Item 1. Business Protective Life and Annuity Insurance Company (“the Company”), a stock life insurance company, was founded in 1978. Since 1983, all outstanding shares of the Company’s common stock have been owned by Protective Life Insurance Company (“Protective”), which is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol “PL”. All outstanding shares of the Company’s preferred stock are owned by PLC. The Company is authorized to transact insurance business, as an insurance company or a reinsurance company, in 49 states, including New York.
PLC through its subsidiaries provides financial services through the production, distribution, and administration of insurance and investment products. PLC through its subsidiaries operates several segments each having a strategic focus which can be grouped into three general product categories: life insurance, retirement savings and investment products, and specialty insurance products. PLC’s operating segments are Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Credit Products.
The Company, since it is licensed in the State of New York, is the entity through which PLC markets, distributes, and services insurance and annuity products in New York. As of December 31, 2001, the Company was involved in the businesses of three of PLC’s operating segments: Acquisitions, Credit Products, and Annuities. The Company has an additional business segment which is described herein as Corporate and Other.
Protective has entered into an intercompany guaranty agreement, enforceable by the Company or its successors, whereby Protective has guaranteed the Company’s payment of claims made by the holders of Company policies according to the terms of such policies. The guarantee will remain in force until the earlier of (a) when the Company achieves a claims-paying rating equal to or better than Protective without the benefit of any inter-company guaranty agreement or (b) 90 days after the guaranty agreement is revoked by written instrument; provided, however, even after any revocation or termination by such notice, the guarantee shall remain effective as to policies issued during the existence of the guaranty agreement.
Item 2.
Item 2. Properties The Company has no properties. The Company has contracts with PLC and Protective under which it receives investment, legal, and data processing services on a fee basis and other managerial and administrative services on a shared cost basis.
Protective’s administrative office building is located at 2801 Highway 280 South, Birmingham, Alabama 35223.
Item 3.
Item 3. Legal Proceedings There are no material pending legal proceedings, other than routine litigation incidental to the business of the Company, to which the Company or any of its affiliates is a party or of which any of its affiliates’ properties is subject. For additional information regarding legal proceedings see Note E to the financial statements included herein.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders Not required in accordance with General Instruction I(2)(c).
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Share-Owner Matters The Company is a wholly-owned subsidiary of Protective. All of the preferred stock issued by the Company is owned by PLC. Therefore, neither the Company’s common stock nor its preferred stock is publicly traded.
At December 31, 2001, $94.2 million of share-owners’ equity, excluding net unrealized gains and losses, represented net assets of the Company that cannot be transferred to Protective in the form of dividends, loans, or advances.
Insurers are subject to various state statutory and regulatory restrictions on the insurers’ ability to pay dividends. In general, dividends up to specific levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to Protective by the Company in 2002 is estimated to be $16.4 million.
In 2001, the Company declared and paid a cash dividend on common stock of $11.9 million. In 2000, the Company declared and paid a cash dividend on common stock of approximately $12.8 million. Preferred dividends of $1.0 million were paid in 2001. No preferred dividends were paid in 2000. The Company expects to continue to be able to pay cash dividends, subject to its earnings, financial condition and other relevant factors.
Item 6.
Item 6. Selected Financial Data Not required in accordance with General Instruction I(2)(a).
Item 7.
Item 7. Management's Narrative Analysis of the Results of Operations In accordance with General Instruction I(2)(a), the Company includes the following analysis with the reduced disclosure format.
Critical Accounting Policies In the conduct of business, the Company makes certain assumptions regarding the mortality, persistency, expenses and interest rates, (or other factors appropriate to the type of business) it expects to experience in future periods. Similar assumptions are also used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, and various other items. The Company’s actual experience, as well as changes in estimates, are components of the Company’s statements of income.
Revenues The following table sets forth revenues by source for the periods shown:
Year Ended Percentage December 31 Increase (Decrease) ------------------------------------ ----------- 2001 2000 ---- ----
Premiums and policy fees........................... $29,086,430 $30,557,133 (4.8)% Net investment income.............................. 33,876,409 31,686,448 6.9 Realized investment (losses) gains................. (1,113,538) 42,148 - Other income (loss)................................ 5,731 (6,551) - ----------- ----------- $61,855,032 $62,279,178 =========== ===========
Premiums and policy fees, net of reinsurance (“premiums and policy fees”) decreased $1.5 million or 4.8% in 2001 as compared to 2000. Premiums and policy fees in the Acquisitions segment are expected to decline with time unless new acquisitions are made. There were no new acquisitions made in 2001, therefore resulting in a decrease of $2.2 million. Premiums and policy fees from the Credit Products segment were $0.7 million higher in 2001 as compared to 2000 due to increased marketing efforts and sales momentum. The Annuities segment experienced a small increase in premiums in 2001 as compared to 2000.
Net investment income for 2001 was $2.2 million or 6.9% higher than for the preceding year primarily due to increases in the average amount of invested assets. The percentage earned on average cash and investments was 6.6% in 2001 and 6.5% in 2000.
The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as “available for sale.” The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities.
Realized investment gains in 2001 were approximately $1.1 million and realized investment losses were approximately $2.2 million.
Income Before Income Tax The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:
Operating Income (Loss) and Income (Loss) Before Income Tax Year Ended December 31 ----------------------------------------------------
2001 2000 ---- ---- Operating Income (Loss)(1) Life Insurance Acquisitions.................................. $11,538,404 $11,605,470 Specialty Insurance Products Credit Products............................... 976,656 603,586 Retirement Savings and Investment Products Annuities..................................... (646,706) 870,329 Corporate and Other................................ 1,531,512 305,451 ------------ ---------- Total operating income............................. 13,399,866 13,384,836 ============ ========== Realized Investment Gains (Losses) Unallocated Realized Investment Gains (Losses)..... (1,113,538) 42,148 ------------ ---------- Total.............................................. (1,113,538) 42,148 ------------ ---------- Income (Loss) Before Income Tax Life Insurance Acquisitions.................................. 11,538,404 11,605,470 Specialty Insurance Products Credit Products............................... 976,656 603,586 Retirement Savings and Investment Products Annuities..................................... (646,706) 870,329 Corporate and Other................................ 1,531,512 305,451 Unallocated Realized Investment Gains (Losses)..... (1,113,538) 42,148 ------------ ----------- Total income from continuing operations before income tax....................................... $12,286,328 $13,426,984 ============ ===========
(1) Income (loss) from continuing operations before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition costs.
Pretax earnings from the Acquisitions segment decreased $0.1 million in 2001 as compared to 2000. Earnings from the Acquisitions segment are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. There were no new acquisitions made in 2001.
The Credit Products segment’s 2001 pretax earnings increased $0.4 million as compared to 2000 primarily due to an increase in sales momentum.
The Annuities segment’s 2001 pretax earnings decreased $1.5 million primarily due to an increase in policy benefits.
The Corporate and Other segment consists of net investment income and expenses not identified with the preceding business segments. Pretax earnings in 2001 increased $1.2 million over 2000, primarily due to increased net investment income on capital.
Income Tax Expense The following table sets forth the effective income tax rates for the periods shown:
Year Ended Effective Income December 31 Tax Rates ----------- ----------------
2001................................... 33.9% 2000................................... 34.5
Management's current estimate of the effective income tax rate for 2002 is 33.9%.
