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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
---------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from to
------------------ -------------------
Commission file number 333-25269
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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 (I.R.S. Employer Identification
incorporation or organization) Number)
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, 2002, the aggregate market value of the registrant's voting stock
held by non-affiliates of the registrant was $0.
As of March 1, 2002, 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.
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 originally 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 that 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 consolidated financial 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).
[Thousands](1) 2001 2000 1999
------------------------------------- ------------- ------------- -------------
Premium Income
Employee Benefits
Group life & health $ 15,055 $ 13,467 $ 9,195
------------- ------------- -------------
Total Employee Benefits 15,055 13,467 9,195
------------- ------------- -------------
Financial Services
Savings (9) (11) (8)
Individual insurance 84 109 (43)
------------- ------------- -------------
Total Financial Services 75 98 (51)
------------- ------------- -------------
Premium income $ 15,130 $ 13,565 $ 9,144
============= ============= =============
Fee Income
Employee Benefits
Group life & health $ 5,196 $ 6,213 $ 430
401(k) 6 2
------------- ------------- -------------
Total Employee Benefits 5,202 6,215 430
------------- ------------- -------------
Financial Services
Savings 373 362 262
Individual insurance
------------- ------------- -------------
Total Financial Services 373 362 262
------------- ------------- -------------
Fee income $ 5,575 $ 6,577 $ 692
============= ============= =============
Deposits for investment-type
contracts (2)
Financial Services $ 10,173 $ 37,344 $ 20,000
------------- ------------- -------------
Total investment-type deposits $ 10,173 $ 37,344 $ 20,000
============= ============= =============
Deposits to Separate Accounts
Employee Benefits $ 708 $ 3,249 $
Financial Services 7,185 11,189 9,389
------------- ------------- -------------
Total separate accounts deposits $ 7,893 $ 14,438 $ 9,389
============= ============= =============
Self-funded equivalents -
Employee Benefits (3) $ 38,410 $ 16,225 $
============= ============= =============
(1)All information in the following 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 that 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 of 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. Annualized premium equivalents rose to
$88.6 million in 2001 resulting from significant sales late in the
fourth quarter. In 2002, the Company will continue to 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 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 also 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 care 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 that
enable participants to set aside pre-tax dollars to pay for
non-reimbursement 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, 2001 totaled $394
million.
The Company offers disability insurance that 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 that in turn invest in shares of
underlying funds managed by a subsidiary of GWL&A 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 impede rollovers to
products of competitors.
The Company offers a rollover Individual Retirement Account that
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 that
encourage employers to seek competitive bids each year. Although most
employers are looking for affordably priced employee benefits
products, they also 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 that
offers multiple product lines and centralized administration.
In addition to price there are a number of other factors that
influence employer decision-making. These factors include; quality of
services; 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 that 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 and for long term
disability claims that have been reported but not yet adjudicated.
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.
Reserves for investment contracts (401(k) deferred annuities) are
equal to the participants' account balances.
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, 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 co-insurance 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 individual fixed annuity product is a Guarantee Period
Fund that 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.
Guaranteed 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 individual 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 that in turn invests in shares of underlying funds managed by
selected external fund managers.
The individual fixed annuity product generates earnings from the
investment spreads on guaranteed investment returns. The individual
variable annuity product generates earnings from the fees collected
for mortality and expense risks associated with the variable options.
The Company entered the retirement savings business in the
public/non-profit pension market. The Company provides investment
products, and administrative and communication services, to employees
of state and local governments as well as employees of hospitals,
non-profit organizations, and public school districts. The Company
provides pension plan administrative services through a subsidiary
company, Financial Administrative Services Corporation. The Company
provides marketing and communication services through another
subsidiary company, BenefitsCorp, Inc., and through BenefitsCorp
Equities, Inc., a broker-dealer subsidiary of BenefitsCorp, Inc.
(collectively, BenefitsCorp).
The Company's primary marketing emphasis in the public/non-profit
pension market is group fixed and variable annuity contracts for
defined contribution retirement savings plans. Defined contribution
plans provide for benefits based upon the value of contributions to,
and investment returns on, the individual's account. This has been
the fastest growing portion of the pension marketplace in recent
years.
The amount of annuities in-force is measured by account balances. At
December 31, 2001, annuity account balances were $587 thousand for
fixed annuities and $42.5 million for variable annuities. At December
31, 2000, annuity account balances were $141 thousand for fixed
annuities and $44.1 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 that fund post-retirement
benefits for bank employees. BOLI deposits of $5.0 million were
received in 2001, representing $493.6 million of life insurance
in-force.
2. Method of Distribution
The Company primarily uses BenefitsCorp to distribute pension
products and to provide communication and enrollment services to
employers in the public/non-profit market. Pension products are also
distributed through independent marketing agencies.
The Company distributes its individual 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) are equal to
the participants' account balances. Reserves for immediate annuities
without life contingent payouts are computed on the basis of assumed
investment yield and expenses.
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 (such as paying expected death or
retirement benefits or surrender requests) and to generate profits.
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 co-insurance
contracts. The Company retains a maximum of $250 thousand of coverage
per individual life.
E. INVESTMENT OPERATIONS
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 December 31,
2001, totaled $228.0 million, comprised of $182.4 million of general
account assets and separate account assets of $45.6 million. Invested
assets under management at December 31, 2000, totaled $213.9 million,
comprised of $166.5 million of general account assets and separate
account assets of $47.4 million.
The Company invests in a broad range of asset classes, investments such
as government bonds, public and privately placed corporate bonds,
mortgage-backed securities and asset-backed securities. The Company's
investments are subject to New York insurance laws.
The Company manages the characteristics of its investment assets, such
as liquidity, currency, yield, and duration, to reflect the underlying
characteristics of related insurance and policyholder liabilities that
vary among the Company's principal product lines. The Company observes
strict asset and liability matching guidelines that are designed to
ensure that the investment portfolio will appropriately meet the cast
flow and income requirements of its liabilities.
The Company routinely monitors and evaluates the status of its
investments 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.
The Company's long-term bond portfolio constituted 98% of investment
assets as of December 31, 2001 compared to 90% in 2000. The Company
reduces credit risk for the portfolio as a whole by investing primarily
in investment grade bonds. As of December 31, 2001 and 2000, 98% and
100%, respectively, of the bond portfolio carried an investment grade
rating.
The following table sets forth the distribution of invested assets, cash
and accrued investment income for the Company's general account as of
the end of the years indicated:
Carrying Value in
Millions 2001 2000 1999 1998 1997
----------------------- --------- ---------- ---------- ---------- ----------
U.S. Government
Securities and
Agencies $ 48 $ 54 $ 22 $ 24 $ 5
Collaterized mortgage
obligations 10 10 19 20
Corporate bonds 53 35 35 35
Asset backed
securities 67 52 35
--------- ---------- ---------- ---------- ----------
Total 178 151 111 79 5
Short-term
investments 4 16 2 1
--------- ---------- ---------- ---------- ----------
Total investments $ 182 $ 167 $ 113 $ 80 $ 5
========= ========== ========== ========== ==========
Cash $ 8 $ 8 $ 5 $ 1 $
Accrued investment
income 2 1 1 1
Net
Investment Earned Net
Income Investment
For the year: [Thousands] Income Rate
-------------------- ------------- --------------
2001 $ 11,763 7.04 %
2000 10,333 6.99 %
1999 6,278 6.79 %
1998 3,367 6.35 %
1997 243 6.00 %
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' (NAIC) risk-based capital rules and other financial
ratios for life insurance companies. Based on the Company's December
31, 2001 statutory financial reports, the Company has risk-based
capital well in excess of that required.
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles (Codification). The Codification that 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
required adoption of Codification with certain modifications for the
preparation of statutory financial statements effective January 1,
2001.
2. Insurance Holding Company Regulations
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 Laws
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 legislative developments in various areas including
pension regulation, financial services regulation, and health care
legislation could significantly and adversely affect the Company in
the future. Congress continues to consider legislation relating to
health care reform and managed care issues (including patients'
rights, mental health parity and managed care or enterprise
liability). Congress is also considering changes to various features
of retirement plans such as the holding of company stock,
diversification rights, imposition of transaction restrictions,
expanded disclosure requirements and greater access to investment
advice for participants.
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
regarding the financial strength of the Company and its ability to meet
ongoing obligations to policyholders. 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, Inc. Financial strength, operating A++(1)
performance and
market profile
Fitch, Inc. Financial strength AAA(2)
Moody's Investors Service Financial strength Aa3(3)
Standard & Poor's Corporation Financial strength AA(4)
(1) Superior (highest rating out of six categories)
(2) Exceptionally Strong (highest rating out of twelve categories)
(3) Excellent (second highest rating out of nine categories)
(4) Very Strong (second highest rating out of nine categories)
H. MISCELLANEOUS
Although the Company's BOLI business is comprised of a few customers
that 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 2001 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). Note 2
in the financial statements discusses the significant accounting
policies of the Company. Significant estimates are required to account
for the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues
and expenses. Actual results could differ from those estimates.
