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 quarterly period ended June 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 33-87272, 333-51353, 333-28765, 333-28681, 333-28743,
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333-51949, 333-65009, 333-66745, 333-76941, 333-76945,
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333-35592, 333-95511, 333-30186, 333-40596, 333-33924,
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333-95457, 333-59386, 333-59398, 333-59408, 333-52320
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333-57212, 333-63694, 333-67660, 333-68138, 333-70602
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333-76150, 333-84394, 333-87152, 333-90528
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 41-0991508
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (610) 425-3400
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Former name, former address and formal fiscal year,
if changed since last report
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 12, 2002, 250,000 shares of Common Stock, $10 Par Value, are
authorized, issued and outstanding.
As of August 12, 2002, 50,000 shares of Preferred Stock, $5000 Par Value, are
authorized.
NOTE: WHEREAS GOLDEN AMERICAN LIFE INSURANCE COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
Exhibit index - Page 24 Page 1 of 36
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income (Unaudited)
For the three months ended June 30, 2002 and 2001......................3
For the six months ended June 30, 2002 and 2001........................4
Condensed Consolidated Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001........................5
Condensed Consolidated Statement of Changes in
Stockholder's Equity (Unaudited).............................................6
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2002 and 2001........................7
Notes to Condensed Consolidated Financial Statements (Unaudited)...............8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.....................................22
Signature.....................................................................23
Index .......................................................................24
2
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Person for whom the Financial Information is given: Golden American Life Insurance Company
Condensed Consolidated Statements of Income (Unaudited):
For the Three For the Three
Months Ended Months Ended
June 30, 2002 June 30, 2001
-------------------------------------------------------
(DOLLARS IN THOUSANDS)
Revenues:
Contract and other charges assessed against
Policyholders $50,255 $36,857
Management fee revenue 7,045 6,307
Net investment income 40,921 23,359
Net realized capital (losses) gains (9,044) 44
-------------------------------------------------------
89,177 66,567
Benefits and expenses:
Benefits:
Interest credited and other benefits to policyholders 55,865 44,425
Underwriting, acquisition, and insurance expenses:
Commissions 492 360
Commissions - affiliates 99,151 51,842
General expenses 35,536 33,296
Policy acquisition costs deferred (94,698) (38,344)
Amortization:
Deferred policy acquisition costs 31,792 13,104
Value of business acquired 1,002 1,683
Goodwill (NOTE 2) -- 1,056
Expense and charges reimbursed under modified
coinsurance agreements 204 (879)
Expense and charges reimbursed under modified
coinsurance agreements - affiliates (28,946) (50,204)
Interest expense 4,737 4,765
-------------------------------------------------------
105,135 61,104
-------------------------------------------------------
(Loss) income before income taxes (15,958) 5,463
Income tax (benefit) expense (5,476) 2,261
-------------------------------------------------------
Net (loss) income $(10,482) $3,202
=======================================================
See notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Income (Unaudited):
For the Six For the Six
Months Ended Months Ended
June 30, 2002 June 30, 2001
-------------------------------------------------------
(DOLLARS IN THOUSANDS)
Revenues:
Contract and other charges assessed against
policyholders $95,299 $77,714
Management fee revenue 13,779 12,438
Net investment income 74,278 42,771
Net realized capital losses (24,757) (1,919)
-------------------------------------------------------
158,599 131,004
Benefits and expenses:
Benefits:
Interest credited and other benefits to policyholders 111,197 86,434
Underwriting, acquisition, and insurance expenses:
Commissions 706 795
Commissions - affiliates 163,152 107,805
General expenses 74,297 60,517
Policy acquisition costs deferred (156,471) (24,925)
Amortization:
Deferred policy acquisition costs 32,327 29,632
Value of business acquired 333 2,175
Goodwill (NOTE 2) -- 2,112
Expense and charges reimbursed under modified
coinsurance agreements 412 (1,759)
Expense and charges reimbursed under modified
coinsurance agreements - affiliates (57,671) (160,909)
Interest expense 9,457 9,508
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177,739 111,385
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(Loss) income before income taxes (19,140) 19,619
Income tax (benefit) expense (6,461) 7,484
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Net (loss) income $(12,679) $12,135
=======================================================
See notes to condensed consolidated financial statements.
4
Condensed Consolidated Balance Sheets:
June 30, 2002 December 31, 2001
------------------------------------------------
(Unaudited)
ASSETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2002 - $3,651,732; 2001 - $1,982,527) $3,681,068 $1,994,913
Equity securities, at fair value (cost: 2002 - $22,575; 2001 - $74) 21,155 55
Mortgage loans on real estate 246,354 213,883
Policy loans 16,107 14,847
Short-term investments 10,002 10,021
------------------------------------------------
Total investments 3,974,686 2,233,719
Cash and cash equivalents 279,879 195,726
Reinsurance recoverable 43,782 27,151
Reinsurance recoverable from affiliates 88,800 28,800
Due from affiliates 37,243 20
Accrued investment income 49,100 22,771
Deferred policy acquisition costs 812,839 709,042
Value of business acquired 18,528 20,203
Current income taxes recoverable -- 400
Property and equipment, less accumulated depreciation of
$12,424 in 2002 and $10,624 in 2001 9,106 10,468
Goodwill, less accumulated amortization of $17,590 in 2002
and $17,600 in 2001 151,277 151,363
Receivable for securities sold 73,310 8,509
Other assets 11,327 4,279
Separate account assets 10,893,177 10,958,191
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Total assets $16,443,054 $14,370,642
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits and claims reserves $4,022,203 $2,178,189
Unearned revenue reserve 5,778 6,241
Other policy claims and benefits 1,275 836
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4,029,256 2,185,266
Notes payable with affiliates 170,000 245,000
Revolving note payable -- 1,400
Due to affiliates 8,683 25,080
Current income tax liability 8,862 --
Deferred income tax liability 21,319 12,612
Other deposits 100,078 14,360
Payable for securities purchased 117,583 36,283
Dollar roll obligations 84,232 3,951
Other liabilities 83,871 70,670
Separate account liabilities 10,893,177 10,958,191
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15,517,061 13,552,813
Commitments and contingencies
Stockholder's equity:
Preferred stock, par value $5,000 per share, authorized 50,000 shares -- --
Common stock, par value $10 per share, authorized, issued,
and outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 902,456 780,436
Accumulated other comprehensive income 2,627 3,804
Retained earnings 18,410 31,089
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Total stockholder's equity 925,993 817,829
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Total liabilities and stockholder's equity $16,443,054 $14,370,642
================================================
See notes to condensed consolidated financial statements.
5
Condensed Consolidated Statements of Changes in Stockholder's Equity(Unaudited):
(DOLLARS IN THOUSANDS)
For the Six For the Six
Months Ended Months Ended
June 30, 2002 June 30, 2001
-------------------------------------------
Shareholder's equity, beginning of period $817,829 $617,137
Comprehensive income:
Net (loss) income (12,679) 12,135
Change in net unrealized investment
(losses) gains (1,177) 5,225
-------------------------------------------
Total comprehensive (loss) income (13,856) 17,360
Loss on sale to affiliate (2,980) --
Contribution of capital 125,000 7,000
-------------------------------------------
Shareholder's equity, end of period $925,993 $641,497
===========================================
See notes to condensed consolidated financial statements.
6
Condensed Consolidated Statements of Cash Flows (Unaudited):
For the Six For the Six
Months Ended Months Ended
June 30, 2002 June 30, 2001
-------------------------------------------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY OPERATING ACTIVITIES $120,680 $165,012
INVESTING ACTIVITIES Proceeds from sales of investments:
Fixed maturities - available for sale 2,951,188 167,642
Equity securities -- 6,894
Investment maturities, repayments or collections:
Fixed maturities - available for sale 100,934 62,274
Mortgage loans on real estate 10,602 60,621
-------------------------------------------------
3,062,724 297,431
Acquisition of investments:
Fixed maturities - available for sale (4,746,329) (658,495)
Equity securities (22,500) --
Mortgage loans on real estate (43,073) (111,532)
Policy loans - net (1,260) (587)
Short-term investments - net (19) (13,195)
-------------------------------------------------
(4,813,181) (783,809)
Disposal of subsidiaries at book value (31,556) --
Proceeds from sale of interest in subsidiaries 27,929 --
Net sale of property and equipment (480) 18
-------------------------------------------------
Net cash used in investing activities (1,754,564) (486,360)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings -- 29,300
Repayment of reciprocal loan agreement borrowings -- (29,300)
Proceeds from revolving note payable -- 1,400
Repayment of revolving note payable (1,400) --
Repayment of notes payable with affiliates (75,000) --
Investment contract deposits 2,334,199 734,162
Investment contract withdrawals (80,591) (70,613)
Investment contract transfers (584,171) (362,587)
Contribution from parent 125,000 7,000
-------------------------------------------------
Net cash provided by financing activities 1,718,037 309,362
-------------------------------------------------
Increase (decrease) in cash and cash equivalents 84,153 (11,986)
Cash and cash equivalents at beginning of period 195,726 152,880
-------------------------------------------------
Cash and cash equivalents at end of period $279,879 $140,894
=================================================
See notes to condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These interim financial statements
necessarily rely on estimates, including assumptions as to annualized tax rates.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. All adjustments were of a normal recurring
nature, unless otherwise noted in Management's Discussion and Analysis and the
Notes to Financial Statements. Operating results for the six months ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002.
These financial statements should be read in conjunction with the financial
statements and related footnotes included in the Golden American Life Insurance
Company's annual report on Form 10-K for the year ended December 31, 2001.
