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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file numbers
DECEMBER 31, 1999 33-1079, 33-58482
AND 333-09141
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SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
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(Exact name of registrant as specified in its charter)
NEW YORK 04-2845273
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 EAST 42ND STREET
SUITE 1900
NEW YORK, NEW YORK 10017
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(Address of principal
executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 922-9242
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Securities registered pursuant to Section 12(b) of the Act
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None
Securities registered pursuant to Section 12(g) of the Act:
None
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(TITLE OF CLASS)
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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 ____
Registrant has no voting stock outstanding held by non-affiliates.
Registrant has 2,000 shares of common stock outstanding on March 21, 2000,
all of which are owned by Sun Life Assurance Company of Canada (U.S.).
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION I (1) (a) AND (b) FOR FORM 10-K AND IS THEREFORE FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY INSTRUCTION I.
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PART I
ITEM 1. BUSINESS.
The Company is a stock life insurance company incorporated in the state of
New York on May 25, 1983 and currently transacts business only in the State of
New York. The Company is a wholly-owned subsidiary of Sun Life Assurance Company
of Canada (U.S.) ("Sun Life (U.S.)"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481, a stock life insurance company incorporated in
Delaware. Effective May 1, 1997, the Company's ultimate parent company, Sun Life
Assurance Company of Canada ("SLOC"), established a wholly-owned subsidiary, Sun
Life (U.S.) Holdings, Inc. ("Life Holdco"), a Delaware corporation, to serve as
the holding company for Sun Life (U.S.). On December 18, 1997, Life Holdco
became a wholly-owned subsidiary of Sun Life Assurance Company of Canada-U.S.
Operations Holdings, Inc. ("US Holdco"). US Holdco is a wholly-owned subsidiary
of SLOC, 150 King Street West, Toronto, Ontario, Canada, a mutual life insurance
company incorporated pursuant to an Act of Parliament of Canada. The Company is
engaged in the sale of combination fixed and variable annuity contracts, group
life and group health insurance contracts. These contracts are sold by insurance
agents, some of whom are registered representatives of national and regional
stock brokerage firms and brokers.
ITEM 2. PROPERTIES.
The Company owns no properties. During 1998 and 1997, the Company leased two
separate facilities for its annuity operations and group sales offices. On
February 24, 1999, the Company terminated the lease associated with its annuity
operations office as it consolidated the functions performed at this facility
with its parent company, Sun Life (U.S.). After the group sales office lease
expired in July 1999, the Company entered a five-year lease for a facility that
combined its group sales office operation and corporate home office.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in various kinds of routine litigation which, in
management's judgment, is not expected to have a material impact on capital and
surplus.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to Instruction I(2)(c) to Form 10-K.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company is a wholly-owned subsidiary of Sun Life (U.S.) and as such
there is no market for its common stock.
The Company paid a cash dividend of $6,500,000 to its immediate parent, Sun
Life (U.S.), on March 29, 1999.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to Instruction I(2)(a) to Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS.
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 defines forward-looking
statements as statements not based on historical fact. This Form 10-K includes
forward-looking statements by the Company. These statements relate to such
topics as Year 2000 compliance, volume growth, market share, and financial
goals. It is important to understand that these forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those that the statements anticipate. These risks and
uncertainties may concern, among other things:
1
- - Heightened competition, particularly in terms of price, product features, and
distribution capability, which could constrain the Company's growth and
profitability.
- - Changes in interest rates and market conditions.
- - Regulatory and legislative developments.
- - The Company's ability to identify and address any remaining Year 2000 issues
successfully, in a timely manner, and at reasonable cost. They also may
concern the ability of the Company's vendors, suppliers, other service
providers, and customers to successfully address any of their own remaining
Year 2000 issues in a timely manner.
FINANCIAL CONDITION
Omitted pursuant to Instruction I(2)(a) to Form 10-K.
RESULTS OF OPERATIONS
The Company had net income of $4,710,000 for 1999 as compared to $6,685,000
for 1998. The $1,975,000 decrease in net income was due to lower earnings in
both its Wealth Management and Protection segments.
The decline in Wealth Management income was due primarily to an increase in
operating expenses as a result of the consolidation of the Company's annuity
operation, offset by lower strain from lower than expected annuity sales. During
1999, the Company consolidated its customer service and accounting functions
with its parent company, Sun Life (U.S.). One-time charges incurred in
connection with this consolidation totaled approximately $800,000 and consisted
primarily of: (1) severance and employee benefit costs; (2) termination fee
associated with a lease cancellation and; (3) furniture and equipment write-
offs. The decline in annuity deposit-type funds in the Wealth Management segment
was due to lower sales associated with the Company's dollar cost averaging
("DCA") program. Under the DCA program deposits are made into the fixed portion
of the Company's market value adjusted combination fixed/variable annuity
contract and receive a more favorable crediting rate for the policy year. During
the year, the fixed deposit is exchanged to the variable portion of the contract
in equal periodic installments. The decline in 1999 DCA sales was attributable
to the Company adhering to the New York State Insurance Department's (the
"Department") request to limit the DCA crediting rate the Company, and its
competitors, could offer. In November 1999, after the Department issued
guidelines to permit New York licensed insurers to offer an enhanced DCA
crediting rate, the Company reintroduced the DCA program. Also contributing to
lower annuity deposit fund sales was the implementation, in November 1998, of
the Department's Regulation 60, which governs replacement sales.
The decline in Protection income was due to unfavorable group life mortality
experience and higher group health reserves from an increase in group long-term
disability claims experience.
The total capital stock and surplus position of the Company at December 31,
1999, was $41,346,000. Cash dividends of $6,500,000 million were paid to its
parent company, Sun Life (U.S.) during 1999. The Company's management considers
its surplus position to be adequate.
