In addition to its headquarters, the Company and its subsidiaries lease approximately 4,300 square feet of space in the Columbus, Ohio vicinity, 15,000 square feet of space on Chamberlain Lane in Louisville, Kentucky and approximately 4,200 square feet of office space in Goshen, New York. The operations of the Company's New York insurance subsidiary, National Integrity, are conducted from the Goshen, New York facility. Additional office space leased in New Ulm, Minnesota supports the distribution operations of SBM Certificate Company. The Chamberlain Lane space in Louisville, Kentucky serves as the Company's primary distribution center for all of its operations. The Columbus office space is being leased until June 30, 1999 to facilitate the termination of the Columbus operation, and was entered into as part of the discounted buy out and termination of Integrity's sublease for 72,000 square feet in the same building.
The following table sets forth selected historical financial information of the Company and its subsidiaries for the years ended December 31, 1998, 1997, 1996, 1995, and 1994. The financial
Effective May 31, 1995, the Company acquired substantially all of the assets and business operations of SBM. This acquisition was accounted for as a purchase, and the results of operations of the acquired businesses are included in the Company's historical financial information from the date of acquisition. Because 1998, 1997 and 1996 include full years of acquired SBM business operations compared to seven months in 1995, the results of operations presented are not completely comparable.
The selected historical financial information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's consolidated financial statements and the notes thereto and other financial and operating information included herein.
(1) The Company recorded non-recurring charges of $4.7 million in 1998 of which $3.6 million was part of a retirement package for John Franco, the Company's former Co-Chairman and Co-Chief Executive Officer, and $1.1 million was related to the registration expenses associated with the Company's secondary offering of common stock. The Company recorded non-recurring charges of $14.8 million for 1997 which included a non-cash stock-based compensation expense charge of $8.1 million and other non-recurring costs primarily related to the relocation and consolidation of the Company's operations facilities from Ohio to Louisville, Kentucky. The Company recorded non-recurring charges of $5.0 million in 1996 related to the move of the Ohio operations and mergers and acquisition activities that did not result in a transaction.
The following discussion compares the results of operations for the Company for the three years ended December 31, 1998. For certain financial information regarding the Company's business segments, see Note 12 of the consolidated financial statements included herein.
Annualized pretax operating earnings for the retail spread products and options segment were 1.37% and 1.36% of average assets under management of $2.77 billion and $2.76 billion during 1998 and 1997, respectively. Annualized pretax operating earnings for the institutional spread products segment were 0.64% and 0.62% of average assets under management of $3.77 billion and $1.48 billion during 1998 and 1997, respectively. Annualized pretax operating earnings for the retail variable fund options segment (fee business) were 0.55% and 0.52% of average assets under management of $1.35 billion and $970.3 million during 1998 and 1997, respectively.
Net investment spread for the years ended December 31, 1998 and 1997 was as follows:
The increase in net investment spread is attributable to the increase in average spread-based customer deposits, which were $6.53 billion in 1998 compared to $4.24 billion in 1997.
Investment spread rates for the Company's two spread-based operating segments for the years ended December 31, 1998 and 1997 were as follows:
The decrease in investment yields in 1998 is primarily attributable to lower market interest rates and a flatter U.S. Treasury yield curve during 1998. Investment yields for the institutional spread products segment are generally lower than the retail spread products and options segment because the proceeds from institutional spread product sales are invested in securities of shorter duration (which generally have lower investment yields) than the Company's other investment portfolios. Investments in securities of a relatively shorter duration for the institutional spread products segment are necessary to match, within a targeted range, the average duration of institutional spread product deposits.
The average credited rate pattern is dependent upon the general trend of market interest rates, frequency of credited rate resets and business mix. For institutional spread products, crediting rates are reset monthly or quarterly based on London Interbank Offered Rates ("LIBOR"), plus a premium, and semi-annually or annually for certain fixed annuities.
Variable annuity fees, which are based on the market value of the mutual fund assets supporting variable annuity customer deposits in nonguaranteed separate accounts, increased to $20.1 million in 1998 from $14.6 million in 1997. This increase is primarily attributable to asset growth from the receipt of variable annuity deposits and from a stock market driven increase in the value of existing variable annuity deposits invested in mutual funds.