For the
period from
[Dollars in Thousands] April 4,
1997
(inception)
through
INCOME STATEMENT Years Ended December 31, December
31,
--------------------------------------------
DATA 2001 2000 1999 1998 1997
------------------------ --------- --------- -------- -------- ------------
Premium income $ 15,130 $ 13,565 $ 9,144 $ (65) $ 21
Fee income 5,575 6,577 692 143
Net investment income 11,763 10,333 6,278 3,367 243
Net realized investment
gains (losses) 642 67 (6) 74
--------- --------- -------- -------- ------------
Total revenues 33,110 30,542 16,108 3,519 264
Total benefits and
expenses 24,323 27,152 14,444 2,124 213
Income tax expense 3,294 1,346 641 603 18
--------- --------- -------- -------- ------------
Net income $ 5,493 $ 2,044 $ 1,023 $ 792 $ 33
========= ========= ======== ======== ============
Deposits for
investment-
type contracts $ 10,173 $ 37,344 $ 20,000 $ 62,528 $
Deposits to separate
accounts $ 7,893 $ 14,438 $ 9,389 $ 12,776 $
Self-funded premium
equivalents $ 38,410 $ 16,225 $ $ $
BALANCE SHEET Years Ended December 31,
----------------------------------------------------------
DATA 2001 2000 1999 1998 1997
------------------------- --------- --------- --------- --------- ---------
[Dollars in Thousands]
Investment assets $ 182,445 $ 166,538 $ 112,799 $ 80,353 $ 5,381
Separate account assets 47,359 39,881 23,836 9,045
45,576
Total assets 248,728 247,806 171,710 107,095 16,154
Total policy benefit
liabilities 156,850 144,270 98,421 64,445 84
Total shareholder's
equity 36,074 30,614 16,642 6,538
41,212
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 that
relate to future operations, strategies, financial results, or other
developments. In particular, statements using verbs such as
"expected", "anticipate", "believe", or words of similar import
generally involve forward-looking statements. Without limiting the
foregoing, forward-looking statements include statements that
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 matters, including any risks and uncertainties,
discussed in documents filed by the Company with the Securities and
Exchange Commission.
Management's discussion and analysis of financial conditions and results
of operations of the Company for the three years ended December 31, 2001
follows. This management discussion and analysis should be read in
conjunction with the financial data contained in Item 6 and the
Company's consolidated Financial Statements.
A. COMPANY RESULTS OF OPERATIONS
1. Consolidated Results
The Company's consolidated net income increased $3.4 million or 169%
in 2001 when compared to 2000. The Employee Benefits segment
contributed $3.1 million to the improved consolidated results and the
Financial Services segment contributed $336 thousand. Of total
consolidated net income for 2001, 2000, and 1999, the Employee
Benefits segment contributed 82%, 67%, and 44%, respectively, while
the Financial Services segment contributed 18%, 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 combined with new
case sales within other blocks of business resulted in net income of
$4.5 million, $1.4 million, and $.4 million being recorded in 2001,
2000, and 1999, respectively.
The Financial Services net income increased $336 thousand in 2001
primarily due to realized gains on fixed maturities in 2001 of $679
thousand compared to realized gains in 2000 of $67 thousand. The
Financial Services net income increased in 2000 from 1999 due to
realized gains 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.
In 2001 total Company revenues increased $2.6 million or 8% to $33.1
million when compared to 2000. The growth in revenues in 2001 was
comprised of increased premium and fee income of $563 thousand,
increased net investment income of $1.4 million and increased
realized gain on investments of $575 thousand.
The increased premium and fee income in 2001 was comprised of growth
in Employee Benefits of $575 thousand partially offset by a decrease
of $12 thousand in Financial Services premium and fee income. The
premium and fee income increase 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 $11.8 million and $10.3 million in 2001
and 2000, respectively, from $6.3 million in 1999, primarily due to
BOLI sales each year, as well as a capital infusion from GWL&A of $16
million in 1999. The growth in all years was primarily in the
Financial Services segment.
Realized investment gains from fixed maturities increased from $67
thousand in 2000 to $642 thousand in 2001. The realized investment
gains were the result of sales of U.S. Treasury securities.
Total benefits and expenses decreased $2.8 million or 10% in 2001
when compared to 2000. The Employee Benefits segment contributed $3.9
million of the decrease in 2001 while the Financial Services segment
contributed an increase of $1.1 million. The decrease in total
benefits and expenses in the Employee Benefits segment in 2001
resulted primarily from improvement in the health claims experience.
The increase in Financial Services related to higher interest credits
on BOLI account balances and increased operating expenses associated
with growth in the Company's business. Total benefits and expenses
increased $12.7 million in 2000 when compared to 1999. This increase
was primarily due to an increase in the Employee Benefits segment as
a result of the acquisition of the group health and life business
from AH&L NY in December 1999.
Income tax expense increased $1.9 million or 145% in 2001 when
compared to 2000. Income tax expense increased $705 thousand in 2000
when compared to 1999. The increases in income tax expense in both
years reflect higher net earnings. The Company's effective tax rate
was 37.5% in 2001 compared to 39.7% in 2000, and 38.5% in 1999.
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 that amounts
approximate the additional premiums that would have been earned under
such contracts if they had been written as traditional indemnity
programs.
Deposits for investment-type contracts decreased $27 million or 73%
and increased $17.3 million or 87% in 2001 and 2000, respectively,
due to BOLI deposits. BOLI sales are single premium and very large in
nature, and therefore, can vary significantly from year to year.
Deposits for separate accounts decreased $6.5 million in 2001 when
compared to 2000 and increased $5.0 million in 2000 compared to 1999.
These fluctuations are expected in the small market in which the
Company operates.
Self-funded premium equivalents increased $22 million or 137% in 2001
when compared to 2000 primarily due to the inclusion in 2001 of the
first full year of operations resulting from the Allmerica assumption
reinsurance agreement. 2000 was the first full year of Employee
Benefit operations resulting from the AH&L NY assumption reinsurance
agreement.
Total assets and liabilities increased $922 thousand or 4% and $76.1
million or 44% in 2001 and 2000, respectively. The increases are
primarily attributable to BOLI business.
2. Other Matters
On October 6, 1999, GWL&A entered into a purchase and sales agreement
(the Agreement) with Allmerica Financial Corporation (Allmerica) to
acquire, via assumption reinsurance, Allmerica's group life and
health 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 was
immediately co-insured back to Allmerica and then underwritten and
retained by the Company upon each policy renewal date. The purchase
price, as defined in the Agreement, was 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.
B. EMPLOYEE BENEFITS RESULTS OF OPERATIONS
The results below reflect the Employee Benefits segment for the
following periods:
Years Ended December 31,
-----------------------------------------------
INCOME STATEMENT DATA 2001 2000 1999
------------------------------------- ------------- ------------- -------------
[thousands]
Premium income $ 15,055 $ 13,467 $ 9,195
Fee income 5,202 6,215 430
Net investment income 1,479 1,111
Net realized investment (losses) (37)
------------- ------------- -------------
Total revenues 21,699 20,793 9,625
Policyholder benefits 9,473 14,431 8,378
Operating expenses 5,085 4,087 506
------------- ------------- -------------
Total benefits and expenses 14,558 18,518 8,884
------------- ------------- -------------
Income from operations 7,141 2,275 741
Income tax expense 2,662 908 295
------------- ------------- -------------
Net income $ 4,479 $ 1,367 $ 446
============= ============= =============
Deposits to separate accounts $ 708 $ 3,249 $
Self-funded premium equivalents 38,410 16,225
During 2001, the Employee Benefits segment had an overall increase in
its net income. The increase was due primarily to increased revenue and
good morbidity experience, resulting in net income of $4.5 million in
2001, compared with $1.4 million in 2000.
In order to remain competitive, a focused effort on provider contracting
is essential to ensure strong morbidity results. Sales efforts will be
streamlined and concentrated on self-funded products. Business
development strategies will emphasize greater penetration in the New
York market. Continued emphasis will be placed on expense economies and
synergies to ensure competitive administrative costs. Efficiency will be
improved through implementation of various system initiatives and
through process redesign.
Online enrollment for life and health members was implemented in 2001.
As a further enhancement to our Internet services, online billing is
scheduled for implementation in 2002 and will provide our customers with
improved service, as well as generate cost savings to the Company.
