UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-69620
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GE Life and Annuity Assurance Company
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(Exact name of registrant as specified in its charter)
Virginia 54-0283385
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6610 West Broad Street, Richmond, Virginia 23230
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(Address of principal executive offices) (Zip Code)
(804) 281-6000
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(Registrant's telephone number, including area code)
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 No |X|
At May 13, 2002, 25,651 shares of common stock with a par value of $1,000.00
were outstanding. The common stock of GE Life and Annuity Assurance Company is
not publicly traded.
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Condensed, Consolidated Financial Statements ............. 1
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ....................... 7
Item 3. Quantitative and Qualitative Disclosure
about Market Risk ........................................ 9
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges ........ 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 12
Item 6. Exhibits and Reports on Form 8-K ......................... 12
Signatures ............................................................. 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GE LIFE AND ANNUITY ASSURANCE COMPANY AND SUBSIDIARY
Condensed, Consolidated Statements of Current and Retained Earnings
(Dollar amounts in millions)
(Unaudited)
<Table>
<Caption>
Three Months Ended
---------------------------------
March 30, March 31,
2002 2001
------------- -------------
Revenues:
Net investment income $ 154.7 $ 188.1
Net realized investment gains 13.4 7.5
Premiums 25.2 29.3
Cost of insurance 31.6 32.9
Variable product fees 31.6 33.0
Other income 10.7 11.8
------------- -------------
Total revenues 267.2 302.6
------------- -------------
Benefits and expenses:
Interest credited 118.5 143.2
Benefits and other changes in policy reserves 49.9 52.4
Commission expense 28.2 42.6
General expenses 22.4 32.5
Amortization of intangibles 7.3 10.7
Change in deferred acquisition costs, net (8.2) (32.0)
Interest expense - 1.9
------------- -------------
Total benefits and expenses 218.1 251.3
------------- -------------
Earnings before income taxes and cumulative effect of
change in accounting principle 49.1 51.3
Provision for income taxes 16.4 18.2
------------- -------------
Earnings before cumulative effect of change in accounting
principle 32.7 33.1
Cumulative effect of change in accounting principle, net
of tax - (5.7)
------------- -------------
Net earnings 32.7 27.4
Retained earnings at beginning of period 411.4 297.1
------------- -------------
Retained earnings at end of period $ 444.1 $ 324.5
============= =============
</Table>
See Notes to Condensed, Consolidated Financial Statements.
1
GE LIFE AND ANNUITY ASSURANCE COMPANY AND SUBSIDIARY
Condensed, Consolidated Balance Sheets
(Dollar amounts in millions except per share amounts)
(Unaudited)
<Table>
<Caption>
March 30, December 31,
2002 2001
-------------------- --------------------
Assets
Investments:
Fixed maturities available-for-sale, at fair value $ 10,170.6 $ 10,539.6
Equity securities available-for-sale, at fair value
Common stocks 27.0 20.6
Preferred stocks, non-redeemable 17.4 17.2
Investment in affiliate 2.6 2.6
Mortgage loans, net of valuation allowance 924.3 938.8
Policy loans 113.3 109.4
Short-term investments 32.6 40.5
Other invested assets 92.2 110.4
-------------------- --------------------
Total investments 11,380.0 11,779.1
Cash and cash equivalents 11.5 -
Accrued investment income 194.6 208.4
Deferred acquisition costs 930.5 853.8
Goodwill 107.4 107.4
Intangible assets 246.8 245.5
Reinsurance recoverable 153.0 151.1
Other assets 179.9 117.0
Separate account assets 9,055.2 8,994.3
-------------------- --------------------
Total assets $ 22,258.9 $ 22,456.6
==================== ====================
Liabilities and Shareholders' Interest
Liabilities:
Future annuity and contract benefits $ 10,829.1 $ 10,975.3
Liability for policy and contract claims 169.3 189.0
Other policyholder liabilities 223.7 91.4
Accounts payable and accrued expenses 296.9 548.9
Deferred income tax liability 80.5 75.5
Separate account liabilities 9,055.2 8,994.3
-------------------- --------------------
Total liabilities 20,654.7 20,874.4
-------------------- --------------------
Shareholders' interest:
Net unrealized investment losses (28.9) (17.4)
Derivatives qualifying as hedges (7.3) (8.1)
-------------------- --------------------
Accumulated non-owner changes in equity (36.2) (25.5)
Preferred stock, Series A ($1,000 par value, $1,000 redemption and liquidation
value, 200,000 shares authorized, 120,000 shares issued and outstanding) 120.0 120.0
Common stock ($1,000 par value, 50,000 shares authorized, 25,651 shares
issued and outstanding) 25.6 25.6
Additional paid-in capital 1,050.7 1,050.7
Retained earnings 444.1 411.4
-------------------- --------------------
Total shareholders' interest 1,604.2 1,582.2
-------------------- --------------------
Total liabilities and shareholders' interest $ 22,258.9 $ 22,456.6
==================== ====================
</Table>
See Notes to Condensed, Consolidated Financial Statements.
