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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995
Commission file numbers
2-99959, 33-29851, 33-31711, 33-41858, 33-43008 and 33-58853
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Sun Life Assurance Company of Canada (U.S.)
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(Exact name of registrant as specified in its charter)
Delaware 04-2461439
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181
- -------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 237-6030
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None
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- ------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
(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 5,900 shares of common stock outstanding on March 28, 1996,
all of which are owned by Sun Life Assurance Company of Canada.
-2-
PART I
ITEM 1. BUSINESS.
The Registrant is a stock life insurance company incorporated under the
laws of Delaware on January 12, 1970. Its Executive Office mailing address is
One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181, Tel. (617)
237-6030. It has obtained authorization to do business in 48 states, the
District of Columbia and Puerto Rico and it is anticipated that it will be
authorized to do business in all states except New York. The Registrant has
formed a wholly-owned subsidiary, Sun Life Insurance and Annuity Company of
New York, which issues individual fixed and combination fixed/variable
annuity contracts and group life and long-term disability insurance in New
York. The Registrant's other wholly-owned subsidiaries are Massachusetts
Financial Services Company and Sun Capital Advisers, Inc., registered
investment advisers; Sun Investment Services Company, a registered
broker-dealer and investment adviser; Sun Benefit Services Company, Inc.,
which offers claims, actuarial and administrative services; Massachusetts
Casualty Insurance Company, a life and accident and health insurance company
which currently issues only individual disability insurance contracts;
New London Trust, F.S.B., a federally chartered savings bank and Sun Life
Financial Services Limited, which provides off-shore administrative services
to the Registrant and Sun Life Assurance Company of Canada. Effective
January 1, 1994, The New London Trust Company, a subsidiary of the
Registrant, acquired all of the outstanding shares of Danielson Federal
Savings and Loan Association of Danielson, Connecticut and was merged into
New London Trust, F.S.B.
The Registrant is a wholly-owned subsidiary of Sun Life Assurance
Company of Canada, 150 King Street West, Toronto, Ontario, Canada. Sun Life
Assurance Company of Canada is a mutual life insurance company incorporated
pursuant to Act of Parliament of Canada in 1865 and currently transacts
business in all of the Canadian provinces and territories, all states except
New York, the District of Columbia, Puerto Rico, the Virgin Islands, Great
Britain, Ireland, Hong Kong, Bermuda and the Philippines.
GENERAL
The Registrant is currently engaged in the sale of individual and group
fixed and variable annuities, and group pension contracts. These contracts
are sold in both the tax qualified and non-tax qualified markets. These
products are distributed through individual insurance agents, insurance
brokers and broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last three years. Purchase payments received from
the sale of variable annuity contracts are not included in these amounts as
they are treated as direct increases to the Registrant's separate account
liabilities.
(In 000's) 1995 1994 1993
---- ---- ----
Individual insurance $214,226 $ 245,770 $ 286,620
Individual annuities 18,623 21,474 594,097
Group annuities 763,722 744,970 794,120
-------- ---------- ----------
$996,571 $1,012,214 $1,674,837
-------- ---------- ----------
-------- ---------- ----------
REINSURANCE
The Registrant has agreements with its parent company which provide that
the parent company will reinsure the mortality risks of the individual life
insurance contracts previously sold by the Registrant. Under these agreements
basic death benefits and supplementary benefits are reinsured on a yearly
renewable term basis and coinsurance basis, respectively. Reinsurance
transactions under these agreements in 1995 had the effect of decreasing net
income from operations by $2,184,000.
Effective January 1, 1991 the Registrant entered into an agreement with
the parent company under which 100% of certain fixed annuity contracts issued
by the Registrant were reinsured. Effective December 31, 1993 this agreement
was terminated.
-3-
Effective January 1, 1991 the Registrant entered into an agreement with
the parent company under which certain individual life insurance contracts
issued by the parent were reinsured by the Registrant on a 90% coinsurance
basis. Also effective January 1, 1991 the Registrant entered into an
agreement with the parent which provides that the parent will reinsure the
mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Registrant in the reinsurance agreement
described above. Death benefits are reinsured on a yearly renewable term
basis. These agreements had the effect of increasing income from operations
by approximately $11,821,000 for the year ended December 31, 1995.
The life reinsurance assumed agreement requires the reinsurer to
withhold funds in amounts equal to the reserves assumed.
The Registrant also has executed a reinsurance agreement with an
unaffiliated company which provides reinsurance of certain individual life
insurance contracts on a modified coinsurance basis and under which all
deficiency reserves are ceded.
RESERVES
In accordance with the life insurance laws and regulations under which
the Registrant operates it is obligated to carry on its books, as
liabilities, actuarially determined reserves to meet its obligations on its
outstanding contracts. Reserves are based on mortality tables in general use
in the United States and are computed to equal amounts that, with additions
from premiums to be received, and with interest on such reserves compounded
annually at certain assumed rates, will be sufficient to meet the
Registrant's policy obligations at their maturities or in the event of an
insured's death. In the accompanying Financial Statements these reserves are
determined in accordance with statutory regulations which are generally
accepted accounting principles for the Registrant.