C. FINANCIAL SERVICES RESULTS OF OPERATIONS
The results below reflect the Financial Services segment for the
following periods:
Years Ended December 31,
-----------------------------------------------
INCOME STATEMENT DATA 2001 2000 1999
------------------------------------- ------------- ------------- -------------
[thousands]
Premium income $ 75 $ 98 $ (51)
Fee income 373 362 262
Net investment income 10,284 9,222 6,278
Net realized investment gains 679 67 (6)
(losses)
------------- ------------- -------------
Total revenues 11,411 9,749 6,483
Policyholder benefits 8,226 7,261 4,600
Operating expenses 1,539 1,373 960
------------- ------------- -------------
Total benefits and expenses 9,765 8,634 5,560
------------- ------------- -------------
Income from operations 1,646 1,115 923
Income tax expense 632 438 346
------------- ------------- -------------
Net income $ 1,014 $ 677 $ 577
============= ============= =============
Deposits for investment-type
contracts $ 10,173 $ 37,344 $ 20,000
Deposits to separate accounts 7,185 11,189 9,389
During 2001, the Financial Services segment had an overall increase in
its net income. The increase is due primarily to the realized investment
gains increase of $612 thousand in 2001, as a result of realized gains
on fixed maturities. The additional earnings in 2000 reflected an
increased asset base, an increase in investment margins, and additional
realized gains on fixed maturities.
Premium and fee income decreased $12 thousand in 2001 compared to an
increase of $249 thousand in 2000. The decrease in 2001 was driven by a
decrease in premium income due to normal fluctuations that can be
expected in the small market in which the Company operates. The increase
in 2000 was driven by higher fee income related to growth in separate
accounts.
Deposits for investment-type contracts were down in 2001 due mostly to
BOLI deposits of $5.0 million in 2001 compared to $35.0 million in 2000
and $10.0 million in 1999. The nature of this type of product leads to
large fluctuations from year to year.
In 2001, the deposits for separate accounts decreased $4.0 million to
$7.2 million. Deposits for separate accounts increased $1.8 million in
2000 to $11.2 million. The separate account assets decreased by $4.8
million in 2001 due to market conditions and increased $7.5 million in
2000 due to the new deposits.
Net investment income increased $1.1 million in 2001 compared to 2000,
and $2.9 million in 2000 compared to 1999, primarily due to BOLI sales.
Total benefits and expenses increased $1.1 million in 2001 compared to
an increase of $3.1 million in 2000, primarily due to additional
interest credits on BOLI balances and increased operating expenses.
D. INVESTMENT OPERATIONS
The Company's primary investment objective is to acquire assets with
duration and cash flow characteristics reflective 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 under changing market
conditions, 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] 2001 2000
----------------------------------------------------- -------------- -------------
Fixed maturities, available-for-sale, at fair value $ 178,591 $ 150,631
Short-term investments 3,854 15,907
-------------- -------------
Total invested assets $ 182,445 $ 166,538
============== =============
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 that are primarily in the held-to-maturity
category are generally less marketable than publicly traded assets, yet
they typically offer covenant protection that allows the Company, if
necessary, to take appropriate action to protect its investment. The
Company believes that the cost of the additional monitoring and analysis
required by private placements is more than offset by their enhanced
yield.
One of the Company's primary objectives is to ensure that its fixed
maturity portfolio is maintained at a high average quality so as to
limit credit risk. If not externally rated, the securities are rated by
the Company on a basis intended to be similar to that of the rating
agencies.
The distribution of the fixed maturity portfolio by credit rating is
summarized as:
Credit Rating 2001 2000
---------------------------------------- ---------- ----------
AAA 65.0 % 62.8 %
AA 6.8 14.3
A 11.9 7.3
BBB 13.9 15.6
BB and lower 2.4
---------- ----------
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 primarily 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 has remained strong, as evidenced by significant amounts
of short-term investments and cash that totaled $11.7 million and $24.4
million as of December 31, 2001 and 2000, 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 September 2000, the Financial Accounting Standards Board (FASB)
issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities - A replacement of
FASB Statement No. 125", which revises the standards for accounting for
securitizations, and other transfers of financial assets and collateral,
and requires certain disclosures. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The adoption of the new SFAS
did not have a significant effect on earnings or the financial position
of the Company.
Effective April 1, 2001, the Company adopted Emerging Issues Task Force
Issue No. 99-20, Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interest in Securitized Financial
Assets (EITF 99-20). This pronouncement requires investors in certain
asset-backed securities to record changes in their estimated yield on a
prospective basis and to apply specific evaluation methods to these
securities for an other-than-temporary decline in value. The adoption of
EITF 99-20 did not have a material impact on the Company's financial
position or results of operations.
On June 29, 2001, Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" was approved by the FASB. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized.
On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. The Company implemented
SFAS No. 141 on July 1, 2001. Adoption of the Statement did not have a
material impact on the Company's financial position or results of
operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Tangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill
and certain other intangibles from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill
recorded in past business combinations, will cease upon adoption of this
statement. The Company is required to implement SFAS No. 142 on January
1, 2002 and, although it is still reviewing the provisions of this
Statement, management's preliminary assessment is that the Statement
will not have a material impact on the Company's financial position or
results of operations.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No.
144 supercedes current accounting guidance relating to impairment of
long-lived assets and provides a single accounting methodology for
long-lived assets to be disposed of, and also supercedes existing
guidance with respect to reporting the effects of the disposal of a
business. SFAS No. 144 is effective beginning January 1, 2002, with
earlier adoption encouraged. Although management is still reviewing the
provisions of the Statement, it does not expect SFAS No. 144 to have a
material impact on the Company's financial position or results of
operations, upon adoption.
See Note 1 to the Consolidated Financial Statements for additional
information regarding accounting pronouncements.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk facing the Company is 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, 2001. If interest rates increased by 100 basis points
(1%), the fair value of the fixed income assets would decrease by
approximately $8 million. The calculation used projected cash flows,
discounted back to December 31,2001. The cash projections are shown in
the table below. The table shows cash flows rather than expected
maturity dates because many of the Company's assets have substantial
expected principal payments prior to the final maturity date. The fair
value shown in the table below was calculated using spot discount
interest rates that varied by the year in which the cash flows were
expected to be received. These spot rates in the benchmark calculation
ranged from 3.62% to 8.85%.
Projected Cash Flows by Calendar Year
[$ There- Undiscounted Fair
millions]
2002 2003 2004 2005 2006 after Total Value
----- ----- ------ ------ ------ ------ ----------- ------
Benchmark 18 28 18 18 55 102 238 186
Interest
rates
up 1% 16 21 19 21 57 110 243 178
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are the Company's Financial Statements for the years ended
December 31, 2001, 2000, and 1999, and the Independent Auditor's 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, 2001, 2000, and 1999
and 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, 2001 and 2000, and the related
statements of income, stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of its operations and
its cash flows for the each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
January 28, 2002
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
======================================================================================================================
(Dollars in Thousands)
ASSETS 2001 2000
- ------ -------------------- --------------------
INVESTMENTS:
Fixed maturities, available-for-sale, at fair value
(amortized cost $176,687 and $148,522) $ 178,591 $ 150,631
Short-term investments, available-for-sale (cost
approximates fair value) 3,854 15,907
-------------------- --------------------
Total Investments 182,445 166,538
OTHER ASSETS:
Cash 7,860 8,462
Reinsurance receivable 2,346 1,924
Deferred policy acquisition costs 1,257 1,717
Investment income due and accrued 1,713 1,325
Amounts receivable related to uninsured
accident and health plan claims (net of allowances of
$1,835 and $0) 1,884 2,069
Premiums in course of collection
(net of allowances of $875 and $776) 792 2,502
Deferred income taxes 1,377 1,107
Due from Parent Corporation 107 10,207
Other assets 3,371 4,596
SEPARATE ACCOUNT ASSETS 45,576 47,359
-------------------- --------------------
TOTAL ASSETS $ 248,728 $ 247,806
==================== ====================
(Continued)
======================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 152,874 $ 137,657
Policy and contract claims 1,175 3,851
Policyholders' funds 2,801 2,762
GENERAL LIABILITIES:
Bank overdrafts 3,104 8,954
Contract deposits 7,761
Other liabilities 1,986 3,388
SEPARATE ACCOUNT LIABILITIES 45,576 47,359
-------------------- --------------------
Total Liabilities 207,516 211,732
-------------------- --------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value, 10,000 shares
authorized, 2,500 issued and outstanding 2,500 2,500
Additional paid-in capital 28,600 28,600
Accumulated other comprehensive income 727 1,082
Retained earnings 9,385 3,892
-------------------- --------------------
Total Stockholder's Equity 41,212 36,074
-------------------- --------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 248,728 $ 247,806
==================== ====================
See notes to financial statements. (Concluded)
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
===================================================================================================================
(Dollars in Thousands)
2001 2000 1999
---------------- ----------------- -----------------
REVENUES:
Premium income (net of premium ceded
of $140, $109, and $64) $ 15,130 $ 13,565 $ 9,144
Fee income 5,575 6,577 692
