on a percentage of the
amount in-force at March 1, 2000 contingent on the persistency of
the block of business through March 2001. Management does not
expect the purchase price to have a material impact on the
Company's financial statements.
11. DIVIDEND RESTRICTIONS AND CODIFICATION
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31 are as follows:
2000 1999 1998
===================== -------------- ------------- ------------
(Unaudited)
Net income (loss) $ 27 $ 1,202 $ (2,182)
Capital and surplus 26,999 29,289 12,808
========================================
In March 1998, the National Association of Insurance Commissioners
adopted the Codification of Statutory Accounting Principles
(Codification). The Codification, which is intended to standardize
accounting and reporting to state insurance departments, is effective
January 1, 2001. However, statutory accounting principles will continue
to be established by individual state laws and permitted practices. The
New York Division of Insurance will require adoption of Codification
with certain modifications for the preparation of statutory financial
statements effective January 1, 2001. The Company estimates that the
adoption of Codification as modified by the New York Division of
Insurance will increase statutory net worth as of January 1, 2001, by
approximately $2,795 (Unaudited). (The modifications adopted by the New
York Division of Insurance had the effect of decreasing the effect on
statutory net worth by approximately $2,901 (Unaudited).)
As an insurance company domiciled in the State of New York, the Company
is required to maintain a minimum of $6,000 of capital and surplus. In
addition, the maximum amount of dividends, which can be paid to
stockholders, is subject to restrictions relating to statutory surplus
and statutory adjusted net investment income. The Company should be able
to pay dividends of $2,700 in 2001. The Company paid no dividends in
2000 and 1999. Dividends are paid as determined by the Board of
Directors.
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Company's independent accountants or resulting
disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. IDENTIFICATION OF DIRECTORS
Served as
Director Principal Occupation(s)
Director Age From For Last Five Years
------------------------- ------ --------------- --------------------------------------
Marcia D. Alazraki 59 1996 Partner, Kalkines, Arky, Zall &
Bernstein LLP (a law firm) since
January, 1998; previously Counsel,
Simpson Thacher & Bartlett (a law
firm)
James Balog (1) 72 1997 Company Director
James W. Burns, O.C. 71 1997 Chairman of the Boards of Great-West
Lifeco, Great-West Life, London
Insurance Group Inc. and London Life
Insurance Company; Deputy Chairman,
Power Corporation
Orest T. Dackow (1) 64 2000 Company Director since April 2000;
previously President and Chief
Executive Officer, Great-West Lifeco
Paul Desmarais, Jr. 46 1997 Chairman and Co-Chief Executive
Officer, Power Corporation;
Chairman, Power Financial
Robert Gratton 57 1997 Chairman of the Board of GWL&A;
President and Chief Executive
Officer, Power Financial
Stuart Z. Katz 58 1997 Partner, Fried, Frank, Harris,
Shriver & Jacobson (a law firm)
William T. McCallum 58 1997 Chairman, President and Chief
Executive Officer of the Company;
President and Chief Executive
Officer, GWL&A; Co-President and
Chief Executive Officer, Great-West
Lifeco
Brian E. Walsh (1) 47 1997 Managing Partner, Veritas Capital
Management, LLC (a merchant banking
company) since September 1997;
previously Partner, Trinity L.P. (an
investment company)
(1) Member of the Audit Committee
Unless otherwise indicated, all of the directors have been engaged for not less
than five years in their present principal occupations or in another executive
capacity with the companies or firms identified.
Directors are elected annually to serve until the following annual meeting of
shareholders.
The following lists directorships held by the directors of the Company, on
companies whose securities are traded publicly in the United States or that are
investment companies registered under the Investment Company Act of 1940.
J. Balog ....... Transatlantic Holdings Inc.
....... Phoenix-Zweig Advisers, LLC
....... Euclid Fund
W.T. McCallum .......Maxim Series Fund, Inc.