2
GE LIFE AND ANNUITY ASSURANCE COMPANY AND SUBSIDIARY
Condensed, Consolidated Statements of Cash Flows
(Dollar amounts in millions)
(Unaudited)
<Table>
<Caption>
Three Months Ended
------------------------------------------
March 30, March 31,
2002 2001
-------------------- --------------------
Cash Flows From Operating Activities
Net earnings $ 32.7 $ 27.4
Adjustments to reconcile net earnings to net cash used in
operating activities:
Change in reserves 155.6 124.1
Cumulative effect of change in accounting principle, net of tax - 5.7
Other, net (227.8) (181.9)
-------------------- --------------------
Net cash used in operating activities (39.5) (24.7)
-------------------- --------------------
Cash Flows From Investing Activities
Short-term investment activity, net 7.9 (13.0)
Proceeds from sales, securitizations and maturities of investment
securities and other invested assets 1,155.7 975.6
Principal collected on mortgage and policy loans 35.6 31.7
Purchases of investment securities and other invested assets (863.3) (768.6)
Mortgage and policy loan originations (25.0) (50.5)
-------------------- --------------------
Net cash provided by investing activities 310.9 175.2
-------------------- --------------------
Cash Flows From Financing Activities
Proceeds from issuance of investment contracts 836.0 942.6
Redemption and benefit payments on investment contracts (1,095.9) (974.1)
-------------------- --------------------
Net cash used in financing activities (259.9) (31.5)
-------------------- --------------------
Increase in Cash and Cash Equivalents 11.5 119.0
Cash and Cash Equivalents at Beginning of Period - 71.4
-------------------- --------------------
Cash and Cash Equivalents at End of Period $ 11.5 $ 190.4
==================== ====================
</Table>
See Notes to Condensed, Consolidated Financial Statements.
3
GE LIFE AND ANNUITY ASSURANCE COMPANY AND SUBSIDIARY
Notes to Condensed, Consolidated Financial Statements
(Dollar amounts in millions)
(Unaudited)
1. The accompanying condensed, consolidated quarterly financial statements
represent GE Life and Annuity Assurance Company and its consolidated
subsidiary, Assigned Settlement, Inc. (collectively, "the Company"). All
significant intercompany transactions have been eliminated.
2. These financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts and related disclosures. Actual results could differ from
these estimates. Certain prior year amounts may have been reclassified to
conform to the current year presentation.
The condensed, consolidated quarterly financial statements are unaudited.
These statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement
of the results of operations, financial position and cash flows. The
results reported in these consolidated financial statements should not be
regarded as necessarily indicative of results that may be expected for the
entire year. The condensed, consolidated financial statements included
herein should be read in conjunction with the audited consolidated
financial statements and related notes contained in the Company's Current
Report on Form 8-K, dated April 19, 2002.