CONSOLIDATION
The consolidated financial statements include Golden American Life Insurance
Company ("Golden American" or the "Company") and its former wholly owned
subsidiary, First Golden American Life Insurance Company of New York ("First
Golden," and collectively with Golden American, the "Companies") through
December 31, 2001. All significant intercompany accounts and transactions have
been eliminated.
As of April 1, 2002, Golden American sold First Golden to Reliastar Life
Insurance Company ("Reliastar"). Reliastar, the parent of Security-Connecticut
Life Insurance Company ("Security-Connecticut") who in turn is the parent of
Reliastar Life Insurance Company of New York ("RLNY"), merged the First Golden
business into its operations and dissolved First Golden at book value for $27.7
million in cash and a receivable totaling $0.2 million from RLNY. The receivable
from RLNY was assumed by Equitable Life Insurance Company of Iowa ("Equitable
Life" or the "Parent"), and ultimately by ING Groep N.V. ("ING"). The
consideration was based on First Golden's statutory-basis book value. RLNY's
payable to the company was assumed by ING and subsequently forgiven. Golden
American realized a loss of $3.0 million related to the sale of First Golden,
which was recorded as a capital transaction. Approval for the merger was
obtained from the Insurance Departments of the States of New York and Delaware.
STATUTORY
The net loss for Golden American as determined in accordance with statutory
accounting practices was $99.1 million and $127.8 million for the three and six
months ended June 30, 2002, respectively ($26.3 million and $55.0 million for
the three and six months ended June 30, 2001). Total statutory capital and
surplus was $362.6 million at June 30, 2002 and $451.6 million at December 31,
2001.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 information to conform to
the 2002 financial statement presentation.
NOTE 2 - NEW ACCOUNTING STANDARDS
ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("FAS") No. 142, Accounting for Goodwill and
Intangible Assets effective for fiscal years beginning after December 15, 2001.
Under the new statement, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the new statement. Other intangible assets
will continue to be amortized over their useful lives.
8
The Companies adopted the new statement effective January 1, 2002. Application
of the nonamortization provisions of the new statement resulted in an increase
in net income of $0.9 million and $1.9 million for the three and six months
ended June 30, 2001, respectively. The Companies performed the first of the
required impairment tests for goodwill as of January 1, 2002. The results
indicate that an impairment may exist. The required steps for measuring the
amount of the impairment will be completed and the resulting impairment loss
will be recorded as a change in accounting principle prior to December 31, 2002.
The impairment loss recorded will be the difference between the carrying amount
and the estimated fair value of goodwill.
Had the Companies been accounting for goodwill under FAS 142 for all periods
presented, the Companies' net income for the three and six months ended June 30,
2001 would have been as follows:
For The Three For The Six
Months Ended Months Ended
June 30, 2001 June 30, 2001
---------------------------------------------------------------------------------------
(Dollars in thousands)
Reported net income after tax $3,202 $12,135
Add back goodwill amortization, net of
taxes 945 1,889
-----------------------------------------------
Adjusted net income after tax $4,147 $14,024
===============================================
NOTE 3 -- INVESTMENTS
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when impairment in value
appears to be other than temporary.
During the first six months of 2002, Golden American determined that ten bonds
had other than temporary impairments. As a result, at June 30, 2002, Golden
American recognized a total pre-tax loss of $7.0 million to reduce the carrying
value of the bonds to their combined fair value of $6.9 million. During the
first six months of 2001, Golden American determined that three bonds had other
than temporary impairments. As a result, at June 30, 2001, Golden American
recognized a total pre-tax loss of $0.7 million to reduce the carrying value of
the bonds to their fair value of $0.4 million.
DOLLAR ROLL AGREEMENTS: In 2001, the Companies began entering into dollar roll
agreements to increase the return on investments and improve liquidity. These
transactions involve a sale of securities by the Companies and an agreement to
repurchase substantially the same securities as those sold, typically within one
month. The dollar roll agreements are accounted for as short-term collateralized
financings. The repurchase obligations totaled $84.2 million and $4.0 million at
June 30, 2002 and December 31, 2001, respectively. Such borrowings were
collaterized by investment securities with fair values approximately equal to
loan value. The primary risk associated with short-term collaterized borrowings
is that the counterparty will be unable to perform under the terms of the
contract. The Companies' exposure is limited to the excess of the net
replacement cost of the securities over the value of the short-term investments,
an amount that was not material at June 30, 2002 and December 31, 2001. The
Companies believe the counterparties to dollar roll agreements are financially
responsible and that the counterparty risk is minimal.
9
NOTE 4 -- DERIVATIVE INSTRUMENTS
The Company may from time to time utilize various derivative instruments to
manage interest rate and price risk (collectively, market risk). The Company has
appropriate controls in place, and financial exposures are monitored and managed
by the Company as an integral part of their overall risk management program.
Derivatives are recognized on the balance sheet at their fair value. At June 30,
2002, the Company did not utilize any such derivatives.
NOTE 5 -- RELATED PARTY TRANSACTIONS
OPERATING AGREEMENTS: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable products
and appoint representatives of the broker/dealers as agents. The Company paid
commissions to DSI totaling $99.2 million and $163.2 million in the second
quarter and the first six months of 2002, respectively ($52.5 million and $108.4
million, respectively, for the same periods of 2001).
Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the second quarter and the first
six months of 2002, the fee was $6.3 million and $12.6 million, respectively
($5.8 million and $11.5 million, respectively, for the same periods of 2001).
Golden American has expense sharing agreements with certain of its affiliates.
Golden American has an expense sharing agreement with ING America Insurance
Holdings, Inc. ("ING AIH") for administrative, management, financial, and
information technology services. Under these agreements with ING AIH, Golden
American incurred expenses of $8.2 million and $21.4 million in the second
quarter and the first six months of 2002, respectively ($4.3 million and $15.1
million, respectively, for the same periods of 2001).
The Company has a service agreement with Equitable Life for administrative,
financial and actuarial related services, certain advisory, computer, and other
resources and services. Under this agreement with Equitable Life, Golden
American's general expenses were reduced by a net amount of $3.9 million and
$4.6 million in the second quarter and the first six months of 2002,
respectively ($1.4 million and $2.7 million for the same periods of 2001).
Golden America has an expense sharing agreement with ING Life Insurance and
Annuity Company ("ILIAC") for administrative, management, training, customer
service, information technology, and distribution services. Under this agreement
with ILIAC, Golden American's general expenses were reduced by a net amount of
$2.3 million and $8.3 in the second quarter and the first six months of 2002,
respectively ($0 and $0 for the same periods of 2001).
For the second quarter of 2002, the Company received premiums, net of
reinsurance, for variable products sold through nine affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), IFG Network
Securities, Inc. ("IFG"), Washington Square Securities, Inc. ("Washington
Square"), PrimeVest Financial Services, Inc. ("PrimeVest"), Compulife Investor
Services, Inc. ("Compulife"), and ING Financial Advisors, LLC ("ING Financial
Advisors") of $70.3 million, $11.4 million, $0.5 million, $9.7 million, $3.1
million, $71.1 million, $63.0 million, $44.9 million and $28.9 million,
respectively ($28.5 million, $9.1 million, $0.2 million, $5.9 million, $3.9
million, $21.6 million, $7.9 million, $2.2 million and $0, respectively, for the
same period of 2001).
For the first six months of 2002, the Companies received premiums, net of
reinsurance, for variable products sold through nine affiliates, LSSI, Vestax,
DSI, Multi-Financial, IFG, Washington Square, PrimeVest, Compulife, and ING
Financial Advisors of $94.2 million, $20.0 million, $1.1 million, $17.7 million,
$8.9 million, $115.9 million, $90.0 million, $44.9 million and $28.9 million,
respectively ($37.9 million, $12.9 million, $0.4 million, $9.0 million, $5.5
million, $28.9, $11.0, $3.7 and $0, respectively, for the same period of 2001).
10
MODIFIED COINSURANCE AGREEMENT: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued on or after January 1, 2000, excluding those with an
interest rate guarantee. The financial statements are presented net of the
effects of the agreement.
Under this agreement, Golden American received a net reimbursement of expenses
and charges of $29.0 million and $57.7 million for the second quarter and the
first six months of 2002, respectively ($50.2 million and $160.9 million for the
same periods in 2001). This was offset by decreased deferred acquisition costs
of $47.2 million and $85.4 million for the second quarter and the first six
months of 2002, respectively ($52.7 million and $160.8 million for the same
periods in 2001). At June 30, 2002, Golden American had a receivable from
Equitable Life of $28.9 million due to the timing of the cash settlement for the
modified coinsurance agreement. As of December 31, 2001, Golden American had a
payable to Equitable Life of $22.6 million under the agreement due to the
overpayment by Equitable Life of the cash settlement for the modified
coinsurance agreement.
REINSURANCE AGREEMENT COVERING MINIMUM GUARANTEED BENEFITS: On December 28,
2000, Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited ("SLDI"), an affiliate, covering variable annuity
minimum guaranteed death benefits and minimum guaranteed living benefits of
variable annuities issued on or after January 1, 2000. An irrevocable letter of
credit was obtained through Bank of New York in the amount of $25.0 million
related to this agreement. Effective December 24, 2001, the letter of credit
amount was revised to $70.0 million, and effective March 29, 2002, the letter of
credit amount was revised to $75.0 million. On June 30, 2002, an additional
irrevocable letter of credit was obtained through Bayerische Hypo- und
Vereinsbank AG in the amount of $50.0 million related to this agreement. Under
this agreement, Golden American recorded a reinsurance recoverable of $88.8
million at June 30, 2002, and $28.8 million at December 31, 2001.