....... Orchard Series Fund
....... Variable Annuity Account A
B. IDENTIFICATION OF EXECUTIVE OFFICERS
Served
as
Executive
Officer Principal Occupation(s)
Executive Officer Age From For Last Five Years
---------------------------- ------- ------------ --------------------------------------
William T. McCallum 58 1997 Chairman, President and Chief
Chairman, President and Executive Officer of the Company;
Chief Executive Officer President and Chief Executive
Officer, GWL&A; Co-President and
Chief Executive Officer, Great-West
Lifeco
Mitchell T.G. Graye 45 1997 Executive Vice President and Chief
Executive Vice President Financial Officer of the Company and
and Chief Financial Officer GWL&A
James D. Motz 51 1997 Executive Vice President, Employee
Executive Vice President, Benefits of the Company, GWL&A
Employee Benefits
Douglas L. Wooden 44 1997 Executive Vice President, Financial
Executive Vice President, Services of the Company and GWL&A
Financial Services
John A. Brown 53 1992 Senior Vice President, BenefitsCorp
Senior Vice President, Healthcare Markets of the Company
BenefitsCorp Healthcare
Markets
Mark S. Hollen 42 2000 Senior Vice President, FASCorp of
Senior Vice President, the Company
FASCorp
D. Craig Lennox 53 1997 Senior Vice President, General
Senior Vice President, Counsel and Secretary of the Company
General Counsel and and GWL&A
Secretary
Served
as
Executive
Officer Principal Occupation(s)
Executive Officer Age From For Last Five Years
---------------------------- ------- ------------ --------------------------------------
Steve H. Miller 48 1997 Senior Vice President, Employee
Senior Vice President, Benefits Sales of the Company and
Employee Benefits Sales GWL&A
Charles P. Nelson 40 1998 President, BenefitsCorp
President, BenefitsCorp
Martin Rosenbaum 48 1997 Senior Vice President, Employee
Senior Vice President, Benefits Finance of the Company and
Employee Benefits Finance GWL&A
Gregory E. Seller 47 1997 Senior Vice President, BenefitsCorp
Senior Vice President, Government Markets of the Company
BenefitsCorp Government and GWL&A
Markets
Robert K. Shaw 45 1997 Senior Vice President, Individual
Senior Vice President, Markets of the Company and GWL&A
Individual Markets
George D. Webb 57 1999 Senior Vice President of the Company
President, since July 1999; previously
Advised Assets Group, Inc. Principal, William M. Mercer
Investment Consulting Inc. (an
investment consulting company)
Jay W. Wright 49 2001 Senior Vice President,
Senior Vice President, Employee Benefits of the Company
Employee Benefits
Unless otherwise indicated, all of the executive officers have been engaged for
not less than five years in their present principal occupations or in another
executive capacity with the companies or firms identified.
The appointments of executive officers are confirmed annually.
ITEM 11. EXECUTIVE COMPENSATION
A. COMPENSATION OF EXECUTIVE OFFICERS
The executive officers of the Company are not compensated for their services to
the Company. They are compensated as executive officers of GWL&A.
B.......COMPENSATION OF DIRECTORS
For each director of the Company who is not also a director of GWL&A, Great-West
Life or Great-West Lifeco, the Company pays an annual fee of $10,000. For each
director of the Company who is also a director of GWL&A, Great-West Life or
Great-West Lifeco, the Company pays an annual fee of $5,000. The Company pays
each director a meeting fee of $1,000 for each meeting of the Board of
Directors, or a committee thereof, attended. In addition, all directors are
reimbursed for incidental expenses. The above amounts are paid in the currency
of the country of residence of the director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information, as of March 1, 2001, concerning
beneficial ownership of the voting securities of the Company by entities and
persons who beneficially own more than 5% of the voting securities of the
Company. The determinations of "beneficial ownership" of voting securities are
based upon Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This rule provides that securities will be deemed to be
"beneficially owned" where a person has, either solely or in conjunction with
others, (1) the power to vote or to direct the voting of securities and/or the
power to dispose or to direct the disposition of, the securities or (2) the
right to acquire any such power within 60 days after the date such "beneficial
ownership" is determined.
