The following selected financial data should be read in conjunction with the consolidated financial statements of GE Financial Assurance Holdings, Inc. and subsidiaries and the related Notes to the Consolidated Financial Statements.
The following analysis of the consolidated financial condition and results of operations of GE Financial Assurance should be read in conjunction with the consolidated financial statements and the notes thereto included herein.
Operating Results for the Years Ended December 31, 1999, 1998 and 1997
GE Financial Assurance is a holding company that, through its subsidiaries, provides consumers financial security solutions by selling a wide variety of insurance, investment and retirement products and consumer club membership opportunities primarily in North America and Asia. The Company believes that changes in demographics such as the increased number of baby boomers entering middle and late middle age, longer life expectancies due to medical advances, the reduction in government- and employer-sponsored benefit programs and the increased need for estate planning for the most affluent group of retirees in history, have and will continue to increase the demand for innovative products and services to solve individual financial challenges. The Company's strategy is designed to take advantage of these trends by offering a broad array of products and services. The Company's product offerings are divided along two major segments of consumer needs: (1) Wealth Accumulation and Transfer and (2) Lifestyle Protection and Enhancement.
Due to the strategic nature of these acquisitions, the operations of the acquired entities, other than GE Edison Life Insurance Company, are generally being absorbed within the overall operations of the Company as opposed to being operated on a stand-alone basis. For example, significant efforts have been made to centralize responsibility for specific insurance products that were formerly marketed and sold by more than one of the Company's subsidiaries.
(1) Includes the acquisitions of Professional Insurance Company in March 1999 and The Signature Group in July 1999, and inclusion of a full year of operating results in 1999 for GE Edison Life Insurance Company (which initiated operations in April 1998) versus nine months in 1998.
Net Investment Income and Net Realized Investment Gains. Net investment income increased $227 million, or 7.8%, to $3,123 million in 1999 from $2,896 million in 1998. The increase was primarily due to the higher levels of average invested assets ($42.7 billion in 1999 vs. $39.5 billion in 1998) resulting from the acquisition of The Signature Group in July 1999 and growth in core invested assets. Net investment income increased $141 million, or 5.1%, to $2,896 million in 1998 from $2,755 million in 1997. The increase was due to the combination of higher levels of average invested assets ($39.5 billion in 1998 vs. $36.7 billion in 1997) resulting from the Colonial Penn acquisition, growth in core invested assets and new investments relating to the Company's operations in Japan commencing in April 1998, offset by a decrease in weighted average yield from 7.8% in 1997 to 7.6% in 1998 due to a decline in prevailing interest rates.
Net realized investment gains were $165 million in 1999, $116 million in 1998 and $77 million in 1997. These changes are related to the Company's asset/liability risk management policies and associated ongoing review of its investment portfolio positions which vary with market and economic conditions and include gains as a result of securitization of certain financial assets.
Other Income. Other income is principally comprised of surrender fees, insurance charges made against universal life contracts, club membership revenues and fees assessed against policyholder account values. Other income increased $233 million, or 54.7%, to $659 million in 1999 from $426 million in 1998. This increase was a result of (i) the acquisition of The Signature Group in July 1999 (primarily club membership revenues) and (ii) a full year of operating results in 1999 relating to GE Edison Life Insurance Company (which initiated in April 1998). Other income increased $18 million, or 4.4%, to $426 million in 1998 from $408 million in 1997. This increase was as a result of: (i) a full year of operating results in 1998 relating to the 1997 acquisition of Colonial Penn and (ii) the initial operations of GE Edison Life Insurance Company commencing in April 1998 partially offset by (iii) decreased asset-based fee income due to a reduction in the balance of certain underlying reserve balances.
Interest Credited. Interest credited increased $38 million, or 3.0%, to $1,298 million in 1999 from $1,260 million in 1998. This increase was a result of the increase in underlying reserves arising from sales of guaranteed investment contracts and single premium annuities. The increased sales resulted from higher crediting rates that the Company implemented in response to changes in market conditions and other factors. Interest credited decreased $21 million, or 1.6%, in 1998 to $1,260 million from $1,281 million in 1997. This decrease was a result of the reduction of the Company's crediting rates due to changes in market conditions and other factors.