NOTES PAYABLE: On June 28, 2002, Golden American prepaid the principal amount of
the note that Golden American issued on December 30, 1999, a $50 million, 8.179%
note to Equitable Life, which was to mature on December 29, 2029. On June 28,
2002, Golden American also prepaid the principal amount of a note that the
Company issued on December 17, 1996, a $25 million, 8.25% note to Equitable of
Iowa Companies ("Equitable"), which was to mature on December 17, 2026. As a
result of the merger of Equitable into Equitable of Iowa Companies, Inc.
("EIC"), the note was payable to EIC. Approval for these prepayments was
obtained from the Insurance Department of the State of Delaware.
On December 8, 1999, Golden American issued a $35 million, 7.979% note to First
Columbine Life Insurance Company, an affiliate, which matures on December 7,
2029. On September 30, 1999, Golden American issued a $75 million, 7.75% note to
ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH
assigned the note to Equitable Life. On December 30, 1998, Golden American
issued a $60 million, 7.25% note to Equitable Life, which matures on December
29, 2028.
STOCKHOLDER'S EQUITY: During the second quarter and the first six months of
2002, Golden American received capital contributions from its Parent of $125.0
million ($7.0 million for the same periods in 2001).
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At June 30, 2002, the Company had reinsurance treaties with four
unaffiliated reinsurers and three affiliated reinsurers covering a significant
portion of the mortality risks and guaranteed death and living benefits under
its variable contracts. Golden American remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements. At
June 30, 2002 and December 31, 2001, the Companies had net receivables of $132.6
million and $56.0 million, respectively, for reinsurance claims, reserve
credits, or other receivables from these reinsurers. At June 30, 2002 and
December 31, 2001, these net receivables were comprised of $25.7 million and
$7.8 million, respectively, for claims recoverable from reinsurers, $5.7 million
and $3.4 million, respectively, for a payable for reinsurance premiums, $88.8
11
million and $28.8 million, respectively, for reserve credits, and $23.8 million
and $22.7 million, respectively, for reinsured surrenders and allowances due
from an unaffiliated reinsurer. Included in the accompanying financial
statements, excluding the modified coinsurance agreements, are net
considerations to reinsurers of $11.8 million for the second quarter of 2002 and
$25.2 million for the first six months of 2002 compared to $6.0 million and
$12.6 million, respectively, for the same periods in 2001. Also included in the
accompanying financial statements are net policy benefits recoveries of $10.4
million for the second quarter of 2002 and $20.5 million for the first six
months of 2002 compared to $1.8 million and $11.8 million, respectively, for the
same periods in 2001.
Under the modified coinsurance agreement which Golden American has with
Equitable Life, disclosed in NOTE 5, Golden American received a total settlement
of $29.0 million and $57.7 million pertaining to the second quarter and the
first six months of 2002, respectively ($50.2 million and $160.9 million,
respectively, for the same periods in 2001). The carrying value of the separate
account liabilities covered under this agreement represent 33.2% of total
separate account liabilities outstanding at June 30, 2002 (31.9% at December 31,
2001). Golden American remains liable to the extent Equitable Life does not meet
its obligations under the agreement. The accompanying financial statements are
presented net of the effects of the agreement.
INVESTMENT COMMITMENTS: At June 30, 2002 and December 31, 2001, outstanding
commitments to fund mortgage loans totaled $123.0 million and $3.2 million,
respectively. The increase reflects the Company's current investment strategy in
response to market conditions. At June 30, 2002 and December 31, 2001,
outstanding commitments to fund fixed maturities totaled $31.0 million and $22.0
million, respectively.
VULNERABILITY FROM CONCENTRATIONS: Golden American has various concentrations in
the investment portfolio. As of June 30, 2002, the Company had two investments
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. The Company's asset growth, net investment
income, and cash flow are primarily generated from the sale of variable
insurance products and associated future policy benefits and separate account
liabilities. Substantial changes in tax laws that would make these products less
attractive to consumers and extreme fluctuations in interest rates or stock
market returns, which may result in higher lapse experience than assumed, could
cause a severe impact on the Company's financial condition. The SmartDesign
products were introduced during the second quarter of 2002 and generated 52% and
34% of the Companies' sales during the second quarter and the first six months
of 2002, respectively. The Premium Plus product generated 16% and 20% of the
Companies' sales during the second quarter and the first six months of 2002,
respectively (54% and 52%, respectively, in the same periods of 2001). The
GoldenSelect Guarantee Annuity product generated 23% and 24% of the Companies'
sales during the second quarter and the first six months of 2002, respectively
(13% and 18%, respectively, in the same periods of 2001).
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Company established
revolving note payable with SunTrust Bank, Atlanta (the "Bank") which expires
July 30, 2003. The note was approved by the Board of Directors of Golden
American on August 5, 1998. The amount the Company may have outstanding is
$75,000,000. The note accrues interest at an annual rate equal to: (1) the cost
of funds for the Bank for the period applicable for the advance plus 0.225% or
(2) a rate quoted by the Bank to the Companies for the advance. The terms of the
agreement require the Companies to maintain the minimum level of Company Action
Level Risk Based Capital as established by applicable state law or regulation.
During the second quarters ended June 30, 2002 and 2001, the Companies did not
incur interest expense. During the six months ended June 30, 2002 and 2001, the
Companies incurred interest expense of $0 and $1,000, respectively. At June 30,
2002 and December 31, 2001, the Companies had borrowings of $0 and $1,400,000,
respectively, under these agreements.
NOTE 7 -- COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the second quarters of 2002 and 2001, total comprehensive
income (loss) for the Companies amounted to $(4.3) million and $2.7 million,
respectively, and $(13.9) million and $17.4 million for the six months ended
June 30, 2002 and 2001, respectively. Other comprehensive income (loss) excludes
net investment gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These amounts totaled
$(0.3) million and $(0.9) million during the second quarters of 2002 and 2001,
12
respectively, and $(2.4) million and $(0.2) million for the six months ended
June 30, 2002 and 2001, respectively. Such amounts, which have been measured
through the date of sale, are net of income taxes and adjustments for the value
of purchased insurance in force and deferred policy acquisition costs totaling
$(8.7) million and $1.7 million for the second quarters of 2002 and 2001,
respectively, and $(22.4) million and $(0.1) million for the six months ended
June 30, 2002 and 2001, respectively.
NOTE 8 -- AMORTIZATION OF DEFERRED ACQUISITION COSTS AND
VALUE OF PURCHASED INSURANCE IN FORCE
The company amortizes the deferred policy acquisition costs and value of
purchased insurance in force on the annuity contracts in proportion to estimated
gross profits. The amortization is adjusted to reflect actual gross profits over
the life of the contracts (up to 30 years for annuity contracts). The estimated
gross profits are computed based on assumptions related to the underlying
contracts including, but not limited to, charges assessed against policyholders,
margins, lapse, persistency, expenses and asset growth rates.
The Company's current estimated gross profits include certain judgments
concerning charges assessed against policyholders, margins, lapse, persistency,
expenses and asset growth that are based on a combination of actual company
experience and historical market experience of equity and fixed income returns.
Estimated gross profits are adjusted periodically to take into account the
actual experience to date and changes in assumptions as regards the future.
Short-term variances of actual results from the judgments made by management can
impact quarter to quarter earnings.
NOTE 9 -- SUBSEQUENT EVENT: RENEWAL OF REVOLVING NOTE PAYABLE
The Company's revolving note payable with SunTrust Bank, Atlanta, expired as of
May 31, 2002. On July 31, 2002, the Company renewed this note with a new
expiration date of July 30, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American" or the "Company") condensed consolidated
results of operations. In addition, some analysis and information regarding
financial condition and liquidity and capital resources has also been provided.
This analysis should be read jointly with the condensed consolidated financial
statements, the related notes, and the Cautionary Statement Regarding
Forward-Looking Statements, which appear elsewhere in this report. Golden
American reports financial results on a consolidated basis. The condensed
consolidated financial statements, through December 31, 2001, include the
accounts of Golden American and its former subsidiary, First Golden American
Life Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies"). As of April 1, 2002, First Golden was sold to
Reliastar Life Insurance Company ("Reliastar").
13
RESULTS OF OPERATIONS
- ---------------------
PREMIUMS
Percentage Dollar
Six Months ended June 30 2002 Change Change 2001
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
Variable annuity premiums:
Separate account........................ $689.9 1,659.9% $650.7 $39.2
General account......................... 650.3 79.2 287.5 362.9
----------------------------------------------------------------
Total variable annuity premiums............ 1,340.2 233.3 938.1 402.1
Fixed annuity premiums..................... 1,682.5 367.9 1,322.9 359.6
Variable life premiums..................... 0.5 (50.0) (0.5) 1.0
----------------------------------------------------------------
Total premiums............................. $3,023.2 296.4% $2,260.5 $762.7
================================================================
For the Companies' variable and fixed insurance contracts, premiums collected
are not reported as revenues, but as deposits to insurance liabilities. Revenues
for these products are recognized over time in the form of investment spread and
product charges.
Variable annuity premiums net of reinsurance increased $938.1 million during the
first six months of 2002 as compared to the same period in 2001. This increase
is primarily due to the reduction of ceded variable annuity separate account
premiums related to the modified coinsurance agreement with Equitable Life
Insurance Company of Iowa ("Equitable Life" or the "Parent") from $1.2 billion
in the first six months of 2001 to $0.6 billion in the first six months of 2002.
Also contributing to the increase in variable annuity premiums were sales of new
variable annuity products of $420.8 million during the first six months of 2002
compared to the same period in 2001, including SmartDesign ("SD") Advantage, SD
Variable Annuity and Retirement Solutions-ING Rollover Choice. This increase was
partially offset by a decrease in sales of the Premium Plus product for the
first six months of 2002 compared to the same period in 2001.