Discontinued Operations On December 31, 2001, PLC completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued certain other remaining Dental Division related operations, primarily other health insurance lines. In 2000, the loss from discontinued operations, net of income tax, was $51,006. In 2001, income from discontinued operations was $158,889 and the gain from the sale of discontinued operations was $1,625,000, both net of income tax.
Change in Accounting Principle On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of approximately $0.3 million.
Net Income The following table sets forth net income from continuing operations before cumulative effect of change in accounting principle for the periods shown:
Net Income ----------------------------------------
Percentage Year Ended Increase December 31 Amount (Decrease) ------------ ----------- ------------
2001...................................... $8,121,263 (7.7)% 2000...................................... 8,794,674 (2.8)
Net income from continuing operations before cumulative effect of change in accounting principle in 2001 decreased 7.7%, compared to 2000, reflecting improved operating earnings in the Credit Products segment and the Corporate and Other segment, offset by lower operating earnings in the Acquisitions and Annuities segments, and lower realized investment gains.
Recently Issued Accounting Standards For information regarding recently issued accounting standards see Note A to the financial statements included herein.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Investments The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as “available for sale.”
The Company’s investments in debt securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At December 31, 2001, the Company’s fixed maturity investments (bonds) had a market value of $445.7 million, which is 0.7% above amortized cost of $442.6 million. The Company had $2.7 million in mortgage loans at December 31, 2001. While the Company’s mortgage loans do not have quoted market values, at December 31, 2001, the Company estimates the market value of its mortgage loans to be $2.9 million (using discounted cash flows from the next call date), which is 5.7% above amortized cost.
The approximate percentage distribution of the Company's fixed maturity investments by quality rating at December 31 is as follows:
Rating 2001 2000 ------- ------ -----
AAA........................................... 6.0% 4.9% AA............................................ 5.4 5.6 A............................................. 44.0 44.5 BBB........................................... 42.2 42.2 BB or Less.................................... 2.4 2.8 ------ ------ 100.0% 100.0% ====== ======
At December 31, 2000, the Company’s fixed maturity investments had a market value of $418.8 million, which was 2.2% below amortized cost of $428.4 million. The Company estimated the market value of its mortgage loans to be $3.4 million at December 31, 2000, which was 6.3% above amortized cost of $3.2 million.
The following table sets forth the estimated market values of the Company’s fixed maturity investments and mortgage loans resulting from a hypothetical immediate 1 percentage point increase in interest rates from levels prevailing at December 31, and the percent change in market value the following estimated market values would represent.
Estimated Market Values Resulting From An Immediate 1 Percentage Point Increase In Interest Rates
Percent At December 31, 2001 Amount Change -------------------- ------------- --------
Fixed maturities....................................... $425,089,252 (4.6)% Mortgage loans......................................... 2,817,280 (1.9)
At December 31, 2000
Fixed maturities....................................... $402,006,412 (4.0)% Mortgage loans......................................... 3,294,017 (2.1)
Estimated market values were derived from the durations of the Company's fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of the Company's fixed maturities and mortgage loans are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.
Liabilities Many of the Company's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Surrender charges for these products generally are sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered. Certain annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.
At December 31, 2001, the Company had $47.3 million of annuity account balances with an estimated fair value of $46.4 million (using surrender value).
At December 31, 2000, the Company had $28.1 million of annuity account balances with an estimated fair value of $27.5 million.
The following table sets forth the estimated fair values of the Company's annuity account balances resulting from a hypothetical immediate 1 percentage point decrease in interest rates from levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent.
Estimated Fair Values Resulting From An Immediate 1 Percentage Point Decrease In Interest Rates
Percent At December 31, 2001 Amount Change ---------------------- ------------ ----------
Annuity account balances............................... $48,484,093 4.5%
At December 31, 2000
Annuity account balances............................... $28,690,049 4.3%
Estimated fair values were derived from the durations of the Company's annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of the Company's annuity account balances are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.
Approximately one-fourth of the Company's liabilities relate to products (primary whole life insurance), the profitability of which could be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.
Item 8.
Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants........................................................................ 9
Statements of Income for the years ended December 31, 2001, 2000, and 1999............................... 10
Balance Sheets as of December 31, 2001 and 2000.......................................................... 11
Statements of Share-Owners' Equity for the years ended December 31, 2001, 2000, and 1999..................................................................... 12
Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999........................... 13
Notes to Financial Statements............................................................................ 14
Financial Statement Schedules: Schedule III-- Supplementary Insurance Information.................................................. 28 Schedule IV-- Reinsurance........................................................................... 29
All other schedules to the financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owners
Protective Life and Annuity Insurance Company
Birmingham, Alabama
In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Protective Life and Annuity Insurance Company at December 31, 2001 and 2000, and the results of its operations and its cash flows for 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. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note A of the Notes to the Financial Statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”.
PricewaterhouseCoopers LLP
Birmingham, Alabama
March 1, 2002
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
Year Ended December 31 -------------------------------------------------
2001 2000 1999 ---- ---- ----
REVENUES Premiums and policy fees.............................................. $47,707,465 $47,876,379 $54,422,828 Reinsurance ceded..................................................... (18,621,035) (17,319,246) (20,042,501) ------------ ------------ ------------ Net of reinsurance ceded............................................ 29,086,430 30,557,133 34,380,327 Net investment income................................................. 33,876,409) 31,686,448 28,272,903 Realized investment gains (losses).................................... (1,113,538) 42,148 89,550 Other income (loss)................................................... 5,731 (6,551) 90,289 ------------ ------------ ------------ 61,855,032 62,279,178 62,833,069 ------------ ------------ ------------
BENEFITS AND EXPENSES Benefits and settlement expenses (net of reinsurance ceded: 2001-$13,449,131; 2000-$15,454,285; 1999-$17,399,370)............... 33,344,929 32,765,035 30,549,469 Amortization of deferred policy acquisition costs..................... 7,034,480 6,765,446 6,835,492 Other operating expenses (net of reinsurance ceded: 2001-$397,265; 2000-$286,602; 1999-$291,274)....................................... 9,189,295 9,321,713 12,880,099 ------------ ------------ ------------ 49,568,704 48,852,194 50,265,060 ------------ ------------ ------------
Income from continuing operations before income tax....................... 12,286,328 13,426,984 12,568,009 ------------ ------------ ------------
INCOME TAX EXPENSE ................................................. 4,165,065 4,632,310 3,519,043 ------------ ------------ ------------
Net income from continuing operations before cumulative effect of change in accounting principle...................................................... 8,121,263 8,794,674 9,048,966 Income (loss) from discontinued operations, net of income tax............. 158,889 (51,006) 352,207 Gain from sale of discontinued operations, net of income tax.............. 1,625,000 ------------ ------------ ------------
Net income before cumulative effect of change in accounting principle..... 9,905,152 8,743,668 9,401,173 Cumulative effect of change in accounting principle, net of income tax.... (284,968) ------------ ------------ ------------
Net income................................................................ $ 9,620,184 $ 8,743,668 $ 9,401,173 ============ ============ ============
See notes to financial statements.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
BALANCE SHEETS
December 31 ----------------------------------
2001 2000 ---- ----