The Company's weighted average crediting rates for annuities increased to 6.51% in 1999 from 6.27% in 1998, which had decreased from 6.46% in 1997. Similarly, the Company's weighted average crediting rates for interest-sensitive life products increased to 5.63% in 1999 from 5.32% in 1998, which had decreased from 5.34% in 1997. The increase in 1999 was driven by increases in the Company's base crediting rates due to competitive pressures and changes in the interest rate environment as noted above. The decrease in 1998 was driven by reductions in the Company's base crediting rates due to changes in market conditions. The Company monitors market conditions closely and resets interest crediting rates as deemed appropriate in accordance with the terms of the underlying contracts.
Amortization of Intangibles, Net. The Company's significant intangible assets consist of three components which result from acquisition activities -- the present value of future profits (PVFP), representing the estimated future gross profits in acquired insurance and annuity contracts, value of consumer club business acquired representing the estimated future gross profits of acquired club membership contracts, and goodwill, representing the excess of purchase price over the fair value of identified net assets of the acquired entities. Amortization of intangibles increased $54 million, or 18.9%, to $340 million in 1999 from $286 million in 1998. Amortization of intangibles increased $10 million, or 3.6%, to $286 million in 1998 from $276 million in 1997.
Interest Expense. Interest expense was $95 million in each of the years ended December 31, 1999 and 1998. Interest expense increased $72 million to $95 million in 1998 from $23 million in 1997. This increase resulted from the inclusion of a full year of interest costs in 1998 in connection with the 1997 acquisition of Colonial Penn and the commencement of GE Edison operations in April 1998.
The following table sets forth certain summarized financial data for GE Financial Assurance's Wealth Accumulation and Transfer segment for the years ended December 31, 1999, 1998, and 1997.
The following table sets forth certain summarized financial data for GE Financial Assurance's Lifestyle Protection and Enhancement segment for the years ended December 31, 1999, 1998 and 1997.
Operating income from this segment represented 10.2%, 15.6%, and 14.1%, of the Company's total results for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's operating income from the Lifestyle Protection and Enhancement segment decreased 29.0% in 1999 to $88 million, and increased 27.8% to $124 million in 1998 from $97 million in 1997. The 1999 decrease is primarily attributable to certain competitive factors currently existing within the automobile insurance industry, partially offset by the impact from the acquisition of The Signature Group in 1999. The 1998 increase is due to the full year impact in 1998 of the acquisition of Colonial Penn in November 1997.
Total Assets. Total assets increased $7.9 billion, or 13.9%, to $64.6 billion at December 31, 1999 from $56.7 billion at December 31, 1998. The increase resulted primarily from the acquisition of The Signature Group in July 1999 and growth in existing insurance and investment products. The majority of the increase in total assets occurred in the deferred acquisition costs, intangible assets, deferred tax assets, other assets and separate account asset categories that are discussed in more detail below.
Total Investments. Total investments increased $0.3 billion, or 0.6%, to $42.6 billion at December 31, 1999 from $42.3 billion at December 31, 1998. The slight increase in total investments primarily relates to the acquisition of The Signature Group in July 1999, core investment growth and investment income of $3.1 billion, offset by net unrealized losses on investment securities and cash outflows for other investing activities.
Deferred Acquisition Costs. Deferred acquisition costs increased $1.0 billion, or 75.0%, to $2.3 billion at December 31, 1999 from $1.3 billion at December 31, 1998. This increase was related to an increase in deferral of acquisition costs arising from the increased product sales noted above as well as the operations of The Signature Group acquired in July 1999 and the current year change in net unrealized investment losses, partially offset by amortization of previously capitalized acquisition costs.
Deferred Taxes. Deferred taxes increased $0.9 billion to a deferred tax asset balance of $0.8 billion at December 31, 1999 from a deferred tax liability balance of $0.1 at December 31, 1998, primarily due to the current year change in net unrealized losses on the Company's investment portfolio.
Future Annuity and Contract Benefits. Future annuity and contract benefits increased $3.3 billion, or 9.3%, to $39.6 billion at December 31, 1999 from $36.3 billion at December 31, 1998. The increase resulted primarily from the significant increase in investment contracts issued in 1999.
