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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-37587
PRUCO LIFE INSURANCE COMPANY
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(Exact name of Registrant as specified in its charter)
ARIZONA 22-1944557
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(State or other jurisdiction, (IRS Employer
incorporation or organization) Identification No.)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102
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(Address of principal executive offices) (Zip Code)
(201) 802-3780
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(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of June 30, 1997. Common stock, par value of
$10 per share: 250,000 shares outstanding.
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PRUCO LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
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INDEX
PAGE NO.
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COVER PAGE 1
INDEX 2
PART I -- FINANCIAL STATEMENTS
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ITEM 1. PRUCO LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS:
STATEMENTS OF FINANCIAL POSITION -- JUNE 30, 1997 (UNAUDITED)
AND DECEMBER 31, 1996 3
STATEMENTS OF OPERATIONS (UNAUDITED) -- THREE AND SIX MONTHS
ENDED JUNE 30, 1997 AND 1996 4
STATEMENTS OF CHANGES IN EQUITY -- SIX MONTHS ENDED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 5
STATEMENTS OF CASH FLOWS (UNAUDITED) -- SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
PART II -- OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGE IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 11
2
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
JUNE 30, DECEMBER 31,
1997 1996
----------- ----------
(000's)
ASSETS
Fixed maturities
Held to maturity $ 341,798 $ 405,731
Available for sale 2,324,663 2,236,817
Equity securities 4,111 3,748
Mortgage loans 42,755 46,915
Policy loans 667,832 639,782
Other long term investments 2,089 4,528
Short term investments 244,640 169,830
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Total invested assets 3,627,888 3,507,351
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Cash 63,019 73,766
Deferred policy acquisition costs 646,918 633,159
Premiums due 8,928 9,084
Accrued investment income 64,569 62,110
Receivable from affiliates 14,659 1,901
Federal income tax receivable -- 7,191
Reinsurance recoverable on unpaid losses 27,014 27,014
Other assets 65,876 20,000
Separate Account assets 6,446,678 5,336,851
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TOTAL ASSETS $10,965,549 $9,678,427
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Future policy benefits and other
policyholders' liabilities $ 583,076 $ 557,351
Policyholders' account balances 2,172,827 2,188,862
Deferred federal income tax payable 159,152 148,960
Federal income tax payable 11,544 --
Payable to affiliate 72,854 51,729
Other liabilities 120,623 55,090
Separate Account liabilities 6,411,412 5,277,454
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TOTAL LIABILITIES 9,531,488 8,279,446
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CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
June 30, 1997 and December 31, 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment (losses) gains (1,635) 12,402
Retained earnings 993,614 944,497
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TOTAL STOCKHOLDER'S EQUITY 1,434,061 1,398,981
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TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $10,965,549 $9,678,427
=========== ==========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
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1997 1996 1997 1996
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(000's)
REVENUES
Premiums $ 26,347 $ 24,297 $ 14,104 $ 13,742
Policy charges and fee income 156,641 156,621 80,308 77,816
Net investment income 124,032 122,204 64,811 61,353
Realized investment gains (losses) 6,973 4,923 2,054 (2,252)
Other income 12,832 7,807 6,982 5,068
-------- -------- -------- --------
TOTAL REVENUES 326,825 315,852 168,259 155,727
-------- -------- -------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 98,545 82,615 49,213 42,793
Interest credited to policyholders'
account balances 53,042 55,519 28,338 26,710
Other operating costs and expenses 99,195 74,974 46,890 42,923
-------- -------- -------- --------
TOTAL BENEFITS AND EXPENSES 250,782 213,108 124,441 112,426
-------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 76,043 102,744 43,818 43,301
Income tax provision 26,926 35,961 14,220 15,156
-------- -------- -------- --------
NET INCOME $ 49,117 $ 66,783 $ 29,598 $ 28,145
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SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
NET
UNREALIZED
INVESTMENT TOTAL
COMMON PAID-IN- (LOSSES) RETAINED STOCKHOLDER'S