3. A summary of changes in shareholders' interest that do not result directly
from transactions with the Company's shareholders follows:
<Table>
<Caption>
Three Months Ended
-------------------------------------------
(In millions) March 30, 2002 March 31, 2001
--------------------- ---------------------
Net earnings $ 32.7 $ 27.4
Unrealized gains (losses) on investment securities - net of tax (11.5) 64.0
Derivatives qualifying as hedges, net of tax 0.8 (3.2)
Cumulative effect on shareholders' interest of adopting SFAS 133 - (7.8)
--------------------- ---------------------
Total $ 22.0 $ 80.4
===================== =====================
</Table>
4. The Company conducts its operations through two operating segments: (1)
Wealth Accumulation and Transfer, comprised of products intended to
increase the policyholder's wealth, transfer wealth to beneficiaries or
provide a means for replacing the income of the insured in the event of
premature death; and (2) Lifestyle Protection and Enhancement, comprised
of products intended to protect accumulated wealth and income from the
financial drain of unforeseen events and provide income protection
packages.
March 31, 2001 amounts have been reclassified to conform to the March
30, 2002 presentation, and reflect the elimination of goodwill
amortization as discussed in Note 5.
4
The following is a summary of operating segment activity:
<Table>
<Caption>
Three Months Ended
-------------------------------------------
(In millions) March 30, 2002 March 31, 2001
-------------------- --------------------
Revenues
Wealth Accumulation and Transfer .......................... $ 250.6 $286.0
Lifestyle Protection and Enhancement....................... 16.6 16.6
-------------------- --------------------
Total revenues ...................................... $267.2 $302.6
==================== ====================
Earnings (loss) before income taxes and cumulative effect of
change in accounting principle
Wealth Accumulation and Transfer .......................... $ 49.3 $ 50.2
Lifestyle Protection and Enhancement....................... (0.2) 2.8
-------------------- --------------------
Total earnings before income taxes and cumulative effect of
change in accounting principle ....... $ 49.1 $ 53.0
==================== ====================
</Table>
The following is a summary of assets by operating segment:
<Table>
<Caption>
March 30, December 31,
(In millions) 2002 2001
-------------------- --------------------
Assets
Wealth Accumulation and Transfer .......................... $ 22,096.0 $ 22,288.6
Lifestyle Protection and Enhancement....................... 162.9 168.0
-------------------- --------------------
Total assets ........................................ $ 22,258.9 $ 22,456.6
==================== ====================
</Table>
5. The Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets,
generally became effective on January 1, 2002. Under SFAS 142, goodwill
is no longer amortized but is tested for impairment using a fair value
methodology.
The Company ceased amortizing goodwill effective January 1, 2002.
Simultaneously, to maintain a consistent basis for its measurement of
performance, management revised previously reported segment information
to correspond to the earnings measurements by which businesses will be
evaluated. Non tax-deductible goodwill amortization expense for the
three months ended March 31, 2001, was $1.7 million. The effect on
earnings of excluding such goodwill amortization expense from the first
three months of 2001 follows:
(In millions) Three Months Ended
-------------------------------
March 30, 2002 March 31, 2001
-------------- --------------
Earnings before cumulative effect of
change in accounting principle $32.7 $33.1
----- -----
Earnings before cumulative effect of
change in accounting principle
excluding 2001 goodwill amortization $32.7 $34.8
----- -----
Net earnings $32.7 $27.4
----- -----
Net earnings, excluding 2001 goodwill
amortization $32.7 $29.1
----- -----
Under SFAS 142, the Company was required to test all existing goodwill
for impairment as of January 1, 2002, on a "reporting unit" basis. A
reporting unit is an operating segment unless, at businesses one level
below that operating segment (the "component" level), discrete financial
information is prepared and regularly reviewed by management, in which
case such component is the reporting unit. SFAS 142 requires that two or
more component-level reporting units with similar economic
characteristics be combined into a single reporting unit.