(1) 100% of the Company's 2,500 outstanding common shares are owned by Great
West Life & Annuity Insurance Company, 8515 East Orchard Road, Greenwood
Village, Colorado 80111.
(2) 100% of the outstanding common shares of Great-West Life & Annuity
Insurance Company's are owned by GWL&A Financial Inc., 8515 East Orchard
Road, Greenwood Village, Colorado 80111.
(3) 100% of the outstanding common shares of GWL&A Financial Inc. are owned by
GWL&A Financial (Nova Scotia) Co., Suite 800, 1959 Upper Water Street,
Halifax, Nova Scotia, Canada B3J 2X2.
(4) 100% of the outstanding common shares of GWL&A Financial (Nova Scotia) Co.
are owned by GWL&A Financial (Canada) Inc., 100 Osborne Street North,
Winnipeg, Manitoba, Canada R3C 3A5.
(5) 100% of the outstanding common shares of GWL&A Financial (Canada) Inc. are
owned by Great-West Lifeco Inc., 100 Osborne Street North, Winnipeg,
Manitoba, Canada R3C 3A5.
(6) 81.7% of the outstanding common shares of Great-West Lifeco Inc. are
controlled by Power Financial Corporation, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3, representing approximately 65% of the voting rights
attached to all outstanding voting shares of Great-West Lifeco Inc.
(7) 67.4% of the outstanding common shares of Power Financial Corporation are
owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(8) 100% of the outstanding common shares of 171263 Canada Inc. are owned by
2795957 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
(9) 100% of the outstanding common shares of 2795957 Canada Inc. are owned by
Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(10) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3,
through a group of private holding companies, which he controls, has voting
control of Power Corporation of Canada.
As a result of the chain of ownership described in paragraphs (1) through (10)
above, each of the entities and persons listed in paragraphs (1) through (10)
would be considered under Rule 13d-3 of the Exchange Act to be a "beneficial
owner" of 100% of the outstanding voting securities of the Company.
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets out the number of equity securities, and exercisable
options (including options which will become exercisable within 60 days) for
equity securities, of the Company or any of its parents or subsidiaries,
beneficially owned, as of February 1, 2001, by (i) the directors of the Company;
and (ii) the directors and executive officers of the Company as a group.
------------------------ -- ------------------ -- ----------------- -- ------------------
Great-West Power Financial Power
Lifeco Inc. Corporation Corporation of
Canada
(1) (2) (3)
Directors
M.D. Alazraki - - -
J. Balog - - -
J. W. Burns 153,659 8,000 400,640
200,000 options
O.T. Dackow 79,973 - -
200,000 options
P. Desmarais, Jr. 43,659 - 1,533
1,878,000 options
R. Gratton 330,000 310,000 7,851
6,780,000
options
S.Z. Katz - - -
W.T. McCallum 55,874 19,500 -
650,000 options
B.E. Walsh - - -
Directors and
Executive Officers as
a Group
738,635 450,500 410,824
1,739,000 options 6,850,000 2,078,000 options
options
------------------------ -- ------------------ -- ----------------- -- ------------------
(1) All holdings are common shares, or where indicated, exercisable options
for common shares, of Great-West Lifeco Inc.
(2) All holdings are common shares, or where indicated, exercisable options
for common shares, of Power Financial Corporation.
(3) All holdings are subordinate voting shares, or where indicated,
exercisable options for subordinate voting shares, of Power Corporation
of Canada.
The number of common shares and exercisable options for common shares of Power
Financial Corporation held by R. Gratton represents 2.0% of the total number of
common shares and exercisable options for common shares of Power Financial
Corporation outstanding. The number of common shares and exercisable options for
common shares of Power Financial Corporation held by the directors and executive
officers as a group represents 2.1% of the total number of common shares and
exercisable options for common shares of Power Financial Corporation
outstanding.
The number of subordinate voting shares and exercisable options for subordinate
voting shares of Power Corporation of Canada held by the directors and executive
officers as a group represents 1.2 % of the total number of subordinate voting
shares and exercisable options for subordinate voting shares of Power
Corporation of Canada outstanding.