Net investment income 11,763 10,333 6,278
Net realized gains (losses) on investments 642 67 (6)
---------------- ----------------- -----------------
33,110 30,542 16,108
---------------- ----------------- -----------------
BENEFITS AND EXPENSES:
Life and other policy benefits (net of
reinsurance recoveries of $177, $964,
and $740) 11,132 15,625 4,391
(Decrease) increase in reserves (1,262) (944) 4,003
Interest paid or credited to
contractholders 7,829 7,011 4,584
General and administrative expenses 6,624 5,460 1,466
---------------- ----------------- -----------------
24,323 27,152 14,444
---------------- ----------------- -----------------
INCOME BEFORE INCOME TAXES 8,787 3,390 1,664
PROVISION FOR INCOME TAXES:
Current 3,383 2,307 65
Deferred (89) (961) 576
---------------- ----------------- -----------------
3,294 1,346 641
---------------- ----------------- -----------------
NET INCOME $ 5,493 $ 2,044 $ 1,023
================ ================= =================
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
==================================================================================================================================
(Dollars in Thousands)
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income (Loss) Earnings Total
--------- ---------- --------------- ------------------ --------------- ---------------
BALANCES, JANUARY 1, 1999 2,500 $ 2,500 $ 12,600 $ 717 $ 825 $ 16,642
Net income 1,023 1,023
Other comprehensive income (loss) (3,051) (3,051)
---------------
Comprehensive income (loss) (2,028)
---------------
Capital contribution 16,000 16,000
--------- ---------- --------------- ------------------ --------------- ---------------
BALANCES, 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
--------- ---------- --------------- ------------------ --------------- ---------------
BALANCES, DECEMBER 31, 2000 2,500 2,500 28,600 1,082 3,892 36,074
Net income 5,493 5,493
Other comprehensive income (loss) (355) (355)
---------------
Comprehensive income 5,138
--------- ---------- --------------- ------------------ --------------- ---------------
BALANCES, DECEMBER 31, 2001 2,500 $ 2,500 $ 28,600 $ 727 $ 9,385 $ 41,212
========= ========== =============== ================== =============== ===============
See notes to financial statements.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
====================================================================================================================
(Dollars in Thousands)
2001 2000 1999
-------------- -------------- --------------
OPERATING ACTIVITIES:
Net income $ 5,493 $ 2,044 $ 1,023
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of investments (1,144) (1,032) 59
Realized (gains) losses on sale of investments (642) (67) 6
Amortization of deferred acquisition costs 393 213 112
Deferred income taxes (89) (961) 576
Changes in assets and liabilities:
Accrued interest and other receivables 1,322 (2,086) (1,046)
Policy benefit liabilities 3,484 5,902 13,389
Reinsurance receivable (422) (498) (1,303)
Bank overdrafts (5,850) 7,446 1,508
Contract deposits (7,761) 7,761
Other, net (235) 695 (2,765)
-------------- -------------- --------------
Net cash provided by (used in)
operating activities (5,451) 19,417 11,559
-------------- -------------- --------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and redemptions
of investments:
Fixed maturities:
Held-to-maturity 667 447
Available-for-sale 59,417 50,107 15,683
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,144) (23,000)
Available-for-sale (73,742) (83,570) (31,066)
-------------- -------------- --------------
Net cash used in investing activities $ (14,325) $ (46,940) $ (37,936)
-------------- -------------- --------------
See notes to financial statements. (Continued)
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
====================================================================================================================
(Dollars in Thousands)
2001 2000 1999
-------------- -------------- --------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 9,074 37,447 20,494
Due (from) to Parent Corporation 10,100 (6,905) (5,379)
Capital contributions 16,000
-------------- -------------- --------------
Net cash provided by financing activities 19,174 30,542 31,115
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (602) 3,019 4,738
CASH, BEGINNING OF YEAR 8,462 5,443 705
-------------- -------------- --------------
CASH, END OF YEAR $ 7,860 $ 8,462 $ 5,443
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid (received) during the year for:
Income taxes $ 0 $ 2,217 $ (1,073)
See notes to financial statements. (Concluded)
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
================================================================================
(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 12.
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.
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation. These changes in
classification had no effect on previously reported stockholder's
equity or net income.
Investments - Management has classified its fixed maturities as
available for sale and carries them at fair value with the net
unrealized gains and losses reported as accumulated other comprehensive
income (loss) in stockholder's equity.
Premiums and discounts are recognized as a component of net investment
income using the effective interest method. 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.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
primarily consist of sales commissions related to the production of new
business, have been deferred to the extent recoverable. These costs are
variable in nature and are dependant upon sales volume. Deferred costs
associated with the annuity products are being amortized over the life
of the contracts in proportion to the emergence of gross profits.
Retrospective adjustments of these amounts are made when the Company
revises its estimates of current or future gross profits. Deferred
costs associated with traditional life insurance are amortized over the
premium paying period of the related policies in proportion to premium
revenues recognized. Amortization of deferred policy acquisition costs
totaled $393, $213, and $112 in 2001, 2000, and 1999, 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 and annuity policy reserves with life
contingencies of $145,593 and $135,191 at December 31, 2001 and 2000,
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 $5,995 and $141 at
December 31, 2001 and 2000, respectively, are established at
contractholders' account value.
Reinsurance - Policy reserves ceded to other insurance companies are
carried as a reinsurance receivable on the balance sheet. The cost of
reinsurance related to long-duration contracts is accounted for over
the life of the underlying reinsured policies using assumptions
consistent with those used to account for the underlying policies (See
Note 6).
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.
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. This association is accomplished by means of the
provision for future policy benefit reserves. The average credit rating
on annuity products, first sold in 2001, was approximately 4.2%.
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. Although realization
is not assured, management believes it is more likely than not that the
deferred tax asset will be realized.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - FASB has issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - A replacement of FASB Statement No. 125", (SFAS No. 140)
which revises the standards for accounting for securitizations and
other transfers of financial assets and collateral, and requires
certain disclosures. SFAS No. 140 was effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. Certain disclosure requirements under
SFAS No. 140 were effective December 15, 2000, and these requirements
have been incorporated in the Company's financial statements. The
adoption of SFAS No. 140 did not have a material effect on the
financial position or results of operations of the Company.
Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interest in Securitized Financial Assets - Effective April
1, 2001, the Company adopted Emerging Issues Task Force Issue No.
99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interest in Securitized Financial Assets" (EITF
99-20). This pronouncement requires investors in certain asset-backed
securities to record changes in their estimated yield on a prospective
basis and to apply specific evaluation methods to these securities for
an other-than-temporary decline in value. The adoption of EITF 99-20
did not have a material impact on the Company's financial position or
results of operations.
Business Combinations - On June 29, 2001 Statement of Financial
Accounting Standards (SFAS) No.141, "Business Combinations" (SFAS No.
141) was approved by the FASB. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated
after June 30, 2001. The Company implemented SFAS No. 141 on July 1,
2001. Adoption of the Statement did not have a material impact on the
Company's financial position or results of operations.
Goodwill and Other Intangible Assets - On June 29, 2001, SFAS No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142) was approved by
the FASB. SFAS No. 142 changes the accounting for goodwill and certain
other intangibles from an amortization method to an impairment-only
approach. Amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of this statement. The
Company implemented SFAS No. 142 on January 1, 2002 and, although it is
still reviewing the provisions of this Statement, management's
preliminary assessment is that the Statement will not have a material
impact on the Company's financial position or results of operations.
Long Lived Assets - In August 2001, the FASB issued SFAS No.144
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
No.144). SFAS No.144 supercedes current accounting guidance relating to
impairment of long-lived assets and provides a single accounting
methodology for long-lived assets to be disposed of, and also
supercedes existing guidance with respect to reporting the effects of
the disposal of a business. SFAS No.144 was adopted January 1, 2002
without a material impact on the Company's financial position or
results of operations.
Regulatory Requirements - In accordance with the requirements of the
State of New York, the Company must demonstrate adequate capital, as
defined. At December 31, 2001, 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, 2001.
3. ACQUISITIONS
On October 6, 1999, the Parent Corporation entered into a purchase and
sale agreement (the Agreement) with 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 was immediately coinsured back to Allmerica and then
underwritten and retained by the Company upon each policy renewal date.
The purchase price, as defined in the Agreement, was 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. The effect of
this transaction was not material to the Company's results of
operations or financial position.
4. 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,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Investment management expense
(included in net investment income) $ 123 $ 128 $ 96
Administrative and underwriting services
(included in general and administrative
expenses) 3,070 2,222 166
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.