The principal liquidity requirements for GE Financial Assurance's insurance operations are its contractual obligations to policyholders and annuitants. Contractual obligations include payments of surrender benefits, contract withdrawals, claims under outstanding insurance policies and annuities, and policy loans. The primary sources for meeting these contractual requirements are investment income, scheduled principal repayments from its investment portfolio, and a portion of its premium income. To provide for additional liquidity to meet normal variations in contract obligations, GE Financial Assurance maintains cash and short-term investments. GE Financial Assurance has placed commercial paper in the U.S. market as a vehicle to fund certain of the Company's acquisitions. The Company anticipates increasing the size of its commercial paper program in order to facilitate its expected cash infusion into GE Edison Life Insurance Company to support strong solvency margins and claims paying ratings in connection with the comprehensive transfer of the insurance policies and related assets of Toho Mutual Life Insurance Company to GE Edison Life Insurance Company, as noted in "Recent Transactions".
The Company maintains committed back-up credit lines with third-party banks to support its commercial paper program and maintains committed credit lines with GE Capital to provide interim funding for the Company's acquisition activity and to provide liquidity to meet normal variation in contract obligations.
Historically, GE Financial Assurance has, through its operating companies, generated positive cash flows from operating and certain financing activities (including net cash provided by operating activities and cash provided by or used by the net of redemptions and benefit payments on investment contracts, and proceeds from issuance of investment contracts). For the years ended December 31, 1999, 1998, and 1997 cash flows from operating and certain financing activities were $3,134 million, $2,117 million and $1,028 million, respectively. These amounts include net cash provided by (used in) financing activities relating to investment contract issues and redemptions of $2,708 million, $(703) million and $(923) million for the years ended December 31, 1999, 1998 and 1997, respectively.
The nature and quality of the various types of investments purchased by a U.S. life insurance
The Company manages its investment portfolio to meet the diversification, credit quality, yield and liquidity requirements of its policy liabilities by investing primarily in fixed maturity instruments, including government and corporate bonds, mortgage-backed securities, and mortgage loans on real estate. At December 31, 1999, the Company held $40.3 billion, or 94.8% of its investment portfolio, in fixed maturity instruments and mortgage loans. The Company's investment philosophy focuses on purchasing assets the durations of which approximate policyholder obligations. To match some of its longer term policy liabilities, the Company has followed a strategy of buying bonds with adequate call protection. The Company also invests in preferred stock, policy loans, short-term securities and other investments, which comprised the remaining 5.2% of its investment portfolio at December 31, 1999.
The Company primarily purchases investment-grade (BBB-/Baa3 or above) bonds. At December 31, 1999, $32.3 billion, or 87.6%, of the fixed maturity securities held by the Company were bonds rated by a rating agency (S&P or Moody's), or were government/agency bonds. The remaining $4.6 billion, or 12.4%, was comprised primarily of private placement bonds not rated by either rating agency. At December 31, 1999, the Company held $2.1 billion of bonds rated below investment grade (excluding split-rated bonds). In addition, the Company held $0.3 billion of "not-rated" bonds which the Company believes are below investment grade. Below investment grade bonds include those bonds originally purchased as investment grade but subsequently downgraded in rating, as well as bonds purchased as below investment grade. The Company holds this small percentage of below investment grade bonds in order to enhance the yield on its investment portfolio.
Investments in mortgage-backed securities include $7.0 billion in collateralized mortgage obligations (CMOs) and asset-backed securities and $0.9 billion of pass-through securities. These securities are secured primarily by pools of residential mortgages and generally carry high credit ratings. Approximately 37% of the mortgage-backed securities are backed by securities issued by Government National Mortgage Association, Federal Home Loan Mortgage Corporation, or Federal National Mortgage Association. In the aggregate, the mortgage-backed securities had an average rating of AAA/Aaa at December 31, 1999. Most CMO and pass-through securities are subject to prepayment and extension risk (i.e., principal can be received earlier or later than anticipated, based on the rate of mortgage prepayments in the underlying residential mortgage pools).
The Company's mortgage loan portfolio consisted of 2,065 loans at December 31, 1999. The loans, which are originated through a network of mortgage bankers, are made only on completed, leased properties and generally have a maximum loan- to-value ratio of 75% at the date of origination. Commercial loans comprise the majority of the portfolio, with 40.5%, 22.4% and 20.4% attributable to the retail, office and industrial sectors, respectively. The remainder of the loans, 16.7%, are attributable to the residential and other miscellaneous sectors. The mortgage loans are secured by property throughout the U.S., with concentrations in the Pacific region (31.4%) and the South Atlantic region (23.4%).