YEAR 2000 COMPLIANCE
The statements in this section include "Year 2000 Readiness Disclosures"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
During the fourth quarter of 1996, the Company, its ultimate parent, Sun
Life Assurance Company of Canada ("SLOC"), and affiliates began a comprehensive
analysis of its information technology ("IT") and non-IT systems, including its
hardware, software, data, data feed products, and internal and external
supporting services, to address the ability of these systems to correctly
process date calculations through the year 2000 and beyond. SLOC created a
full-time Year 2000 project team in early 1997 to manage this
2
endeavor across all affiliates. This team, which worked with dedicated personnel
from all business units and with the legal and audit departments, reported
directly to SLOC's senior management on a monthly basis. In addition, SLOC's
Year 2000 project was periodically reviewed by internal and external auditors.
Relevant systems were identified and their components inventoried, needed
resolutions were documented, timelines and project plans were developed,
remediation and testing were completed. All of the Company's critical systems
were assessed, fixed where necessary, tested, and, based on those tests, are
considered to be Year 2000 compliant. The company regards Year 2000 compliance
as meaning that its business systems will have passed tests that indicate they
will operate accurately before, during, and after January 1, 2000 with respect
to Year 2000 issues.
In mid-1997, the project team contacted all key vendors to obtain their
representation that the products and services provided would not have a Year
2000 issue. Where appropriate, vendor testing was conducted. In addition, the
project team worked with critical business partners, such as third-party
administrators, investment property managers, investment mortgage
correspondents, and others, with the goal of verifying that these partners would
continue to be able to support the Company's business during and after the Year
2000.
Non-IT applications, including building security, HVAC systems, and other
such systems, as well as IT applications, were tested. Compliant client server
and mainframe environments were used to allow for testing of critical dates such
as December 31, 1999, January 1, 2000, February 28, 2000, February 29, 2000, and
March 1, 2000 without impact to the Company's production environment.
The Company has completed an assessment of its systems, and has not
identified any significant Year 2000 problems. No material problems were
encountered on key dates including December 31, 1999, January 1, 2000,
January 31, 2000, and February 28, 2000 through March 1, 2000. Although we
continue to be free of any Year 2000 issues, the Company will continue to
monitor its systems over the coming months as part of its normal practices. The
Company does not currently anticipate that it will experience any material Year
2000 problems, however, there can be no assurance that a Year 2000 issue will
not arise. Factors giving rise to this uncertainty include possible loss of
knowledgeable technical resources, failure to identify all susceptible system
processing, compliance issues of third parties whose systems and operations
affect the Company, and other similar uncertainties. A possible worst-case
scenario might include identification of a Year 2000 issue in one or more of the
Company's systems. Such a scenario could result in disruption to the Company's
operations. Consequences of such disruptions could include, among other
possiblities, the inability to update customers' accounts, process payments and
other financial transactions; and the inability to report accurate data to
customers, management, regulators, and others. Consequences also could include
business interruptions or shutdowns, reputational harm, increased scrutiny by
regulators, and litigation related to Year 2000 issues. Such potential
consequences, depending on their nature and duration, could have an impact on
the Company's results of operations and financial position.
In order to mitigate the risks to the Company of material adverse
operational or financial impacts from the Year 2000 problem, the Company
established contingency planning at the business unit and corporate levels. Each
business unit ranked its applications as being of high, medium or low business
risk, identified its critical business processes, developed alternative plans of
action where possible, and conducted walkthroughs of those plans. On the
corporate level, the Company enhanced its business continuation plan by
identifying minimum requirements for facilities, computing, staffing, and other
factors and developed a plan to support those requirements.
As of year-end 1999, the Company expended, cumulatively, approximately
$288,000 ($67,000 in 1999) on its Year 2000 effort.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
3
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the Company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy statement that it has established for that segment. The policy
statement discusses the segment's liability characteristics and liquidity
requirements, provides cash flow estimates, and sets targets for asset mix,
duration, and quality. Each quarter, investment and business unit managers
review these policy statements to ensure that the policies remain appropriate,
taking into account each segment's liability characteristics.
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted
in high-quality portfolios and have the effect of limiting credit risk. It is
the Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk, nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. The management of
interest rate risk exposure is discussed below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well-diversified portfolios of fixed interest rate investments. All of these
fixed interest rate investments are held for other than trading purposes and can
include publicly issued and privately placed bonds and commercial mortgage
loans. Public bonds can include Treasury bonds, corporate bonds, and money
market instruments. The Company's fixed income portfolios also hold securitized
assets, including mortgage-backed securities ("MBS") and asset-backed
securities. These securities are subject to the same standards applied to other
portfolio investments, including relative value criteria and diversification
guidelines. In portfolios backing interest-sensitive liabilities, the Company's
policy is to limit MBS holdings to less than 10% of total portfolio assets. In
all portfolios, the Company restricts MBS investments to pass-through securities
issued by U.S. government agencies and to collateralized mortgage obligations,
which are expected to exhibit relatively low volatility. The Company does not
engage in leveraged transactions and it does not invest in the more speculative
forms of these instruments such as the interest-only, principal-only, inverse
floater, or residual tranches.
Changes in the level of domestic interest rates affect the market value of
fixed interest rate assets and liabilities. Segments whose liabilities mainly
arise from the sale of products containing interest rate guarantees for certain
terms are sensitive to changes in interest rates. In these segments, the Company
uses "immunization" strategies, which are specifically designed to minimize the
loss from wide fluctuations in interest rates. The Company supports these
strategies using analytical and modeling software acquired from outside vendors.
Significant features of the Company's immunization models include:
- an economic or market value basis for both assets and liabilities;
- an option pricing methodology;
- the use of effective duration and convexity to measure interest rate
sensitivity;
- the use of "key rate durations" to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
4
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1999 had a fair value of $25.7 million. Fixed
income investments supporting those liabilities had a fair value of $73.0
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1999. The analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $.6
million and the corresponding assets would show a net decrease of $2.1 million.