None of the remaining holdings set out above exceed 1% of the total number of
shares and exercisable options for shares of the class outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
M.D. Alazraki, a director of the Company, is a partner with Kalkines, Arky, Zall
& Bernstein, a law firm which provided legal services to the Company. In 2000,
the amount of such services was $103,282.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The documents identified below are filed as a part of this report:
A. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report On Financial Statements for the years ended
December 31, 2000 and 1999
Balance Sheets as of December 31, 2000 and 1999
Statements of Income for the years ended December 31, 2000
and 1999
Statements of Stockholder's Equity for the years ended December 31,
2000 and 1999
Statements of Cash Flows for the years ended December 31, 2000
and 1999
Notes to Financial Statements for the years ended December 31,
2000 and 1999
All schedules and separate financial statements of the Registrant are omitted
because they are not applicable, or not required, or because the required
information is included in the financial statements or notes thereto.
B. INDEX TO EXHIBITS
Exhibit
Number Title
3(i) Restated Charter of First Great-West Life & Annuity
Insurance Company
Filed as Exhibit 3(i) to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
3(ii) Bylaws of First Great-West Life & Annuity Insurance
Company
Filed as Exhibit 3(ii) to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
Material Contracts
10.1 - Distribution Agreement between First Great-West Life
& Annuity Insurance Company and Charles Schwab &
Co., Inc.
Filed as Exhibit 10.1 to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
10.2 - Administration Services Agreement between First
Great-West Life & Annuity Insurance Company and
Great-West Life & Annuity Insurance Company
Filed as Exhibit 10.2 to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
10.3 -Administration Services Agreement between First
Great-West Life & Annuity Insurance Company and
Great-West Life & Annuity Insurance Company,
respecting employee benefits business.
Exhibit
Number Title
10.4 - Financial Support Agreement between First Great-West
Life & Annuity Insurance Company and Great-West Life
& Annuity Insurance Company
Filed as Exhibit 10.3 to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
24 Directors' Powers of Attorney
Filed as Exhibit 24 to Registrant's Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
Director's Power of Attorney for Orest T. Dackow filed
herewith.
C. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By: /s/ W.T. McCallum
William T. McCallum
Chairman, President and Chief Executive Officer
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
- --------------------------------------------------------------------------------
/s/ William T. McCallum March 28, 2001
- --------------------------------------------------------------
William T. McCallum
Chairman, President, Chief Executive Officer and a Director
/s/ Mitchell T.G. Graye March 28, 2001
- --------------------------------------------------------------
Mitchell T.G. Graye
Executive Vice President and Chief Financial Officer
/s/ Glen R. Derback March 28, 2001
- --------------------------------------------------------------
Glen R. Derback
Vice President and Treasurer
/s/ Marcia D. Alazraki * March 28, 2001
- --------------------------------------------------------------
Marcia D. Alazraki, Director
/s/ James Balog * March 28, 2001
- --------------------------------------------------------------
James Balog, Director
Signature and Title Date
- --------------------------------------------------------------------------------
/s/ James W. Burns * March 28, 2001
- --------------------------------------------------------------
James W. Burns, Director
/s/ Orest T. Dackow * March 28, 2001
- --------------------------------------------------------------
Orest T. Dackow, Director
/s/ Paul Desmarais, Jr. * March 28, 2001
- --------------------------------------------------------------
Paul Desmarais, Jr., Director
/s/ Robert Gratton * March 28, 2001
- --------------------------------------------------------------
Robert Gratton, Director
/s/ Stuart Z. Katz * March 28, 2001
- --------------------------------------------------------------
Stuart Z. Katz, Director
/s/ Brian E. Walsh * March 28, 2001
- --------------------------------------------------------------
Brian E. Walsh, Director
* By: /s/ D. Craig Lennox March 28, 2001
- --------------------------------------------------------------
D. Craig Lennox
Attorney-in-fact pursuant to filed Powers of Attorney
- --------------------------------------------------------------
EXHIBIT 10.3
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (this "Agreement") is made
effective as of 12:01 am., Eastern Standard Time, on the 31st day of August,
1999 ("Effective Date"), by and between GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY, a Colorado corporation ("Provider") and FIRST GREAT-WEST LIFE & ANNUTY
INSURANCE COMPANY, a New York stock life insurance corporation ("Company").