ASSETS Investments: Fixed maturities, at market (amortized cost: 2001 - $442,583,178; 2000 - $428,392,599) $445,730,493 $418,756,679 Mortgage loans on real estate....................................................... 2,717,495 3,215,344 Other long term investments......................................................... 470,030 0 Policy loans........................................................................ 54,565,016 54,465,893 Short-term investments.............................................................. 12,000,000 4,000,000 ------------ ------------ Total investments............................................................... 515,483,034 480,437,916 Cash 4,284,257 1,165,410 Accrued investment income................................................................ 8,432,689 8,914,306 Accounts and premiums receivable, net of allowance for uncollectible amounts (2001 - $7,000; 2000 - $7,000).............................................. 7,888,382 1,952,449 Reinsurance receivables.................................................................. 20,642,570 23,136,896 Deferred policy acquisition costs........................................................ 118,997,438 128,228,360 Other assets............................................................................. 19,689 27,333 Assets related to separate accounts Variable annuity.................................................................... 9,001,016 9,037,035 ------------ ------------ $684,749,075 $652,899,705 ============ ============
LIABILITIES Policy liabilities and accruals: Future policy benefits and claims................................................... $458,568,381 $452,212,971 Unearned premiums................................................................... 7,767,028 8,154,233 ------------ ------------ 466,335,409 460,367,204 Annuity deposits......................................................................... 47,324,337 28,059,246 Other policyholders' funds............................................................... 5,874,932 5,794,289 Other liabilities........................................................................ 17,390,459 21,209,531 Deferred income taxes.................................................................... 17,077,829 9,063,941 Liabilities related to separate accounts Variable annuity.................................................................... 9,001,016 9,037,035 ------------ ------------ Total liabilities................................................................ 563,003,982 533,531,246 ============ ============
COMMITMENTS AND CONTINGENT LIABILITIES- NOTE E
SHARE-OWNERS' EQUITY Preferred Stock, $1.00 par value, shares authorized, issued and outstanding: 2,000........................................... 2,000 2,000 Common Stock, $10.00 par value Shares authorized: 2001 and 2000 - 500,000 Shares issued and outstanding: 2001 and 2000 - 250,000............................... 2,500,000 2,500,000 Additional paid-in capital............................................................... 101,386,324 101,386,324 Retained earnings........................................................................ 15,468,517 18,748,333 Accumulated other comprehensive income Net unrealized gains (losses) on investments (net of income tax: 2001 - $1,285,982; 2000 - ($1,759,799))......................... 2,388,252 (3,268,198) ------------ ------------ Total share-owners' equity.......................................................... 121,745,093 119,368,459 ------------ ------------ $684,749,075 $652,899,705 ============ ============
See notes to financial statements.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF SHARE-OWNERS' EQUITY
Net Unrealized Additional Gains Total Preferred Common Paid-In Retained (Losses) On Share-Owners' Stock Stock Capital Earnings Investments Equity --------- ---------- ------------ ----------- ------------- ------------ Balance, December 31, 1998.............. $2,000 $2,500,000 $101,574,516 $18,353,492 $ 8,808,609 $131,238,617 Net income for 1999................... 9,401,173 9,401,173 Change in net unrealized gains/losses on investments (net of income tax: ($(10,820,527)).. (20,095,265) (20,095,265) Reclassification adjustment for amounts included in net income (net of income tax: ($31,342))....... (58,208) (58,208) Comprehensive loss for 1999........... ------------ Reduction in paid in capital.......... (10,752,300) ------------ Common dividends ($20 per share)...... (188,192) (188,192)
(5,000,000) (5,000,000) --------- ---------- ------------ ----------- ------------- ------------- Balance, December 31, 1999.............. 2,000 2,500,000 101,386,324 22,754,665 (11,344,864) 115,298,125 Net income for 2000................... 8,743,668 8,743,668 Change in net unrealized gains/losses on investments (net of income tax: $4,363,726)..... 8,104,062 8,104,062 Reclassification adjustment for amounts included in net income (net of income tax: ($14,752))...... (27,396) (27,396) ------------ Comprehensive income for 2000......... 16,820,334 ------------ Common dividends ($51 per share)...... (12,750,000) (12,750,000)
--------- ---------- ------------ ----------- ------------- ------------ Balance, December 31, 2000.............. 2,000 2,500,000 101,386,324 18,748,333 (3,268,198) 119,368,459 ------------ Net income for 2001................... 9,620,184 9,620,184 Change in net unrealized gains/losses on investments (net of income tax: $2,502,598)..... 4,647,682 4,647,682 Reclassification adjustment for amounts included in net income (net of income tax: $389,738)........ 723,800 723,800 Transition adjustment on derivative financial instruments (net of income tax: $153,444)....................... 284,968 284,968 ------------ Comprehensive income for 2001......... 15,276,634 ------------ Common dividends ($47.60 per share)... (11,900,000) (11,900,000) Preferred dividends ($500.00 per share) (1,000,000) (1,000,000) --------- ---------- ------------ ----------- ------------- ------------ Balance, December 31, 2001 $2,000 $2,500,000 $101,386,324 $15,468,517 $ 2,388,252 $121,745,093 ========= ========== ============ =========== ============= ============
See notes to financial statements.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
December 31 -----------------------------------------------------
2001 2000 1999 ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................................. $ 9,620,184 $ 8,743,668 $ 9,401,173 Adjustments to reconcile net income to net cash provided by operating activities: 1,113,538 (42,148) (89,550) Realized investment losses (gains)...................................... 7,034,480 6,765,446 6,835,492 Amortization of deferred policy acquisition costs....................... (1,792,738) (2,593,858) (1,352,066) Capitalization of deferred policy acquisition costs..................... (1,625,000) 0 0 Gain on sale of discontinued operations................................. 5,121,553 4,605,444 3,656,012 Deferred income taxes................................................... 37,752,197 33,753,870 18,114,354 Interest credited to universal life and investment products............. (36,063,990) (37,777,093) (18,758,319) Policy fees assessed on universal life and investment products.......... (2,959,990) 4,751,257 (8,078,299) Change in accrued investment income and other receivables............... Change in policy liabilities and other policyholder funds of traditional life and health policies.............................................. 1,495,557 3,848,851 (12,255,924) Change in other liabilities............................................. (3,819,070) 2,871,472 10,396,783 Other (net)............................................................. (1,013,986) 432,557 14,237 -------------- ----------- ------------ Net cash provided by operating activities....................................... 14,862,735 25,359,466 7,883,893 ============== =========== ============
CASH FLOWS FROM INVESTING ACTIVITIES Maturities and principal reduction of investments: Investments available for sale.......................................... 134,614,161 401,392,138 256,525,416 Other................................................................... 415,557 845,893 2,701,003 Sale of investments: Investments available for sale.......................................... 103,958,267 11,251,538 17,961,720 Other................................................................... 0 1,197,324 0 Cost of investments acquired: Investments available for sale.......................................... (262,462,048) (453,746,936) (301,844,318) Sale of discontinued operations............................................. 2,500,000 -------------- ----------- ------------ Net cash used in investing activities........................................... (20,974,063) (39,060,043) (24,656,179) ============== =========== ============
CASH FLOWS FROM FINANCING ACTIVITIES Dividends to share owners................................................... (12,900,000) (12,750,000) (5,000,000) Investment product deposits and change in universal life deposits........... 56,941,071 47,248,477 36,600,618 Investment product withdrawals.............................................. (34,810,896) (23,654,329) (10,806,493) -------------- ----------- ------------ Net cash provided by financing activities................................... 9,230,175 10,844,148 20,794,125 ============== =========== ============
INCREASE (DECREASE) IN CASH..................................................... 3,118,847 (2,856,429) 4,021,839 CASH AT BEGINNING OF YEAR....................................................... 1,165,410 4,021,839 0 -------------- ----------- ------------ CASH AT END OF YEAR............................................................. $ 4,284,257 $ 1,165,410 $ 4,021,839 ============== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION There was no cash paid during any of the periods presented related to interest on indebtedness or income taxes.