Fixed annuity premiums net of reinsurance increased $1.3 billion during the
first six months of 2002 as compared to the same period in 2001. The sale of
GoldenSelect Guarantee Annuity increased $506.3 million from $358.0 million for
the first six months of 2001 to $864.3 million for the same period in 2002. The
increase is also due to the sales of new fixed annuity products of $818.2
million during the first six months of 2002 compared to the same period in 2001,
including SD Classic Flex, SD Classic Guarantee, and SD Multi-Rate Index.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the first six
months of 2002 totaled $445.7 million (15% of total premiums), compared to $72.4
million (10%) from a significant broker/dealer for the same period in 2001.
Gross premiums for variable products from a significant broker/dealer (having at
least ten percent of total sales) for the first six months in 2002, totaled
$536.6 million (15%) of total gross premiums compared to $214.6 million (11%),
from a significant broker/dealer for the same period in 2001.
REVENUES
Percentage Dollar
Six Months ended June 30 2002 Change Change 2001
- ------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
Contract and other charges assessed against
policyholders............................................ $95.3 22.7% $17.6 $77.7
Management fee revenue..................................... 13.8 11.3 1.4 12.4
Net investment income...................................... 74.3 73.6 31.5 42.8
Net realized capital losses................................ (24.8) 1,205.3 (22.9) (1.9)
---------------------------------------------------------------
$158.6 21.1% $27.6 $131.0
===============================================================
14
Total revenues increased 21.1% in the first six months of 2002 from the same
period in 2001. Contract and other charges assessed against policyholders
increased $17.6 million or 22.7% in the first six months of 2002 from the same
period in 2001, primarily due to additional fees earned from the higher average
level of assets in the variable separate accounts.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"), a wholly owned subsidiary of EIC. The fee paid to Golden
American for these services, which is calculated as a percentage of average
assets in the variable separate accounts, was $12.6 million and $11.5 million
for the first six months of 2002 and 2001, respectively. This increase was due
to increased average assets in the variable separate accounts.
Net investment income increased $31.5 million or 73.6% in the first six months
of 2002 from the same period in 2001. This was due to a growth in invested
assets backing the general account fixed annuity products.
For the first six months of 2002, the Company had net realized capital losses on
investments of $24.8 million, primarily due to capital losses of $17.8 million
from the sale of fixed maturities. The Company also had write downs of $7.0
million from ten impaired fixed maturities.
EXPENSES
Total benefits and expenses increased 59.5%, or $66.3 million, to $177.7 million
in the first six months of 2002. Interest credited and other benefits to
policyholders increased 28.7%, or $24.8 million, to $111.2 million in the first
six months of 2002. This increase was largely due to higher average account
balances associated with the Company's general account options. This was
partially offset by lower premium credits on the Premium Plus product within the
variable separate accounts. The premium credit payments decreased by $4.4
million due to a decrease in variable annuity sales of the separate account
product.
Commissions increased $55.3 million to $163.9 million in the first six months of
2002 due to increased sales of the general account options. Changes in
commissions are generally related to changes in the level and mix or composition
of fixed and variable product sales. Most costs incurred as the result of sales
have been deferred, having little impact on current earnings.
General expenses increased $13.8 million or 22.8% in the first six months of
2002. The Company uses a network of wholesalers to distribute products, and the
salaries and sales bonuses of these wholesalers are included in general
expenses. The portion of these salaries and related expenses that varies
directly with production levels is deferred, thus having little impact on
current earnings. Contributing to the increase in general expenses are
additional salary and consulting expenses, as well as an increase in printing
costs associated with the increase in wholesalers and the introduction of
SmartDesign products during the first six months in 2002. The increase in
general expenses was partially offset by reimbursements received from the
Company's affiliates including DSI, Equitable Life, ING Mutual Funds Management
Co., LLC, Security Life of Denver Insurance Company, Southland Life Insurance
Company, and United Life & Annuity Insurance Company, for certain advisory,
computer, and other resources and services provided by the Company.
Policy acquisition costs deferred are offset in part by the expenses reimbursed
under modified coinsurance agreements. Policy acquisition costs deferred were
$156.5 million in the first six months of 2002, as compared to $24.9 million in
the same period of 2001. The change in the amount of policy acquisition costs
deferred was mainly due to a decrease in the amount of deferred costs that have
been offset due to modified coinsurance agreements ($85.4 million and $160.8
million for the first six months of 2002 and 2001, respectively). Also
contributing to the change was the increase in direct commissions deferred
($160.6 million and $104.7 million for the first six months of 2002 and 2001,
respectively). Amortization of deferred policy acquisition costs ("DPAC")
increased $2.7 million, or 9.1%, in the first six months of 2002. The increase
in the amortization was primarily due to a downtown of equity market
performance.
15
During the first six months of 2002 and 2001, value of business acquired
("VOBA") was adjusted to increase amortization by $356,000 and $245,000,
respectively, to reflect changes in the assumptions related to the timing of
estimated gross profits. Based on current conditions and assumptions as to the
impact of future events on acquired policies in force, the expected approximate
net amortization relating to VOBA as of June 30, 2002 is $3.3 million for the
remainder of 2002, $2.6 million in 2003, $2.3 million in 2004, $1.9 million in
2005, $1.4 million in 2006, and $1.3 million in 2007. Actual amortization may
vary based upon changes in assumptions and experience.
Expenses and charges reimbursed under modified coinsurance agreements decreased
by $105.4 million to $57.3 million during the first six months in 2002 as
compared to the same period in 2001. This reimbursement is primarily due to a
modified coinsurance agreement, with Equitable Life covering a considerable
portion of Golden American's variable annuities issued after January 1, 2000,
excluding those with an interest rate guarantee. Under this reinsurance
agreement, $57.7 million and $160.9 in expenses and charges were reimbursed
during the first six months of 2002 and 2001, respectively. This reimbursement
offset deferred policy acquisition costs and non-deferrable costs related to
policies reinsured under this agreement.
INCOME
Net loss for the first six months of 2002 was $12.7 million, a decrease from net
income of $12.1 million for the same period in 2001. The decrease in net income
is primarily due to the downturn of the equity market related to the sale of
investments and the increase in DPAC amortization. Comprehensive loss for the
first six months of 2002 was $13.9 million and comprehensive income was $17.4
million for the same period in 2001. This decrease was mainly due to the decline
in net income during the first six months of 2002 as compared to 2001.
The net loss for Golden American as determined in accordance with statutory
accounting practices was $127.8 million and $55.0 million in the first six
months of 2002 and 2001, respectively. The increase in statutory loss during the
first six months of 2002 was mainly due to increased reserve change resulting
from negative equity market returns during the first six months of 2002 as
compared to the same period in 2001.
Total statutory capital and surplus was $362.6 million at June 30, 2002 and
$451.6 million at December 31, 2001. The decrease was primarily caused by the
increase in the statutory losses.
FINANCIAL CONDITION
- -------------------
INVESTMENTS
The financial statement carrying value and amortized cost basis of the
Companies' total investments increased 77.9% and 77.7%, respectively, in the
first six months of 2002. All of the Companies' investments, other than mortgage
loans on real estate, are carried at fair value in the Company's financial
statements. The increase in the carrying value of the Companies' investment
portfolio was mainly due to net purchases. Growth in the cost basis of the
Companies' investment portfolio resulted from the investment of premiums from
sales of the general account. The Company manages the growth of insurance
operations in order to maintain adequate capital ratios. To support the general
account options of the Company's insurance products, cash flow was invested
primarily in fixed maturities and mortgage loans on real estate.
The Company's investments had an average yield of 6.1% at June 30, 2002. The
Company estimates the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 101.0% of amortized cost value at June 30,
2002.
FIXED MATURITIES: At June 30, 2002, the Company had fixed maturities with an
amortized cost and an estimated fair value of $3.7 billion. The Company
classifies 100% of securities as available for sale. Net unrealized appreciation
of fixed maturities of $29.3 million was comprised of gross appreciation of
$61.7 million and gross depreciation of $32.4 million. Net unrealized holding
gains on these securities of $3.5 million were included in stockholder's equity
16
at June 30, 2002 (net of adjustments for VOBA of $1.8 million, DPAC of $22.1
million, and deferred income taxes of $1.9 million).
The individual securities in the Company's fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's ($2.1 billion or 58.6%), that are rated BBB+ to
BBB- by Standard & Poor's ($957.1 million or 26.2%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ and
lower by Standard & Poor's ($93.0 million or 2.6%). Securities not rated by
Standard & Poor's had a National Association of Insurance Commissioners ("NAIC")
rating of 1, 2, 3, 4, or 5 (totaling $459.0 million or 12.6%), with 1 being the
highest rating, and investments with a rating of 6 on which impairment
writedowns have been recognized ($0.2 million or 0%). The Company's fixed
maturity investment portfolio had a combined yield at amortized cost of 6.3% on
June 30, 2002.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At June 30, 2002, the amortized cost value of the Company's total investment in
below investment grade securities, excluding mortgage-backed securities, was
$85.6 million, or 2.1%, of the Company's investment portfolio. The Company
intends to purchase additional below investment grade securities, but does not
expect the percentage of the portfolio invested in such securities to exceed 10%
of the investment portfolio. At June 30, 2002, the average yield at amortized
cost on the Company's below investment grade portfolio was 8.3% compared to 6.6%
for the Company's investment grade corporate bond portfolio. The Company
estimates the fair value of the below investment grade portfolio was $82.6
million, or 96.5% of amortized cost value, at June 30, 2002.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as recession or
increasing interest rates, than are investment grade issuers. The Company
attempts to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by issuer and/or guarantor and by industry.
The Company analyzes the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Company's ability to
realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e., if it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Company's portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Company's net income in future
periods.