INVESTMENTS
Of the Registrant's total assets of $12.5 billion at December 31, 1995,
58.5% consisted of unitized and non-unitized separate account assets, 22.8%
were invested in bonds and similar securities, 8.5% in mortgages, 1.1% in
subsidiaries, .7% in real estate, and the remaining 8.4% in cash and other
assets.
COMPETITION
The Registrant is engaged in a business that is highly competitive
because of the large number of stock and mutual life insurance companies and
other entities marketing insurance products. There are approximately 1,800
stock, mutual and other types of insurers in the life insurance business in
the United States. The Registrant's excellent financial ratings are an
important part of its competetive position. The Registrant and its parent
company, Sun Life Assurance Company of Canada, are among the 50 companies
assigned A.M. Best's highest rating of A++ according to the 1995 Best's
Insurance Reports for Life and Health Companies. Standard & Poor's and Duff
and Phelps have also assigned the Registrant and its parent company their
highest ratings for claims ability, AAA.
EMPLOYEES
The Registrant and Sun Life Assurance Company of Canada have entered
into a Service Agreement which provides that the latter will furnish the
Registrant, as required, with personnel as well as certain services and
facilities on a cost reimbursement basis. As of December 31, 1995 the
Registrant had 255 direct employees who are employed at its Principal
Executive Office in Wellesley Hills, Massachusetts and at its Annuity Service
Center in Boston, Massachusetts.
STATE REGULATION
The Registrant is subject to the laws of the State of Delaware governing
life insurance companies and to regulation by the Commissioner of Insurance
of Delaware. An annual statement is filed with the Commissioner of Insurance
on or before March 1st in each year relating to the operations of the
Registrant for the preceding year and its financial condition on December
31st of such year. Its books and records are subject to review or examination
by the Commissioner or his agents at any time and a full examination of its
operations is conducted at periodic intervals.
-4-
The Registrant is also subject to the insurance laws and regulations of
the other states and jurisdictions in which it is licensed to operate. The
laws of the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business,
overseeing trade practices, licensing agents, approving policy forms,
establishing reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for accumulation of surrender
values, prescribing the form and content of required financial statements and
regulating the type and amount of investments permitted. Each insurance
company is required to file detailed annual reports with supervisory agencies
in each of the jurisdictions in which it does business and its operations and
accounts are subject to examination by such agencies at regular intervals.
In addition, many states regulate affiliated groups of insurers, such as
the Registrant, its parent and its affiliates, under insurance holding
company legislation. Under such laws, inter-company transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice
or approval, depending on the size of such transfers and payments in relation
to the financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for policyholder
losses incurred by insolvent companies. The amount of any future assessments
of the Registrant under these laws cannot be reasonably estimated. However,
most of these laws do provide that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength and may also permit
the deduction of all or a portion of any such assessment from any future
premium or similar taxes payable.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Current and proposed federal measures which
may significantly affect the insurance business include employee benefit
regulation, removal of barriers preventing banks from engaging in the
insurance business and tax law changes affecting the taxation of insurance
companies, the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles.
ITEM 2. PROPERTIES
The Registrant occupies office space owned by it and leased to its
parent, Sun Life Assurance Company of Canada, and certain unrelated parties
for lease terms not exceeding five years.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and its subsidiaries are engaged in various kinds of
routine litigation which, in management's judgement, is not of material
importance to their respective total assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Registrant to a vote of security
holders during the three months ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant is a wholly-owned subsidiary of Sun Life Assurance
Company of Canada and as such there is no market for its common stock.
No dividends were paid in 1993, 1994 or 1995.
-5-
ITEM 6. SELECTED FINANCIAL DATA
(IN 000'S)
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ----------
Revenues
Premiums, annuity deposits
and other revenue $ 1,095,646 $ 1,200,143 $1,772,745 $ 908,933 $ (151,073)
Net investment income and
realized gains (losses) 366,063 334,896 243,796 209,087 162,031
----------- ----------- ---------- ---------- ----------
1,461,709 1,535,039 2,016,541 1,118,020 10,958
----------- ----------- ---------- ---------- ----------
Benefits and Expenses
Policyholder benefits 1,238,603 1,312,721 1,786,919 921,180 (161,110)
Other expenses 176,660 209,819 240,440 232,221 168,689
----------- ----------- ---------- ---------- ----------
1,415,263 1,522,540 2,027,359 1,153,401 7,579
----------- ----------- ---------- ---------- ----------
Operating Gain (Loss) 46,446 12,499 (10,818) (35,381) 3,379
Interest on Surplus Notes (31,813) (31,150) (26,075) (18,000) (12,500)
Equity in Income of
Subsidiaries 59,875 62,629 62,640 49,009 42,702
Federal Income Tax Expense (38,593) (42,521) (22,491) (4,000) (13,615)
----------- ----------- ---------- ---------- ----------
Net Income (Loss) $ 35,915 $ 1,457 $ 3,256 $ (8,372) $ 19,966
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Assets $12,499,683 $10,137,822 $9,199,090 $7,494,407 $6,405,599
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Surplus Notes $ 650,000 $ 335,000 $ 335,000 $ 265,000 $ 180,000
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
See Note 1 to financial statements for the effect of the reinsurance agreements
on net income
-6-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS
For management purposes it is the Registrant's practice to segment its
general account to facilitate the matching of assets and liabilities;
however, all general account assets stand behind all general account
liabilities. A majority of the Registrant's assets are income producing
investments. Particular attention is paid to the quality of these assets.