5. ALLOWANCES ON POLICYHOLDER RECEIVABLES
The Company maintains an allowance for credit losses at a level that,
in management's opinion, is sufficient to absorb credit losses on its
amounts receivable related to uninsured accident and health plan claims
and premiums in course of collection. Management's judgement is based
on past loss experience and current and projected economic conditions.
Allowances for amounts receivable related to uninsured accident and
health plan claims:
2001 2000 1999
--------------- --------------- ---------------
Balance, beginning of year $ $ $
Provisions charged to operations 1,935
Amounts written off - net (100)
--------------- --------------- ---------------
Balance, end of year $ 1,835 $ 0 $ 0
=============== =============== ===============
Allowances for premiums in course of collection:
2001 2000 1999
--------------- --------------- ---------------
Balance, beginning of year $ 776 $ 580 $
Provisions charged to operations 167 196 580
Amounts written off - net (68)
--------------- --------------- ---------------
Balance, end of year $ 875 $ 776 $ 580
=============== =============== ===============
6. 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, 2001
and 2000, the reinsurance receivable had a carrying value of $2,346 and
$1,924, respectively.
Total reinsurance premiums ceded to the Parent Corporation in 2001,
2000, and 1999 were $107, $77, and $43, 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 Corporation 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 Corporation.
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, 2001:
Life insurance in force:
Individual $ 493,567 $ 136,613 $ $ 356,954 0.0%
Group 393,861 393,861 0.0%
--------------- ---------------- ------------- ----------------
Total $ 887,428 $ 136,613 $ $ 750,815
=============== ================ ============= ================
Premium Income:
Life insurance $ 3,789 $ 107 $ $ 3,682 0.0%
Accident/health 11,724 268 11,456 0.0%
--------------- ---------------- ------------- ----------------
Total $ 15,513 $ 375 $ $ 15,138
=============== ================ ============= ================
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 insurance $ 3,193 $ 76 $ $ 3,117 0.0%
Accident/health 8,591 76 1,933 10,448 18.5%
--------------- ---------------- ------------- ----------------
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 insurance $ 685 $ 57 $ 93 $ 721 12.9%
Accident/health 9,471 1,064 23 8,430 0.3%
--------------- ---------------- ------------- ----------------
Total $ 10,156 $ 1,121 $ 116 $ 9,151
=============== ================ ============= ================
7. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 2001 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
----------- ------------ ------------ ------------ ------------
Available-for-Sale:
U.S. Government Agencies $ 46,579 $ 1,584 $ 187 $ 47,976 $ 47,976
Collateralized mortgage
obligations 9,954 259 10,213 10,213
Public utilities 7,000 524 7,524 7,524
Corporate bonds 46,480 549 1,213 45,816 45,816
Asset backed securities 66,674 1,030 642 67,062 67,062
----------- ------------ ------------ ------------ ------------
$ 176,687 $ 3,946 $ 2,042 $ 178,591 $ 178,591
=========== ============ ============ ============ ============
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 Agencies $ 52,169 $ 1,454 $ 25 $ 53,598 $ 53,598
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 securities 50,371 1,743 213 51,901 51,901
----------- ------------ ------------ ------------ ------------
$ 148,522 $ 3,575 $ 1,466 $ 150,631 $ 150,631
=========== ============ ============ ============ ============
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 8 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, 2001, 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 $ 2,882 $ 3,075
Due after one year through five years 40,924 42,592
Due after five years through ten years 26,265 25,469
Due after ten years 1,252 1,271
Mortgage-backed securities 38,690 39,122
Asset-backed securities 66,674 67,062
------------ ------------
$ 176,687 $ 178,591
============ ============
Proceeds from sales of securities available-for-sale were $54,832,
$44,237, and $15,158 during 2001, 2000, and 1999, respectively. The
realized gains on such sales totaled $950, $296, and $15 for 2001,
2000, and 1999, respectively. The realized losses totaled $308, $229,
and $21 for 2001, 2000, and 1999, 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.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
December 31,
------------------------------------------------------------
2001 2000
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
ASSETS:
Fixed maturities and short-term
investments $ 182,445 $ 182,445 $ 166,538 $ 166,538
LIABILITIES:
Annuity contract reserves without
life contingencies 5,995 5,995 141 141
Policyholders' funds 2,801 2,801 2,762 2,762
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 estimated fair value of policyholders' funds is the same as the
carrying amount as the Company can change the crediting rates with 30
days notice.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
2001 2000 1999
------------- ------------- -------------
Federal tax rate 35.0 % 35.0 % 35.0 %
Change in tax rate resulting from:
Prior year tax adjustment (3.9) (0.9) (1.1)
State taxes 6.0 5.6 4.6
Other 0.4
------------- ------------- -------------
Total 37.5 % 39.7 % 38.5 %
============= ============= =============
Temporary differences, which give rise to the deferred tax assets and
liabilities as of December 31, 2001 and 2000, are as follows:
2001 2000
------------------------ ------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Asset Liability Asset Liability
---------- ---------- ---------- ----------
Policy reserves $ 261 $ 204
Deferred policy
acquisition costs $ 279 $ 601
Deferred acquisition
cost proxy tax 2,180 2,226
Investment assets 837 753
State taxes 92 31
Other 40
---------- ---------- ---------- ----------
Total deferred taxes $ 2,533 $ 1,156 $ 2,461 $ 1,354
========== ========== ========== ==========
Amounts related to investment assets above include $666 and $738
related to the unrealized gains on the Company's fixed maturities
available-for-sale at December 31, 2001, and 2000, 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 the Parent Corporation have entered into an income tax
allocation agreement whereby the Parent Corporation 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 2001, the Company
will file on a consolidated basis with its Parent Corporation.
10. OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) for the year ended December 31, 2001
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 16 (5) 11
Less: reclassification adjustment
for (gains) losses realized in net
income $ (220) $ 69 $ (151)
----------------- ----------------- ----------------
Net unrealized gains (losses) (204) 64 (140)
Reserve and DAC adjustment (331) 116 (215)
----------------- ----------------- ----------------
Other comprehensive income (loss) $ (535) $ 180 $ (355)
================= ================= ================
Other comprehensive income for the year ended 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 $ 5,256 $ (1,840) $ 3,416
================= ================= ================
Other comprehensive income (loss) for the year ended 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 (losses)
Arising during the period $ (5,425) $ 1,900 $ (3,525)
----------------- ----------------- ----------------
Net unrealized gains (losses) (5,425) 1,900 (3,525)
Reserve and DAC adjustment 729 (255) 474
----------------- ----------------- ----------------
Other comprehensive income (loss) $ (4,696) $ 1,645 $ (3,051)
================= ================= ================
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:
2001 2000 1999
-------------- -------------- --------------
(Unaudited)
Net income $ 7,138 $ 27 $ 1,202
Capital and surplus 33,406 26,999 29,289
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, was 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 required adoption of Codification with
certain modifications for the preparation of statutory financial
statements effective January 1, 2001. The adoption of Codification as
modified by the New York Division of Insurance increased 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 $3,341 in 2002. The Company paid no dividends
in 2001 and 2000. Dividends are paid as determined by the Board of
Directors.
12. SEGMENT INFORMATION
The Company has two reportable segments: Employee Benefits and
Financial Services. The Employee Benefits segment markets group life
and health and 401(k) products to small and mid-sized corporate
employers. The Financial Services segment markets and administers
savings products to public and not-for-profit employers and individuals
and offers life insurance products to individuals and businesses. The
Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each
segment has unique distribution channels.