During the first six months of 2002, fixed maturities designated as available
for sale with a combined amortized cost of $3.1 billion were sold, called, or
repaid by their issuers. In total, net pre-tax losses from sales, calls, and
repayments of fixed maturities amounted to $17.8 million during the first six
months of 2002.
During the first six months of 2002, Golden American determined that ten
impaired fixed maturity investments had other than temporary impairments and are
currently in default. As a result, during the first six months of 2002, Golden
American recognized a total pre-tax loss of approximately $7.0 million to reduce
the carrying value of all impaired fixed maturity investments to their net
realizable value of $6.9 million.
17
EQUITY SECURITIES: Equity securities represent 0.5% of the Company's investment
portfolio. At June 30, 2002, the Company owned equity securities with a cost of
$22.6 million and an estimated fair value of $21.2 million. Net unrealized
appreciation of equity securities was comprised entirely of gross depreciation
of $1.4 million. During the second quarter of 2002, the Company purchased
additional equity securities at a cost of $22.5 million. Equity securities are
primarily comprised of investments in shares of the mutual funds underlying the
Companies' registered separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 6.2% of
the Company's investment portfolio. Mortgages outstanding at amortized cost were
$246.4 million at June 30, 2002 with an estimated fair value of $257.6 million.
The Company's mortgage loan portfolio includes 89 loans with an average size of
$2.8 million. The Company's mortgage loans on real estate are typically secured
by occupied buildings in major metropolitan locations and are diversified by
type of property and geographic location.
At June 30, 2002, no mortgage loan on real estate was delinquent by 90 days or
more. The Company's loan investment strategy is consistent with other life
insurance subsidiaries of ING Groep N.V. ("ING") in the United States. The
Company has experienced a historically low default rate in their mortgage loan
portfolios.
OTHER ASSETS
Reinsurance recoverables increased $76.6 million during the first six months of
2002, due largely to an increase of $60.0 million in reinsurance reserves from
an intercompany reinsurance agreement between Golden American and Security Life
of Denver International Limited ("SLDI"). On December 28, 2000, effective
January 1, 2000, Golden American entered into a reinsurance agreement with SLDI,
an affiliate, covering variable annuity minimum guaranteed death benefits and
minimum guaranteed living benefits. Negative equity market returns during the
first six months of 2002 led to the increase in the reinsurance reserves under
this agreement.
Amounts due from affiliates were $37.2 million and $20,000 at June 30, 2002 and
December 31, 2001, respectively. At June 30, 2002, the Company had a receivable
of $28.9 million from Equitable Life related to the timing of the cash
settlement for the modified coinsurance agreement.
Accrued investment income increased $26.3 million during the first six months of
2002, due to an increase in investments in fixed maturities during the first six
months of 2002, which lead to an increase in investment income from fixed
maturities.
DPAC represents certain deferred costs of acquiring insurance business,
principally first year commissions and interest bonuses, premium credits, and
other expenses related to the production of business. Any expenses which vary
directly with the sales of the Company's products are deferred and amortized.
VOBA is amortized into income in proportion to the expected gross profits of in
force acquired business in a manner similar to DPAC amortization. At June 30,
2002, the Company had DPAC and VOBA balances of $812.8 million and $18.5
million, respectively, as compared to DPAC and VOBA balances of $709.0 million
and $20.2 million, respectively, at December 31, 2001. During the first six
months of 2002, additional policy acquisition costs were deferred due to a lower
reimbursement of expenses under the modified coinsurance agreements. See
Liquidity and Capital Resources for further information regarding the modified
coinsurance agreements.
At June 30, 2002, the Company had $10.9 billion of separate account assets
compared to $11.0 billion at December 31, 2001. The decrease in separate account
assets resulted from negative equity market returns, partly offset by sales of
the Company's variable annuity products, net of redemptions, and net
policyholder transfers to the separate account options from the fixed account
options within the variable products.
At June 30, 2002, the Company had total assets of $16.4 billion, a 14.4%
increase from December 31, 2001.
18
LIABILITIES
Future policy benefits increased $1.8 billion to $4.0 billion at June 30, 2002
reflecting net sales of the Companies' general account options, net of transfers
to the separate account.
Separate account liabilities decreased $65.0 million to $10.9 billion at June
30, 2002. Net contributions to the separate account were more than offset by a
decrease in separate account liabilities resulting from negative equity market
returns.
On June 28, 2002, Golden American prepaid the principal amount of a $50 million,
8.179% note to Equitable Life, issued on December 30, 1999, which was to mature
on December 29, 2029. On June 28, 2002, Golden American also prepaid the
principal amount of a $25 million, 8.25% note to Equitable of Iowa Companies
("Equitable"), issued on December 17, 1996, which was to mature on December 17,
2026. As a result of the merger of Equitable into Equitable of Iowa Companies,
Inc. ("EIC"), the note was payable to EIC. Approval for these prepayments was
obtained from the Insurance Department of the State of Delaware.
On December 8, 1999, Golden American issued a $35 million, 7.979% note to First
Columbine Life Insurance Company, an affiliate, which matures on December 7,
2029. On September 30, 1999, Golden American issued a $75 million, 7.75% note to
ING America Insurance Holdings, Inc. ("ING AIH"), which matures on September 29,
2029. On December 30, 1999, ING AIH assigned the note to Equitable Life. On
December 30, 1998, Golden American issued a $60 million, 7.25% note to Equitable
Life, which matures on December 29, 2028.
Amounts due to affiliates decreased by $16.4 million from $25.1 million at
December 31, 2001 to $8.7 million at June 30, 2002, mainly due to the settlement
of a payable to Equitable Life related to the modified coinsurance agreement.
Other deposits increased $85.7 million from $14.4 million at December 31, 2001
to $100.1 million at June 30, 2002, mainly due to the timing and volume of
policyholder account transfers for the first six months of 2002.
In total, other liabilities increased $174.8 million from $110.9 million at
December 31, 2001 to $285.7 at June 30, 2002. This is mainly due to an increase
in dollar roll obligations related to investing activities. In addition, there
is an increased payable for securities purchased due to the timing of investment
purchases.
In conjunction with the volume of variable and fixed annuity sales in the
general account, the Company's total liabilities increased $2.0 billion, or
14.5%, during the first six months of 2002 and totaled $15.5 billion at June 30,
2002.
The effects of inflation and changing prices on the Companies' financial
position are not material since insurance assets and liabilities are both
primarily monetary and remain in balance. An effect of inflation, which has been
low in recent years, is a decline in stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY
Additional paid-in capital increased $122.0 million from December 31, 2001 to
$902.4 million at June 30, 2002, due primarily to capital contributions of
$125.0 million from EIC.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Company's principal sources of cash are variable annuity premiums and
product charges, investment income, maturing investments, proceeds from debt
issuance, and capital contributions. Primary uses of these funds are payments of
commissions and operating expenses, interest and premium credits, investment
purchases, repayment of debt, as well as withdrawals and surrenders.
19
Net cash provided by operating activities was $120.7 million in the first six
months of 2002 compared to $165.0 million in the same period of 2001. The main
reason for the decrease in cash provided from operating activities was due to a
reduction in the amount of expenses reimbursed under the modified coinsurance
agreements of $103.2 million in the first six months of 2002. In addition, there
was a decrease in cash due to a larger amount of accrued investment income.
Net cash used in investing activities was $1.8 billion during the first six
months of 2002 as compared to $0.5 billion million in the same period in 2001.
This increase in the net cash used in investing activities is primarily due to
increased net purchases of fixed maturities during the first six months of 2002.
Net purchases of fixed maturities reached $1.7 billion in the first six months
of 2002 versus net purchases of $0.4 billion in the first six months of 2001.
These investment purchases were mainly due to an increase in sales of the
Company's general account options.
Net cash provided by financing activities was $1.8 billion during the first six
months of 2002 as compared to $0.3 billion during the same period in 2001.
During the first six months of 2002, net cash provided by financing activities
was positively impacted by net general account deposits of $2.3 billion compared
to $0.7 billion in the same period of 2001 primarily due to the introduction of
new variable and fixed annuity products. Offsetting these increases, during the
first six months of 2002, were net reallocations to the Company's separate
account, which increased to $584.2 million from $362.6 million during the same
period in 2001. Finally, there was an increase in cash from a capital
contribution from parent of $125.0 million, partly offset by a $75 million
prepayment of notes payable with affiliates.
The Company's liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH, and the Company has established an $75.0 million
revolving note facility with SunTrust Bank which expires on July 30, 2003.
Management believes that these sources of liquidity are adequate to meet the
Companies' short-term cash obligations.
Based on current trends, the Company expects to continue to use net cash in
operating activities, given the continued growth of annuity sales. It is
anticipated that a continuation of capital contributions from its Parent, the
issuance of additional surplus notes, and/or the use of modified coinsurance
agreements will cover these net cash outflows. ING AIH is committed to the
sustained growth of Golden American. During 2002, ING AIH maintains Golden
American's statutory capital and surplus at the end of each quarter at a level
such that: 1) the ratio of Total Adjusted Capital divided by Company Action
Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital
(excluding surplus notes) divided by Company Action Level Risk Based Capital
exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the
"Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on
page 3, Line 13 of Golden American's statutory statement.
Golden American occupies 125,000 square feet of leased space in West Chester,
Pennsylvania.
The ability of Golden American to pay dividends to the Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 2002, Golden
American cannot pay dividends to Equitable Life without prior approval of
statutory authorities.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to monitor the
capitalization of insurance companies based upon the type and mixture of risks
inherent in a Company's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. The Company has
complied with the NAIC's risk-based capital reporting requirements. Amounts
reported indicate that the Company has total adjusted capital above all required
capital levels.