The Registrant's bond holdings consist of a diversified portfolio of
both public and private issues. It is the Registrant's policy to acquire only
investment grade securities. Private placements are rated internally with
reference to the National Association of Insurance Commissioners ("NAIC")
designation issued by the NAIC Securities Valuation Office. The overall
quality of the Registrant's bond portfolio remains high. At December 31,
1995, 2.3% of the Registrant's holdings of bonds were rated below investment
grade (i.e. below NAIC rating "1" or "2"). Net unrealized gains on below
investment grade bonds were $2,133,727 at December 31, 1995. Bond write downs
resulting from intrinsic impairments amounted to $3,500,000 during 1995.
The Registrant holds real estate primarily because such investments
historically have offered better yields over the long-term than fixed income
investments. Real estate investments are used to enhance the yield of
products with long-term liability durations. Properties for which market
value is lower than cost adjusted for depreciation (book value) are reported
at market value. During 1995, the change in the difference between the market
value and book value for properties reported at market value was $3,583,000.
Significant attention has been given to insurance companies' exposure to
mortgage loans secured by real estate. The Registrant had a mortgage
portfolio of $1,066,911,000 at December 31, 1995, representing 25.3% of cash
and invested assets. At December 31, 1994, mortgage loans represented 28.9%
of cash and invested assets. The Registrant underwrites commercial mortgages
with a maximum loan to value ratio of 75%. The Registrant as a rule invests
only in properties that are almost fully leased. The portfolio is diversified
by region and by property type. The level of arrears in the portfolio is
substantially below the industry average. At December 31, 1995, 0.77% of the
Registrant's portfolio was 60 days or more in arrears, compared to the most
recent industry delinquency ratio published by the American Council of Life
Insurance of 2.35%. The expense in the year for the provision for losses and
for losses on foreclosures was $4,133,000.
In 1994, the Registrant entered into a leveraged lease agreement under
which a fleet of rail cars was leased for a term of 9.75 years. The
investment is classified as other invested assets in the attached balance
sheet.
In the normal course of business, the Registrant makes commitments to
purchase investments at a future date. As of December 31, 1995 the Registrant
had outstanding mortgage commitments of $13,100,000 which will be funded
during 1996.
LIABILITIES
The majority of the Registrant's liabilities consist of reserves for
life insurance and annuity contracts and deposit funds.
CAPITAL AND SURPLUS
Total capital stock and surplus of the Registrant was $792,452,000 at
December 31, 1995. The Registrant issued surplus notes during 1995 totalling
$315,000,000 to an affiliate, Sun Canada Financial Co. The Registrant repaid
$335,000,000 of surplus notes to its parent in 1996. During 1994, the
Registrant reduced its carrying value of MCIC, a wholly-owned subsidiary, by
$18,397,000, the unamortized amount of goodwill. The reduction was accounted
for as a direct charge to surplus. The Registrant's management considers its
surplus position to be adequate.
-7-
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Income from operations before surplus note interest, equity in income of
subsidiaries and federal income taxes increased by $33,947,000 from
$12,499,000 in 1994 to $46,446,000 in 1995. Reinsurance agreements with the
parent had the effect of decreasing net income by $31,327,000 in 1994 as
compared to increasing net income by $9,637,000 in 1995. The increase in net
income associated with the reinsurance agreements is due to the lack of
surplus strain associated with the assumption of new contracts issued. No
contracts issued in 1994 or thereafter have been assumed by the Registrant.
It is the acquisition costs of new contract issues which caused the loss from
the reinsurance agreements in prior years. Prior to reinsurance, net income
from operations decreased by $7,017,000 from $43,826,000 in 1994 to
$36,809,000 in 1995. Realized losses on investments and amortization of the
interest maintenance reserve decreased by $2,315,000 primarily due to fewer
writedowns in the group pension product line. Operating expenses increased by
$5,261,000 from $32,231,000 in 1994 to $37,492,000 in 1995, reflecting
increased expenses allocated from the parent and increased salaries due to
additional staffing. The remaining decrease in net income in 1995 as compared
to 1994 of approximately $4,071,000 reflects the strain associated with the
Registrant's market value adjusted annuity product, partially offset by
profits associated with the maturing block of individual and group fixed
annuities.