Assets under management by business segment as of December 31, 1998 and 1997 were as follows:
Sales of retail variable products during 1998 increased $160.5 million over 1997. This increase is primarily attributable to continued growth in sales of the PINNACLE variable annuity product, including sales of the new SELECT TEN PLUS investment option within PINNACLE. SELECT TEN PLUS follows the "Dogs of the Dow" investment strategy. An additional factor contributing to the increase in retail variable product sales is continued growth in systematic transfer option deposits. This spread option allows dollar-cost averaging over a twelve-month period into other investment options within variable products and has gained popularity as a result of market volatility. Sales of retail spread products decreased to $154.2 million in 1998. The decrease is related to the overall decrease in interest rates which make retail spread products less attractive in the marketplace. Retail spread product sales of $348.9 million during 1997 were a result of a brief increase in market interest rates early in 1997. The increase in institutional sales is primarily attributable to the sale of two privately placed $500 million certificates through a newly formed subsidiary, ARM Face-Amount Certificate Group, Inc., and its subsidiaries, 312 Certificate Company and 212 Certificate Company. The Company continues its sales strategy of developing a broad mix of products,
Net surrenders of retail spread and variable annuity products and options issued by the Company's insurance subsidiaries were $365.2 million for 1998 compared to $344.5 million for 1997. Surrender charge income increased to $5.7 million in 1998 from $4.5 million in 1997. The increase in surrender charge income is attributable to a larger mix of surrenders of customer deposits acquired in connection with the 1995 acquisition of SBM Company's insurance subsidiary which have higher surrender charge penalties. Retail products issued by the Company's insurance subsidiaries generally include lapse protection provisions that provide a deterrent to surrenders when interest rates rise. These provisions can include surrender charges and market value adjustments on annuity withdrawals. During the period that surrender charges are assessable (generally the first five to seven years after a policy is issued) surrenders are relatively low. The surrender and withdrawal activity in 1997 and 1998 was generally expected by the Company due to the level of customer deposits written several years ago that were subject to declining or expiring surrender charges and the Company's strategy of maintaining investment spreads. The Company attempts to reduce retail surrender activity and improve persistency through various programs. The Company experienced minimal withdrawals (excluding scheduled interest payments) by institutional spread product customers during 1997 and 1998.
Actions of rating agencies with respect to the Company's insurance subsidiaries, its significant business partners or its competitors may impact sales and surrender levels of the Company's products. As a result, if any of the Company's insurance subsidiaries' or significant business partners' ratings are downgraded, or if the ratings of the Company's competitors improve and those of the Company's insurance subsidiaries or significant business partners do not, the ability of the Company to distribute its products and the persistency of its existing business could be adversely affected.
Amortization of deferred policy acquisition costs related to operations was $12.6 million and $10.4 million in 1998 and 1997, respectively. This increase was primarily the result of growth in the deferred policy acquisition cost asset due to additional sales of fixed, indexed and variable annuity products. Variable costs of selling and issuing the Company's insurance subsidiaries' products (primarily commissions and certain policy issuance and marketing costs) are deferred and then amortized over the expected life of the contracts.
insurance subsidiary. The decrease in amortization related to operations is primarily attributable to a decrease in the value of insurance in force asset (excluding the effects of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities") which was $31.3 million at December 31, 1998 compared to $40.7 million at December 31, 1997.
Realized investment losses, which are reported net of related amortization of deferred policy acquisition costs and value of insurance in force, were $1.9 million during 1998 compared to $3.2 million of realized investment gains during 1997. Such realized investment gains and losses were primarily interest-rate related and attributable to the ongoing management of the Company's fixed maturity securities classified as available-for-sale, which can result in period-to-period swings in realized investment gains and losses since securities are sold during both rising and falling interest rate environments. The ongoing management of securities is a significant component of the Company's asset/liability management strategy. The ongoing portfolio management process involves evaluating the various asset sectors (i.e., security types and industry classes) and individual securities comprising the Company's investment portfolios and, based on market yield rates, repositioning holdings from sectors perceived to be relatively overvalued to sectors perceived to be undervalued with the aim of improving cash flows. The Company endeavors to accomplish this repositioning without materially changing the overall credit, asset duration, convexity, and liquidity characteristics of its investment portfolios.