_____________ (1) Fixed maturity securities available-for-sale are stated at fair values. Amortized cost of fixed maturity securities available-for-sale at December 31, 1999 was $38,843 million, representing net unrealized losses of $1,911 million. Changes in fair value, net of the effect on present value of future profits, deferred acquisition costs and deferred federal income taxes, are reflected as unrealized appreciation or depreciation directly in shareholder's interest and, accordingly, have no effect on net income, but is shown as a separate component of accumulated non-owner changes in equity.
(2) Mortgage and asset-backed securities are comprised of CMOs ($4,161 million), asset-backed securities ($2,847 million) and pass-through securities ($890 million).
(3) Equity securities available-for-sale are stated at fair market values. The cost basis of equity securities available-for-sale at December 31, 1999 was $336 million, representing net unrealized gains of $9 million. Changes in market value, net of the effect on present value of future profits, deferred policy acquisition costs and deferred federal income taxes, are reflected as unrealized appreciation or depreciation directly in shareholder's interest and, accordingly, have no effect on net income, but is shown as a separate component of accumulated non-owner changes in equity.
At December 31, 1999 and 1998 , there were fixed maturity securities in default with a fair value of $10 million and $11 million, respectively.
Expected maturities may differ from scheduled maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 1999, $7,006 million of the Company's investments (excluding mortgage and asset-backed securities) were subject to certain call provisions.
As discussed in note 12 to the consolidated financial statements, the Company changed its method of accounting for insurance-related assessments in 1999.
(a) Presented net of deferred taxes of $970, $(26), and $(439) in 1999, 1998, and 1997, respectively.
All of the outstanding common stock of GE Financial Assurance Holdings, Inc. (GE Financial Assurance) is owned by General Electric Capital Corporation (GE Capital), a wholly-owned subsidiary of General Electric Capital Services, Inc. (GE Capital Services), which in turn is wholly-owned, directly or indirectly, by General Electric Company.
These consolidated financial statements have been prepared on the basis of generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
GE Financial Assurance is an insurance holding company that, through its subsidiaries, sells a variety of insurance and investment-related products primarily in North America and Asia. The Company's operations are in two business segments: Wealth Accumulation and Transfer, and Lifestyle Protection and Enhancement.
Lifestyle Protection and Enhancement products are products intended to protect accumulated wealth and income from the financial drain of unforeseen events and provide consumer club membership opportunities. The Company's principal product lines under the Lifestyle Protection and Enhancement segment are long-term care, supplementary accident and health insurance, personal lines of automobile insurance and consumer club products.
The Company distributes its products through four primary channels: intermediaries (such as brokerage general agents (BGAs), financial planners, banks, securities brokerage firms and financial planning firms); dedicated agents, who distribute certain of the Company's products on an exclusive basis, some of whom are not employees of the Company; marketing through businesses; and direct and affinity based marketing through e-commerce, telemarketing and direct mails.
Certain of the Company's subsidiaries and certain policies and contracts offered by them are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission and certain state securities laws. Certain of these products offer customers a guaranteed interest rate for a predetermined time period and subject customers to a market value adjustment on early withdrawals. Other products offer customers numerous investment options, including, but not limited to, purchases of shares of various mutual funds.
The Company has designated its fixed maturities (bonds, notes, and redeemable preferred stock) and its equity securities (common and non-redeemable preferred stock) as available-for-sale. The fair value for fixed maturities and equity securities is based on quoted market prices, where available. For fixed maturities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the credit quality, call features and maturity of the investments, as applicable.
Mortgage and policy loans are stated at the unpaid principal balance of such loans, net of allowances for estimated uncollectable amounts.
Consumer club memberships - Acquisition costs consist primarily of marketing costs and are amortized in proportion to the anticipated revenue to be recognized from club memberships.
The Company's non-life insurance subsidiaries are included in the consolidated federal income tax return of General Electric Company. These subsidiaries are subject to a tax-sharing agreement with GE Capital which allocates tax on a separate company basis, but provides benefit for current utilization of losses and credits. The Company's life insurance subsidiaries file a consolidated life insurance federal income tax return and are also subject to a separate tax-sharing agreement, as approved by state insurance regulators, the provisions of which are substantially the same as the tax- sharing agreement with GE Capital.
Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedged instruments must be highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately.