See notes to financial statements.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A-- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying financial statements of Protective Life and Annuity Insurance Company (“the Company”) are prepared on the basis of accounting principles generally accepted in the United States of America. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. (See also Note B.)
The Company was founded in 1978 as American Foundation Life Insurance Company. Effective March 1, 1999, the Company’s name was changed to Protective Life and Annuity Insurance Company. Since 1983, all outstanding shares of the Company’s common stock have been owned by Protective Life Insurance Company (“Protective”), which is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company domiciled in the state of Delaware. All outstanding shares of the Company’s preferred stock are owned by PLC.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make various estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from these estimates.
NATURE OF OPERATIONS The Company, since it is licensed in the State of New York, is the entity through which PLC markets, distributes, and services insurance and annuity products in New York. The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS On January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS Nos. 137 and 138, requires the Company to record all derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of $0.3 million and a cumulative after-tax increase to other comprehensive income of $0.3 million on January 1, 2001. Prospectively, the adoption of SFAS No. 133 may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.
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 SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on the Company’s financial position or results of operations.
In June 2001, the FASB issued SFAS Nos. 141, “Business Combinations”, and 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. SFAS No. 142 is effective for fiscal years beginning December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. The Company does not expect the adoption of SFAS No. 142 to have a material effect on the Company’s financial position or results of operations.
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to have a material effect on the Company’s financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operations accounting is applied. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a material effect on the Company’s financial position or results of operations.
INVESTMENTS The Company has classified all of its investments in fixed maturities and short-term investments as “available for sale.”
Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:
• Fixed maturities (bonds and redeemable preferred stocks) - at current market value. Where market values are unavailable, the Company obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
• Mortgage loans - at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.
• Policy loans - at unpaid balances.
• Other long-term investments - at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.
• Short-term investments- at cost, which approximates current market value.
Substantially all short-term investments have maturities of three months or less at the time of acquisition.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of share-owners' equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect the Company's operations, its reported share-owners' equity will fluctuate significantly as interest rates change.
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company’s balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
2001 2000 ---- ----
Total investments................................... $512,427,543 $490,073,836 Deferred policy acquisition costs................... 118,378,695 123,620,437 All other assets.................................... 50,268,603 44,233,429 ------------ ------------ $681,074,841 $657,927,702 ============ ============
Deferred income taxes............................... $ 15,791,847 $ 10,823,740 All other liabilities............................... 545,926,153 524,467,305 ------------ ------------ 561,718,000 535,291,045 Share-owners' equity................................ 119,356,841 122,636,657 ------------ ------------ $681,074,841 $657,927,702 ============ ============
Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.
CASH Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.
DEFERRED POLICY ACQUISITION COSTS Commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products that vary with and are primarily related to the production of new business have been deferred. Traditional life and health insurance acquisition costs are being amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization. Under SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments,” the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits; currently 3.6% to 9.4%) it expects to experience in future periods. These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, relating to SFAS No. 115, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with the Company’s universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. The Company amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8.0%. The unamortized present value of future profits was approximately $113.7 million and $119.8 million at December 31, 2001 and 2000, respectively. During 2001, $6.1 million of present value of future profits was amortized. No amounts were capitalized during 2001. During 2000, $5.8 million of present value of future profits was amortized. No amounts were capitalized during 2000.
SEPARATE ACCOUNTS The assets and liabilities related to separate accounts in which the Company does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying financial statements.
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUES AND BENEFITS EXPENSE
•
Traditional Life, Health, and Credit Insurance Products - Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits and include whole life insurance policies, term and term-like life insurance policies, limited-payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions are graded and range from 2.5% to 7.0%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to the Company and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
2001 2000 1999 ---- ---- ----
Balance beginning of year.............................. $ 7,372,438 $ 9,557,627 $ 4,089,659 Less reinsurance.................................... 1,954,392 4,924,705 494,064 ----------- ----------- -------------
Net balance beginning of year.......................... 5,418,046 4,632,922 3,595,595 ----------- ----------- -------------
Incurred related to: Current year........................................... 11,883,729 11,780,396 10,485,712 Prior year............................................. 584,972 (213,798) (501,227) ----------- ----------- ------------- Total incurred...................................... 12,468,701 11,566,598 9,984,485
Acquisitions and reserve transfers..................... (662,216) 338,940
Paid related to: Current year........................................... 9,454,229 9,504,618 8,999,287 Prior year............................................. 2,155,651 1,276,856 286,811 ----------- ----------- ------------- Total paid.......................................... 11,609,880 10,781,474 9,286,098 ----------- ----------- -------------
Net balance end of year................................ 5,614,651 5,418,046 4,632,922 Plus reinsurance.................................... 1,459,829 1,954,392 4,924,705 ----------- ----------- ------------- Balance end of year.................................... $ 7,074,480 $ 7,372,438 $ 9,557,627 =========== =========== =============
•
Universal Life and Investment Products - Universal life and investment products include universal life insurance, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.6% to 9.4% in 2001.
The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts.
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Income tax provisions are generally based on income reported for financial statement purposes. Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the deferral of policy acquisition costs and the provision for future policy benefits and expenses.
DISCONTINUED OPERATIONS On December 31, 2001, PLC completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued certain other remaining Dental Division related operations, primarily other health insurance lines. These discontinued operations have been included in various operating subsidiaries of PLC, including the Company. The results of the operations of the Dental Division as related to the Company have been included herein as discontinued operations. PLC recorded an overall loss on the sale and discontinuance. The intercompany allocation of such loss resulted in the recognition of a net gain of $1,625,000 to the Company, reported herein as a gain on the sale of discontinued operations.
The operating results and charges related to the sale of the Dental division at December 31 are as follows:
2001 2000 1999 ---------------------------------------- ------------------ ----------------- ----------------- Total revenues $ 970,192 $ 653,995 $ 2,192,687 ---------------------------------------- ------------------ ----------------- ----------------- Income (loss) before income taxes from discontinued operations $ 240,377 $ (77,872) $ 489,179 Income tax (expense) benefit (81,488) 26,866 (136,972) ---------------------------------------- ------------------ ----------------- ----------------- Income (loss) from discontinued operations $ 158,889 $ (51,006) $ 352,207 ---------------------------------------- ------------------ ----------------- ----------------- Gain from sale of discontinued operations $ 2,500,000 before income tax Income tax expense related to sale $ 875,000 ---------------------------------------- ------------------ ----------------- ----------------- Gain from sale of discontinued operations $ 1,625,000 ---------------------------------------- ------------------ ----------------- -----------------
Remaining assets and liabilities at December 31, 2001 related to the business sold to Fortis, Inc. consist of reinsurance receivables and policy liabilities and accruals of approximately $3.9 million.