20
REINSURANCE: At June 30, 2002, Golden American had reinsurance treaties with
four unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits under its variable contracts. Golden American remains liable to the
extent its reinsurers do not meet their obligations under the reinsurance
agreements.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life covering a considerable
portion of Golden American's variable annuities issued after January 1, 2000,
excluding those with an interest rate guarantee.
On December 28, 2000, Golden American entered into a reinsurance agreement with
SLDI, an affiliate, covering variable annuity minimum guaranteed death benefits
and minimum guaranteed living benefits of variable annuities issued after
January 1, 2000. Golden American also obtained an irrevocable letter of credit
was obtained through Bank of New York in the amount of $25 million related to
this agreement. Effective March 29, 2002, the letter of credit amount was
revised to $75 million. On June 30, 2002, another irrevocable letter of credit
was obtained through Bayerische Hypo- und Vereinsbank AG in the amount of $50
million related to this agreement.
MARKET RISK AND RISK MANAGEMENT
- -------------------------------
Asset/liability management is integrated into many aspects of the Company's
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables in the modeling process include
anticipated contractholder behavior, and variable separate account performance.
Contractholders bear the majority of the investment risks related to variable
insurance products. The Company's products also provide certain minimum death
and guaranteed living benefits; the Company's liabilities related to these
benefits which depend in part on the performance of the variable separate
accounts. Currently, the majority of death and living benefit risks are
reinsured, which protects the Company's from adverse mortality experience and
prolonged capital market decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period under a fixed account or product may be subject to a
market value adjustment. As the majority of the liabilities in the fixed account
are subject to market value adjustment, the Company does not face a material
amount of market risk volatility. The fixed account liabilities are supported by
a portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the Company
to respond to changes in market interest rates, changes in prepayment risk,
changes in relative values of asset sectors and individual securities and loans,
changes in credit quality outlook, and other relevant factors. The objective of
portfolio management is to maximize returns, taking into account interest rate
and credit risk, as well as other risks. The Company's asset/liability
management discipline includes strategies to minimize exposure to loss as
interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is currently no
material solvency risk to the Company. With respect to a 10% drop in equity
values from year end 2001 levels, variable separate account funds, which
represent 74% of the Company's in force business, pass the risk in underlying
fund performance to the contractholder (except for certain minimum benefits
guarantees, described above). With respect to interest rate movements up or down
100 basis points from June 30, 2002 levels, the remaining 26% of the in force
are fixed account funds, and almost all of these have market value adjustments
which provide significant protection to the Company against changes in interest
rates.
21
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates and
assumptions in certain circumstances that affect amounts reported in the
accompanying condensed consolidated financial statements and related footnotes.
These estimates and assumptions are evaluated on an on-going basis based on
historical developments, market conditions, industry trends and other
information we believe to be reasonable under the circumstances. There can be no
assurance that actual results will conform to our estimates and assumptions, and
that reported results of operations will not be materially adversely affected by
the need to make accounting adjustments to reflect changes in these estimates
and assumptions from time to time. Item 7 of Golden American's Annual Report on
Form 10K discusses several critical accounting policies which we believe are
most sensitive to estimates and judgments and involve a higher degree of
judgment and complexity. There have been no material changes to that information
during the first six months of 2002.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the Company or any of its officers, directors, or employees is
qualified by the fact that actual results of the Company may differ materially
from such statement, among other risks and uncertainties inherent in the
Company's business, due to the following important factors:
1. Prevailing interest rate levels and equity performance, which may affect
the ability of the Company to sell its products, the market value and
liquidity of the Company's investments, fee revenue, and the lapse rate of
the Company's products, notwithstanding product design features intended to
enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations, which benefit the
tax treatment of investments that compete with annuity products for
retirement savings may adversely affect the tax treatment of the Company's
products and benefits thereunder.
3. Changes in the regulation of financial services, including potential
federal regulation of insurance, bank sales, and underwriting of insurance
products, which may affect the competitive environment for the Company's
products.
4. Increasing competition from other market participants for the sale of
annuity products.
5. Other factors that could affect the performance of the Company, including,
but not limited to, market conduct claims against the Company and/or firms
selling the Company's product, litigation, insurance industry insolvencies,
availability of competitive reinsurance on new business, investment
performance of the underlying portfolios of the variable products, variable
product design, and sales volume by significant sellers of the Company's
variable products.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
A list of exhibits included as part of this report is set forth in the Exhibit
Index which immediately precedes such exhibits and is hereby incorporated by
reference herein.
(b) Reports on Form 8-K
None during the first six months ended June 30, 2002.
22
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.
DATE: August 12, 2002 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/s/ Chris D. Schreier
------------------------------------------
Chris D. Schreier
Chief Financial Officer and Director
(Principal Financial Officer)
(Duly Authorized Officer)
23
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
2 PLAN OF ACQUISITION
(a) Stock Purchase Agreement dated as of May 3, 1996, between Equitable of Iowa
Companies ("Equitable") and Whitewood Properties Corp. (incorporated by reference from
Exhibit 2 in Equitable's Form 8-K filed August 28, 1996)............................................. __
(b) Agreement and Plan of Merger dated as of July 7, 1997, among ING Groep N.V.,
PFHI Holdings, Inc., and Equitable (incorporated by reference from Exhibit 2 in Equitable's
Form 8-K filed July 11, 1997)........................................................................ __
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of Golden American Life Insurance Company ("Registrant"
or "Golden American") (incorporated by reference from Exhibit 3(a) to Registrant's
Registration Statement on Form S-1 filed with the Securities and Exchange Commission
(the "SEC") on June 30, 2000 (File No. 333-40596))................................................... __
(b)(i) By-laws of Golden American (incorporated by reference from Exhibit 3(b)(i) to Registrant's
Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(ii) By-laws of Golden American, as amended (incorporated by reference from Exhibit 3(b)(ii)
to the Registrant's Registration Statement on Form S-1 filed with the SEC on
June 30, 2000 (File No. 333-40596)).................................................................. __
(iii)Certificate of Amendment of the By-laws of MB Variable Life Insurance Company, as
amended (incorporated by reference from Exhibit 3(b)(iii) to Registrant's Registration
Statement on Form S-1 filed with the SEC on June 30, 2000 (File No. 333-40596))...................... __
(iv) By-laws of Golden American, as amended (12/21/93) (incorporated by reference
from Exhibit 3(b)(iv) to Registrant's Registration Statement on Form S-1 filed with the
SEC on June 30, 2000 (File No. 333-40596))........................................................... __
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity Contract (incorporated
by reference from Exhibit 4(a) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999
(File No. 333-51353))................................................................................ __
(b) Discretionary Group Deferred Combination Variable Annuity Contract (incorporated
by reference from Exhibit 4(b) to Amendment No. 5 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 23, 1999
(File No. 333-51353))................................................................................ __
24
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(c) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 5 of Registrant's Registration Statement on
Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353))....................... __
(d) Individual Deferred Combination Variable and Fixed Annuity Application
(incorporated by reference from Exhibit 4(g) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(e) Group Deferred Combination Variable and Fixed Annuity Enrollment Form
(incorporated by reference from Exhibit 4(h) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(f) Individual Deferred Variable Annuity Application (incorporated by reference
from Exhibit 4(i) to Amendment No. 6 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353)).................... __
(g) Individual Retirement Annuity Rider Page (incorporated by reference from Exhibit 4(d) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(h) ROTH Individual Retirement Annuity Rider (incorporated by reference from Exhibit 4(g) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(i) Minimum Guaranteed Accumulation Benefit Rider (REV) (incorporated by reference from
Exhibit 4(k) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the
SEC on April 23, 2001 (File No. 333-35592)).......................................................... __
(j) Minimum Guaranteed Income Benefit Rider (REV) (incorporated by reference from Exhibit
4(l) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on
April 23, 2001 (File No. 333-35592))................................................................. __
(k) Minimum Guaranteed Withdrawal Benefit Rider (REV) (incorporated by reference from
Exhibit 4(m) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the
SEC on April 23, 2001 (File No. 333-35592)).......................................................... __
(l) Living Benefit Rider Endorsement (incorporated by reference from Exhibit 4(n) to
Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on
April 23, 2001 (File No. 333-35592))................................................................. __
25
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(m) Death Benefit Endorsement Number 1 describing the 7% Solution Enhanced Death
Benefit (REV) (incorporated by reference from Exhibit 4(o) to Amendment No. 3 to a
Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(File No. 333-35592))................................................................................ __
(n) Death Benefit Endorsement Number 2 describing the Annual Ratchet Enhanced
Death Benefit (REV) (incorporated by reference from Exhibit 4(p) to Amendment No. 3
to a Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(File No. 333-35592))................................................................................ __
(o) Death Benefit Endorsement Number 3 describing the Standard Death Benefit (REV)
(incorporated by reference from Exhibit 4(q) to Amendment No. 3 to a Registration
Statement on Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592))..................... __
(p) Death Benefit Endorsement Number 4 describing the Max 7 Enhanced Death Benefit (REV)
(incorporated by reference from Exhibit 4(r) to Amendment No. 3 to a Registration
Statement on Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592))..................... __
(q) Death Benefit Endorsement Number 5 (Base Death Benefit) (incorporated by reference
from Exhibit 4(s) to Amendment No. 3 to a Registration Statement on Form S-1 filed with
the SEC on April 23, 2001 (File No. 333-35592)) ..................................................... __