The 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, 2001 was as follows:
Operations: Employee Financial
Benefits Services Total
----------------- ----------------- ----------------
Revenue:
Premium income $ 15,055 $ 75 $ 15,130
Fee income 5,202 373 5,575
Net investment income 1,479 10,284 11,763
Realized investment gains (losses) (37) 679 642
----------------- ----------------- ----------------
Total revenue 21,699 11,411 33,110
Benefits and Expenses:
Benefits 9,473 8,226 17,699
Operating expenses 5,085 1,539 6,624
----------------- ----------------- ----------------
Total benefits and expenses 14,558 9,765 24,323
----------------- ----------------- ----------------
Net operating income before
Income taxes 7,141 1,646 8,787
Income taxes 2,662 632 3,294
----------------- ----------------- ----------------
Net income $ 4,479 $ 1,014 $ 5,493
================= ================= ================
Assets:
Investment assets $ 26,223 $ 156,222 $ 182,445
Other assets 18,540 2,167 20,707
Separate account assets 3,027 42,549 45,576
----------------- ----------------- ----------------
Total assets $ 47,790 $ 200,938 $ 248,728
================= ================= ================
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 $ 16,201 $ 150,337 $ 166,538
Other assets 20,625 13,284 33,909
Separate account assets 47,359 47,359
----------------- ----------------- -----------------
Total assets $ 36,826 $ 210,980 $ 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 742 922 1,664
Income taxes 295 346 641
----------------- ----------------- ----------------
Net income $ 447 $ 576 $ 1,023
================= ================= ================
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings, which arise in
the ordinary course of its business. In the opinion of management,
after consultation with counsel, the resolution of these proceedings
should not have a material adverse effect on its financial position or
results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change 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 60 1996 Partner, Kalkines, Arky, Zall &
Bernstein
LLP (a law firm) since January 1998;
previously Counsel, Simpson, Thacher
& Bartlett (a law firm)
James Balog (1) 73 1997 Company Director
James W. Burns, O.C. 72 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) 65 2000 Company Director since April 2000;
previously President and Chief
Executive Officer, Great-West
Lifeco
Paul Desmarais, Jr. 47 1997 Chairman and Co-Chief Executive
Officer, Power Corporation;
Chairman,
Power Financial
Robert Gratton 58 1997 Chairman of the Board of GWL&A;
President and Chief Executive
Officer,
Power Financial
Stuart Z. Katz 59 1997 Partner, Fried, Frank, Harris,
Shriver &
Jacobson (a law firm)
William T. McCallum 59 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) 48 1997 Managing Partner, QVan Capital,
LLC (a merchant banking company)
since September1997, 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 is a list of 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 Advisers LLC
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 59 1997 Chairman, President and Chief
Chairman, President Executive Officer of the Company;
and Chief Executive President and Chief Executive
Officer Officer,
GWL&A; Co-President and Chief
Executive Officer, Great-West
Lifeco
Mitchell T.G. Graye 46 1997 Executive Vice President and Chief
Executive Vice Financial Officer of the Company
and
President and Chief GWL&A
Financial Officer
Douglas L. Wooden 45 1997 Executive Vice President, Financial
Executive Vice Services of the Company and GWL&A
President,
Financial Services
John A. Brown 54 1992 Senior Vice President, BenefitsCorp
Senior Vice President Healthcare Markets of the Company
BenefitsCorp and GWL&A
Healthcare Markets
Mark S. Corbett 42 2001 Senior Vice President, Investments
of
Senior Vice the Company
President,
Investments
Wayne T. Hoffmann 46 2001 Senior Vice President, Investments
of
Senior Vice the Company and GWL&A
President,
Investments
D. Craig Lennox 54 1997 Senior Vice President, General
Senior Vice Counsel and Secretary of the
President,
General Counsel and Company and GWL&A
Secretary
Steve H. Miller 49 1997 Senior Vice President, Employee
Senior Vice Benefits Sales of the Company and
President,
Employee Benefits GWL&A
Sales
Charles P. Nelson 41 1998 President, BenefitsCorp of the
Company
President, and GWL&A
BenefitsCorp
Martin Rosenbaum 49 1997 Senior Vice President, Employee
Senior Vice Benefits Finance of the Company
President, and
Employee Benefits GWL&A
Finance
Gregory E. Seller 48 1997 Senior Vice President,
Senior Vice BenefitsCorp Government Markets
President,
BenefitsCorp of the Company and GWL&A
Government Markets
Robert K. Shaw 46 1997 Senior Vice President, Individual
Senior Vice President Markets of the Company and GWL&A
Individual Markets
George D. Webb 58 1999 President, Advised Assets Group,
President, Inc. of
the Company and GWL&A; prior to
Advised Assets July 1999, Principal, William M.
Mercer
Group, Inc. Investment Consulting Inc. (an
Investment consulting company)
Warren J. Winer 55 2001 Senior Vice President, Employee
Senior Vice Benefits of the Company and GWL&A;
President,
Employee Benefits prior to January 2001, Executive
Vice
President, General American Life
Insurance Company
Jay W. Wright 50 2001 Senior Vice President,
Senior Vice Employee Benefits of the Company
President,
Employee Benefits and GWL&A; prior to January 2001,
Senior Vice President, New England
Financial
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. At their option, in lieu of cash payments, directors may
receive deferred share units under The Great-West Life Assurance Company
Deferred Share Unit Plan. 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, 2002, 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) 82.2% 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) 67.5% 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, that 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 that will become exercisable
within 60 days) for equity securities, of the Company or any of its
parents or subsidiaries, beneficially owned, as of December 31, 2001,
by (i) the directors of the Company; and (ii) the directors and
executive officers of the Company as a group.
--------------------- ---------------------- ---------------------- -------------------
Great-West Lifeco Power Financial Power Corporation
Inc.
Corporation of Canada
--------------------- ---------------------- ---------------------- -------------------
Directors (1) (2) (3)
--------------------- ---------------------- ---------------------- -------------------
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. 43,624 178,221
2,379,000 options
--------------------- ---------------------- ---------------------- -------------------
R. Gratton 331,846 310,000 10,460
6,780,000 options
--------------------- ---------------------- ---------------------- -------------------
S.Z. Katz
--------------------- ---------------------- ---------------------- -------------------
W.T. McCallum 84,474 19,500
840,000 options
--------------------- ---------------------- ---------------------- -------------------
B.E. Walsh 2,000
--------------------- ---------------------- ---------------------- -------------------
--------------------- ---------------------- ---------------------- -------------------
Great-West Lifeco Power Financial Power Corporation
Inc.
Corporation of Canada
--------------------- ---------------------- ---------------------- -------------------
Directors and (1) (2) (3)
Executive Officers
as a Group
--------------------- ---------------------- ---------------------- -------------------
844,216 500,500 592,121
1,607,680 options 6,850,000 options 2,579,000 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 P.
Desmarais, Jr. represents 1.3% of the total number of subordinate
voting shares and exercisable options for subordinate voting shares of
Power Corporation of Canada 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 represents 1.6% 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 exceeds 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 that provided legal services to the
Company. In 2001, the amount of such services was $36,387.28.
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
Page
------------
Independent Auditors' Report on Financial Statements for the Years Ended
December 31, 2001, and 2000...............................
Balance Sheets as of December 31, 2001 and 2000.........................
Statements of Income for the Years Ended December 31, 2001, and
2000..........................................................
Statements of Stockholder's Equity for the Years Ended December 31,
2001, and
2000..........................................................
Statements of Cash Flows for the Years Ended December 31, 2001, and
2000..........................................................
Notes to Financial Statements for the Years Ended December 31, 2001, and
2000..........................................................
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 Page
------------------- -------------------------------------------- ----------------
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 Description Agreement between First Great-
West Life & Annuity Insurance Company
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 Registrant's Form
10-K
for the year ended December 31, 1997 and
incorporated herein by reference.
10.3 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.
Filed as Exhibit 10.3 to Registrant/s Form
10-K
for the year ended December 31, 2000 and
incorporated herein by reference.
10.4 Administrative Services Agreement between
First Great-West Life & Annuity Insurance
Company and Great-West Life & Annuity
Insurance Company, respecting employee
benefits business.
10.5 Deferred Share Unit Plan filed herewith.
24 Directors' Powers of Attorney
Filed as Exhibit 24 to Registrant's Form
10-K
for the years ended December 31, 1997 and
2000 and incorporated herein by
reference.
C. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 2001.
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/ William T. McCallum
----------------------------------------------------------------
William T. McCallum, President and Chief Executive Officer
Date: March 28, 2002
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, 2002
----------------------------------------------------------------
William T. McCallum
Chairman, President, and Chief Executive Officer and a Director
/s/ Mitchell T.G. Graye March 28, 2002
----------------------------------------------------------------
Mitchell T.G. Graye
Executive Vice President and Chief Financial Officer
/s/ Glen R. Derback March 28, 2002
----------------------------------------------------------------
Glen R. Derback
Vice President and Treasurer
/s/ Marcia D. Alazraki * March 28, 2002
----------------------------------------------------------------
Marcia D. Alazraki, Director
/s/ James Balog * March 28, 2002
----------------------------------------------------------------
James Balog, Director
/s/ James W. Burns * March 28, 2002
----------------------------------------------------------------
James W. Burns, Director
/s/ Orest T. Dackow * March 28, 2002
----------------------------------------------------------------
Orest T. Dackow, Director
/s/ Paul Desmarais, Jr. * March 28, 2002
----------------------------------------------------------------
Paul Desmarais, Jr., Director
/s/ Robert Gratton * March 28, 2002
----------------------------------------------------------------
Robert Gratton, Director
/s/ Stuart Z. Katz * March 28, 2002
----------------------------------------------------------------
Stuart Z. Katz, Director
/s/ Brian E. Walsh * March 28, 2002
----------------------------------------------------------------
Brian E. Walsh, Director
*By: /s/ D. Craig Lennox March 28, 2002
-----------------------------------------------------------
D. Craig Lennox
Attorney-in-fact pursuant to filed Power of Attorney
EXHIBIT 10.5
DEFERRED SHARE UNIT PLAN FOR DESIGNATED U.S. RESIDENT DIRECTORS
OF THE GREAT-WEST LIFE ASSURANCE COMPANY,
LONDON LIFE INSURANCE COMPANY,
LONDON INSURANCE GROUP INC.,
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY AND
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
TABLE OF CONTENTS
Page
1. PREAMBLE AND DEFINITIONS.....................................................1
2. CONSTRUCTION AND INTERPRETATION..............................................2
3. ELIGIBILITY..................................................................3
4. DEFERRED SHARE UNIT GRANTS AND ACCOUNTS......................................3
5. REDEMPTION ON RETIREMENT OR DEATH............................................7
6. CURRENCY.....................................................................7
7. SHAREHOLDER RIGHTS...........................................................8
8. ADMINISTRATION...............................................................8
9. ASSIGNMENT...................................................................8
PREAMBLE AND DEFINITIONS
1.1 Title
The Plan herein described shall be called the "Deferred Share
Unit Plan for Designated U.S. Resident Directors of The
Great-West Life Assurance Company, London Life Insurance Company,
London Insurance Group Inc., Great-West Life & Annuity Insurance
Company" and First Great-West Life & Annuity Insurance Company
and is referred to herein as "the Plan".