Total income decreased by approximately $73,330,000 from $1,535,039,000
in 1994 to $1,461,709,000 in 1995. Revenues from reinsurance transactions
decreased by $4,307,000 reflecting the assumed block of business being closed
as of December 31, 1993. Premiums and annuity considerations on a
pre-reinsurance basis decreased by $7,728,000 reflecting decreased group
pension lottery sales of $22,084,000 offset by increased annuitizations of
$14,356,000. Fixed annuity deposits decreased by $26,091,000 as interest
rates remained at low levels. Sales of group pension guaranteed investment
contracts increased by $49,229,000 reflecting the transfer of the parent's
agents' pension fund from the parent to the Registrant. Net transfers from
the separate accounts decreased by $80,758,000 reflecting the decline in
interest rates. Pre-reinsurance net investment income increased by $2,219,000
reflecting an increase in the Registrant's invested asset base. Realized
losses and amortization of the interest maintenance reserve decreased by
$2,315,000. Other income decreased by $16,711,000 from $33,377,000 in 1994 to
$16,666,000 reflecting a decrease in the surplus transfer from the separate
accounts. Mortality and expense risk charges increased by $8,616,000 as a
result of market appreciation in the separate accounts.
Benefits and expenses decreased by approximately $107,277,000 from
$1,522,540,000 in 1994 to $1,415,263,000 in 1995. Reinsurance had the effect
of decreasing benefits and expenses by $45,272,000, primarily from lower
commissions due to no assumption of new contract issues. Prior to
reinsurance, benefits and expenses decreased by approximately $62,004,000.
The change in the liability for annuity and other deposit funds increased by
$83,094,000 as a result of fewer maturities of contracts for which the
guarantee periods have expired, and increased sales of group pension
guaranteed investment contracts described above. The change in reserves
decreased by $16,694,000 reflecting the decrease in group pension lottery
sales. Annuity and other deposit fund withdrawals decreased by $8,424,000
reflecting fewer maturities. Transfers to the non-unitized separate account
decreased by $124,285,000 from $455,688,000 in 1994 to $331,403,000
reflecting fewer sales and transfers from unitized separate accounts of
individually marketed fixed annuities as a result of the decline in interest
rates. Operating expenses increased by $5,261,000 reflecting the increased
expenses described above.
1994 COMPARED TO 1993
Income from operations before surplus note interest, equity in income of
subsidiaries and federal income taxes was $12,499,000 in 1994 versus a loss
of $10,818,000 in 1993. The increase in income is a result of reinsurance
agreements with the parent which decreased income from operations by
approximately $31,327,000 in 1994 and $54,567,000 in 1993. The relatively
flat change in income before reinsurance results from a combination of
factors: realized losses on investments decreased by $6,237,000; mortality
and expense risk charges increased by $9,357,000; general expenses increased
by $8,061,000 and approximately $6,000,000 of additional surplus strain
(selling costs and reserves required on new business in excess of the
premium) was incurred reflecting the increased volume of new sales.
Total revenues decreased by $ 481,502,000 from $2,016,541,000 in 1993 to
$1,535,039,000 in 1994. Revenues from reinsurance transactions decreased by
$690,973,000, from $959,536,000 in 1993 to $268,563,000 in 1994. 1993
revenues include the termination of the reinsurance agreement under which the
Registrant reinsured with its parent 100% of certain fixed annuity contracts.
Before the impact of the reinsurance agreements, total revenues increased by
$209,471,000 in 1994. Sales of individually marketed fixed annuities
increased by $389,745,000 as a
-8-
result of improved interest rates and product enhancements. This was offset
by decreased sales of group pension deposit contracts of $271,913,000,
reflecting management's decision to limit sales due to the volatility of
interest rates and changes in the competitive marketplace. Realized losses on
investments decreased, reflecting fewer mortgage writedowns in 1994.
Mortality and expense risk charges increased, reflecting the increase in
separate account net assets.
Benefits and expenses decreased by $504,819,000 from $2,027,359,000 in
1993 to $1,522,540,000 in 1994. Reinsurance had the effect of increasing
benefits and expenses by $299,890,000 in 1994 as compared to $1,014,103,000
in 1993. As noted above, the 1993 results include the termination of the
reinsurance agreement with the parent under which 100% of certain fixed
annuity contracts were reinsured. Before the impact of reinsurance, benefits
increased by $209,394,000. Before reinsurance, the liability for annuity and
other deposit funds and actuarial reserves decreased as a result of lower
sales of group pension deposit contracts and increased surrender activity.
Annuity and other deposit fund withdrawals increased as a result of increased
surrenders of fixed annuities for which interest rate guarantee periods have
expired. Transfers to the non-unitized separate account increased reflecting
the increase in fixed annuity sales described above. Prior to reinsurance,
commissions increased by $35,497,000 reflecting increased sales of individual
combination fixed/variable annuity contracts. General expenses increased due
to an increase in the amount allocated from the parent under the service
agreement, and costs of selling and administration associated with the
increased sales and inforce block of individually marketed fixed/variable
annuity contracts. Federal income tax expense increased as net operating loss
carry forwards were utilized in 1993.
(2) LIQUIDITY
The Registrant's cash inflow consists primarily of premiums on insurance
and annuity products, income from investments, repayments of investment
principal and sales of investments. The Registrant's cash outflow is
primarily to meet death and other maturing insurance and annuity contract
obligations, to pay out on contract terminations, to fund investment
commitments and to pay normal operating expenses and taxes. Cash outflows are
met from the normal net cash inflows.