By comparison, liabilities categorized as financial instruments and held in
the Company's general account at December 31, 1998 had a fair value of $29.2
million. Fixed income investments supporting those liabilities had a fair value
of $82.3 million at that date. The Company performed a sensitivity analysis on
these interest-sensitive liabilities and assets at December 31, 1998. The
analysis showed that if there were an immediate increase of 100 basis points in
interest rates, the fair value of the liabilities would show a net decrease of
$.7 million and the corresponding assets would show a net decrease of $2.4
million.
The Company produced these estimates using computer models. Since these
models reflect assumptions about the future, they contain an element of
uncertainty. For example, the models contain assumptions about future
policyholder behavior and asset cash flows. Actual policyholder behavior and
asset cash flows could differ from what the models show. As a result, the
models' estimates of duration and market values may not reflect what actually
will occur. The models are further limited by the fact that they do not provide
for the possibility that management action could be taken to mitigate adverse
results. The Company believes that this limitation is one of conservatism; that
is, it will tend to cause the models to produce estimates that are generally
worse than one might actually expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements, in the form required by Regulation S-X, are set forth
below. The Company is not subject to the requirement to file supplementary
financial data specified by Item 302 of Regulation S-K.
5
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1999 AND 1998
1999 1998
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ADMITTED ASSETS
Bonds $ 59,215,128 $ 57,916,869
Mortgage loans on real estate 8,659,610 17,657,672
Properties acquired in satisfaction of debt -- 1,755,854
Policy loans 537,976 625,023
Cash and short-term investments 6,261,102 5,928,556
Life insurance premiums and annuity considerations due
and uncollected 2,168,135 667,087
Accident and health premiums due and unpaid 579,460 156,493
Receivable from parent and affiliates 621,625 --
Investment income due and accrued 795,075 780,020
Federal income tax recoverable 520,467 --
Other assets 235,655 183,602
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General account assets 79,594,233 85,671,176
Separate account assets
Unitized 632,350,720 527,942,310
Non-unitized 94,061,504 100,064,243
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Total admitted assets $806,006,457 $713,677,729
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LIABILITIES
Aggregate reserve for life policies and contracts $ 21,762,306 $ 22,578,780
Aggregate reserve for accident and health policies 9,251,000 7,830,000
Policy and contract claims 2,182,472 2,174,704
Liability for premium and other deposit funds 18,048,656 20,807,840
Interest maintenance reserve 553,770 830,941
Commissions to agents due or accrued 449,213 374,826
General expenses due or accrued 580,432 369,524
Transfers from Separate Accounts due or accrued (17,043,885) (15,992,081)
Taxes, licenses and fees due or accrued 100,000 64,813
Federal income taxes due or accrued -- 700,000
Asset valuation reserve 1,210,107 1,047,787
Payable to parent, subsidiaries, and affiliates -- 1,218,745
Other liabilities 1,353,930 684,361
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General account liabilities 38,448,001 42,690,240
Separate account liabilities:
Unitized 632,150,968 527,751,720
Non-unitized 94,061,504 100,064,243
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Total liabilities 764,660,473 670,506,203
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CAPITAL STOCK AND SURPLUS
Common capital stock 2,000,000 2,000,000
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Gross paid in and contributed surplus 29,500,000 29,500,000
Group life contingency reserve fund 1,035,323 812,391
Unassigned funds 8,810,661 10,859,135
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Total surplus 39,345,984 41,171,526
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Capital stock and surplus 41,345,984 43,171,526
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Total Liabilities, Capital Stock and Surplus $806,006,457 $713,677,729
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SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
6
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
INCOME:
Premiums and annuity considerations $ 19,152,409 $ 16,979,974 $ 16,013,160
Deposit-type funds 39,510,208 84,013,114 115,692,429
Net investment income 5,170,881 6,397,852 8,824,668
Amortization of interest maintenance
reserve 254,220 319,812 519,001
Net gain from operations from
Separate Accounts 9,162 9,115 8,743
Income from fees associated with
investment management,
administration and contract
guarantees from Separate Accounts 7,470,958 6,262,374 4,707,296
Other income 938,657 1,179,261 657,755
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Total Income 72,506,495 115,161,502 146,423,052
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BENEFITS AND EXPENSES:
Death benefits 7,357,222 6,237,281 4,916,746
Annuity benefits 5,238,282 5,758,805 5,439,091
Disability benefits and benefits
under accident and health policies 1,351,989 1,094,851 939,635
Surrender benefits and other fund
withdrawals 59,018,693 73,863,143 79,016,904
Interest on policy or contract funds 82,760 101,516 75,069
Increase in aggregate reserves for
life and accident and health
policies and contracts 604,526 620,154 5,199,040
Decrease in liability for premium
and other deposit funds (2,759,184) (10,533,414) (30,405,893)
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Total Benefits 70,894,288 77,142,336 65,180,592
Commissions on premiums and annuity
considerations (direct business
only) 4,712,712 4,850,390 5,582,738
General insurance expenses 6,372,100 7,017,562 7,687,478
Insurance taxes, licenses and fees,
excluding federal income taxes 742,992 709,440 788,386
Net transfers to (from) Separate
Accounts (16,002,095) 16,673,071 61,695,832
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Total Benefits and Expenses 66,719,997 106,392,799 140,935,026
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Net gain from operations before
federal income taxes 5,786,498 8,768,703 5,488,026
Federal income taxes incurred
(excluding tax on capital gains) 1,228,004 2,070,545 2,315,259
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Net gain from operations after
federal income taxes and before
realized capital gains 4,558,494 6,698,158 3,172,767
Net realized capital (losses) gains
less capital gains tax and
transferred to the interest
maintenance reserve 151,678 (13,249) 183,262
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NET INCOME $ 4,710,172 $ 6,684,909 $ 3,356,029
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SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
7
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
Capital and surplus, Beginning of year $43,171,526 $38,781,183 $34,802,643
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Net income 4,710,172 6,684,909 3,356,029
Change in net unrealized capital gains -- 359,000 138,000
Change in nonadmitted assets and