1.2 Purpose of the Plan
The purpose of the Plan is to promote a greater alignment of
interests between Members and the shareholders of the
Corporations.
1.3 Definitions
1.3.1 "Annual Board Retainer" means the Canadian dollar
equivalent of the aggregate basic annual remuneration paid
by the Corporations to a Director in a financial year for
service on the Boards together with Board committee fees
and additional fees and retainers to committee chairs, but
excluding Attendance Fees.
1.3.2 "Affiliate" means any related or associated
corporation, or any corporation that is a member of a
group of corporations that do not deal at arm's length,
notwithstanding that they may not be related or associated
for purposes of the Income Tax Act (Canada).
1.3.3 "Attendance Fees" means the Canadian dollar equivalent
of the aggregate fees paid by the Corporations to a
Director in a financial year for attendance at meetings of
the Boards and their committees.
1.3.4 "Board" means the Board of Directors of any of the Corporations.
1.3.5 "Corporations" means The Great-West Life Assurance
Company, London Life Insurance Company, London Insurance
Group Inc., Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance Company and
any successor corporations whether by amalgamation, merger
or otherwise.
1.3.6 "Deferred Share Unit" means a share unit notionally
credited to a Member's Deferred Share Unit Account through
a bookkeeping entry, the value of which at the relevant
time shall be equal to the weighted average trading price
per Share on the Toronto Stock Exchange for the last five
Trading Days immediately before the date in issue.
1.3.7 "Deferred Share Unit Account" has the meaning ascribed thereto in
Article 4.9.
1.3.8 "Director" means a director of any of the Corporations
designated by the President and Chief Executive Officer of
any of the Corporations as eligible to participate in the
Plan, and who is resident in the United States.
1.3.9 "Member" means a Director who elects to participate in
the Plan in accordance with Article 4.
1.3.10 "Share" means a common share of Great-West Lifeco Inc.
and such other share as is added thereto or substituted
therefor as a result of amendments to the articles of
Great-West Lifeco Inc., a reorganization or otherwise.
1.3.11 "Trading Day" means any date on which the Toronto Stock
Exchange is open for the trading of Shares.
2. CONSTRUCTION AND INTERPRETATION
2.1 In the Plan, references to the masculine include the
feminine and reference to the singular shall include the plural
and vice versa, as the context shall require.
2.2 Unless otherwise stated herein, the Plan shall be governed by and
interpreted in accordance with the laws of Colorado and
applicable U.S. federal law.
2.3 If any provision of the Plan or part thereof is determined
to be void or unenforceable in whole or in part, such
determination shall not affect the validity or enforceability of
any other provision or part thereof.
2.4 Headings wherever used herein are for reference purposes
only and do not limit or extend the meaning of the provisions
herein contained.
2.5 The Corporations and the Members confirm their desire that
this document along with all other documents including all
notices relating hereto be written in the English language. La
Compagnie et les membres confirment leur volonte que ce document
de meme que tous les documents, y compris tout avis, s'y
rattachant soient rediges en anglais.
3. ELIGIBILITY
3.1 The Corporations are establishing the Plan for Directors,
beginning with the Corporations' first fiscal quarter of 2001.
3.2 Participation in the Plan by each Director is voluntary.
3.3 Nothing herein contained shall be deemed to give any person
the right to be retained as a Director or an employee of any of
the Corporations.
4. DEFERRED SHARE UNIT GRANTS AND ACCOUNTS
4.1 Each Director may, subject to the conditions stated herein,
elect in accordance with Section 4.2 to participate in the
Plan. If a Director so elects to participate he or she will be
entitled to receive:
(A) his or her Annual Board Retainer payable for the
subsequent calendar years as follows:
(a) entirely in cash;
(b) as to 1/2 in Deferred Share Units and the balance in cash; or
(c) entirely in Deferred Share Units; and
(B) his or her Attendance Fees payable for the subsequent
calendar years as follows:
(d) entirely in cash;
(e) as to 1/2 in Deferred Share Units and the balance in cash; or
(f) entirely in Deferred Share Units.
4.2 Each Director who elects to participate in the Plan must
file a notice of election in the form of Schedule A hereto (the
"Election Notice") with the Secretary of Great-West Life &
Annuity Insurance Company before the commencement of a calendar
year.
The election of a Director (who has not filed a notice to (i)
change his or her elected percentage in the form of Schedule B
hereto, or (ii) terminate the receipt of additional Deferred
Share Units in the form of Schedule C hereto) to participate in
the Plan shall be deemed to apply to all calendar years
subsequent to the filing of the Election Notice and such Director
will not be required to file another Election Notice.
4.3 The election made in accordance with section 4.2 shall
relate to the Annual Board Retainer and the Attendance Fees paid
with respect to any and all of the Corporations' calendar years
following the filing of the Election Notice.
4.4 Each Member may, once per calendar year, change his or her
elected percentage of the Annual Board Retainer and the
Attendance Fees to be paid in Deferred Share Units by filing with
the Secretary of Great-West Life & Annuity Insurance Company a
notice in the form of Schedule B hereto. Such Member's change
shall be effective with respect to the Annual Board Retainer and
the Attendance Fees payable for calendar years following that
election.
4.5 Each Member may, once per calendar year, terminate the
Member's participation in the Plan by filing with the Secretary
of Great-West Life & Annuity Insurance Company a notice electing
to terminate the receipt of additional Deferred Share Units in
the form of Schedule C hereto. Such Member's election shall be
effective with respect to the Annual Board Retainer and the
Attendance Fees payable for the calendar years following that
election.
Any Deferred Share Units granted under the Plan prior to the
election shall remain in the Plan and will be redeemable only in
accordance with the terms of the Plan.
A Member who has filed a notice in accordance with Schedule C may
elect to reinstate their acquisition of Deferred Share Units by
filing an Election Notice in accordance with Section 4.2.
4.6 A Member shall, for the purposes of the Plan, be deemed to
retire on the date he or she is no longer any of a Director or an
employee of any of the Corporations.
4.7 The Annual Board Retainer and the Attendance Fees are
payable quarterly in arrears on January 1, April 1, July 1 and
October 1 in each fiscal year.
4.8 The number of Deferred Share Units granted at any particular time
with respect to the Annual Board Retainers and/or the Attendance
Fees deferred pursuant to Section 4.1 will be calculated by
quarterly dividing the portion of one-quarter of the Annual Board
Retainer and/or Attendance Fees payable at that time which is to
be paid in Deferred Share Units by the weighted average trading
price per Share on the Toronto Stock Exchange for the last five
Trading Days of the preceding fiscal quarter. For example,
$10,000 =
-------
TSE weighted average trading price Number of Deferred
Share of 1 Share for the last 5 Trading Units Granted
Days of the preceding fiscal quarter
4.9 An account, to be known as a "Deferred Share Unit Account"
shall be maintained by The Great-West Life Assurance Company for
each Member and will be credited with notional grants of Deferred
Share Units received by such Member from time to time.
4.10 Whenever cash dividends are paid on the Shares, additional
Deferred Share Units will be credited to each Member's Deferred
Share Unit Account. The number of such additional Deferred Share
Units will be calculated by dividing the dividends that would
have been paid to such Member if the Deferred Share Units in the
Member's Deferred Share Unit Account had been Shares by the value
of a Deferred Share Unit on the date on which the dividends were
paid on the Shares.
4.11 In the event of any stock dividend, stock split, combination
or exchange of shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividends) of Great-West
Lifeco Inc. assets to shareholders, or any other changes
affecting the Shares, proportionate adjustments to reflect such
change or changes shall be made with respect to the number of
Deferred Share Units outstanding under the Plan.