A fair value approach is used to test goodwill for impairment. An
impairment charge is recognized for the amount, if any, by which the
carrying amount of goodwill exceeds its implied fair value. Fair values
of reporting units and the related implied fair values of their
respective goodwill were established using discounted cash flows. When
available and as appropriate, comparative market multiples were used to
corroborate results of the discounted cash flows.
The result of testing goodwill of the Company for impairment in
accordance with SFAS 142, as of January 1, 2002, was no goodwill
impairment charge.
At March 30, 2002 At December 31, 2001
-------------------------------- --------------------------------
Intangibles Subject to Amortization Gross Carrying Accumulated Gross Carrying Accumulated
----------------------------------- Amount Amortization Amount Amortization
(In millions) -------------- -------------- -------------- --------------
Present Value of Future Profits ("PVFP") $576.7 $(330.7) $568.1 $(323.4)
All other 1.1 (0.3) 1.1 (0.3)
-------------- -------------- -------------- --------------
Total $577.8 $(331.0) $569.2 $(323.7)
============== ============== ============== ==============
Amortization expense related to intangible assets, excluding goodwill,
for the first quarter of 2002 and 2001 was $7.3 million and $9.0 million,
respectively. The estimated percentage of the December 31, 2001 net PVFP
balance before the effect of unrealized investment gains or losses, to be
amortized over each of the next five years is as follows:
2002................................................... 11.8%
2003................................................... 9.7%
2004................................................... 8.4%
2005................................................... 7.3%
2006................................................... 6.5%
Amortization expense for PVFP in future periods will be affected by
acquisitions, realized capital gains/losses or other factors affecting
the ultimate amount of gross profits realized from certain lines of
business. Similarly, future amortization expense for other intangibles
will depend on future acquisitions, dispositions and other business
transactions.
In addition, the Company had capitalized software (net of accumulated
amortization) of $11.7 million and $10.5 million at March 30, 2002 and
December 31, 2001, respectively. Amortization expense related to the
capitalized software was approximately $0.6 million and $0.5 million in
the first quarter of 2002 and 2001, respectively. Capitalized software is
included in other assets.
5
Goodwill
--------
There have been no changes in goodwill since December 31, 2001. As of
March 30, 2002 goodwill was comprised of the following:
(In millions)
Wealth Accumulation and Transfer $ 85.5
Lifestyle Protection and Enhancement 21.9
---------
Total $107.4
=========
6. At January 1, 2001, the Company adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. Under SFAS 133,
all derivative instruments are recognized in the balance sheet at their
fair values. The cumulative effect of adopting this standard was a
one-time reduction of net earnings in the first quarter of 2001 of $5.7
million.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Overview
Earnings before income taxes and cumulative effect of change in accounting
principle for the first three months of 2002 were $49.1 million, a $2.2 million,
or 4.3%, decrease over the first three months of 2001. This decrease was
primarily attributable to a decline in investment income and premiums,
partially offset by a decrease in interest credited and decreased expenses
resulting from cost savings initiatives.
Operating Results
Net investment income decreased $33.4 million, or 17.8%, to $154.7 million for
the first three months of 2002 from $188.1 million for the first three months of
2001. The decrease was primarily a result of a decrease in weighted average
investment yields to 5.25% for the first three months of 2002 from 7.02% for the
first three months of 2001. This decrease was partially offset by higher levels
of average invested assets ($11,800 million in the first three months of 2002 as
compared to $10,711 million in the first three months of 2001).
Net realized investment gains increased $5.9 million to $13.4 million for the
first three months of 2002 from $7.5 million for the first three months of 2001.