WHEREAS, Provider has extensive experience in the operation of an
insurance business and is currently providing certain services to Company
pursuant to the terms of an "Administration Services Agreement" made as of the
15th day of May 1997 (the "Prior Agreement"); and
WHEREAS, Company desires Provider to perform administrative and
special services (collectively, "services") for Company and to make use in its
day-to-day operations of certain property, equipment and facilities
(collectively, "facilities") of Provider as Company may request in connection
with certain new group life and health insurance business programs of the
Company as set forth on Exhibit A hereto (the "new group life and health
insurance operations"); and
WHEREAS, Provider and Company contemplate that such an
arrangement will achieve certain operating economies and improve services to the
mutual benefit of both; and
WHEREAS, Provider and Company wish to assure that all charges for
services and the use of facilities incurred hereunder are reasonable and in
accordance with the requirements of New York Insurance Department Regulation
No.33 and to the extent practicable reflect actual costs and are arrived at in a
fair and equitable manner, and that estimated costs, whenever used, are adjusted
periodically, to bring them into alignment with actual costs; and
WHEREAS, Provider and Company wish to identify the services to be
rendered to Company by Provider and the facilities to be used by Company and to
provide a method of fixing bases for determining the charges to be made to
Company:
NOW, THEREFORE, in consideration of the premises and of the
mutual promises set forth herein, and intending to be legally bound hereby,
Provider and Company agree as follows:
PERFORMANCE OF SERVICES AND USE OF FACILITIES. Subject to the
terms, conditions and limitations of this Agreement, Provider
agrees to the extent requested by Company to perform diligently
and in a professional manner such services for Company as Company
determines to be reasonably necessary in the conduct of its new
group life and health insurance operations. Subject to the terms,
conditions and limitations of this Agreement, Provider
agrees to the extent requested by Company to make available to Company such of
its facilities as Company and Provider may mutually determine to be reasonably
necessary in the conduct of its new group life and health insurance operations,
including but not limited to data processing equipment, business property
(whether owned or leased) and communications equipment.
Provider agrees at all times to maintain sufficient facilities
and trained personnel of the kind necessary to perform this Agreement. Provider
shall obtain and maintain all such licenses, permits, authorizations and
approvals necessary for Provider to perform its obligations hereunder.
With the Company's prior written consent, Provider may arrange to
furnish such services through one or more of its affiliates, subject to the
terms, conditions and limitations set forth herein. The Provider shall furnish
the Company with written confirmation of the nature and extent of services to be
provided to the Company by such affiliates and the location(s) at which such
services shall be performed. Any such affiliate shall agree in writing to
observe and be bound by all terms and conditions of this Agreement in performing
such services and its records shall be subject to inspection, audit and
examination by the Company in accordance with Section 4 and 5 hereof. Charges
for such services shall be determined consistent with the requirements of
Section 3, and shall be included in the statement furnished by the Provider to
the Company pursuant thereto. Provider shall, at all times, remain liable to the
Company for the performance of services by such affiliates to the same extent as
if they had been performed by Provider itself. CAPACITY OF PERSONNEL AND STATUS
OF FACILITIES Whenever Provider utilizes its personnel to perform services for
Company pursuant to this Agreement, such personnel shall at all times remain
employees of Provider subject solely to its direction and control, and Provider
shall alone retain full liability to such employees for their welfare, salaries,
fringe benefits, legally required employer contributions and tax obligations.
No facility of Provider used in performing services for or
subject to use by Company shall be deemed to be transferred, assigned, conveyed
or leased by performance or use pursuant to this Agreement.