4.12 For greater certainty, no amount will be paid to, or in
respect of, a Member under the Plan or pursuant to any other
arrangement, and no additional Deferred Share Units will be
granted to such Member, to compensate for a downward fluctuation
in the price of the Shares, nor will any other form of benefit be
conferred upon, or in respect of, a Member for such purpose.
5. REDEMPTION ON RETIREMENT OR DEATH
5.1 The value of the Deferred Share Units credited to a
Member's Deferred Share Unit Account shall be redeemable by the
Member (or, where the Member has died, his estate) at the
Member's option (or after the Member's death at the option of his
legal representative) following the event, including death,
causing the Member to be no longer any of a Director or an
employee of any of the Corporations or a person related to any of
the Corporations or to an Affiliate of any of the Corporations
(the "Member's Termination Date"), by filing a written notice of
redemption in the form of Schedule D hereto with the Secretary of
Great-West Life & Annuity Insurance Company, specifying a
redemption date within the period from January 1st of the first
calendar year commencing after the Member's Termination Date to
December 15th of the first calendar year commencing after the
Member's Termination Date. If no notice of redemption has been
filed by December 15th of the first calendar year after the
Member's Termination Date that date will be deemed to be the
redemption date.
5.2 The value of the Deferred Share Units redeemed by or in
respect of a Member shall be paid to the Member (or, if the
Member has died, to his or her estate, as the case may be) by The
Great-West Life Assurance Company in the form of a lump sum cash
payment, net of any applicable withholdings as soon as
practicable after the redemption date, provided that in any event
such payment date shall be no later than December 31st of the
first calendar year commencing after the Member's Termination
Date. The Great-West Life Assurance Company shall charge to
London Life Insurance Company, London Insurance Group Inc.,
Great-West Life & Annuity Insurance Company and First Great-West
Life & Annuity Insurance Company the portion of the amount paid
to the Member above which relates to service on their respective
board of directors.
6. CURRENCY
6.1 All references in the Plan to currency refer to lawful
Canadian currency.
7. SHAREHOLDER RIGHTS
7.1 Deferred Share Units are not shares and will not entitle a
Member to any shareholder rights, including, without limitation,
voting rights, dividend entitlement or rights on liquidation.
8. ADMINISTRATION
8.1 Unless otherwise determined by the Board of Directors of
The Great-West Life Assurance Company, the Plan shall remain an
unfunded obligation of the Corporation.
8.2 The Plan shall be administered by the Executive Committee
of the Board of Directors of The Great-West Life Assurance
Company.
8.3 The Plan may be amended or terminated at any time by the
Board of Directors of The Great-West Life Assurance Company,
except as to rights already accrued thereunder by the Members.
Notwithstanding the foregoing, any amendment or termination of
the Plan shall be such that the Plan continuously meets the
requirements of applicable U.S. tax laws.
8.4 Each of the Corporations will be responsible for its
proportionate share of all costs relating to the operation and
administration of the Plan.
9. ASSIGNMENT
9.1 The assignment or transfer of the Deferred Share Units, or any
other benefits under this Plan, shall not be permitted other than
by operation of law.
Schedule A
Deferred Share Unit Plan for Designated U.S. Resident
Directors of The Great-West Life Assurance Company, London Life
Insurance Company, London Insurance Group Inc., Great-West Life &
Annuity Insurance Company and First Great-West Life & Annuity
Insurance Company (the "Plan")
ELECTION NOTICE
I hereby elect to participate in the Plan and
(i) my elected percentage with respect to my aggregate Annual
Board Retainer payable from each of The Great-West Life Assurance
Company, London Life Insurance Company, London Insurance Group
Inc., Great-West Life & Annuity Insurance Company and First
Great-West Life & Annuity Insurance Company (the "Corporations")
until changed in accordance with Schedule B and/or C is:
0% or 50% or 100%
(ii) my elected percentage with respect to my aggregate Attendance
Fees payable from each of the Corporations until changed in
accordance with Schedule B and/or C is:
0% or 50% or 100%
I confirm that:
1. I have received and reviewed a copy of the terms of the Plan and
agree to be bound by them.
2. I understand that this election will apply to the Annual
Board Retainer and Attendance Fees payable to me for services
commencing in the calendar year following the calendar year in
which I make this election.
3. I understand that I will not be able to cause any of the
Corporations to redeem Deferred Share Units granted under the
Plan ("DSUs") until I am no longer either a Director or an
employee of any of the Corporations or any related corporation.
4. I recognize that under current law, the Corporations
intend to treat the time when DSUs credited pursuant to this
election are redeemed in accordance with the terms of the Plan,
after I am no longer either a Director or employee of any of the
Corporations or any related corporation, as the date as of which
income tax and other withholdings are required. Upon redemption
of the DSUs, the Corporations will make all appropriate
withholdings as required by law at that time.
5. The value of DSUs are based on the value of the common shares of
Great-West Lifeco Inc. and therefore are not guaranteed.
6. No funds will be set aside to guarantee the payment of DSUs.
Future payment of DSUs will remain an unfunded liability recorded
on the books of the Corporations.
The foregoing is only a brief outline of certain key provisions of the
Plan. For more complete information, reference should be made to the Plan text.
Date (Name of Director)
(Signature of Director)
Schedule B
Deferred Share Unit Plan for Designated U.S. Resident Directors of The
Great-West Life Assurance Company, London Life Insurance Company, London
Insurance Group Inc., Great-West Life & Annuity Insurance Company and First
Great-West Life & Annuity Insurance Company (the "Plan")
ELECTION TO CHANGE ELECTED PERCENTAGE
I hereby elect, notwithstanding my previous election in the form of
Schedule A to the Plan dated _______________, to change my elected percentage
relating to the
(i) aggregate Annual Board Retainer payable for my services in
the calendar year commencing after the date hereof and, subject
to any subsequent elections I may make in accordance with the
terms of the Plan, for calendar years thereafter to
0% or 50% or 100%
(ii) aggregate Attendance Fees payable for my services in the
calendar year commencing after the date hereof and, subject to
any subsequent elections I may make in accordance with the terms
of the Plan, for calendar years thereafter to
0% or 50% or 100%
Except as stated above the provisions of Schedule A continue to apply.
Date (Name of Director)
(Signature of Director)
NB: An election to change the elected percentages can only be made by any Member
once in a calendar year.
Schedule C
Deferred Share Unit Plan for Designated U.S. Resident Directors of The
Great-West Life Assurance Company, London Life Insurance Company, London
Insurance Group Inc., Great-West Life & Annuity Insurance Company and First
Great-West Life & Annuity Insurance Company (the "Plan")
ELECTION TO TERMINATE RECEIPT
OF ADDITIONAL DEFERRED SHARE UNITS
I hereby elect that, notwithstanding my previous election in the form of
Schedule A to the Plan, no portion of the aggregate Annual Board Retainer and
aggregate Attendance Fees payable for my services in the calendar year
commencing after the date hereof or, subject to any subsequent election I may
make in accordance with the terms of the Plan, for calendar years thereafter
shall be paid in Deferred Share Units in accordance with the terms of the Plan.
I understand that the Deferred Share Units already granted under the
Plan cannot be redeemed until I am no longer either a Director or employee of
The Great-West Life Assurance Company, London Life Insurance Company, London
Insurance Group Inc., Great-West Life & Annuity Insurance Company and First
Great-West Life & Annuity Insurance Company or any related corporation.
I confirm that I have received and reviewed a copy of the terms of the
Plan and agree to be bound by them.
Date (Name of Director)
(Signature of Director)
NB: An election to terminate receipt of additional Deferred Share Units can only
be made by any Member once in a calendar year.
Schedule D
Deferred Share Unit Plan for Designated U.S Resident Directors of The Great-West
Life Assurance Company, London Life Insurance Company, London Insurance Group
Inc., Great-West Life & Annuity Insurance Company and First Great-West Life &
Annuity Insurance Company (the "Plan")
REDEMPTION NOTICE
I hereby advise The Great-West Life Assurance Company (the
"Corporation") that I wish to redeem all the Deferred Share Units credited to my
account under the Plan on [insert redemption date, which shall be at least five
(5) business days following the date on which this notice is filed with the
Corporation, and which date shall be no earlier than January 1 but no later than
December 15 of the first calendar year commencing after the year in which the
participant ceases to be both a director or an employee of any of the
Corporation, London Life Insurance Company, London Insurance Group Inc.,
Great-West Life & Annuity Insurance Company and First Great-West Life & Annuity
Insurance Company or any related corporation].
Date (Name of Director)
(Signature of Director)
If the Redemption is signed by a beneficiary or legal representative documents
providing the authority of such signature should be provided.