Net investment gains are comprised of gross investment gains and gross
investment (losses), respectively, of $30.4 million and $(17.0) million in 2002,
and $23.4 million and $(15.9) million in 2001. These changes in gross realized
investment gains and losses are related to our ongoing review of our investment
portfolio positions which vary with market and economic conditions. We seek to
offset investment losses realized from other than temporary impairments and
portfolio repositioning with investment gains.
Included in the first three months of 2002 gross realized investment gains is
$5.8 million resulting from the securitization of certain financial assets.
There were no securitizations in the first three months of 2001.
Premiums, which include premium revenues from traditional life and life
contingent annuity contracts, decreased $4.1 million or 14.0%, to $25.2 million
for the first three months of 2002 from $29.3 million for the first three months
of 2001. This decrease was primarily a result of lower levels of renewal
premiums on whole life and universal life policies.
Interest credited decreased $24.7 million, or 17.3%, to $118.5 million in the
first three months of 2002 from $143.2 million in the first three months of
2001. This decrease was a result of the lower average crediting rates, offset by
additional sales of GICs and funding agreements.
Benefits and other changes in policy reserves includes both activity related to
future policy benefits on long-duration life and health products as well as
claim costs incurred during the year under these contracts. In addition, the
bonus feature of our bonus variable annuity products is initially accounted for
as a benefit. Benefits and other changes in policy reserves decreased $2.5
million, or 4.8%, to $49.9 million in the first three months of 2002 from $52.4
million in the first three months of 2001. The decrease primarily relates to
lower sales of our bonus variable annuity products.
Commission expense decreased $14.4 million, or 33.8%, to $28.2 million in the
first three months of 2002 from $42.6 million in the first three months of 2001.
This decrease was primarily a result of a decline in variable annuity sales
attributable to unfavorable conditions in the equity markets, as well as a
decline in whole life premiums.
7
General expenses were $22.4 million for the first three months of 2002, a
decrease of $10.1 million or 31.1% over the first three months of 2001 expense
of $32.5 million. The decrease is primarily the result of reduced compensation
and benefit costs and other cost savings initiatives.
Amortization of intangibles decreased $1.7 million, or 18.9%, to $7.3 million
for the first three months of 2002 from $9.0 million for the first three months
of 2001. The Company's significant intangible assets consist of the present
value of future profits ("PVFP"), representing the estimated future gross profit
in acquired insurance and annuity contracts. Amortization of intangibles
decreased primarily as a result of an adjustment to the PVFP amortization to
reflect an anticipated change in underlying gross profits of the related
business. Adjustment to PVFP amortization occurs in the ordinary course of
business.
Change in deferred acquisition costs, net decreased $23.8 million, or 74.4%, to
$8.2 million for the first three months of 2002 from $32.0 million for the first
three months of 2001. Deferred acquisition costs include costs and expenses
which vary with and are primarily related to the acquisition of insurance and
investment contracts. These costs and expenses include commissions, printing,
underwriting, policy issuance costs and the bonus feature of certain variable
annuity products. Under U.S. GAAP, these costs are deferred and recognized in
relation to either premiums or gross profits underlying the contracts. This
decrease is primarily a result of a decrease in commission expense and other
sales related expenses.
Interest expense decreased $1.9 million to zero for the first three months of
2002 from $1.9 million for the first three months of 2001. This decrease
primarily relates to obligations to a third party reinsurer for payment of
transferred assets in the 2001 period.
Financial Condition
Total assets decreased $197.7 million, or 0.9%, at March 30, 2002 from December
31, 2001. Total investments decreased $399.1 million, or 3.4%, at March 30, 2002
from December 31, 2001. This decrease was primarily a result of net sales of
securities and other invested assets. Other assets increased $62.9 million, or
53.8%, at March 30, 2002 from December 31, 2001. This increase was primarily a
result of an increase in the balances due from affiliates relating to the timing
of transaction settlements. Assets invested in separate accounts increased
$60.9, or 0.7%, at March 30, 2002 from December 31, 2001 primarily related to
additional sales of variable annuity products. Deferred acquisition costs
increased $76.7, or 9.0%, at March 30, 2002 from December 31, 2001 primarily as
a result of additional variable annuity product sales.