Income tax expense was $15.1 million and $14.1 million in 1998 and 1997, respectively, reflecting effective tax rates of 25.6% and 33.9% as a percentage of pretax income. If the 1997 non-recurring stock-based compensation expense charge was added back to pretax income, the effective tax rate for 1997 would have been 28.3%. A tax benefit was not recognized for the charge because a full valuation allowance was provided on the Company's non-life net operating loss carryforwards. The effective tax rates of 25.6% for 1998 and 28.3% for 1997 (as adjusted) are below the federal income tax rate of 35% primarily as a result of the recognition of benefits associated with certain deferred tax assets established in connection with the Company's acquisition of the Integrity Companies in 1993 for which a full valuation allowance was originally provided.
Pro forma operating earnings (operating earnings including a pro forma adjustment to reflect investment income that the Company believes could have been earned at an assumed rate of 7.5% on the net proceeds of the Company's June 1997 initial public offering of common stock assuming it occurred on January 1, 1996) were $36.3 million and $26.8 million for 1997 and 1996, respectively. Pro forma operating earnings per share were $1.51 and $1.13 for the same respective years. This pro forma information is not necessarily indicative of what would have occurred had the offering occurred on the earlier date.
Operating earnings for the retail spread products and options segment were 1.36% and 1.30% of average assets under management of $2.76 billion and $2.66 billion during 1997 and 1996, respectively. This increase in retail spread margins is primarily attributable to ongoing asset/liability management, which generated higher net investment spreads. Operating earnings for the institutional spread products segment were 0.62% and 0.57% of average assets under management of $1.48 billion and $567.7 million during 1997 and 1996, respectively. The increase in institutional spread margins is also primarily attributable to ongoing asset/liability management. Operating earnings for the retail variable fund options segment were 0.52% and 0.66% of average assets under management of $970.3 million and $728.2 million during 1997 and 1996, respectively. The decline in retail variable margins is primarily attributable to lower amortization expense of deferred policy acquisition costs during 1996.
Investment spread rates for the Company's two spread-based operating segments for the years ended December 31, 1997 and 1996 were as follows:
On November 7, 1997, the Company transferred substantially all of the assets and operations of ARM Capital Advisors to ARM Capital Advisors, LLC ("New ARMCA") and sold an 80% interest in New ARMCA. ARM Capital Advisors' management of defined benefit pension plan accounts generated asset management fees of $8.6 million and $5.8 million during 1997 and 1996, respectively.
Assets under management as of December 31, 1997 and 1996 were as follows:
* Does not include off-balance sheet assets managed by ARM Capital Advisors for institutional clients. Including such assets, total assets under management at December 31, 1996 were $7,553.0 million.
The increase in total assets under management was primarily attributable to sales of floating rate funding agreements and GICs to institutional customers and, to a lesser extent, an increase in retail variable product deposits attributable to variable annuity sales and the investment performance of variable annuity mutual funds due to strong stock market returns.
Net surrenders of retail spread and variable annuity products and options issued by the Company's insurance subsidiaries were $344.5 million for 1997 compared to $326.2 million for 1996. Surrender charge income decreased to $4.5 million in 1997 from $5.0 million in 1996. The decrease in surrender charge income is attributable to a larger portion of the surrenders being partial surrenders which do not result in a surrender charge penalty. The surrender and withdrawal activity in 1996 and 1997 was generally expected by the Company due to the level of customer deposits written several years ago that were subject to declining or expiring surrender charges, and the Company's strategy of maintaining investment spreads.
Operating expenses increased to $32.5 million in 1997 from $31.1 million in 1996. The increase was primarily attributable to increased marketing efforts (including an increase in marketing staff and additional investments in technology) to expand and enhance the support of distribution channels in the retail and institutional markets, partially offset by a reduction in guaranty fund assessment accruals.
Amortization of value of insurance in force related to operations was $9.3 million and $7.3 million for 1997 and 1996, respectively. The increase in amortization expense corresponds with lower than expected gross margins for that block of annuity business.
The Company recorded non-recurring charges of $14.8 million for 1997 including a non-cash stock-based compensation charge of $8.1 million related to the Company's initial public offering of common stock, and other non-recurring costs primarily attributable to the relocation and consolidation of the Company's operations facilities from Ohio to Louisville, Kentucky. The Company recorded a non-recurring charge of $5.0 million in 1996 that also included $3.2 million for facilities consolidation and costs of $1.8 million primarily related to merger and acquisition activity that did not result in a transaction.