STOCK CAPITAL GAINS EARNINGS EQUITY
-------- -------- ------- -------- -------------
BALANCE, JANUARY 1, 1996 $ 2,500 $439,582 $30,836 $795,275 $1,268,193
Net income -- -- -- 149,222 149,222
Change in net unrealized
investment (losses)
gains during year -- -- (18,434) -- (18,434)
-------- -------- ------- -------- ----------
BALANCE, DECEMBER 31, 1996 2,500 439,582 12,402 944,497 1,398,981
Net income -- -- -- 49,117 49,117
Change in net unrealized
investment (losses)
gains during period -- -- (14,037) -- (14,037)
-------- -------- ------- -------- ----------
BALANCE, JUNE 30, 1997 $ 2,500 $439,582 $(1,635) $993,614 $1,434,061
======== ======== ======= ======== ==========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
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1997 1996
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(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,117 $ 66,783
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other
policyholders' liabilities 25,725 27,247
General account policy fee income (17,424) (21,364)
Interest credited to policyholders' account balances 53,042 55,519
Net decrease (increase) in Separate Accounts 24,131 (11,281)
Net realized investment gains (6,973) (4,923)
Policy loans (28,050) (32,736)
Amortization and other non-cash items (3,849) 27,611
Change in:
Accrued investment income (2,459) (1,038)
Premiums due 156 (1,341)
Receivable from affiliates (12,758) 1,426
Deferred policy acquisition costs (13,759) (20,273)
Other assets (45,876) 4,361
Payable to affiliate 21,125 (2,274)
Federal income tax payable/receivable 18,735 35,330
Deferred federal income tax payable 10,192 1,791
Other liabilities 65,532 155,309
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CASH FLOWS FROM OPERATING ACTIVITIES 136,607 280,147
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 66,858 51,018
Available for sale 1,614,135 2,248,642
Equity securities 3,773 866
Mortgage loans 4,080 2,217
Other long term investments 2,501 3
Investment real estate -- (11)
Payments for the purchase of:
Fixed maturities:
Held to maturity (3,150) (51,662)
Available for sale (1,705,135) (2,346,661)
Equity securities (3,884) (873)
Other long term investments (69) (698)
Net payments of short term investments (74,810) (112,228)
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CASH FLOWS FROM INVESTING ACTIVITIES (95,701) (209,387)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 712,561 201,411
Withdrawals (net of transfers to/from separate accounts) (764,214) (258,943)
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CASH FLOWS FROM FINANCING ACTIVITIES (51,653) (57,532)
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Net (decrease) increase in Cash (10,747) 13,228
Cash, beginning of year 73,766 41,435
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CASH, END OF PERIOD $ 63,019 $ 54,663
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SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
JUNE 30, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Pruco Life Insurance Company (Pruco Life), a stock life insurance
company, and its subsidiaries (collectively, the Company). Pruco Life has two
subsidiaries, Pruco Life Insurance Company of New Jersey and The Prudential Life
Insurance Company of Arizona. Pruco Life is a wholly-owned subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual life insurance
company. The Company markets individual life insurance and deferred annuities
primarily through Prudential's sales force in the United States, and in Taiwan.
All significant intercompany balances and transactions have been eliminated in
consolidation.
B. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the other information and disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results of operations. The
results of operations for the six months ended June 30, 1997 may not be
indicative of the results that may be expected for the year ending December 31,
1997.
C. RECLASSIFICATIONS
To facilitate comparisons with the current year, certain amounts in the prior
years have been reclassified.
2. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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Pruco Life Insurance Company consists of Pruco Life Insurance Company and its
subsidiaries (collectively, the Company). Pruco Life Insurance Company is a
wholly owned subsidiary of The Prudential Insurance Company of America
(Prudential). The Company markets individual life insurance and annuities
primarily through Prudential's sales force in the United States and in Taiwan.
The company held $11.0 billion in assets at June 30, 1997, $6.4 billion of which
were held in Separate Accounts under variable life insurance policies and
variable annuity contracts. The remaining assets were held in the general
account for investment primarily in bonds, short-term investments and policy
loans.