related items 126,606 47,886 (14,391)
Change in asset valuation reserve (162,320) 298,548 498,902
Dividend to stockholder (6,500,000) (3,000,000) --
----------- ----------- -----------
Net change in capital and surplus for
the year (1,825,542) 4,390,343 3,978,540
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Capital and surplus, End of year $41,345,984 $43,171,526 $38,781,183
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SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
8
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
Cash Provided:
Premiums, annuity considerations and
deposit funds received $ 57,235,427 $101,168,181 $138,347,877
Net investment income 5,324,547 6,731,025 9,707,801
Fees associated with investment
management, administration and
contract guarantees from Separate
Accounts 7,470,958 6,262,374 4,707,296
Fee income 938,659 1,179,261 657,755
------------ ------------ ------------
Total receipts 70,969,591 115,340,841 153,420,729
------------ ------------ ------------
Benefits paid 73,041,178 86,793,629 122,170,301
Insurance expenses and taxes paid 11,229,543 12,819,426 13,540,362
Net cash transfers to (from) Separate
Accounts (14,950,291) 25,441,094 41,721,173
Federal income tax payments (excluding
tax on capital gains) 1,928,000 2,370,545 1,715,259
------------ ------------ ------------
Total payments 71,248,430 127,424,694 179,147,095
------------ ------------ ------------
Net cash used in operations (278,839) (12,083,853) (25,726,366)
------------ ------------ ------------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$81,675 for 1999, $135,651 for 1998
and $222,860 for 1997) 47,042,986 37,410,774 59,132,310
Other cash provided 717,427 813,054 325,543
------------ ------------ ------------
Total cash provided 47,760,413 38,223,828 59,457,853
------------ ------------ ------------
Cash Applied:
Cost of long-term investments acquired (37,498,243) (26,671,265) (27,369,138)
Other cash applied (9,650,785) (3,660,391) (857,106)
------------ ------------ ------------
Total cash applied (47,149,028) (30,331,656) (28,226,244)
Net change in cash and short-term
investments 332,546 (4,191,681) 5,505,243
Cash and short-term investments:
Beginning of year 5,928,556 10,120,237 4,614,994
------------ ------------ ------------
End of year $ 6,261,102 $ 5,928,556 $ 10,120,237
============ ============ ============
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
9
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Sun Life Insurance and Annuity Company of New York (the "Company") is
incorporated as a life insurance company and is currently engaged in the sale of
individual fixed and variable annuities, group life and group long-term
disability insurance. The parent company, Sun Life Assurance Company of Canada
(U.S.) ("Sun Life (U.S.)"), is ultimately a wholly-owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC)"), a mutual life insurance company.
The Company, which is domiciled in the State of New York, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of New York Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles ("GAAP") for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation") that became effective in 1996, which has changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with GAAP. Consequently, these financial
statements prepared in conformity with statutory accounting practices as
described above, vary from and are not intended to present the Company's
financial position, results of operations or cash flow in conformity with GAAP.
(See Note 17 for further discussion relative to the Company's basis of financial
statement presentation.) The effects on the financial statements of the
variances between the statutory basis of accounting and GAAP, although not
reasonably determinable, are presumed to be material.
INVESTED ASSETS
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans at the amounts of the unpaid balances.
Real estate investments are carried at the lower of cost, adjusted for
accumulated depreciation, or appraised value less encumbrances. Short-term
investments are carried at amortized cost, which approximates fair value.
Depreciation of buildings and improvements is calculated using the straight-
line method over the estimated useful life of the property, generally forty to
fifty years.
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in accordance
with presently accepted actuarial standards, and are based on actuarial
assumptions and methods (including use of published mortality tables and
prescribed interest rates) which produce reserves at least as great as those
required by law and contract provisions.
INCOME AND EXPENSES
For group life, group long-term disability and annuity contracts, premiums are
recognized as revenues over the premium paying period, whereas commissions and
other costs applicable to the acquisition of new business are charged to
operations as incurred.
10
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to individual
qualified and nonqualified variable annuity contracts.
The Company has also established a nonunitized separate account for amounts
allocated to the fixed portion of a certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value as determined
by the quoted market prices of the underlying investments.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts that have not been transferred are recorded as
payable (receivable) to (from) the general account. Transfers from separate
accounts due or accrued amounted to $17,044,000 in 1999 and $15,992,000 in 1998.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the State of New York will require adoption of the Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
11
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BONDS
Investments in debt securities are as follows:
DECEMBER 31, 1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN 000'S)
Long-term bonds:
United States Government and government
agencies and authorities $ 6,148 $13 $ (171) $ 5,990
Public utilities 8,765 7 (391) 8,381
Transportation 3,521 -- (16) 3,505
Finance 7,742 -- (183) 7,559
All other corporate bonds 33,039 69 (1,379) 31,729
------- --- ------- -------
Total long-term bonds 59,215 89 (2,140) 57,164
Short-term bonds -- U.S. Treasury Bills, bankers
acceptances and commercial paper 6,958 -- -- 6,958
------- --- ------- -------
Total bonds $66,173 $89 $(2,140) $64,122
======= === ======= =======
DECEMBER 31, 1998
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN 000'S)
Long-term bonds:
United States Government and government
agencies and authorities $16,153 $ 319 $(31) $16,441
Public utilities 11,353 213 (16) 11,550
Transportation 2,553 19 -- 2,572
Finance 6,260 122 (9) 6,373
All other corporate bonds 21,598 430 (37) 21,991
------- ------ ---- -------
Total long-term bonds 57,917 1,103 (93) 58,927
Short-term bonds -- U.S. Treasury Bills, bankers
acceptances and commercial paper 5,258 -- -- 5,258
------- ------ ---- -------
Total bonds $63,175 $1,103 $(93) $64,185
======= ====== ==== =======
12
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BONDS (CONTINUED):
The amortized cost and estimated fair value of debt securities at December 31,
1999 are shown below by contractual maturity.Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call and/or prepayment penalties.