Total Liabilities decreased $219.7 million, or 1.1%, at March 30, 2002 from
December 31, 2001. Future annuity and contract benefits decreased $146.2
million, or 1.3%, at March 30, 2002 from December 31, 2001. This decrease
resulted primarily from a decrease in reserves related to GICs and funding
agreements as a result of normal contract maturities. Accounts payable and
accrued expenses decreased $252.0 million, or 45.9%, at March 30, 2002 from
December 31, 2001 primarily resulting from the timing of settlement of trades
related to investments and decreased balances payable to brokers. Other
policyholder liabilities increased $132.3 million, or 144.7%, at March 30, 2002
from December 31, 2001 primarily related to timing of transaction settlements
and normal business activity.
For the three months ended March 30, 2002 and March 31, 2001 cash flows used by
operating and certain financing activities were $299.2 million and $56.1
million, respectively. These amounts include net cash provided by financing
activities relating to investment contract issuances accounted for as deposit
liabilities under U.S. GAAP and redemptions of $259.9 million and $31.5 million,
respectively.
Forward-Looking Statements
This document may include certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations are subject to
uncertainty and changes in circumstances. Actual results may differ materially
from these expectations due to changes in global economic, business, competitive
market and regulatory factors.
8
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest rate changes may have temporary effects on the sale and profitability
of the Company's annuity, universal life, and other investment products. For
example, if interest rates rise, competing investments (such as annuities or
life insurance offered by the Company's competitors, certificates of deposit,
mutual funds and similar instruments) may become more attractive to potential
purchasers of the Company's products. The Company may be forced to adjust
certain crediting rates on its line of products in order to meet competitive
pressures. The Company constantly monitors interest earnings on existing assets
and yields available on new investments and sells policies and annuities that
permit flexible responses to interest rate changes as part of its management of
interest spreads.
Interest rate and currency risk management is important in the normal business
activities of the Company. Derivative financial instruments are used by the
Company to mitigate or eliminate certain financial and market risks, including
those related to changes in interest rates and currency exchange rates. As a
matter of policy, the Company does not engage in derivatives transactions for
purposes other than hedging.
The Company manages exposure to changes in interest rates, in part, by
matching the duration of its investment portfolio with its liabilities.
Established practices require that derivative financial instruments relate to
specific asset or liability transactions or to currency exposure, if any.
The Company is exposed to prepayment risk in certain of its business
activities, such as in its investment portfolio and annuities activities. The
Company uses interest rate swaps, swaptions and option-based financial
instruments to mitigate prepayment risk. These instruments generally behave
based on limits ("floors") on interest rate environment. These swaps, swaptions
and option-based instruments are governed by the credit risk policies described
below and are transacted in either exchange-traded or over-the-counter markets.
Counterparty credit risk is managed at our parent company's level on an
individual counterparty basis, which means that gains and losses are netted for
each counterparty to determine the amount at risk. When a counterparty exceeds
credit exposure limits in terms of amounts due to the Company, typically as a
result of changes in market conditions (see table below), no additional
transactions are executed until the exposure with that counterparty is reduced
to an amount that is within the established limit. All swaps are executed under
master swap agreements containing mutual credit downgrade provisions that
provide the ability to require assignment or termination in the event either
party is downgraded below A3 or A-.
All swaps, purchased options and forwards with contractual maturities longer
than one year are conducted within the credit policy constraints provided in the
table below.
Counterparty Credit Criteria Credit rating
Standard & Poor's
-----------------------------
Term of transaction
Between one and five years....... AA-
Greater than five years.......... AAA
Credit exposure limits
Up to $50 million................ AA-
Up to $75 million................ AAA
The conversion of interest rate and currency risk into credit risk results in a
need to monitor counterparty credit risk actively. At March 30, 2002 and March
31, 2001, there were no notional amounts of long-term derivatives for which the
counterparty credit criteria was rated below A3/AA-.