Other expenses, net, decreased to $0.4 million in 1997 from $5.4 million in 1996. This decrease is attributable to higher mortality costs in 1996 related to immediate annuity deposits. In addition, 1997 net other expenses reflect mortgage loan prepayment penalty income of $2.1 million and the favorable resolution of a reinsurance claim of $2.4 million.
The Company primarily invests in securities with fixed maturities with the objective of earning reasonable returns while limiting credit and liquidity risks. At amortized cost, fixed maturities at December 31, 1998 totaled $6.0 billion, compared with $4.0 billion at December 31, 1997, representing approximately 90% and 91% of total cash and investments, respectively. This increase in investments in fixed maturities is primarily attributable to the investment of the proceeds from sales of institutional spread products.
The Company's cash and investments as of December 31, 1998 are detailed as follows:
types of credit enhancement as collateral. The remaining 19% of the non-agency CMOs used commercial mortgage loans as collateral.
The Company manages prepayment exposure on CMO holdings by diversifying not only within the more stable CMO tranches, but across alternative collateral classes such as commercial mortgages and Federal Housing Administration project loans, which are generally less volatile than agency-backed, residential mortgages. Additionally, prepayment sensitivity is evaluated and monitored, giving full consideration to the collateral characteristics such as weighted average coupon rate, weighted average maturity and the prepayment history of the specific collateral. MBSs are subject to risks associated with prepayments of the underlying collateral pools. Prepayments cause these securities to have actual maturities different from those projected at the time of purchase. Securities that have an amortized cost that is greater than par (i.e., purchased at a premium) that are backed by mortgages that prepay faster than expected will incur a reduction in yield or a loss, versus an increase in yield or a gain if the mortgages prepay slower than expected. Those securities that have an amortized cost that is less than par (i.e., purchased at a discount) that are backed by mortgages that prepay faster than expected will generate an increase in yield or a gain, versus a decrease in yield or a loss if the mortgages prepay slower than expected. The reduction or increase in yields may be partially offset as funds from prepayments are reinvested at current interest rates. The degree to which a security is susceptible to either gains or losses is influenced by the difference between its amortized cost and par, the relative sensitivity of the underlying mortgages backing the assets to prepayments in a changing interest rate environment and the repayment priority of the securities in the overall securitization structure. The Company had gross unamortized premiums and unaccreted discounts of MBSs of $16.4 million and $27.2 million, respectively, at December 31, 1998.
Asset-backed securities ("ABS") are securitized bonds which can be backed by, but not limited to, collateral such as home equity loans, second mortgages, automobile loans and credit card receivables. At December 31, 1998, home equity loan collateral represented 36% of the Company's investments in the ABS market. The typical structure of an ABS provides for favorable yields, high credit rating and stable prepayments.
The Company analyzes its investment portfolio, including below investment grade securities, at least quarterly in order to determine if its ability to realize the carrying value on any investment has been impaired. For fixed maturity and equity securities, if impairment in value is determined to be other than temporary (i.e., if it is probable that 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 security's 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.
At December 31, 1998, the ratings assigned by the NAIC and comparable S&P ratings on the Company's fixed maturity portfolio were as follows:
Net unrealized losses on available-for-sale securities totaled $138.3 million (net of $20.6 million of related capitalization of deferred policy acquisition costs and value of insurance in force and
Assets held in the Company's guaranteed separate accounts include $1.26 billion of cash and investments at both December 31, 1998 and 1997, of which approximately 94% and 87% were fixed maturities, respectively. Total guaranteed separate account cash and investments were 97% and 99% investment grade at December 31, 1998 and 1997, respectively. Separate accounts are investment accounts maintained by an insurer to which funds have been allocated for certain products under provisions of relevant state law. The investments in each separate account are maintained separately from those in other separate accounts and from the insurer's general account.
Prior to the engagement of BlackRock, the Company's investment portfolio was managed by New ARMCA. The Company anticipates that New ARMCA will continue to manage a portion of the Company's assets while the Company completes the asset management transition to BlackRock.
The Company views asset/liability risk management as an integrated process, rather than as a series of segregated functions, and incorporates this process into each aspect of its operations. The Company's overall goal is to ensure that invested asset cash flows will be sufficient to meet customer obligations and to maximize investment spreads on a consistent basis. Beginning with product design and continuing through the product sale and contract maturity, professionals in each functional area (such as marketing, actuarial, investments, legal, finance and administration) work jointly with a common set of risk/return characteristics toward the goal of achieving the Company's overall liquidity and profit objectives (rather than the specific objectives of any particular functional area).