EXERCISE OF JUDGMENT IN RENDERING SERVICES. In providing any services hereunder
which require the exercise of judgment by Provider, Provider shall perform any
such service in accordance with any standards and guidelines Company develops
and communicates to Provider. In performing any services hereunder, Provider
shall at all times act in a manner reasonably calculated to be in or not opposed
to the best interests of Company. CONTROL. The performance of services by
Provider for Company pursuant to this Agreement shall in no way impair the
absolute control of the business and operations of Provider or Company by their
respective Boards of Directors. Provider shall act hereunder so as to assure the
separate operating identity of Company, consistent with the provisions of
Section 1507 of the New York Insurance Law.
SERVICES. The performance of Provider under this Agreement with
respect to -------- the business and operations of Company shall at
all times be subject to the direction and control of the Board of
Directors of Company. Subject to the foregoing and to the terms,
conditions and limitations of this Agreement, Provider shall provide
to Company the services set forth below in connection with the
insurance business of the Company described in Exhibit A hereto.
Services shall be performed in the name of and on behalf of the
Company. By way of example and without limiting the foregoing, (i) all forms
utilized in connection with the Company's business and all correspondence with
policyholders shall bear its name and contain its New York address; (ii) all
communications with policyholders shall be in the Company's name; (iii) all toll
free numbers maintained for policyholder service shall be utilized solely for
the Company's business; and (iv) all bank accounts into which the Company's
fands are deposited or from which its funds are withdrawn shall be Company
accounts.
UNDERWRITING. Subject to underwriting standards established by Company and
communicated to Provider, Provider shall provide underwriting services,
including review of policy applications, assignment of policy numbers, MIB
review, medical review and other investigations and actual policy issue, all
subject to final approval of Company. Provider shall provide assistance to the
Company in the development of all underwriting criteria pursuant to which all
new business applications and policyowner service transactions requiring
underwriting decisions will be processed and acted upon. All new applications
will initially be addressed to the Company at the Provider's offices. All
policyowner service transactions requiring any underwriting decisions shall be
determined by Provider personnel or pursuant to standards established by the
Company.
POLICY OWNER SERVICES. Provider shall provide automated systems and personnel to
assist with policyowner services, from the point of issue through termination of
coverage. Such services shall include assistance in the collection and
processing of premiums on behalf of the Company (including receiving and
processing lockbox remittance information in accordance with processing
requirements). In connection therewith, the Company shall maintain a lockbox
with one or more financial institutions of its choice for the receipt of
premiums. Policyowner records of the Company shall be maintained at the
administrative office of the Company.
CLAIMS. Subject to claims settlement procedures established by Company and
communicated to Provider, Provider shall provide claims services, including
verification that the policy was in force, and review and investigation of
claims, all subject to final approval of Company. MARKETING. Upon request of the
Company, Provider shall assist the Company in preparation of marketing material,
assist in the recruitment and training of agents and provide other marketing
support services. However, all decisions regarding the approval of marketing
material and the acceptance, appointment or termination of agents shall be made
by the Company.
CHARGES Company will pay Provider the actual cost incurred for
the services provided by Provider on a quarterly basis. Provider
shall submit to Company within thirty (30) days of the end of
each calendar quarter a written statement of the amount be owed
by Company for services and the use of facilities pursuant to
this Agreement in that calendar quarter, and, in the absence of
any dispute with respect thereto, Company shall pay to Provider
within fifteen (15) days following receipt of such written
statement the amount set forth in the statement. Actual cost will
be calculated based upon the expenses (direct and indirect
including overhead) incurred by Provider on behalf of Company.
Subject to New York Insurance Regulation 33, the bases for
determining such charges to Company shall be those used by Provider for internal
cost distribution, and shall include, where appropriate, records prepared at
least annually for this purpose. Such bases shall be modified and adjusted by
mutual agreement where necessary or appropriate to fairly and equitably reflect
the actual incidence of cost incurred by Provider on behalf of Company.
At least ninety (90) days prior to the end of any term hereof,
Provider shall give Company written notice of any increase in the cost of
providing services or charges to Company or to change the manner of payment. If
the parties do not agree to changes in such costs and charges before the end of
the term during which such notice is given by Provider, this issue shall be
submitted to an independent certified public accountant acceptable to both
parties, whose determination shall be binding.