Note B-- RECONCILIATION WITH STATUTORY REPORTING PRACTICES Financial statements prepared in conformity with accounting principles generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred; (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions; (c) deferred income taxes are provided for temporary differences between financial and taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owners’ equity; (e) agents’ debit balances and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted items); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost. The National Association of Insurance Commissioners (NAIC) has adopted the Codification of Statutory Accounting Principles (Codification). Codification changed statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification did not have a material effect on the Company’s statutory capital.
The reconciliations of net income and share-owners’ equity prepared in conformity with statutory reporting practices to that reported in the accompanying financial statements are as follows:
Net Income Share Owners' Equity ---------------------------------------- ------------------------------------------ 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ----
In conformity with statutory reporting practices: $16,643,381 $13,006,859 $12,659,788 $ 34,248,362 $ 31,878,162 $ 32,146,507 Additions (deductions) by adjustment: Deferred policy acquisition costs, net of amortization................. (5,241,742) (4,700,240) (6,133,391) 118,997,438 128,228,360 127,792,025 Deferred income tax................... (5,121,553) (4,605,444) (3,656,012) (17,077,829) (9,063,941) (109,523) Asset Valuation Reserve............... 323,250 2,797,912 2,051,489 Interest Maintenance Reserve.......... (446,638) 118,604 93,585 694,509 247,870 366,474 Nonadmitted items..................... 281,394 25,902 26,068 Other timing and valuation adjustments 3,786,736 4,923,889 6,437,203 (15,722,031) (34,745,806) (46,974,915) ------------ ----------- ---------- ------------- ------------- ------------- In conformity with generally accepted accounting principles $ 9,620,184 $ 8,743,668 $ 9,401,173 $121,745,093 $119,368,459 $115,298,125 ============ =========== =========== ============ ============ =============
As of December 31, 2001, the Company had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $7.7 million.
Note C-- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31 are summarized as follows:
2001 2000 1999 ---- ---- ----
Fixed maturities................................... $31,496,317 $28,808,155 $24,815,986 Mortgage loans..................................... 282,544 314,376 89,178 Investment real estate............................. 0 211,521 15,713 Policy loans....................................... 3,691,041 3,625,750 4,362,037 Other, principally short-term investments.......... 236,511 556,879 458,761 ----------- ------------ ----------- 35,706,413 33,516,681 29,741,675 Investment expenses................................ (1,830,004) (1,830,233) (1,468,772) ------------ ------------ ------------ $33,876,409 $31,686,448 $28,272,903 ============ ============ ============
Note C-- INVESTMENT OPERATIONS ( Continued)
Realized investment gains (losses) for the years ended December 31 are summarized as follows:
2001 2000 1999 ---- ---- ---- Fixed maturities.................................. $(1,113,538) $ (70,176) $194,374 Mortgage loans and other investments.............. 112,324 (104,824) ------------- ----------- ----------- $(1,113,538) $ 42,148 $ 89,550 ============= =========== ===========
In 2001, gross gains on the sale of investments available for sale (fixed maturities and short-term investments) were approximately $1.1 million and gross losses were approximately $2.2 million. In 2000, gross gains were approximately $27,500 and gross losses were approximately $97,700. In 1999, gross gains were approximately $298,700 and gross losses were approximately $104,300. During 2001, the Company recorded other than temporary impairments in its investments of $1.9 million.
The amortized cost and estimated market values of the Company’s investments classified as available for sale at December 31 are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market 2001 Cost Gains Losses Values ---- -------------- -------------- ------------- ----------------
Fixed maturities: Bonds: Mortgage-backed securities.............. $ 6,655,797 $ 214,820 $ 0 $ 6,870,617 United States Government and authorities............................. 7,736,901 406,974 2,454 8,141,421 States, municipalities, and political subdivisions.................. 3,012,672 70,074 0 3,082,746 Public utilities........................ 64,825,621 1,228,963 1,229,425 64,825,159 All other corporate bonds............... 360,352,187 10,242,579 7,784,216 362,810,550 ------------- ------------- ------------ ------------- 442,583,178 12,163,410 9,016,095 445,730,493 Short-term investments........................... 12,000,000 0 0 12,000,000 ------------- ------------- ------------ ------------- $ 454,583,178 $ 12,163,410 $ 9,016,095 $ 457,730,493 ============= ============= ============ =============
Gross Gross Estimated Amortized Unrealized Unrealized Market 2000 Cost Gains Losses Values ---- -------------- -------------- ------------- ----------------
Fixed maturities: Bonds: Mortgage-backed securities.............. $ 4,979,867 $ 125,349 $ 0 $ 5,105,216 United States Government and authorities............................. 8,108,623 229,091 2,534 8,335,180 States, municipalities, and political subdivisions.................. 3,035,053 26,882 0 3,061,935 Public utilities........................ 68,417,417 811,070 1,404,149 67,824,338 Convertibles and bonds with warrants................................ 689,811 0 152,561 537,250 All other corporate bonds............... 343,161,828 3,187,729 12,456,797 333,892,760 -------------- ------------ ------------ ------------- 428,392,599 4,380,121 14,016,041 418,756,679 Short-term investments........................... 4,000,000 0 0 4,000,000 -------------- ------------ ------------ ------------- $ 432,392,599 $ 4,380,121 $ 14,016,041 $ 422,756,679 ============== ============ ============ =============
Note C-- INVESTMENT OPERATIONS (Continued)
The amortized cost and estimated market value of fixed maturities at December 31, by expected maturity, are shown below. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment.
Estimated Amortized Market Cost Values --------------- ---------------- ---- Due in one year or less.......................... $ 57,088,531 $ 55,695,866 Due after one year through five years............ 163,693,003 169,802,218 Due after five years through ten years........... 116,477,328 117,899,513 Due after ten years.............................. 105,324,316 102,332,896 ------------- ------------- $442,583,178 $445,730,493 ============= =============
At December 31, 2001 and 2000, the Company had bonds which were rated less than investment grade of $10.8 million and $11.6 million, respectively, having an amortized cost of $15.0 million and $13.7 million, respectively. Approximately $77.8 million of bonds are not publicly traded.
The change in unrealized gains (losses), net of income tax on fixed maturities for the years ended December 31 is summarized as follows:
2001 2000 1999 ---- ---- ---- Fixed maturities $8,309,103 $5,081,516 $(20,153,473)
At December 31, 2001, 99% of the Company’s mortgage loans were commercial loans of which 68% were retail, and 31% were office buildings. The Company specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. All of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Tennessee, Alabama, Florida, Colorado, Arkansas and Texas.
At December 31, 2001, the average mortgage loan was $0.3 million, and the weighted average interest rate was 9.1%. The largest single mortgage loan was $1.2 million.
At December 31, 2001, the Company had no problem mortgage loans (over ninety days past due) and foreclosed properties. At December 31, 2000, the Company’s problem mortgage loans and foreclosed properties totaled less than $0.1 million. Since the Company’s mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on the Company’s evaluation of its mortgage loan portfolio, the Company does not expect any material losses on its mortgage loans.