The Registrant segments its business internally and matches projected
cash inflows and outflows within each segment. Targets for money market
holdings are established for each segment, which in the aggregate meet the
day to day cash needs of the Registrant. If greater liquidity is required,
government issued bonds, which are highly liquid, are sold to provide the
necessary funds. Government and publicly traded corporate bonds comprise
65.9% of the Registrant's long-term bond holdings.
Management believes that the Registrant's sources of liquidity are more
than adequate to meet its anticipated needs.
(3) NEW ACCOUNTING PRONOUNCEMENTS
In April, 1993, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this new
interpretation, annual financial statements of mutual life insurance
enterprises for fiscal years beginning after December 15, 1992, shall provide
a brief description that financial statements prepared on the basis of
statutory accounting practices will no longer be described as prepared in
conformity with generally accepted accounting principles. In January, 1995,
Statement of Financial Accounting Standards No. 120 (SFAS No. 120)
"Accounting and Reporting by Mutual Life Insurance Enterprises for Certain
Long Duration Participating Contracts" was issued. SFAS No. 120 delays the
effective date of Interpretation No. 40 until fiscal years beginning after
December 15, 1995.
Beginning in 1996, the Registrant will file financial statements
prepared in accordance with all applicable pronouncements that define
generally accepted accounting principles for all enterprises.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements, in the form required by Regulation S-X, are set
forth below. The Registrant is not subject to the requirement to file
supplementary financial data specified by Item 302 of Regulation S-K.
-9-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
BALANCE SHEETS
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(IN 000'S)
ASSETS
Bonds $ 2,846,067 $ 2,471,152
Preferred stock 1,149 0
Mortgage loans 1,066,911 1,120,981
Investments in subsidiaries 138,282 134,807
Real estate 95,574 89,487
Other invested assets 38,387 26,036
Policy loans 38,355 36,584
Cash (20,280) (11,459)
Investment income due and accrued 62,719 56,096
Funds withheld on reinsurance
assumed 741,091 566,693
Due from separate accounts 148,675 132,496
Other assets 26,349 27,683
----------- -----------
General account assets 5,183,279 4,650,556
----------- -----------
Unitized separate account assets 5,275,808 4,061,821
Non-unitized separate account assets 2,040,596 1,425,445
----------- -----------
$12,499,683 $10,137,822
----------- -----------
----------- -----------
LIABILITIES
Policy reserves $ 1,937,302 $ 1,765,326
Annuity and other deposits 2,290,656 2,277,104
Policy benefits in process of
payment 5,884 5,796
Accrued expenses and taxes 44,114 12,386
Other liabilities 36,080 50,087
Due to parent and affiliates--net 9,498 41,881
Interest maintenance reserve 25,218 18,140
Asset valuation reserve 42,099 28,409
----------- -----------
General account liabilities 4,390,851 4,199,129
----------- -----------
Unitized separate account
liabilities 5,275,784 4,057,759
Non-unitized separate account
liabilities 2,040,596 1,425,445
----------- -----------
11,707,231 9,682,333
----------- -----------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000:
Authorized 10,000 shares,
issued and outstanding 5,900
shares 5,900 5,900
Surplus 786,552 449,589
----------- -----------
Total capital stock and surplus 792,452 455,489
----------- -----------
$12,499,683 $10,137,822
----------- -----------
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
-10-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN 000'S)
INCOME
Premiums and annuity considerations $ 274,244 $ 313,025 $ 469,157
Annuity and other deposit funds 722,327 699,189 1,205,680
Transfers from separate
accounts--net 21,455 102,213 350
Net investment income 366,598 337,747 253,496
Amortization of interest maintenance
reserve 899 3,316 2,703
Realized losses on investments (1,434) (6,166) (12,403)
Expense allowance on reinsurance
ceded 0 0 8,475
Mortality and expense risk charges 60,954 52,338 42,981
Other income--net 16,666 33,377 46,102
---------- ---------- ----------
1,461,709 1,535,039 2,016,541
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Death, surrender benefits, and
annuity payments 189,744 166,889 128,902
Annuity and other deposit fund
withdrawals 531,928 540,352 146,260
Transfers to non-unitized separate
account 331,403 455,688 28,070
---------- ---------- ----------
1,238,603 1,312,721 1,786,919
Operating expenses 37,492 32,231 24,170
Commissions 108,672 150,011 204,016
Dividends 25,722 22,928 8,074
Taxes, licenses and fees 4,774 4,649 4,180
---------- ---------- ----------
1,415,263 1,522,540 2,027,359
---------- ---------- ----------
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries 46,446 12,499 (10,818)
Surplus note interest (31,813) (31,150) (26,075)
---------- ---------- ----------
Net income (loss) from operations
before equity in income of
subsidiaries and federal income tax 14,633 (18,651) (36,893)
Equity in income of subsidiaries 59,875 62,629 62,640
Federal income tax expense (38,593) (42,521) (22,491)
---------- ---------- ----------
NET INCOME $ 35,915 $ 1,457 $ 3,256
---------- ---------- ----------
---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
-11-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN 000'S)
CAPITAL STOCK $ 5,900 $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355 199,355
SURPLUS NOTES
Balance, beginning of year 335,000 335,000 265,000
Issued during year 315,000 0 70,000
-------- -------- --------
Balance, end of year 650,000 335,000 335,000
-------- -------- --------
UNASSIGNED SURPLUS
Balance, beginning of year (84,766) (57,067) (57,485)
Net income 35,915 1,457 3,256
Writedown of goodwill 0 (18,397) 0
Change in non-admitted assets (2,270) (1,485) (191)
Unrealized gains (losses) on real
estate 2,009 (671) (4,440)
Change in and transfers of separate
account surplus (1) (227) 117
Change in asset valuation reserve (13,690) (8,376) 1,676
-------- -------- --------
Balance, end of year (62,803) (84,766) (57,067)
-------- -------- --------
TOTAL SURPLUS 786,552 449,589 477,288
-------- -------- --------
TOTAL CAPITAL STOCK AND SURPLUS $792,452 $455,489 $483,188
-------- -------- --------
-------- -------- --------
SEE NOTES TO FINANCIAL STATEMENTS.