DECEMBER 31, 1999
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
(IN 000'S)
Maturities are:
Due in one year or less $12,010 $12,001
Due after one year through five years 21,833 21,766
Due after five years through ten years 19,002 17,447
Due after ten years 6,211 5,873
------- -------
Subtotal 59,056 57,087
Mortgage-backed securities 7,117 7,035
------- -------
Total bonds $66,173 $64,122
======= =======
Proceeds from sales and maturities of investments in debt securities during
1999, 1998 and 1997 were $35,978,000, $29,068,000 and $42,986,000, gross gains
of $192,000, $407,000 and $395,000 and gross losses of $395,000, $2,000 and
$40,000, respectively.
A bond, included above, with an amortized cost of approximately $405,000 and
$404,000 at December 31, 1999 and 1998, respectively, was on deposit with the
Superintendent of Insurance of the State of New York as required by law.
3. MORTGAGE LOANS
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
The following table shows the geographical distribution of the mortgage loan
portfolio at December 31:
1999 1998
---- ----
(IN 000'S)
California $ 582 $ 3,421
Florida 733 777
Massachusetts -- 1,090
New York 1,413 2,868
Ohio 1,271 1,291
All other 4,661 8,211
------ -------
$8,660 $17,658
====== =======
As of December 31, 1999 and 1998, the Company had no restructured mortgage
loans.
The Company has no outstanding mortgage loan commitments on real estate.
13
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. INVESTMENT GAINS (LOSSES)
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN 000'S)
Realized capital gains (losses):
Bonds $ 2 $ 7 $(99)
Mortgage loans (27) (8) (6)
Real estate 177 (12) 288
---- ---- ----
$152 $(13) $183
==== ==== ====
Changes in unrealized capital gains on mortgage loans $ -- $359 $138
==== ==== ====
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an interest
maintenance reserve ("IMR") and amortized into income over the remaining
contractual life of the security sold. The net realized capital gains (losses)
credited to the IMR were $(35,000), $408,000 and $355,000 in 1999, 1998 and
1997, respectively. All gains are transferred net of applicable income taxes.
5. NET INVESTMENT INCOME
Net investment income consisted:
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN 000'S)
Interest income from bonds $4,108 $4,570 $5,622
Interest income from mortgage loans 1,370 1,926 3,279
Real estate investment income -- 22 483
Other investment income 43 125 170
------ ------ ------
Gross investment income 5,521 6,643 9,554
Investment expenses 350 245 729
------ ------ ------
Net investment income $5,171 $6,398 $8,825
====== ====== ======
6. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality and morbidity risks of the group life insurance contracts and group
long-term disability contracts issued by the Company. Under these agreements
basic death benefits and long-term disability benefits are reinsured on a yearly
renewable term basis. The agreements provide that SLOC will reinsure the
mortality risks in excess of $50,000 per policy for group life insurance
contracts and $4,000 per policy per month for the group long-term disability
contracts ceded by the Company. For the years ended December 31, 1998 and 1997,
the agreements provided that SLOC would reinsure $3,000 per policy per month for
the group long-term disability contracts ceded by the Company. Reinsurance
transactions under these agreements had the effect of increasing (decreasing)
income from operations by $(169,000), $(771,000) and $139,000 for the years
ended December 31, 1999, 1998, and 1997, respectively.
The group life and long-term disability reinsurance agreements require that the
reinsurer provide funds in amounts equal to the reserves ceded.
14
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. REINSURANCE (CONTINUED):
The following are summarized pro forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN 000'S)
Income:
Premiums, annuity deposits and other revenues $71,099 $105,728 $142,915
Net investment income and realized gains 5,323 6,718 9,343
------- -------- --------
Subtotal 76,422 112,446 152,258
------- -------- --------
Benefits and expenses:
Policyholder benefits 74,539 79,918 101,371
Other expenses (4,225) 22,988 45,538
------- -------- --------
Subtotal 70,314 102,906 146,909
------- -------- --------
Income from operations $ 6,108 $ 9,540 $ 5,349
======= ======== ========
The Company is contingently liable for the portion of the policies reinsured
under each of its existing reinsurance agreements in the event SLOC is unable to
pay their portion of any reinsured claim. Management believes that any liability
from this contingency is unlikely.
7. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
DECEMBER 31, 1999
---------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 90,735 12.2
At book value less surrender charges (surrender charge >
5%) 6,221 0.8
At book value (minimal or no charge or adjustment) 626,008 84.1
Not subject to discretionary withdrawal provision 21,252 2.9
-------- ------
Total annuity actuarial reserves and deposit liabilities $744,216 100.0
======== ======
DECEMBER 31, 1998
---------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
Subject to discretionary withdrawal:
With market value adjustment $ 98,744 15.2
At book value less surrender charges (surrender charge >
5%) 7,108 1.1
At book value (minimal or no charge or adjustment) 523,814 80.5
Not subject to discretionary withdrawal provision 20,709 3.2
-------- ------
Total annuity actuarial reserves and deposit liabilities $650,375 100.0
======== ======
15
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, group life insurance and group long-term disability protection.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The Wealth Management segment markets and administers individual variable and
fixed annuity products, including market value adjusted annuities, while the
Protection segment markets and administers group life insurance and group
long-term disability products.