The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), effective for the Company on January 1, 2001 (as amended by Statement of Financial Accounting Standards No. 137, Deferral of the Effective Date of Statement No. 133). Upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) will be recognized in the balance sheet at fair value, and changes in such fair values must be recognized immediately in earnings unless specific hedging criteria are met. Changes in the values of derivatives meeting these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of qualifying changes in fair value are to be recorded in equity pending recognition in earnings. Certain significant refinements and interpretations of Statement 133 are being deliberated by the FASB, and the effects on accounting for the Company's financial instruments will depend to some degree on the results of such deliberations. Management has not determined the total probable effects of adopting Statement 133, and does not believe that an estimate of such effects would be meaningful at this time.
Effective November 1997, the Company completed the acquisition of 100% of the capital stock of Colonial Penn Insurance Company (Colonial Penn) and LTC Inc. (LTC) for purchase prices of $1,015 and $59, respectively. In conjunction with the acquisition of LTC, the Company agreed to pay the sellers up to $33 over a five-year period, contingent upon satisfaction of certain performance measurements. The contingent consideration is being accounted for as additional purchase price, which will result in amortization over the remaining goodwill life. During 1999 and 1998, approximately $7 in each year was paid to the sellers relating to this agreement.
Each of the above referenced acquisitions has been accounted for using the purchase method of accounting and, accordingly, the accompanying consolidated financial statements reflect the corresponding results of operations from the respective dates of acquisition.
Net unrealized gains and losses on investment securities classified as available-for-sale are reduced by deferred income taxes and adjustments to the present value of future profits and deferred acquisition costs that would have resulted had such gains and losses been realized. Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of shareholder's interest at December 31 are summarized as follows:
At December 31, 1999 and 1998, the Company's mortgage loan portfolio consisted of first mortgage loans on commercial real estate properties of 2,065 and 1,878, respectively. The loans, which are originated by the Company through a network of mortgage bankers, are made only on completed, leased properties and generally have a maximum loan-to-value ratio of 75% at the date of origination.
The method used by the Company to value PVFP in connection with acquisitions of life insurance entities is summarized as follows: (1) identify the future gross profits attributable to certain lines of business, (2) identify the risks inherent in realizing those gross profits, and (3) discount those gross profits at the rate of return that the Company must earn in order to accept the inherent risks.
Recoverability of PVFP is evaluated periodically by comparing the current estimate of expected future gross profits to the unamortized asset balance. If such comparison indicates that the expected gross profits will not be sufficient to recover PVFP, the difference is charged to expense.
The estimated percentage of the December 31, 1999 balance, before the effect of unrealized investment gains or losses, to be amortized over each of the next five years is as follows:
Reinsurance recoveries recognized as a reduction of benefits amounted to $300, $336 and $263 during 1999, 1998 and 1997, respectively. These recoveries were partially offset by certain changes in benefits and other policy reserves.
(a) Either the United States Population Table, 1983 Group Annuitant Mortality Table or 1983 Individual Annuitant Mortality Table.
(d) The 1983 Individual Annuitant Mortality Table or 1980 Commissioner's Standard Ordinary Table and the 1985 National Nursing Home Study and Company experience.
In connection with GE Edison's March 1998 transaction with Toho (see Note 2--Acquisitions), a subsidiary of the Company entered into certain long- term note agreements in the amount of (Yen)6.5 billion ($63 and $56 at December 31, 1999 and 1998, respectively), at 2.25%, due April 2008. In addition, a subsidiary of the Company entered into similar long-term note agreements, having the same interest rate and maturity, in the amount of (Yen)3.5 billion ($27 at December 31, 1999 and 1998), with certain affiliates of the Company. A guarantee fee of 0.50%, relating to the above long-term notes, is being paid annually to GE Capital as guarantor.
Additional financing for the March 1998 GE Edison transaction was obtained by the issuance of a long-term note of the Company to GE Capital. The long-term note in the amount of (Yen)57.25 billion ($440 at December 31, 1999 and 1998), matures in March 2008 and bears interest at a floating rate based on a spread above the three month Japanese Yen London Inter-Bank Offered Rate (JPY LIBOR), or a total of 0.89% and 0.93% at December 31, 1999 and 1998, respectively.
Short-term borrowings includes commercial paper issued of $987 and $1,004, net of discount of $10 and $8 at December 31, 1999 and 1998, respectively, with an average interest rate of 5.91% at December 31, 1999.
The Company has a line of credit with GE Capital that has an aggregate borrowing line of $1,436, of which a maximum of $497 and $446 was used during the years 1999 and 1998, respectively. At December 31, 1999 and 1998, the balance outstanding was $49 and $326, respectively.