-12-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN 000'S)
Cash flows from operating activities:
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries $ 46,446 $ 12,499 $ (10,818)
Adjustments to reconcile net income
(loss) from operations to net cash
provided by (used in) operating
activities:
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Increase in investment income due and
accrued (6,623) (2,736) (21,746)
Net accrual and amortization of
discount and premium on investments 3,127 7,272 5,911
Realized losses on investments 1,434 6,166 12,403
Change in non-admitted assets (2,270) (1,485) (191)
Change in funds withheld on
reinsurance (174,398) (199,826) (1,087,862)
Other (11,160) (71,746) 24,953
----------- ----------- -----------
Net cash provided by (used in) operating
activities 42,084 (100,064) 406,337
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturity of
investments 1,705,685 1,596,851 1,173,345
Purchase of investments (1,820,843) (1,491,159) (1,618,587)
Net change in short-term investments (254,897) (20,543) (38,782)
Investment in subsidiaries (6,000) (4,894) (15,250)
Dividends from subsidiaries 37,927 37,444 42,520
----------- ----------- -----------
Net cash provided by (used in) investing
activities (338,128) 117,699 (456,754)
----------- ----------- -----------
Cash flows from financing activities:
Issue of surplus notes 315,000 0 70,000
Payment of interest on surplus notes (31,813) (31,150) (26,075)
Repayment of seed capital 4,036 0 0
----------- ----------- -----------
Net cash provided by (used in) financing
activities 287,223 (31,150) 43,925
----------- ----------- -----------
Decrease in cash during the year (8,821) (13,515) (6,492)
Cash balance, beginning of year (11,459) 2,056 8,548
----------- ----------- -----------
Cash balance, end of year $ (20,280) $ (11,459) $ 2,056
----------- ----------- -----------
----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
-13-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Assurance Company of Canada (U.S.) (the Company) is incorporated as a
life insurance company and is currently engaged in the sale of individual fixed
and variable annuities, group fixed and variable annuities and group pension
contracts. The Company also underwrites a block of individual life insurance
business through a reinsurance contract with its parent. Sun Life Assurance
Company of Canada (the parent company) is a mutual life insurance company. The
Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Statutory accounting
practices are considered to be generally accepted accounting principles for
mutual insurance companies and subsidiaries of mutuals. Prescribed accounting
practices include 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. Preparation of the
financial statements requires management to make certain estimates and
assumptions.
Assets in the balance sheets are stated at values prescribed or permitted to be
reported by state regulatory authorities. Bonds are carried at cost adjusted for
amortization of premium or accrual of discount. Investments in subsidiaries are
carried on the equity basis. 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 or
appraised value, adjusted for accumulated depreciation, less encumbrances.
Depreciation of buildings and improvements is calculated using the straight line
method over the estimated useful life of the property. For life 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. Furniture and equipment
acquisitions are capitalized but treated as nonadmitted assets. Furniture and
equipment depreciation is calculated on a straight line basis over the useful
life of the assets.
MANAGEMENT AND SERVICE CONTRACTS--
The Company has an agreement with its parent company which provides that the
parent company will furnish, as requested, personnel as well as certain services
and facilities on a cost reimbursement basis. Expenses under this agreement
amounted to approximately $20,293,000 in 1995, $18,452,000 in 1994, and
$13,883,000 in 1993.
REINSURANCE--
The Company has agreements with the parent company which provide that the parent
company will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
had the effect of decreasing income from operations by approximately $2,184,000,
$2,138,000, and $1,046,000, for the years ended December 31, 1995, 1994 and
1993, respectively.
Effective January 1, 1991, the Company entered into an agreement with the parent
company under which 100% of certain fixed annuity contracts issued by the
Company were reinsured. Effective December 31, 1993 this agreement was
terminated. This agreement had the effect of decreasing income from operations
by approximately $9,930,000 in 1993.
-14-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Effective January 1, 1991, the Company entered into an agreement with the parent
company under which certain individual life insurance contracts issued by the
parent company were reinsured by the Company on a 90% coinsurance basis. Also,
effective January 1, 1991, the Company entered into an agreement with the parent
company which provides that the parent company will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. Such death
benefits are reinsured on a yearly renewable term basis. These agreements had
the effect of increasing income from operations by approximately $11,821,000 in
1995, and decreasing income by approximately $29,188,000, and $43,591,000 for
the years ended December 31, 1994 and 1993, respectively.