ACCOUNTING RECORDS AND DOCUMENTS. Provider shall be responsible
for maintaining full and accurate accounts and records of the
services rendered by Provider, the facilities used pursuant to
this Agreement and such other additional information as Company
may reasonably request for purposes of its internal bookkeeping
and accounting operations. To the extent such accounts and
records pertain to Provider's computation of charge, Provider
shall keep such accounts and records available at its home
offices for audit, inspection, and copying during reasonable
business hours by Company, persons authorized by Company or any
regulatory agency having jurisdiction over Company. With respect
to accounting and statistical records prepared by Provider by
reason of its performance under this Agreement, summaries of such records shall
be delivered to Company within thirty (30) days from the end of the quarter to
which the records pertain.
Provider shall comply with the provisions of New York Insurance
Department Regulation No. 152 (11 NYCRR Part 243) in maintaining records which
would otherwise be required to be maintained by the Company.
OTHER RECORDS AND DOCUMENTS. All books, records, and files
established and maintained by Provider by reason of its
performance under this Agreement which, absent this Agreement,
would have been held by Company, shall be deemed the property of
Company, and shall be subject to examination at all times by
Company and persons authorized by it or any governmental agency
having jurisdiction over Company, and shall be delivered to
Company at least quarterly.
With respect to original documents other than those provided for
in Section 4 hereof which would otherwise be held by Company and which may be
obtained by Provider in performing under this Agreement, Provider shall deliver
such documents to Company within thirty (30) days of their receipt by Provider
except where continued custody of such original documents is necessary to
perform hereunder.
RIGHT TO CONTRACT WITH THIRD PARTIES. Nothing herein shall be
deemed to grant Provider an exclusive right to provide services
to Company, and Company retains the right to contract with any
third party, affiliated or unaffiliated, for the performance of
services or for the use of facilities as are available to or have
been requested by Company pursuant to this Agreement. CONTACT
PERSON(S). Company and Provider each shall appoint one or more
individuals who shall serve as contact person(s) for the purpose
of carrying out this Agreement. Such contact person(s) shall be
authorized to act on behalf of their respective parties as to the
matters pertaining to this Agreement. Effective upon execution of
this Agreement, the initial contact person(s) shall be those set
forth in Exhibit B. Each party shall notify the other, in
writing, as to the name, address and telephone number of any
replacement for any such designated contact person. TERMINATION
AND MODIFICATION. This Agreement shall remain in effect until
terminated by either Provider or Company upon giving thirty (30)
days or more advance written notice, provided that Company shall
have the right to elect to continue to receive data processing
services and/or to continue to utilize data processing facilities
and related software for up to 180 days from the date of such
notice. Subject to the terms (including any limitations and
restrictions) of any applicable software or hardware licensing
agreement then in effect between Provider and any licensor,
Provider shall, upon termination of this Agreement, grant to
Company a perpetual license, without payment of any fee, in any
electronic data processing software developed or used by Provider
in connection with the services provided to Company hereunder if
such software is not commercially available and is necessary, in
Company's reasonable judgment, for Company to perform subsequent
to termination the functions provided by Provider hereunder. Upon
termination, Provider shall promptly deliver to Company all books
and records that are, or are deemed by this Agreement to be, the
property of Company.
SETTLEMENT ON COMPLETE TERMINATION. No later than sixty (60) days
after the effective date of termination of this Agreement,
Provider shall deliver to Company a detailed written statement
for all charges incurred and not included in any previous
statement to the effective date of termination. The amount owed
or to be refunded hereunder shall be due and payable within
fifteen (15) days of receipt of such statement.