Policy loan interest rates generally range from 4.5% to 8.0%.
Note D-- FEDERAL INCOME TAXES The Company’s effective income tax rate varied from the maximum federal income tax rate as follows:
2001 2000 1999 ---- ---- ---- Statutory federal income tax rate applied to pretax income....... 35.0% 35.0% 35.0% Tax-exempt interest.............................................. (0.2) Other adjustments................................................ (1.1) (0.5) (6.8) ------ ------ ----- Effective income tax rate........................................ 33.9% 34.5% 28.0%
The provision for federal income tax differs from amounts currently payable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31 are as follows:
2001 2000 1999 ---- ---- ----
Deferred policy acquisition costs................................ $ 10,448,277 $ 6,202,088 $ 5,095,750 Benefit and other policy liability changes....................... (6,335,100) (3,129,276) 395,046 Temporary differences of investment income....................... 51,888 1,532,632 (1,834,784) ------------- ------------ ------------ $ 4,165,065 $ 4,605,444 $ 3,656,012 ============= ============ ============
The components of the Company’s net deferred income tax liability as of December 31 were as follows:
2001 2000 ---- ----
Deferred income tax assets: Policy and policyholder liability reserves................... $ 21,462,070 $15,126,970 Unrealized (gain)loss on investments......................... (1,295,737) 1,528,259 ------------- ----------- 20,166,333 16,655,229 ------------- ----------- Deferred income tax liabilities: Deferred policy acquisition costs............................ 36,434,304 25,719,170 Other........................................................ 809,858 ------------ ------------ 37,244,162 25,719,170 ------------ ------------ Net deferred income tax liability............................ $ 17,077,829 $ 9,063,941 ============ ============
The Company's income tax returns are included in the consolidated income tax returns of PLC. The allocation of income tax liabilities among affiliates is based upon separate income tax return calculations. At December 31, 2001 and 2000 no amounts were payable to PLC for income tax liabilities.
Note E-- COMMITMENTS AND CONTINGENT LIABILITIES Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.
Note E-- COMMITMENTS AND CONTINGENT LIABILITIES (Continued) A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives relationships with agents or persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.
Note F-- SHARE-OWNERS' EQUITY AND RESTRICTIONS Dividends on common stock are noncumulative and are paid as determined by the Board of Directors. At December 31, 2001, approximately $94.2 million of share-owners’ equity excluding net unrealized gains and losses represented net assets of the Company that cannot be transferred to Protective. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to Protective by the Company in 2002 is estimated to be $16.4 million.
Note G-- PREFERRED STOCK The Company’s preferred stock pays, when and if declared, noncumulative participating dividends to the extent the Company’s statutory earnings for the immediately preceding year exceeded $1.0 million. In 2001, the Company paid $1.0 million of preferred dividends. No preferred dividends were paid in 2000 or 1999.
Note H-- RELATED PARTY MATTERS The Company has no employees; therefore, the Company purchases data processing, legal, investment, and other management services from PLC and other affiliates. The cost of such services was $8.6 million in 2001, $7.8 million in 2000, and $6.3 million in 1999.
Receivables from and payables to related parties consisted of receivables from and payables to affiliates under control of PLC in the amount of a $4,883,460 payable at December 31, 2001 and a $1,666,742 payable at December 31, 2000. The Company routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another’s behalf. Receivables and payables among affiliates are generally settled monthly.
Protective and the Company entered into a guaranty agreement on October 27, 1993, whereby Protective guaranteed the payment of all insurance policy claims made by the holders or beneficiaries of any of the Company’s policies which were issued after the date of the guaranty agreement in accordance with the terms of said policies. Total liabilities for policies covered by this agreement were $43.8 million and $43.9 million at December 31, 2001 and 2000, respectively.
Protective and the Company also entered into a guaranty agreement on December 31, 1995, whereby Protective guaranteed that the Company will perform all of the obligations of Protective pursuant to the terms and conditions of an indemnity coinsurance agreement between Protective and an unaffiliated life insurance company. Total liabilities related to this coinsurance agreement were $10.1 million and $10.4 million at December 31, 2001 and 2000, respectively.
Note I-- OPERATING SEGMENTS PLC, through its subsidiaries, operates several segments each having a strategic focus which can be grouped into three general product categories: life insurance, retirement savings and investment products, and specialty insurance products. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each division the Company operates in follows.
Life Insurance The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies sold to individuals.
Retirement Savings and Investment Products The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Life Marketing segment’s sales force.
Specialty Insurance Products The Credit Products segment markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers, and markets vehicle and recreational marine extended service contracts.
Corporate and Other The Company has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital).
The Company uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which most appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
Note I-- OPERATING SEGMENTS (Continued) The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), income from discontinued operations and the recognition of income tax expense. Asset adjustments represent the inclusion of assets related to discontinued operations.
In December 2001, the Company sold substantially all of its Dental segment, and discontinued other dental related operations. Prior period segment results have been restated to reflect these changes.
Corporate Credit and Operating Segment Income Acquisitions Products Annuities Other Adjustments Total ------------------------ ------------- ---------- ---------- ---------- ------------ -----------
---- Premiums and policy fees, net.... $25,209,340 $3,721,792 $ 155,298 $29,086,430 Net investment income............ 29,892,723 606,345 1,909,607 $1,467,734 33,876,409 Realized investment gains (losses) $(1,113,538) (1,113,538) Other income (loss).............. 244 5,487 5,731 ----------- ---------- ---------- ---------- ------------ ------------ Total revenues............. 55,102,307 4,328,137 2,070,392 1,467,734 (1,113,538) 61,855,032 ----------- ---------- ---------- ---------- ------------ ------------ Benefits and settlement expenses. 28,533,646 2,567,742 2,243,541 33,344,929 Amortization of deferred policy acquisition costs.......... 6,092,729 694,491 247,260 7,034,480 Other operating expenses......... 8,937,528 89,248 226,297 (63,778) 9,189,295 ----------- ---------- ---------- ---------- ------------ ------------ Total benefits and expenses 43,563,903 3,351,481 2,717,098 (63,778) 49,568,704 ----------- ---------- ---------- ---------- ------------ ------------ Income from continuing operations before income tax............ 11,538,404 976,656 (646,706) 1,531,512 (1,113,538) 12,286,328 Income tax expense............... 4,165,065 4,165,065 Discontinued operations ......... 1,783,889 1,783,889 Change in accounting principle... (284,968) (284,968) ------------ Net income....................... $ 9,620,184 ============
---- Premiums and policy fees, net.... $27,443,897 $2,997,130 $ 116,106 $30,557,133 Net investment income............ 29,275,899 628,572 1,416,117 $ 365,860 31,686,448 Realized investment gains........ $ 42,148 42,148 Other income (loss)............. (4,486) (2,065) (6,551) ----------- ---------- ---------- ---------- ------------ ------------ Total revenues............. 56,715,310 3,625,702 1,530,158 365,860 42,148 62,279,178 ----------- ---------- ---------- ---------- ------------ ------------ Benefits and settlement expenses. 29,247,353 2,250,237 1,267,445 32,765,035 Amortization of deferred policy acquisition costs.......... 5,871,420 714,278 179,748 6,765,446 Other operating expenses......... 9,991,067 57,601 (787,364) 60,409 9,321,713 ----------- ---------- ---------- ---------- ------------ ------------ Total benefits and expenses 45,109,840 3,022,116 659,829 60,409 48,852,194 ----------- ---------- ---------- ---------- ------------ ------------ Income from continuing operations before income tax............. 11,605,470 603,586 870,329 305,451 42,148 13,426,984 Income tax expense............... 4,632,310 4,632,310 Discontinued operations.......... (51,006) (51,006) ------------ Net income....................... $ 8,743,668 ============