The life reinsurance assumed agreement requires the reinsurer to withhold funds
in amounts equal to the reserves assumed.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1995, 1994 and 1993 before the effect of
reinsurance transactions with the parent company.
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN 000'S)
Income:
Premiums, annuity deposits and other
revenues $ 890,560 $ 962,320 $ 762,553
Net investment income and realized
gains (losses) 306,893 304,155 293,557
---------- ---------- ----------
Subtotal 1,197,453 1,266,475 1,056,110
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 1,030,342 1,092,192 926,827
Other expenses 130,302 130,457 85,575
---------- ---------- ----------
Subtotal 1,160,644 1,222,649 1,012,402
---------- ---------- ----------
Income from operations $ 36,809 $ 43,826 $ 43,708
---------- ---------- ----------
---------- ---------- ----------
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of decreasing income from operations by $1,599,000 in 1995, increasing
income from operations by $1,854,000 in 1994 and decreasing income from
operations by $390,000 in 1993.
SEPARATE ACCOUNTS--
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
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 values.
-15-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Deposits to all separate accounts are reported as increases in separate account
liabilities and are not reported as revenues. Mortality and expense risk charges
and surrender fees incurred by the separate accounts are included in income of
the Company.
The Company has established a non-unitized separate account for amounts
allocated to the fixed portion of 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.
Any difference between the assets and liabilities of the separate accounts is
treated as payable to or receivable from the general account of the Company.
Amounts payable to the general account of the Company were $148,675,000 in 1995
and $132,496,000 in 1994.
OTHER--
Income on investments is recognized on the accrual method.
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
Net income reported in the Company's statutory Annual Statement differs from net
income reported in these financial statements. Dividends from subsidiaries are
included in income and undistributed income (losses) of subsidiaries are
included as gains (losses) in unassigned surplus in the statutory Annual
Statement. Both the dividends and the undistributed income (losses) are included
in net income in these financial statements.
Investments in non-insurance subsidiaries are carried at their stockholders'
equity value, determined in accordance with generally accepted accounting
principles. Investments in insurance subsidiaries are carried at their statutory
surplus values.
Certain reclassifications have been made in the 1993 and 1994 financial
statements to conform to the classifications used in 1995.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Massachusetts Financial
Services Company (MFS), Sun Life Insurance and Annuity Company of New York (Sun
Life (N.Y.)), Sun Investment Services Company (Sunesco), Sun Benefit Services
Company, Inc. (Sunbesco), Massachusetts Casualty Insurance Company (MCIC), New
London Trust, F.S.B. (NLT), Sun Capital Advisers, Inc. (Sun Capital), and Sun
Life Finance Corporation (Sunfinco).
Effective January 1, 1994, NLT acquired all of the outstanding shares of
Danielson Federal Savings and Loan Association of Danielson, Connecticut. These
two banks have been merged into a newly formed federally chartered savings bank
now called New London Trust, F.S.B.
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds and certain mutual funds and separate accounts
established by the Company, and the MFS Asset Management Group provides
investment advice to substantial private clients.
Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of MFS, serves as
the distributor of certain variable contracts issued by the Company and Sun Life
(N.Y.). Sun Life (N.Y.) is engaged in the sale of individual fixed and variable
annuity contracts and group life and disability insurance contracts in the state
of
-16-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
New York. Sunesco is a registered investment adviser and broker-dealer. MCIC is
a life insurance company which issues only individual disability income
policies. Sun Capital, a registered investment adviser, Sunfinco, and Sunbesco
are currently inactive.
In 1994, the Company reduced its carrying value of MCIC by $18,397,000, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus.
During 1995, 1994 and 1993, the Company contributed capital in the following
amounts to its subsidiaries:
1995 1994 1993
---------- ---------- ----------
MCIC $6,000,000 $6,000,000 $6,000,000
Sun Capital 0 0 250,000
New London Trust 0 0 9,000,000
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1995, 1994 and 1993 and for the years then ended, follows:
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN 000'S)
Intangible assets $ 12,174 $ 13,485 $ 14,891
Other assets, net of liabilities 126,108 121,321 112,332
--------- --------- ---------
Total net assets $ 138,282 $ 134,806 $ 127,223
--------- --------- ---------
--------- --------- ---------
Total income $ 570,794 $ 495,097 $ 424,324
Operating expenses (504,070) (425,891) (355,679)
Income tax expense (31,193) (29,374) (24,507)
--------- --------- ---------
Net income $ 35,531 $ 39,832 $ 44,138
--------- --------- ---------
--------- --------- ---------
3. STOCK, SURPLUS NOTES, CONTRIBUTIONS AND NOTE RECEIVABLE:
The Company has issued surplus notes to its parent of $335,000,000 during the
years 1982 through 1993 at interest rates between 7.25% and 10%. The Company
subsequently repaid all principal and interest associated with these surplus
notes on January 16, 1996. On December 19, 1995 the Company issued surplus notes
totalling $315,000,000 to an affiliate, Sun Canada Financial Co., at interest
rates between 5.75% and 7.25%. Of these notes, $157,500,000 will mature in the
year 2007, and $157,500,000 will mature in the year 2015. Interest on these
notes is payable semi-annually. Principal and interest on surplus notes are
payable only to the extent that the Company meets specified requirements as
regards free surplus exclusive of the principal amount and accrued interest, if
any, on these notes; and, in the case of principal repayments, with the consent
of the Delaware Insurance Commissioner. Interest payments require the consent of
the Delaware Insurance Commissioner after December 31, 1993. Payment of
principal and interest on the notes issued in 1995 also requires the consent of
the Canadian Office of the Superintendent of Financial Institutions. The Company
expensed $31,813,000, $31,150,000 and $26,075,000 in respect of interest on
surplus notes for the years 1995, 1994 and 1993, respectively. On December 19,
1995, the parent borrowed $120,000,000 at 5.6 % through a short term note from
the Company maturing on January 16, 1996. The note, which is classified under
short-term bonds at December 31, 1995, was repaid in full by the parent at
maturity.