9
Following is an analysis of credit risk exposures as of March 30, 2002:
Percentage or Notional Derivative Exposure by Counterparty
Credit Rating
Standard & Poor's
-----------------
AAA.................................. 100%
AA................................... 0%
The U.S. Securities and Exchange Commission requires that registrants provide
information about potential effects of changes in interest rates. Although the
rules offer alternatives for presenting this information, none of the
alternatives are without limitations. The following discussion is based on
so-called "shock-tests," which model effects of interest rate and currency
shifts on the reporting company. Shock tests, while probably the most meaningful
analysis permitted, are constrained by several factors, including the necessity
to conduct the analysis based on a single point in time and by their inability
to include the extraordinarily complex market reactions that normally would
arise from the market shifts modeled. While the following results of shock tests
for changes in interest rates may have some limited use as benchmarks, they
should not be viewed as forecasts.
One means of assessing exposure to interest rate changes is a duration-based
analysis that measures the potential loss in net earnings resulting from a
hypothetical decrease in interest rates of 100 basis points across all
maturities. Under this model, with all else constant, it is estimated that such
a decrease, including repricing effects in the securities portfolio, would not
significantly impact 2002 earnings based on the Company's current derivative
positions.
10
EXHIBIT 12
GE LIFE AND ANNUITY ASSURANCE COMPANY AND SUBSIDIARY
Computation of Ratio of Earnings to Fixed Charges
Three Months Ended March 30, 2002
(Dollar amounts in millions)
(Unaudited)
Ratio of Earnings
to Fixed Charges
---------------------
Net earnings $ 32.7
Provision for income taxes 16.4
---------------------
Earnings before income taxes 49.1
---------------------
Fixed charges:
Interest ---
Interest portion of net rentals 0.2
---------------------
Total fixed charges 0.2
---------------------
Less interest capitalized, net of amortization ---
---------------------
Earnings before income taxes, plus fixed charges $ 49.3
=====================
Ratio of earnings to fixed charges 246.5
=====================
For purposes of computing the ratios, fixed charges consist of interest on all
indebtedness and one-third of rentals, which management believes is a reasonable
approximation of the interest factor of such rentals.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company, like other insurance companies, is involved in lawsuits, including
class action lawsuits. In some class action and other lawsuits involving
insurance companies, substantial damages have been sought and/or material
settlement payments have been made. Except for the McBride case described
below, which is still in its preliminary stages, and its ultimate outcome, and
any effect on the Company, cannot be determined at this time, management
believes that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on the Company's
Consolidated Financial Statements.
On November 1, 2000, the Company was named as a defendant in a lawsuit filed in
Georgia state court related to the sale of universal life insurance policies
(McBride v. Life Insurance Co. of Virginia dba GE Life and Annuity Assurance
Co.). On December 1, 2000, the Company successfully removed the case to the
United States District Court for the Middle District of Georgia. The complaint
is brought as a class action on behalf of all persons who purchased certain
universal life insurance policies from the Company and alleges improper sales
practices in connection with the sale of universal life policies. No class has
been certified. On February 27, 2002, the Court denied the Company's motion for
summary judgment. The McBride litigation is still in its preliminary stages, and
its ultimate outcome, and any effect on the Company, cannot be determined at
this time. The Company intends to defend this lawsuit, including plaintiff's
efforts to certify a nationwide class action, vigorously.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 12. Computation of ratio of earnings to fixed charges.
b. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GE LIFE AND ANNUITY ASSURANCE COMPANY
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(Registrant)
Date: May 13, 2002 By: /s/ Kelly L. Groh
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Kelly L. Groh,
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 2002 By: /s/ Susan M. Mann
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Susan M. Mann,
Vice President and Controller
(Principal Accounting Officer)
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