---- Premiums and policy fees, net.... $32,290,715 $2,059,410 $ 30,202 $34,380,327 Net investment income............ 27,604,825 269,670 250,000 $ 148,408 28,272,903 Realized investment gains........ $ 89,550 89,550 Other income (loss).............. (8,718) 89,757 9,250 90,289 ----------- ---------- ---------- ---------- ------------ ------------ Total revenues............. 59,886,822 2,418,837 289,452 148,408 89,550 62,833,069 ----------- ---------- ---------- ---------- ------------ ------------ Benefits and settlement expenses. 29,333,102 974,013 242,354 30,549,469 Amortization of deferred policy acquisition costs.......... 6,334,661 500,831 6,835,492 Other operating expenses......... 12,059,458 33,574 761,937 25,130 12,880,099 ----------- ---------- ---------- ---------- ------------ ------------ Total benefits and expenses 47,727,221 1,508,418 1,004,291 25,130 50,265,060 ----------- ---------- ---------- ---------- ------------ ------------ Income from continuing operations before income tax............. 12,159,601 910,419 (714,839) 123,278 89,550 12,568,009 Income tax expense............... 3,519,043 3,519,043 Discontinued operations.......... 352,207 352,207 ------------ Net income....................... $ 9,401,173 ============
Note I-- OPERATING SEGMENTS (continued)
Credit Corporate Operating Segment Assets Acquisitions Products Annuities and Other Adjustments Total ------------------------- ------------ ----------- ------------ ----------- ----------- ------------
---- Investments and other assets........ $471,065,653 $10,390,438 $46,091,122 $34,248,362 $3,956,062 $565,751,637 Deferred policy acquisition costs... 114,902,459 1,611,339 2,483,640 118,997,438 ------------ ----------- ----------- ----------- ---------- ------------ Total assets........................ $585,968,112 $12,001,777 $48,574,762 $34,248,362 $3,956,062 $684,749,075 ============ =========== =========== =========== ========== ============
---- Investments and other assets........ $453,999,198 $11,462,251 $25,799,102 $29,376,162 $4,034,632 $524,671,345 Deferred policy acquisition costs... 124,984,368 1,596,654 1,647,338 128,228,360 ------------ ----------- ----------- ----------- ---------- ------------ Total assets........................ $578,983,566 $13,058,905 $27,446,440 $29,376,162 $4,034,632 $652,899,705 ============ =========== =========== =========== ========== ============
Note J-- REINSURANCE The Company reinsures certain of its risks with, and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company generally pays specific premiums to the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of the Company's new life insurance is being reinsured. The Company reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.
The Company has reinsured approximately $4.9 billion, $5.3 billion, and $5.8 billion in face amount of life insurance risks with other insurers representing $17.6 million, $17.4 million, and $20.1 million of premium income for 2001, 2000, and 1999, respectively. The Company has also reinsured accident and health risks representing $0.1 million, $0.7 million, and $0.8 million of premium income for 2001, 2000, and 1999, respectively. In 2001 and 2000, policy and claim reserves relating to insurance ceded of $19.2 million and $21.2 million respectively are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with the Company. At December 31, 2001 and 2000, the Company had paid $1.5 million and $2.0 million, respectively, of ceded benefits which are recoverable from reinsurers.
Approximately 65% and 58% of the reinsurance receivable balances at December 31, 2001 and 2000, respectively, relate to one insurance company rated "A+" (Superior) by the A. M. Best Company, an independent rating organization.
Note K-- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of the Company's financial instruments at December 31 are as follows:
2001 2000 --------------------------------- --------------------------------
Estimated Estimated Carrying Fair Carrying Fair Amount Values Amount Values -------- ---------- --------- ----------
Assets (see Notes A and C): Investments: Fixed maturities...................... $445,730,493 $445,730,493 $418,756,679 $418,756,679 Mortgage loans on real estate......... 2,717,495 2,873,017 3,215,344 3,364,675 Short-term investments................ 12,000,000 12,000,000 4,000,000 4,000,000 Cash 4,284,257 4,284,257 1,165,410 1,165,410 Liabilities (see Note A): Annuity deposits...................... 47,324,337 46,396,261 28,059,246 27,507,238
Except as noted below, fair values were estimated using quoted market prices.
The Company estimates the fair value of its mortgage loans using discounted cash flows from the next call date. The Company believes the fair value of its short-term investments approximates book value due to being short-term. The Company estimates the fair value of its annuities using surrender values. The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.
SCHEDULE III-- SUPPLEMENTARY INSURANCE INFORMATION PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
---------------------------- ------------- ------------ ----------- ------------- ---------- ------------ ------------ ------------ ------------- COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I COL. J ---------------------------- ------------- ------------ ----------- ------------- ---------- ------------ ------------ ------------ -------------
Future Annuity Amortization Deferred Policy Deposits Premiums Benefits of Deferred Policy Benefits and Other and Net and Policy Other Acquisition and Unearned Policyholders Policy Investment Settlement Acquisition Operating Segment Costs Claims Premiums Funds Fees Income (1) Expenses Costs Expenses (1) ------- ------------- ------------- --------- ------------- -------- ----------- ------------ ------------ ------------
Year Ended December 31, 2001 Life Insurance Acquisitions............ $114,902,459 $457,126,255 $ 46,457 $ 1,924,344 $25,209,340 $29,892,723 $28,533,646 $6,092,729 $8,937,528 Specialty Insurance Products Credit Products......... 1,611,339 2,178,423 7,718,370 493,645 3,721,792 606,345 2,567,742 694,491 89,248 Retirement Savings and Investment Products Annuities............... 2,483,640 (1,233,215) 0 47,324,337 155,298 1,909,607 2,243,541 247,260 226,297 Corporate and Other....... 0 0 0 0 0 1,467,734 0 0 (63,778) Adjustments (2)........... 0 496,918 2,201 3,456,943 0 0 0 0 0 ------------ ------------ ---------- ----------- ----------- ----------- ----------- ---------- ---------- TOTAL............... $118,997,438 $458,568,381 $7,767,028 $53,199,269 $29,086,430 $33,876,409 $33,344,929 $7,034,480 $9,189,295 ============ ============ ========== =========== =========== =========== =========== ========== ==========
Year Ended December 31, 2000 Life Insurance Acquisitions............ $124,984,368 $447,949,295 $ 50,335 $ 4,925,125 $27,443,897 $29,275,899 $29,247,353 $5,871,420 $9,991,067 Specialty Insurance Products Credit Products......... 1,596,654 3,037,218 8,101,233 323,800 2,997,130 628,572 2,250,237 714,278 57,601 Retirement Savings and Investment Products Annuities............... 1,647,338 619,322 0 25,179,780 116,106 1,416,117 1,267,445 179,748 (787,364) Corporate and Other....... 0 0 0 0 0 365,860 0 0 60,409 Adjustments (2)........... 0 607,136 2,665 3,424,830 0 0 0 0 0 ------------ ------------ ---------- ----------- ----------- ----------- ----------- ---------- ----------- TOTAL............... $128,228,360 $452,212,971 $8,154,233 $33,853,535 $30,557,133 $31,686,448 $32,765,035 $6,765,446 $ 9,321,713 ============ ============ ========== =========== =========== =========== =========== ========== ===========
Year Ended December 31, 1999: Life Insurance Acquisitions............ $126,247,865 $440,688,572 $ 54,704 $ 4,730,918 $32,290,715 $27,604,825 $29,333,102 $6,334,661 $12,059,458 Specialty Insurance Products Credit Products......... 1,544,160 4,086,816 7,796,478 18,864 2,059,410 269,670 974,013 500,831 33,574 Retirement Savings and Investment Products Annuities............... 0 404,423 0 9,471,966 30,202 250,000 242,354 0 761,937 Corporate and Other....... 0 0 0 0 0 148,408 0 0 25,130 Adjustments (2)........... 0 105,162 1,242 3,441,818 0 0 0 0 0 ------------ ------------ ---------- ----------- ----------- ----------- ----------- ---------- ----------- TOTAL............... $127,792,025 $445,284,973 $7,852,424 $17,663,566 $34,380,327 $28,272,903 $30,549,469 $6,835,492 $12,880,099 ============ ============ ========== =========== =========== =========== =========== ========== ===========
(1) Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied. (2) Adjustments represent the inclusion of assets related to discontinued operations.