The Company utilizes several key strategies in managing its spread-based products. This approach allows the Company to leverage its resources and expertise. One example is an immunization strategy currently used for the Company's GRO products, in which a portfolio of assets is constructed and managed to provide a target dollar amount over a pre-established time horizon. The Company engineers and packages its spread products to suit the needs of different types of customers in both the retail and institutional marketplaces.
Exposure to interest rate risk is estimated by performing sensitivity tests based on duration analysis for each of the Company's product line portfolios. Duration is an option-adjusted measure of the percentage change in the market value of a portfolio of assets or liabilities in response to a given change in interest rates. Sensitivity tests performed on the Company's assets and liabilities show that, in the aggregate, the Company's potential exposure to a relative 10% increase in the interest rates prevalent at December 31, 1998 is a net pretax loss of approximately $17 million in the estimated fair value of its total cash and investments not offset by a reduction in the estimated fair value of its customer deposits. This result necessarily depends upon key assumptions regarding the behavior of interest sensitive cash flows such as policy surrenders, mortgage prepayments, and bond calls. Although the Company is careful to ensure that these assumptions are consistent with the best available data, interest-sensitive cash flows cannot be forecast with certainty, and can deviate significantly from the assumptions made. Moreover, asset and liability durations are continually changing as new policyholder contracts are issued and as new investments are added to the portfolio. Consequently, the Company manages its balance sheet on an ongoing basis, and its net exposure to changes in interest rates can therefore vary over time.
The Company also regularly analyzes its overall exposure to changes in equity markets and foreign exchange rates. The performance of equity markets affects the Company's earnings from fees on variable annuity contracts that it issues. These earnings vary directly with the market value of policyholder assets invested in equity funds offered by the Company. However, the magnitude of earnings changes from changes in equity markets is difficult to forecast due to potential simultaneous changes in policyholder fund allocations and surrenders. Because the Company invests only in dollar-denominated securities, it is not directly exposed to changes in foreign exchange rates. However, the Company may own securities issued by domestic or foreign entities whose profitability or credit ratings may vary with exchange rates.
that are quantifiable and measurable. This approach permits the Company to measure specifically the changes in yield and cash flow on its investments at any given time. The Company's investment approach emphasizes investing in securities that are readily tradable and more easily modeled and hedged, if appropriate.
The Company offers equity-indexed products, through a guaranteed separate account of Integrity, that meet consumer demand for equity investments with downside protection. In connection with this product the Company held 356 off-balance sheet S&P 500 futures contracts at December 31, 1998 having a notional amount of approximately $110.2 million. Market value gains on the futures are a hedge against the Company's obligation to provide equity-indexed returns to customers.
and service fee income from the Company's subsidiaries to meet ongoing cash needs, including amounts required to pay dividends on its common and preferred stock.
In June 1997, the Company completed an initial public offering of 9.2 million shares of Class A common stock of which 5.75 million shares were sold by the Company for net proceeds of $78.8 million. The remaining 3.45 million shares were sold by Morgan Stanley Stockholders. On June 30, 1997, the Company used a portion of such net proceeds to make a $40 million capital contribution to its primary insurance subsidiary, Integrity, thereby strengthening Integrity's capital base to provide for future growth. The Company is using the remaining net proceeds for general corporate purposes.
In July 1998, the Company completed a $75 million offering of Series A Preferred Stock with an initial coupon rate of 5.575% through June 15, 2003. The net proceeds from the sale of the Series A Preferred Stock were used to redeem the Company's $50 million of 9.5% Cumulative Perpetual Preferred Stock on December 15, 1998, and the remainder will be used for general corporate purposes. The Series A Preferred Stock issue provides approximately $569,000 in annual dividend savings, following the redemption of the 9.5% Cumulative Perpetual Preferred Stock.
The Company continues to evaluate the level of capital required to support its business lines. The Company must maintain capital levels that satisfy the requirements of rating agencies, regulators and others for safety and deposit protection of customers and risk-adjusted returns for shareholders. If additional capital becomes necessary the Company will consider various capital and financing strategies including, but not limited to reinsurance and debt or equity offerings. There can be no assurance that the Company would be successful in these efforts.