The following amounts pertain to the various business segments:
FEDERAL TOTAL
TOTAL TOTAL PRETAX INCOME GENERAL ACCOUNT
REVENUES EXPENDITURES INCOME TAXES ASSETS
------------ ------------ ---------- ---------- ---------------
1999:
Wealth Management $ 53,466,000 $ 50,636,000 $2,830,000 $ 155,000 $ 37,356,000
Protection 16,550,000 15,914,000 636,000 237,000 17,025,000
Corporate 2,490,000 170,000 2,320,000 836,000 25,213,000
------------ ------------ ---------- ---------- ------------
Total: $ 72,506,000 $ 66,720,000 $5,786,000 $1,228,000 $ 79,594,000
============ ============ ========== ========== ============
1998:
Wealth Management 97,936,000 92,889,000 5,047,000 449,000 36,148,000
Protection 15,155,000 13,251,000 1,904,000 654,000 14,685,000
Corporate 2,071,000 253,000 1,818,000 968,000 34,838,000
------------ ------------ ---------- ---------- ------------
Total: $115,162,000 $106,393,000 $8,769,000 $2,071,000 $ 85,671,000
============ ============ ========== ========== ============
1997:
Wealth Management 130,926,000 127,120,000 3,806,000 1,803,000 43,799,000
Protection 12,623,000 13,791,000 (1,168,000) (406,000) 10,706,000
Corporate 2,874,000 24,000 2,850,000 918,000 46,273,000
------------ ------------ ---------- ---------- ------------
Total: $146,423,000 $140,935,000 $5,488,000 $2,315,000 $100,778,000
============ ============ ========== ========== ============
9. RETIREMENT PLANS
The Company participates with SLOC and Sun Life (U.S.) in a noncontributory
defined benefit pension plan covering essentially all employees. The benefits
are based on years of service and compensation.
The funding policy for the pension plan is to contribute an amount, which at
least satisfies the minimum amount required by ERISA; currently the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension cost at December 31, 1999,
1998 and 1997 was $338,000, $275,000 and $211,000, respectively. The Company's
share of net periodic pension cost was $63,000, $65,000 and $33,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The Company also participates with SLOC, Sun Life (U.S.) and certain affiliates
in a 401(k) savings plan for which substantially all employees are eligible. The
Company matches, up to specified amounts, employees' contributions to the plan.
Company contributions were $26,000, $30,000 and $28,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
16
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. RETIREMENT PLANS (CONTINUED):
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company provides certain health, dental and
life insurance benefits ("postretirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $50,000 over a period of ten years. The Company's cash flows are
not affected by implementation of this standard, but implementation decreased
net income by $9,000, $6,000 and $16,000 for the years ended December 31, 1999,
1998 and 1997, respectively. The Company's postretirement health, dental and
life insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
postretirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's statutory
financial statements at December 31:
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN 000'S)
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial (gain) loss (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 515 $ 269 $ 21 $ 89
Benefit obligation at end of year 577 515 30 21
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
17
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. RETIREMENT PLANS (CONTINUED):
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN 000'S)
The Company's share of accrued
benefit cost $ (338) $ (275) $ (50) $ (41)
======== ======== ======== =======
Weighted-average assumptions as of
December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 239
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- -------- -------- -------
Net periodic benefit cost $ (1,487) $ (1,367) $ 1,467 $ 937
======== ======== ======== =======
The Company's share of net periodic
benefit cost $ 63 $ 65 $ 9 $ 6
======== ======== ======== =======
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN 000'S)
Effect on total of service and interest cost components $ 288 $ (518)
Effect on postretirement benefit obligation $2,754 $(2,279)
10. FAIR VALUE OF FINANCIAL STATEMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
1999 1998
--------------------------- ---------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(IN 000'S)
ASSETS:
Bonds (including short-term) $66,173 $64,122 $63,175 $64,185
Mortgages 8,660 8,876 17,658 18,157
Policy loans 538 538 625 625
LIABILITIES:
Individual annuities $26,561 $25,696 $29,724 $29,212
18
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. FAIR VALUE OF FINANCIAL STATEMENTS (CONTINUED):
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk,
maturity, repayment and liquidity characteristics.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of policy loans approximate carrying amounts.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance and annuity contracts
that do not involve mortality or morbidity risks) are estimated using discounted
cash flow analyses or surrender values. Those contracts that are deemed to have
short-term guarantees have a carrying amount equal to the estimated fair value.
11. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, mortgage loans, real-estate and other invested assets with
related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an Interest
Maintenance Reserve and amortized into income over the remaining contractual
life of the security sold.
The table shown below presents changes in the major elements of the AVR and IMR:
1999 1998
------------------- -------------------
AVR IMR AVR IMR
--- --- --- ---
(IN 000'S)
Balance, beginning of year $1,048 $831 $1,346 $886
Net realized capital (losses) gains, net of tax 152 (21) (13) 265
Amortization of net investment gains -- (256) -- (320)
Unrealized investment gains -- -- 359 --
Required by formula 10 -- (644) --
------ ---- ------ ----
Balance, end of year $1,210 $554 $1,048 $831
====== ==== ====== ====
12. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claim adjustment expense is
summarized below (in 000's).
1999 1998 1997
-------- -------- --------
Balance, January 1 $11,770 $10,239 $ 6,129
Claims incurred 10,700 8,491 9,008
Claims paid (8,751) (6,960) (4,898)
------- ------- -------
Balance, December 31 $13,719 $11,770 $10,239
======= ======= =======
19
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES (CONTINUED):
The information presented above includes unpaid benefit claims and claim
adjustment expenses for the group life and group long-term disability contracts.
As of December 31, 1999 and 1998, the unpaid claims and claim adjustment
liability for these contracts is included in aggregate reserves.
13. FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with Sun Life (U.S.)
and other affiliates. Federal income taxes are calculated as if the Company
filed a return as a separate company. No provision is recognized for timing
differences, which may exist between financial statement and taxable income.