In connection with the acquisition of Colonial Penn in 1997, the Company entered into an additional line of credit with GE Capital, with an aggregate borrowing line of $1,015. A maximum of $580 was used during 1998. This line of credit was cancelled upon repayment in 1998.
The following table shows the Company's borrowing positions at December 31 considering the effects of swaps.
____________ (a) Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest.
The total provision for income taxes for the years ended December 31 consisted of the following components:
The Company paid $371, $188 and $270, for federal and state income taxes during the years 1999, 1998 and 1997, respectively.
Effective January 1, 1999, the Company adopted SOP No. 97-3 and has reported the effect of this adoption as a cumulative effect of a change in accounting principle, which served to increase 1999 net income by $25 (net of income taxes of $14).
Financial instruments that, as a matter of accounting policy, are reflected in the accompanying consolidated financial statements at fair value are not included in the following disclosures. Such items include fixed maturities, equity securities and certain other invested assets. The carrying value of policy loans, short-term investments, certain other invested assets, short-term borrowings and long-term debt approximates fair value at December 31, 1999 and 1998, respectively.
The estimated fair value of investment contracts is the amount payable on demand (cash surrender value) for deferred annuities and the net present value based on interest rates currently offered on similar contracts for non-life contingent immediate annuities. Fair value disclosures are not required for insurance contracts.
Years Ended December 31, 1999, 1998 and 1997 (Dollars amounts in millions)
The following is a summary of industry segment activity for 1999, 1998 and 1997:
The Company conducts its operations primarily in two geographic regions: (1) North America and (2) Asia. See Note (1)(c) for further discussion of the Company's principal product lines distributed in these two segments.
Effective March 1, 2000, GE Edison acquired, by means of a comprehensive transfer in accordance with the Insurance Business Law of Japan (IBL), the insurance policies and related assets of Toho. GE Edison assumed approximately $22,700 of policyholder liabilities and $20,500 of cash and invested assets, the difference between such amounts being attributable to the present value of future profits on the transferred insurance policies. Toho, which continues to exist as a separate and independent entity, will liquidate its remaining assets and liabilities following the comprehensive transfer. Such liquidation will have no impact on the Company's financial position or operations.
GE Edison had previously acquired Toho's operating infrastructure in March 1998. See Note 2 - Acquisitions. In June 1999, the Financial Supervisory Agency (FSA) of Japan determined that Toho's continued operation was not in the best interests of its policyholders given its weak financial position. As a result, the FSA issued a partial business suspension order to Toho on June 4, 1999. In connection with such suspension order, the FSA appointed two independent individuals from the Japanese insurance industry and the Life Insurance Association of Japan as administrators of Toho (collectively, the Administrator).
Under the IBL, the sole means for rehabilitating an insolvent insurer is through a comprehensive transfer of the insurer's insurance policies and assets to a rescuing company. On December 22, 1999, the Administrator entered into an agreement with GE Edison, acting as the rescuing company, for the comprehensive transfer of Toho's insurance policies. In conjunction with the comprehensive transfer, the Administrator restructured Toho's in-force insurance contracts. The restructured insurance contracts have surrender charges, reduced benefits and lower policy guarantees. As an inducement for GE Edison to become the rescuing company, Japan's Policyholder Protection Corporation contributed approximately $3,600 as part of the assets supporting Toho's restructured policies. In December 1999, in connection with the comprehensive transfer, the Company acquired the common stock of GE Edison held by Toho. Consequently, GE Edison has become an indirect wholly-owned subsidiary of the Company. In addition, the Company's remaining contingent obligations relating to the March 1998 purchase of Toho's operating infrastructure (see Note 2 - Acquisitions) have been terminated in connection with the comprehensive transfer and the preferred stock previously issued to Toho by a subsidiary of the Company was transferred to GE Edison.
Under date of January 21, 2000, except for note 18 which is as of March 1, 2000, we reported on the consolidated balance sheets of GE Financial Assurance Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholder's interest, and cash flows for each of the years in the three-year period ended December 31, 1999, which are included herein. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules included herein. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
Richmond, Virginia January 21, 2000, except for note 18 which is as of March 1, 2000
All of the outstanding common stock of GE Financial Assurance Holdings, Inc. (GE Financial Assurance) is owned by General Electric Capital Corporation (GE Capital), a wholly-owned subsidiary of General Electric Capital Services, Inc., which in turn is wholly-owned, directly or indirectly, by General Electric Company.