INSURANCE SUBSIDIARIES OPERATIONS The primary sources of liquidity of the Company's insurance subsidiaries are investment income and proceeds from maturities and redemptions of investments. The principal uses of such funds are benefits, withdrawals and loans associated with customer deposits, commissions, operating expenses, and the purchase of new investments.
In addition, substantially all of the institutional customer deposits are subject to various investment and other guidelines, including investment fair value levels, which if not met could require accelerated withdrawal of the deposits. If this were to occur, the Company might need to sell securities to fund the withdrawals and depending on interest rates and bond values a realized loss could be incurred. In addition, the withdrawals would result in a decrease in assets under management and would have an adverse effect on future earnings.
The Company generated cash flows of $315.3 million, $216.1 million and $192.9 million from operating activities during the years ended December 31, 1998, 1997 and 1996, respectively. These cash flows resulted principally from investment income, less commissions and operating expenses. Proceeds from sales, maturities and redemptions of investments generated $5.9 billion, $3.9 billion and $2.2 billion in cash flows during 1998, 1997 and 1996, respectively, which were offset by purchases of investments of $7.9 billion, $4.8 billion and $2.8 billion, respectively. An increase in investment purchases and sales activity during 1998 compared to 1997 reflects the Company's ongoing management of its fixed maturity portfolio which has increased in size due to sales of retail and institutional spread products.
At December 31, 1998, the Company reported an asset for deferred income taxes of $115.2 million on the carrying amount balance sheet. Such amount is net of a valuation allowance of $28.0 million and deferred tax liabilities. Management believes that the net tax benefit recorded will be fully realizable.
The Company believes that inflation will not have a material adverse effect on results of operations. The Company's retail and institutional spread businesses are subject to several inherent risks arising from movements in interest rates, especially if the Company fails to anticipate or respond to such movements. First, interest rate changes can cause compression of the Company's net spread between interest earned on investments and interest credited on customer deposits, thereby adversely affecting the Company's results. Second, if interest rate changes produce an unanticipated increase in surrenders of the Company's spread-based products, the Company may be forced to sell investment assets at a loss in order to fund such surrenders. Finally, changes in interest rates can have significant effects on the performance of the Company's portfolio of MBSs, including its CMOs, as a result of changes in the prepayment rate of the loans underlying such securities.
If, as a result of interest rate increases, the Company were unable or chose not to raise its crediting rates to keep them competitive, the Company might experience a decrease in sales and increase in surrenders. If the Company lacked sufficient liquidity, the Company might have to sell investment securities to fund associated surrender payments. Because the value of such securities would likely have decreased in response to the increase in interest rates, the Company would realize a loss on such sales. Although certain of the Company's products contain market value adjustment features which approximate and transfer such loss to the customer if the selected time horizon for the fixed return investment is terminated prior to maturity, there can be no assurance that the Company would be fully insulated from realizing any losses on sales of its securities. In addition,
Although the Company anticipates no major interruption of business activities, that will be dependent, in part, upon the activity of third parties. Even though the Company has assessed and continues to assess third party issues, it has no direct ability to influence the compliance actions of such parties. Accordingly, while the Company believes its actions in this regard should have the effect of reducing Year 2000 risks, it is unable to eliminate them or to estimate the ultimate effect Year 2000 risks will have on the Company's operations.
The cost of the Company's Year 2000 initiatives has not been and is not expected to be material to the Company's results of operations or financial condition.
Except for historical information contained in the Annual Report on Form 10-K, certain matters discussed herein, including (without limitation) under Part I, Item 1, "Business -- General" and "Business -- Strategy" and under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements that involve risks and uncertainties, including (without limitation) the Company's belief as to its competitive position in the industry, its strategy and ability to manage asset/liability risk and other factors affecting its business, including Year 2000 compliance. In particular, the statements of the Company's belief as to the growth of the long-term savings and retirement market, the stimulation of future demand for the long-term savings and retirement products and the statements regarding the development of future products to meet the changing needs of the markets that the Company serves are forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements related to the demand for variable, indexed and fixed annuity products include, but are not limited to, a change in population demographics, development of alternative investment products, a change in economic or competitive conditions, and changes in current federal income tax and insurance laws and regulations. In addition, there can be no assurance that (i) the Company has correctly identified and assessed all of the factors affecting its business; (ii) the publicly available and other information on which the Company has based its analyses is complete or correct; (iii) the Company's analyses are correct; or (iv) the Company's strategy, which is based in part on these analyses, will be successful.