SCHEDULE IV-- REINSURANCE PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
------------------------------------------------------------ -------------- -------------- -------------- -------------- ------------- COL. A COL. B COL. C COL. D COL. E COL. F ------------------------------------------------------------ -------------- -------------- -------------- -------------- -------------
Percentage Ceded to Assumed of Amount Gross Other from Other Net Assumed Amount Companies Companies Amount to Net ----------- ------------ ------------ ------------ ----------
Year Ended December 31, 2001: Life insurance in force(1) ..................... $ 337,079 $ 4,865,367 $ 6,087,816 $ 1,559,528 390.4% =========== ============ ============ ============ ======
Premiums and policy fees: Life insurance.................................. $6,006,689 $18,481,015 $39,585,878 $27,111,552 146.0% Accident and health insurance................... 2,106,881 140,020 8,017 1,974,878 0.4% ----------- ------------ ------------ ------------ TOTAL........................................ $8,113,570 $18,621,035 $39,593,895 $29,086,430 =========== ============ ============ ============
Year Ended December 31, 2000: Life insurance in force(1) ..................... $ 324,167 $ 5,287,046 $ 6,600,096 $ 1,637,217 403.1% =========== ============ ============ ============ ======
Premiums and policy fees: Life insurance.................................. $4,372,841 $17,244,402 $41,747,694 $28,876,133 144.6% Accident and health insurance................... 1,751,478 74,844 4,366 1,681,000 0.3% ----------- ------------ ------------ ------------ TOTAL........................................ $6,124,319 $17,319,246 $41,752,060 $30,557,133 =========== ============ ============ ============
Year Ended December 31,1999: Life insurance in force(1) ..................... $ 308,419 $ 5,833,675 $7,260,439 $ 1,735,183 418.4% =========== ============ ============ ============ ======
Premiums and policy fees: Life insurance.................................. $6,126,681 $19,988,121 $47,053,071 $33,191,631 141.8% Accident and health insurance................... 1,213,498 54,380 29,578 1,188,696 2.5% ----------- ------------ ------------ ------------ TOTAL........................................ $7,340,179 $20,042,501 $47,082,649 $34,380,327 =========== ============ ============ ============
(1) Dollars in thousands
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant Not required in accordance with General Instruction I(2)(c).
Item 11.
Item 11. Executive Compensation Not required in accordance with General Instruction I(2)(c).
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management Not required in accordance with General Instruction I(2)(c).
Item 13.
Item 13. Certain Relationships and Related Transactions Not required in accordance with General Instruction I(2)(c).
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report:
1. Financial Statements (Item 8)
2. Financial Statement Schedules (see index annexed)
3. Exhibits:
The exhibits listed in the Exhibit Index on page 32 of this Form 10-K are filed herewith or are incorporated herein by reference. No management contract or compensatory plan or arrangement is required to be filed as an exhibit to this form. The Registrant will furnish a copy of any of the exhibits listed upon the payment of $5.00 per exhibit to cover the cost of the Registrant in furnishing the exhibit.
(b) Reports on Form 8-K:
None
SIGNATURES Pursuant to the requirements of Section 13 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, in the City of Birmingham, State of Alabama on March 27, 2002.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
By: /s/ WAYNE E. STUENKEL
President
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
(i) Principal Executive Officer /s/ WAYNE E. STUENKEL President and Wayne E. Stuenkel Director March 27, 2002
(ii) Principal Financial Officer /s/ ALLEN W. RITCHIE Chief Financial Officer Allen W. Ritchie and Director March 27, 2002
(iii) Board of Directors: * Director March 27, 2002 John D. Johns
* Director March 27, 2002 Richard J. Bielen
* Director March 27, 2002 R. Stephen Briggs
* Director March 27, 2002 J. William Hamer, Jr.
* Director March 27, 2002 T. Davis Keyes
* Director March 27, 2002 Carolyn King
* Director March 27, 2002 Deborah J. Long
* Director March 27, 2002 Jim E. Massengale
* Director March 27, 2002 Allen W. Ritchie
* Director March 27, 2002 Steven A. Schultz
*By: /s/ JERRY W. DEFOOR Jerry W. DeFoor Attorney-in-fact
EXHIBIT INDEX
Item Number Document
* 3 (a) (1) 1998 Amended and Restated Articles of Incorporation * 3 (a) (2) Articles of Amendment to 1998 Amended and Restated Articles of Incorporation ***** 3(b) Amended and Restated Bylaws Effective August 1, 2000 ** 4(a) Tax-Sheltered Annuity Endorsement ** 4(b) Qualified Retirement Plan Endorsement ** 4(c) Individual Retirement Annuity Endorsement *** 4(d) Group Modified Guaranteed Annuity Contract *** 4(e) Application for Group Modified Guaranteed Annuity Contract *** 4(f) Individual Modified Guaranteed Annuity Certificate **** 10 (a) Guaranty Agreement from Protective Life Insurance Company **** 10 (a) (1) Amendment to Guaranty Agreement from Protective Life Insurance Company 10 (b) Indemnity Reinsurance Agreement By and Between Protective Life and Annuity Insurance Company and First Fortis Life Insurance Company dated December 31, 2001 24 Power of Attorney 99 Safe Harbor for Forward-Looking Statements
* Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. ** Incorporated herein by reference to the Registrant's Form N-4 Registration Statement, Registration No. 333-41577, filed on December 5, 1997. *** Incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration Statement, Registration No. 333-42425, filed on April 16, 1998. **** Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. ***** Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.