Such differences include reserves, depreciation and accrual of market discount
on bonds. The Company made cash payments to Sun Life (U.S.) of $2,521,000,
$2,506,000 and $1,938,000 during 1999, 1998 and 1997, respectively.
14. LEASE COMMITMENTS
Prior to 1999, the Company leased two separate facilities for its annuity
operations and group sales offices. Both leases commenced in March 1994. During
1999, the Company terminated its lease at its annuity operations facility as it
consolidated the functions performed at this facility with its parent company,
Sun Life (U.S.). The group sales office lease expired in July 1999 and was
renewed in August 1999 for a five year term. The total lease obligations are
$1,098,000 through the end of the lease term. Rent expense under these leases in
1999, 1998 and 1997 amounted to $426,000, $344,000, and $348,000, respectively.
15. TRANSACTIONS WITH AFFILIATES
The Company has agreements with SLOC which provide that SLOC will furnish to the
Company, as requested, personnel as well as certain investment, actuarial and
administrative services on a cost reimbursement basis. Expenses under these
agreements amounted to approximately $2,045,000 in 1999, $1,037,000 in 1998 and
$1,155,000 in 1997.
Cash dividends may be paid out of that part of the Company's available and
accumulated surplus funds, which was derived from realized net operating profits
of its business and realized capital gain. A cash dividend otherwise lawful may
be paid out of such earned surplus even though total surplus is at the time less
than previously contributed or paid-in surplus. No cash dividend shall be paid
to stockholder unless a notice of the intention of the Board of Directors to
declare such dividend and the amount thereof shall have been filed with the
Superintendent of Insurance of the State of New York not less than thirty days
in advance of such proposed declaration, nor if the Superintendent within thirty
days after such filing gives written notice to the Company of his disapproval of
such payment. Stock dividends may be paid out of any available surplus funds.
The maximum amount of dividends, which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of New York, is subject to
restrictions relating to statutory surplus. A dividend in the amount of
$3,000,000 was declared and paid during 1998 by the Company to Sun Life (U.S.).
In 1999, a dividend in the amount of $6,500,000 was declared, approved by the
Board of Directors, and paid by the Company to Sun Life (U.S.).
16. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting practices,
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1999 and 1998.
20
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company incurred
guaranty fund assessments of approximately $26,000, $114,000, and $99,000 in
1999, 1998 and 1997, respectively.
18. ACCOUNTING POLICIES AND PRINCIPLES
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting and GAAP are described as follows. Statutory accounting practices do
not recognize the following assets or liabilities, which are reflected under
GAAP: deferred acquisition costs, deferred federal income taxes and statutory
non admitted assets. AVR and IMR are established under statutory accounting
practices but not under GAAP. Methods for calculating real estate depreciation
and investment valuation allowances differ under statutory accounting practices
and GAAP. Premiums for investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
19. CONSOLIDATION OF CERTAIN OPERATIONS AND ACCOUNTING FUNCTIONS
Effective July 1, 1999, the Company consolidated its customer service and
accounting functions, formerly performed at its office at 80 Broad Street in New
York, New York, with its parent company, Sun Life (U.S.), based in Wellesley
Hills, Massachusetts. In 1999 the Company incurred one-time charges
approximating $800,000, which consisted primarily of: (1) severance and employee
benefit costs for 18 employees; (2) termination fee associated with canceling
its lease at its annuity operations facility; and (3) furniture and equipment
write-offs.
21
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Insurance and Annuity
Company of New York ("the Company") as of December 31, 1999 and 1998, and the
related statutory statements of operations, changes in capital stock and
surplus, and cash flow for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 18 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of New York,
which is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and capital stock and
surplus of Sun Life Insurance and Annuity Company of New York as of
December 31, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 on the basis
of accounting described in Notes 1 and 18.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Insurance and
Annuity Company of New York as of December 31, 1999 and 1998 or the results of
its operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
February 10, 2000
22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE.
No events have occurred which are required to be reported by Item 304 of
regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Omitted pursuant to Instruction I(2)(c) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to Instruction I(2)(c) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to Instruction I(2)(c) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to Instruction I(2)(c) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial statements (set forth in Item 8):
-- Statutory Statements of Admitted Assets, Liabilities and Capital Stock
and Surplus as of December 31, 1999 and December 31, 1998.
-- Statutory Statements of Operations for each of the three years ended
December 31, 1999, December 31, 1998 and December 31, 1997.
-- Statutory Statements of Changes in capital Stock and Surplus for each
of the threee years ended December 31, 1999, December 31, 1998 and
December 31, 1997.
-- Statutory Statements of Cash Flow for each of the threee years ended
December 31, 1999, December 31, 1998 and December 31, 1997.
-- Notes to Statutory Financial Statements, Years Ended December 31,
1999, 1998 and 1997.
-- Independent Auditors' Report.
(a) 2. Financial statement schedules (set forth below):
-- Schedule I--Summary of Investments, Other than Investments in
Affiliates.
-- Schedule VI--Summary of Reinsurance.
-- Independent Auditors' Report.
Financial statement schedules not included in this Form 10-K have been
omitted because the required information either is not applicable or is
presented in the consolidated financial statements or notes thereto.