(r) Death Benefit Endorsement Number 6 (Inforce Contracts) (incorporated by reference from
Exhibit 4(t) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the
SEC on April 23, 2001 (File No. 333-35592)) ......................................................... __
(s) Individual Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(a) to Amendment No. 6 to Registrant's Registration
Statement filed with the SEC on or about December 3, 1999 (File No. 333-28765))...................... __
(t) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to Amendment
No. 6 to Registrant's Registration Statement filed with the SEC on or about December 3,
1999 (File No. 333-28765))........................................................................... __
(u) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 6 to Registrant's Registration Statement filed with
the SEC on or about December 3, 1999 (File No. 333-28765))........................................... __
(v) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(w) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a Registration
Statement for Golden American filed with the SEC on or about April 23, 1999
(File No. 333-76941))................................................................................ __
26
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(x) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(y) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
(z) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a
Registration Statement for Golden American filed with the SEC on or about April 23,
1999 (File No. 333-76945))........................................................................... __
(aa) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
(ab) Schedule Page to the Premium Plus Contract featuring the Galaxy VIP Fund
(incorporated by reference from Exhibit 4(i) to a Registration Statement for Golden
American on Form S-1 filed with the SEC on or about September 24, 1999
(File No. 333-76945))................................................................................ __
(ac) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to Amendment No. 3 to Registrant's Registration Statement filed
with the SEC on or about April 23, 1999 (File No. 333-66745))........................................ __
(ad) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to
Amendment No. 3 to Registrant's Registration Statement filed with the SEC on or
about April 23, 1999 (File No. 333-66745))........................................................... __
(ae) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 3 to Registrant's Registration Statement filed with
the SEC on or about April 23, 1999 (File No. 333-66745))............................................. __
(af) Single Premium Deferred Modified Guaranteed Annuity Contract (incorporated by reference
to Exhibit 4(a) to Amendment No. 1 to a Registration Statement on Form S-1 filed with the
SEC on September 13, 2000 (File No. 333-40596))...................................................... __
(ag) Single Premium Deferred Modified Guaranteed Annuity Master Contract (incorporated by
reference to Exhibit 4(b) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(ah) Single Premium Deferred Modified Guaranteed Annuity Certificate (incorporated by
reference to Exhibit 4(c) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
27
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(ai) Single Premium Deferred Modified Guaranteed Annuity Application (incorporated by
reference to Exhibit 4(e) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(aj) Single Premium Deferred Modified Guaranteed Annuity Enrollment Form (incorporated by
reference to Exhibit 4(f) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(ak) Earnings Enhancement Death Benefit Rider (incorporated by reference from Exhibit 4(u)
to Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on
April 23, 2001 (Filed No. 333-35592))................................................................ __
(al) Deferred Combination Variable and Fixed Annuity Group Master Contract (incorporated by
reference from Exhibit 4(a) to a Registration Statement on Form S-1 filed by Registrant with
the SEC on or about April 24, 2001 (File No. 333-59408))............................................. __
(am) Flexible Premium Individual Deferred Combination Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(b) to a Registration Statement on Form S-1 filed
by Registrant with the SEC on or about April 24, 2001 (File No. 333-59408)).......................... __
(an) Flexible Premium Individual Deferred Combination Variable and Fixed Annuity Certificate
(incorporated by reference from Exhibit 4(c) to a Registration Statement on Form S-1 filed
by Registrant with the SEC on or about April 24, 2001 (File No. 333-59408)).......................... __
(ao) Flexible Premium Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(d) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(ap) Individual Deferred Combination Variable and Fixed Annuity Application (incorporated by
reference from Exhibit 4(e) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(aq) Group Deferred Combination Variable and Fixed Annuity Enrollment Form (incorporated
by reference from Exhibit 4(f) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(ar) Individual Deferred Variable Annuity Application (incorporated by reference from
Exhibit 4(g) to a Registration Statement on Form S-1 filed by Registrant with the SEC on or
about April 24, 2001 (File No. 333-59408))........................................................... __
28
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(as) Form of Variable Annuity Group Master Contract (incorporated by reference from
Exhibit 4(a) to Pre-Effective Amendment No. 1 to a Registration Statement on Form
S-2 filed by Registrant with the SEC on or about June 29, 2001 (File No. 333-57212))................. __
(at) Form of Variable Annuity Contract (incorporated by reference from Exhibit 4(b) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-2 filed by
Registrant with the SEC on or about June 29, 2001 (File No. 333-57212)).............................. __
(au) Form of Variable Annuity Certificate (incorporated by reference from Exhibit 4(c) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-2 filed by
Registrant with the SEC on or about June 29, 2001 (File No. 333-57212)).............................. __
(av) Form of GET Fund Rider (incorporated by reference from Exhibit 4(d) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-2 filed by Registrant with the
SEC on or about June 29, 2001 (File No. 333-57212)).................................................. __
(aw) Form of Premium Bonus Endorsement Rider (incorporated by reference from Exhibit
4(e) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-2 filed by
Registrant with the SEC on or about June 29, 2001 (File No. 333-57212)).............................. __
(ax) Form of Individual Retirement Annuity Rider (incorporated by reference from Exhibit
4(d) to Initial Filing to a Registration Statement on Form S-1 filed by Registrant with
the SEC on or about August 16, 2001 (File No. 333-67660))............................................ __
(ay) Form of Variable Annuity Group Master Contract (incorporated by reference from
Exhibit 4(a) to Pre-Effective Amendment No. 1 to a Registration Statement on Form
S-1 filed by Registrant with the SEC on or about October 26, 2001 (File No. 333-63694)).............. __
(az) Form of Variable Annuity Contract (incorporated by reference from Exhibit 4(b) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by
Registrant with the SEC on or about October 26, 2001 (File No. 333-63694))........................... __
(ba) Form of Variable Annuity Certificate (incorporated by reference from Exhibit 4(c) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about October 26, 2001 (File No. 333-63694))...................................... __
(bb) Form of Premium Bonus Endorsement (incorporated by reference from Exhibit 4(d) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant with the SEC
on or about October 26, 2001 (File No. 333-63694))................................................... __
(bc) Earnings Enhancement Death Benefit Rider (incorporated by reference from Exhibit
4(e) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by
Registrant with the SEC on or about October 26, 2001 (File No. 333-63694))........................... __
29
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(bd) Form of Variable Annuity Group Master Contract (incorporated by reference from
Exhibit 4(a) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1
filed by Registrant with the SEC on or about December 11, 2001 (File No. 333-70602))................. __
(be) Form of Variable Annuity Contract (incorporated by reference from Exhibit 4(b) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by
Registrant with the SEC on or about December 11, 2001 (File No. 333-70602)).......................... __
(bf) Form of Variable Annuity Certificate (incorporated by reference from Exhibit 4(c) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about December 11, 2001 (File No. 333-70602))..................................... __
(bg) Form of GET Fund Rider (incorporated by reference from Exhibit 4(d) to Pre-Effective
Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about December 11, 2001 (File No. 333-70602))..................................... __
(bh) Form of Section 72 Rider (incorporated by reference from Exhibit 4(e) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant with the
SEC on or about December 11, 2001 (File No. 333-70602)).............................................. __
(bi) Form of Waiver of Surrender Charge Rider (incorporated by reference from Exhibit 4(f)
to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by
Registrant with the SEC on or about December 11, 2001 (File No. 333-70602)).......................... __
10 MATERIAL CONTRACTS
(a) Administrative Services Agreement, dated as of January 1, 1997, between Golden
American and Equitable Life Insurance Company of Iowa (incorporated by reference
from Exhibit 10(a) to a Registration Statement for Golden American on Form S-1 filed
with the SEC on April 29, 1998 (File No. 333-51353))................................................. __
30
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(b) Service Agreement, dated as of January 1, 1994, between Golden American and Directed
Services, Inc. (incorporated by reference from Exhibit 10(b) to a Registration Statement
for Golden American on Form S-1 filed with the SEC on April 29, 1998
(File No. 333-51353))................................................................................ __
(c) Service Agreement, dated as of January 1, 1997, between Golden American and
Equitable Investment Services, Inc. (incorporated by reference from Exhibit 10(c)
to a Registration Statement for Golden American on Form S-1 filed with the SEC on
April 29, 1998 (File No. 333-51353))................................................................. __
(d) Participation Agreement between Golden American and Warburg Pincus Trust
(incorporated by reference from Exhibit 8(a) to Amendment No. 54 to Separate
Account B of Golden American's Registration Statement on Form N-4 filed with
SEC on or about April 30, 1998 (File No. 333-28679 and 811-5626)).................................... __
(e) Participation Agreement between Golden American and PIMCO Variable Trust
(incorporated by reference from Exhibit 8(b) to Amendment No. 54 to Separate
Account B of Golden American's Registration Statement on Form N-4 filed with
the SEC on or about April 30, 1998 (File No. 333-28679 and 811-5626))................................ __
(f) Participation Agreement between Golden American and The Galaxy VIP Fund (incorporated
by reference from Exhibit 10(i) to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about September 24, 1999 (File No. 333-76945)).............................. __
(g) Asset Management Agreement, dated January 20, 1998, between Golden American
and ING Investment Management LLC (incorporated by reference from Exhibit 10(f)
to Golden American's Form 10-Q filed with the SEC on August 14, 1998
(File No. 33-87272))................................................................................. __
(h) Reciprocal Loan Agreement, dated January 1, 1998, as amended March 20, 1998, between Golden
American and ING America Insurance Holdings, Inc. (incorporated by reference from
Exhibit 10(g) to Golden American's Form 10-Q filed with the SEC on August 14, 1998
(File No. 33-87272))................................................................................. __
31
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(i) Underwriting Agreement between Golden American and Directed Services, Inc.