ASSIGNMENT. This Agreement and any rights pursuant hereto shall
not be assignable by either party hereto, except as set forth
herein or by operation of law. Except as and to the extent
specifically provided in this Agreement, nothing in this
Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto, or their respective legal
successors, any rights, remedies, obligations or liabilities, or
to relieve any person other than the parties hereto, or their
respective legal successors, from any obligations or liabilities
that would otherwise be applicable. The representations,
warranties, covenants and agreements contained in this Agreement
shall be binding upon, extend to and inure to the benefit of the
parties hereto, their, and each of their, successors and assigns
respectively. GOVERNING LAW; SERVICE OF SUIT; FORUM SELECTION.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York
applicable to contracts made and to be performed in that State,
without regard to principles of conflict of laws. ARBITRATION.
Any unresolved dispute or difference between the parties arising
out of or relating to this Agreement, or the breach thereof,
except as provided in Section 3, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and the Expedited Procedures
thereof. The award rendered by the Arbitrator shall be final and
binding upon the parties, and judgment upon the award rendered by
the Arbitrator may be entered in any Court having jurisdiction
thereof. The arbitration shall take place in the State of New
York. NOTICE. All notices, statements or requests provided for
hereunder shall be deemed to have been duly given when delivered
by hand to an officer of the other party, or when deposited with
the U.S. Postal Service, as first class certified or registered
mail, postage prepaid, overnight courier service, telex or
telecopier, addressed
(a) If to Provider to:
Great-West Life & Annuity Insurance Company
8505 East Orchard Road
Englewood, Colorado 80112
Attention: Dan Anderson
with a concurrent copy to:
Great-West Life & Annuity Insurance Company
8505 East Orchard Road
Englewood, Colorado 80112
Attention: W. Kay Adam
(b) If to Company to:
First Great-West Life & Annuity Insurance Company
125 Wolf Road
Albany, N.Y. 12205
Attention: Howard Knudsen
with a concurrent copy to:
First Great-West Life & Annuity Insurance Company
8505 East Orchard Road
Englewood, Colorado 80112
Attention: W. Kay Adam
or to such other persons or places as each party may from time to time designate
by written notice sent as aforesaid.
ENTIRE AGREEMENT. This Agreement, together with such amendments
as may from time to time be executed in writing by the parties in
accordance with Section 1505 of the New York Insurance Law,
constitutes the entire agreement and understanding between the
parties in respect of the transactions contemplated hereby.
SECTION HEADINGS. Section headings contained herein are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their respective officers duly authorized so to do, and their
respective corporate seals to be affixed hereto, as of the date and year first
above written.
(Seal) GREAT-WEST LIFE & ANUUITY INSURANCE COMPANY
BY_/s/ W. McCallum____________________
-----------------
BY_/s/ Mitchell Graye____________________
-------------------
Attest:___________________
(Seal) FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BY_/s/ G.R. Derback______________________
-----------------
BY_/s/ John T. Hughes____________________
-------------------
EXHIBIT A
This agreement shall apply to the following categories of direct
or assumed business of the Company, written through its Employee Benefits
Division:
Group Life
Group Accident and Health
Group Dental
Group Stop Loss
Group Long Term Disability
Group and Individual Life and Health Conversion
This agreement shall also apply to the following ancillary
business conducted by the Company:
Administrative Services (Self-insured benefit plans)
EXHIBIT B
CONTACT PERSON(S)
Provider:
Dan Anderson
Company:
Howard Knudsen
EXHIBIT 24
POWER OF ATTORNEY
RE
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Orest T. Dackow, a Member of the Board
of Directors of First Great-West Life & Annuity Insurance Company, a New York
corporation, do hereby constitute and appoint each of D.C. Lennox and G.R.
Derback as my true and lawful attorney and agent for me and in my name and on my
behalf to, individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of Directors of
First Great-West Life & Annuity Insurance Company, on Form 10-K Annual Reports
of First Great-West Life & Annuity Insurance Company to be filed with the
Securities and Exchange Commission from time to time, and to any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of March, 2001.
_/s/ Orest T. Dackow________________________
Member, Board of Directors of
First Great-West Life & Annuity Insurance Company
Witness:
_/s/ Nicole M. Allen________
Signature
_Nicole M. Allen__________
Name Printed