The Company's assets were $11.0 billion at June 30, 1997 compared to $9.7
billion at December 31, 1996. For the period ended June 30, 1997, net income
amounted to $49.1 million, a decrease of $17.7 million compared to the $66.8
million earned in the same period in 1996.
1. RESULTS OF OPERATIONS
(a) 1997 versus 1996
Premiums increased by $2.0 million for the period ended June 30, 1997, from
$24.3 million in 1996 to $26.3 million. This change is primarily due to
increased sales related to traditional life insurance products in our Taiwan
branch which continued to expand its business throughout 1997.
Realized investment gains increased to $7.0 million for the six months ended
June 30, 1997 from $4.9 million for the same period in 1996. This increase is a
result of current market conditions.
Other income increased $5.0 million for the period ended June 30, 1997 from the
same period in 1996. This increase is due to increased advisory fees
attributable to growth of Separate Account products and introduction of
Discovery Select.
Policyholders' benefits increased $15.9 million for the period ended June 30,
1997 to $98.5 million, as compared to $82.6 million in 1996. This increase is
attributable to increased mortality costs associated with the aging book of
business.
Other operating expenses increased $24.2 million for the period ended June 30,
1997 compared to the same period for 1996. This is attributable to operational
expenses associated with the sales activity of Discovery Select and Discovery
Preferred annuity products. In addition, to increase competitive positioning in
the market place, technological advancements are being made in the annuity
processing and customer service areas. Along with, enhanced product developments
and marketing strategies to create products to better suit our customer's needs.
2. LIQUIDITY
For an insurance company, cash needs, for the purpose of paying current
benefits, making policy loans, and paying expenses, are met primarily from
premiums and investment income. Benefit expenses incurred in the six months
ended June 30, 1997, and 1996 were $250.8 million, and $213.1 million,
respectively. Cash flows are anticipated to be sufficient to meet the Company's
liquidity needs for the foreseeable future.
3. CAPITAL RESOURCES
The primary components of the Company's total assets of $11.0 billion at
June 30, 1997 are as follows (as a percentage of total assets): fixed income
securities 24.3%, separate account assets (fixed income and equity securities)
58.8%, policy loans 6.1%, and other assets 10.8%.
8
PART II
ITEM 1 LEGAL PROCEEDING
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Pruco Life Insurance Company is not involved in any litigation that is expected
to have a material effect.
ITEM 2 CHANGES IN SECURITIES
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Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
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Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not Applicable
ITEM 5 OTHER INFORMATION
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Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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(a) (1) and (2) financial Statements of registrant and subsidiaries are
listed on pages 3-6 hereof and are filed as part of this Report.
(a) (3) Exhibits
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Regulation S-K
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2. Not Applicable
3. Documents Incorporated by Reference
(i) The Articles of Incorporation of Pruco Life, as amended October 19,
1993, are incorporated herein by reference to Form S-6, Registration No.
333-07451, filed July 2, 1996 on behalf of the Pruco Life Variable
Appreciable Account; (ii) Bylaws of Pruco Life, as amended May 6, 1997
are appended to this form in accordance with EDGAR instructions.
4. Exhibits
Modified Guaranteed Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No.
33-37587, filed November 2, 1990.
Market-Value Adjustment Annuity Contract, incorporated by reference to
Registrant's Form S-1 Registration Statement, Registration No.
33-61143, filed November 17, 1995.
10. None.
11. Not Applicable.
15. Not Applicable.
18. None.
19. Not Applicable.
20. Not Applicable.
9
22. None.
23. None.
24. Not Applicable.
25. Not Applicable.
27. Exhibit 27, Financial Data Schedule appended to this form in
accordance with EDGAR instructions.
99. None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY
(Registrant)
SIGNATURE TITLE DATE
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/s/ ESTHER H. MILNES President and Director August 14, 1997
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Esther H. Milnes
/s/ LINDA S. DOUGHERTY Vice President and Comptroller August 14, 1997
- -------------------------- and Chief Accounting Officer
Linda S. Dougherty
11
EXHIBIT INDEX
Exhibit No.
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3(ii) By Laws of Pruco Life Insurance Company as amended through
May 6, 1997
27 Financial Data Schedule