23
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
SCHEDULE I
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN AFFILIATES
AMOUNT AT WHICH SHOWN IN
TYPE OF INVESTMENT COST VALUE THE BALANCE SHEET
- -------------------------------------------------- -------- ---------- ------------------------
(IN 000'S)
Bonds:
United States government and government
agencies and authorities $ 6,148 $ 5,990 $ 6,148
Public utilities 8,765 8,381 8,765
Transportation 3,521 3,505 3,521
Finance 7,742 7,559 7,742
All other corporate bonds 33,039 31,729 33,039
------- ------- -------
Total bonds 59,215 $57,164 59,215
------- ------- -------
Mortgage loans 8,660 8,660
Real estate 0 0
Policy loans 538 538
Short-term investments 6,958 6,958
------- -------
Total investments $75,371 $75,371
======= =======
24
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(IN 000'S)
FUTURE POLICY BENEITS, OTHER POLICY
LOSSES, CLAIMS AND CLAIMS AND
SEGMENT LOSS EXPENSES BENEFITS PAYABLE
- ------- ---------------------- ----------------
PROTECTION
1999 13,883 2,182
1998 11,270 2,175
WEALTH MANAGEMENT
1999 35,179 --
1998 39,947 --
CORPORATE
1999 -- --
1998 -- --
BENEFITS CLAIMS, OTHER
PREMIUM NET INVESTMENT LOSSES, AND OPERATING
REVENUE INCOME (1) SETTLEMENT EXPENSES EXPENSES
---------- -------------- ------------------- ---------
PROTECTION
1999 15,720 798 11,127 4,787
1998 14,283 872 8,974 4,262
1997 11,991 632 9,861 3,930
WEALTH MANAGEMENT
1999 42,943 1,430 43,765 6,852
1998 86,710 3,784 84,841 8,062
1997 127,470 5,838 119,405 10,105
CORPORATE
1999 -- 3,197 -- 188
1998 -- 2,070 -- 253
1997 -- 2,874 -- 24
(1) Net investment income is allocated based on segmented assets by line of
business.
25
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
SCHEDULE VI
SUMMARY OF REINSURANCE
GROSS CEDED TO OTHER
AMOUNT COMPANIES NET AMOUNT
---------- -------------- ----------
(IN 000'S)
1999
Life Insurance in Force $5,115,435 $1,027,292 $4,088,143
Premiums
Life Insurance 14,682 2,924 11,758
Accident and Health 4,818 856 3,962
---------- ---------- ----------
Total Premiums $ 19,500 $ 3,780 $ 15,720
========== ========== ==========
1998
Life Insurance in Force $4,544,991 $1,010,872 $3,534,119
Premiums
Life Insurance 13,576 2,723 10,853
Accident and Health 4,254 824 3,430
---------- ---------- ----------
Total Premiums $ 17,830 $ 3,547 $ 14,283
========== ========== ==========
1997
Life Insurance in Force $4,113,017 $ 879,923 $3,233,094
Premiums
Life Insurance 11,759 2,379 9,380
Accident and Health 3,677 1,066 2,611
---------- ---------- ----------
Total Premiums $ 15,436 $ 3,445 $ 11,991
========== ========== ==========
26
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
Sun Life Insurance and Annuity Company of New York
We have audited the statutory statements of admitted assets, liabilities and
capital stock and surplus of Sun Life Insurance and Annuity Company of New York
(wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) as of
December 31, 1999 and 1998 and the related statutory statements of operations,
changes in capital stock and surplus and cash flow for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
February 10, 2000 (which report is included elsewhere in this Form 10-K). Our
audits also included the financial statement schedules listed in Item 14 (a) 2
in this Form 10-K. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects, the information therein set forth.
DELOITTE & TOUCHE LLP
February 10, 2000
27
(a) 3 AND (c). EXHIBITS:
(b)
The following Exhibits are incorporated herein by reference:
EXHIBIT NO.
---------------------
3 Declaration of Intent and Charter and By-Laws (Filed as Exhibit 6
to Post-Effective Amendment No. 2 to the Registration Statement
on Form N-4 (File No. 333-05037))
27 Financial Data Schedule (Filed herewith)
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
(d) NO ADDITIONAL FINANCIAL STATEMENTS ARE REQUIRED TO BE FILED.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant, has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Sun Life Insurance and Annuity Company
of New York
(Registrant)
By: /s/ JAMES A. MCNULTY, III
----------------------------------------
James A. McNulty, III
PRESIDENT
Date: March 21, 2000
----------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ DAVEY S. SCOON Vice President, Finance,
- ----------------------------------- Controller and
Davey S. Scoon Treasurer March 21, 2000
/s/ JAMES A. MCNULTY III President and Director
- ----------------------------------- (Principal Executive
James A. McNultyIII Officer) March 21, 2000
/s/ RICHARD BAILEY Director
- -----------------------------------
Richard Bailey March 21, 2000
/s/ GREGORY W. GEE Director
- -----------------------------------
Gregory W. Gee March 21, 2000
/s/DONALD B. HENDERSON, JR. Director
- -----------------------------------
Donald B. Henderson, Jr. March 21, 2000
/s/ DAVID D. HORN Director
- -----------------------------------
David D. Horn March 21, 2000
/s/ JOHN G. IRELAND Director
- -----------------------------------
John G. Ireland March 21, 2000
/s/ ANGUS A. MACNAUGHTON Director
- -----------------------------------
Angus A. MacNaughton March 21, 2000
/s/ PETER R. O'FLINN Director
- -----------------------------------
Peter R. O'Flinn March 21, 2000
/s/ FIORAVANTE G. PERROTTA Director
- -----------------------------------
Fioravante G. Perrotta March 21, 2000
/s/ RALPH F. PETERS Director
- -----------------------------------
Ralph F. Peters March 21, 2000
/s/ C. JAMES PRIEUR Director
- -----------------------------------
C. James Prieur March 21, 2000
/s/S. CAESAR RABOY Director
- -----------------------------------
S. Caesar Raboy March 31, 2000
/s/ DONALD A. STEWART Director
- -----------------------------------
Donald A. Stewart March 21, 2000
/s/WILLIAM W. STINSON Director
- -----------------------------------
William W. Stinson March 21, 2000
/s/FREDERICK B. WHITTEMORE Director
- -----------------------------------
Frederick B. Whittemore March 21, 2000