(incorporated by reference from Exhibit 1 to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on or about February 17, 1998
(File No. 33-87272))................................................................................. __
(j) Revolving Note Payable, dated July 27, 1998, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(i) to Golden American's
Form 10-Q filed with the SEC on November 13, 1998 (File No. 33-87272))............................... __
(k) Revolving Note Payable, dated July 31, 1999, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(j) to Golden American's
Form 10-Q filed with the SEC on August 13, 1999 (File No. 33-87272))................................. __
(l) Surplus Note, dated December 17, 1996, between Golden American and Equitable of Iowa
Companies (incorporated by reference from Exhibit 10(l) to Golden American's Form 10-K
filed with the SEC on March 29, 2000 (File No. 33-87272)) ........................................... __
(m) Surplus Note, dated December 30, 1998, between Golden American and Equitable Life
Insurance Company of Iowa (incorporated by reference from Exhibit 10(m) to Golden American's
Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)).................................. __
(n) Surplus Note, dated September 30, 1999, between Golden American and ING America
Insurance Holdings, Inc. (incorporated by reference from Exhibit 10(n) to Golden
American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)........................ __
(o) Surplus Note, dated December 8, 1999, between Golden American and First
Columbine Life Insurance Company (incorporated by reference from Exhibit 10(g)
to Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(p) Surplus Note, dated December 30, 1999, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(h) to
Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(q) Reinsurance Agreement, effective January 1, 2000, between Golden American Life
Insurance Company and Security Life of Denver International Limited (incorporated by reference
from Exhibit 10(q) to Golden American's Form 10-K filed with the SEC on March 29, 2001
(File No. 33-87272))................................................................................. __
32
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(r) Participation Agreement between Golden American and Prudential Series Fund, Inc.
(incorporated by reference from Exhibit 10(l) to Registration Statement for Golden American
on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592)) ..................... __
(s) Participation Agreement between Golden American and ING Variable Insurance Trust
(incorporated by reference from Exhibit 10(m) to Registration Statement for Golden American
on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592)) ..................... __
(t) Reinsurance Agreement, dated June 30, 2000, between Golden American Life Insurance Company
and Equitable Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(s) to
Golden American's Form 10-Q filed with the SEC on August 11, 2000
(File No. 33-87272)) ................................................................................ __
(u) Renewal of Revolving Note Payable, dated July 31, 2000, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(t) to Golden American's Form 10-Q
filed with the SEC on August 11, 2000 (File No. 33-87272))........................................... __
(v) Amendment to the Participation Agreement between Golden American and Prudential
Series Fund, Inc. (incorporated by reference to Exhibit 10(m) to Amendment No. 10
to a Registration Statement on Form S-1 filed with the SEC on December 15, 2000
(File No. 333-28765)) ............................................................................... __
(w) Letter of Credit between Security Life of Denver International Limited and The Bank
of New York for the benefit of Golden American (incorporated by reference to
Exhibit 10(r) to Amendment No. 3 to a Registration Statement on Form S-1 filed with
the SEC on April 23, 2001 (File No. 333-35592)) ..................................................... __
(x) Participation Agreement between Golden American and ING Variable Products Trust (incorporated by
reference to Exhibit 8(n) to Amendment No. 32 to a Post Effective Amendment to a Registration
Statement on Form N-4 filed with the SEC on April 26, 2002 (File No. 33-23351 and 811-5626)) ........ __
(y) Form of Participation Agreement between Golden American and ProFunds (incorporated by
reference to Exhibit 10(s) to Amendment No. 3 to a Registration Statement on Form S-1
filed with the SEC on April 23, 2001 (File No. 333-35592)) .......................................... __
(z) Renewal of Revolving Note Payable, dated April 30, 2001, between Golden American and
SunTrust Bank, Atlanta (incorporated by reference to Exhibit 10(z) to Golden American's
Form 10-Q filed with SEC on August 14, 2001 (File No. 33-87272))..................................... __
(aa) Amendment to the Reinsurance Agreement between Golden American and Security Life of
Denver International Limited, amended September 28, 2001 (Incorporated by reference from
Exhibit 10(n) Pre-Effective Amendment No. 1 to a Registration Statement for Golden
American on Form S-1 filed with the SEC on October 26, 2001 (Filed No. 333-63694))................... __
33
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(ab) Participation Agreement between Golden American Life Insurance Company, Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc.,
Aetna GET Fund, Aetna Variable Portfolios, Inc. and Aeltus Investment Management, Inc.
(incorporated by reference from Exhibit 10(p) to Pre-Effective Amendment No. 1 to a
Registration Statement on Form S-1 filed by Registrant with the SEC on or about
October 26, 2001 (File No. 333-63694))............................................................... __
(ac) Form of Participation Agreement between Golden American Life Insurance Company,
Directed Services, Inc., Alliance Capital Management L.P., Alliance Variable Products
Series Fund, Inc. and Alliance Fund Distributors, Inc. (incorporated by reference from
Exhibit 10(r) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1
filed by Registrant with the SEC on or about October 26, 2001 (File No. 333-63694)).................. __
(ad) Participation Agreement between Golden American Life Insurance Company, Brinson Series
Trust and Brinson Advisors, Inc. (incorporated by reference from Exhibit 10(s) to
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about October 26, 2001 (File No. 333-63694))...................................... __
(ae) Participation Agreement between Golden American Life Insurance Company, Fidelity
Distributors Corporation and each of Variable Insurance Products Fund, Variable Insurance
Products Fund II and Variable Insurance Products Fund III. (incorporated by reference from
Exhibit 10(t) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1
filed by Registrant with the SEC on or about October 26, 2001 (File No. 333-63694)).................. __
(af) Participation Agreement between Golden American Life Insurance Company, INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc. and INVESCO Distributors, Inc. (incorporated by
reference from Exhibit 8(s) to Post-Effective Amendment No. 32 to a Registration Statement
on Form N-4 filed by Registrant with the SEC on or about April 26, 2002 (File No. 33-23351
and 811-5626))....................................................................................... __
(ag) Form of Participation Agreement between Golden American Life Insurance Company and
Janus Aspen Series (incorporated by reference from Exhibit 10(v) to Pre-Effective Amendment
No. 1 to a Registration Statement on Form S-1 filed by Registrant with the SEC on or about
October 26, 2001 (File No. 333-63694))............................................................... __
(ah) Participation Agreement between Golden American Life Insurance Company and ING
Pilgrim Investors, LLC (incorporated by reference from Exhibit 10(w) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant with the SEC
on or about October 26, 2001 (File No. 333-63694))................................................... __
(ai) Participation Agreement between Golden American Life Insurance Company and ING
Pilgrim Securities, Inc. (incorporated by reference from Exhibit 10(x) to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant with the SEC
on or about October 26, 2001 (File No. 333-63694))................................................... __
34
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(aj) Participation Agreement between Golden American Life Insurance Company, Pioneer Variable
Contracts Trust, Pioneer Investment Management, Inc. and Pioneer Funds Distributor, Inc.
(incorporated by reference from Exhibit 8(o) to Post-Effective Amendment No. 32 to a
Registration Statement on Form N-4 filed by Registrant with the SEC on or about April 26, 2002
(File No. 33-23351 and 811-5626)).................................................................... __
(ak) Form of Participation Agreement between Golden American Life Insurance Company,
Aetna Life Insurance and Annuity Company and Portfolio Partners, Inc. (incorporated by
reference from Exhibit 10(z) to Pre-Effective Amendment No. 1 to a Registration Statement
on Form S-1 filed by Registrant with the SEC on or about October 26, 2001
(File No. 333-63694))................................................................................ __
(al) Participation Agreement among Golden American Life Insurance Company, Putnam
Variable Trust and Putnam Retail Management, L.P. (incorporated by reference from
Exhibit 10(cc) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1
filed by Registrant with the SEC on or about October 26, 2001 (File No. 333-63694)).................. __
(am) Participation Agreement between Golden American Life Insurance Company, AIM Variable
Insurance Funds, Inc., and Directed Services, Inc. (incorporated by reference from Exhibit
10(q) to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by
Registrant with the SEC on or about December 11, 2001 (File No. 333-70602)).......................... __
(an) Form of Services Agreement between Golden American Life Insurance Company and the affiliated
companies listed on Exhibit B to that Agreement (incorporated by reference from Exhibit 10(p)
to Pre-Effective Amendment No. 1 to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about December 11, 2001 (File No. 333-70602))..................................... __
(ao) Form of Services Agreement between Golden American Life Insurance Company and
ING North American Insurance Corporation, Inc. (incorporated by reference from
Exhibit 10(q) to Pre-Effective Amendment No. 1 to a Registration Statement on Form
S-1 filed by Registrant with the SEC on or about December 11, 2001 (File No. 333-70602))............. __
(ap) Form of Shared Services Center Services Agreement by and among ING North America Insurance
Corporation ("Service Provider") and Ameribest Life Insurance Company, a Georgia corporation;
Equitable Life Insurance Company of Iowa, an Iowa corporation; USG Annuity & Life Company,
an Oklahoma corporation; Golden American Life Insurance Company, a Delaware corporation; First
Columbine Life Insurance Company, a Colorado corporation; Life Insurance Company of Georgia, a
Georgia corporation; Southland Life Insurance Company, a Texas corporation; Security Life of Denver
Insurance Company, a Colorado corporation; Midwestern United Life Insurance Company, an Indiana
corporation; and United Life & Annuity Insurance Company, a Texas corporation (incorporated by
reference from Exhibit 10(r) to Pre-Effective Amendment No. 1 to a Registration Statement
on Form S-1 filed by Registrant with the SEC on or about December 11, 2001
(File No. 333-70602))................................................................................ __
35
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2002
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(aq) Participation Agreement betweeen Golden American Life Insurance Company and Fidelity Distributors
Corporation (incorporated by reference from Exhibit 8(p) to Post-Effective Amendment No. 32 to a
Registration Statement on Form N-4 filed by Registrant with the SEC on or about April 26, 2002
(File No. 33-23351 and 811-5626)).................................................................... __
36