-17-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS:
The amortized cost and estimated market value of investments in debt securities
are as follows:
DECEMBER 31, 1995
----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------- ------- ----------
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 467,597 $22,783 $ 443 $ 489,937
States, provinces and political
subdivisions 2,252 81 0 2,333
Foreign governments 38,303 4,551 6 42,848
Public utilities 513,704 45,466 203 558,967
Transportation 215,786 22,794 2,221 236,359
Finance 225,074 13,846 84 238,836
All other corporate bonds 1,045,745 67,371 7,415 1,105,701
---------- ------- ------- ----------
Total long-term bonds 2,508,461 176,892 10,372 2,674,981
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 337,606 0 0 337,606
---------- ------- ------- ----------
$2,846,067 $176,892 $10,372 $3,012,587
---------- ------- ------- ----------
---------- ------- ------- ----------
DECEMBER 31, 1994
----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------- ------- ----------
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 444,100 $5,017 $11,010 $ 438,107
States, provinces and political
subdivisions 252 0 17 235
Foreign governments 20,965 147 187 20,925
Public utilities 458,839 11,414 11,619 458,633
Transportation 215,478 5,099 9,444 211,133
Finance 193,355 3,734 4,010 193,080
All other corporate bonds 1,055,455 15,785 31,171 1,040,069
---------- ------- ------- ----------
Total long-term bonds 2,388,444 41,196 67,458 2,362,182
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 82,708 0 0 82,708
---------- ------- ------- ----------
$2,471,152 $41,196 $67,458 $2,444,890
---------- ------- ------- ----------
---------- ------- ------- ----------
-18-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS (CONTINUED):
The amortized cost and estimated market value of bonds at December 31, 1995 and
1994 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 or prepayment penalties.
DECEMBER 31, 1995
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN 000'S)
Maturities are:
Due in one year or less $ 678,775 $ 681,119
Due after one year through five
years 844,446 866,230
Due after five years through ten
years 256,552 269,549
Due after ten years 884,187 1,000,908
---------- ----------
2,663,960 2,817,806
Mortgage-backed securities 182,107 194,781
---------- ----------
$2,846,067 $3,012,587
---------- ----------
---------- ----------
DECEMBER 31, 1994
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN 000'S)
Maturities are:
Due in one year or less $ 209,875 $ 209,527
Due after one year through five
years 953,222 930,578
Due after five years through ten
years 319,858 311,360
Due after ten years 877,062 885,462
---------- ----------
2,360,017 2,336,927
Mortgage-backed securities 111,135 107,963
---------- ----------
$2,471,152 $2,444,890
---------- ----------
---------- ----------
Proceeds from sales of investments in debt securities during 1995, 1994, and
1993 were $1,510,553,000, $1,390,974,000, and $911,644,000, gross gains were
$24,757,000, $15,025,000, and $43,674,000 and gross losses were $5,742,000,
$30,041,000 and $687,000, respectively.
Long-term bonds at December 31, 1995 and 1994 included $20,000,000 of bonds
issued to the Company by a subsidiary company, MFS, during 1987. These bonds
will mature in 2000.
Bonds included above with an amortized cost of approximately $2,059,000 and
$1,561,000 at December 31, 1995 and 1994, respectively, were on deposit with
governmental authorities as required by law.
At year end 1995, the Company had outstanding mortgage-backed securities (MBS)
forward commitments amounting to a par value of $137,675,000 to be funded
through the sale of certain short-term securities shown above.
-19-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
5. SECURITIES LENDING:
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chemical Bank of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $250,729,000 at December 31, 1995.
6. 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
provisions have been made. In those cases where, in management's judgement, the
mortgage loans' values are impaired, appropriate losses are recorded.
The following table shows the geographic distribution of the mortgage portfolio.
DECEMBER 31,
-----------------------
1995 1994
---------- -----------
(IN 000'S)
California $ 153,811 $ 131,953
Massachusetts 83,999 101,932
Pennsylvania 141,468 136,778
Ohio 83,915 79,478
Washington 91,900 90,422
Michigan 69,125 75,592
New York 81,480 93,178
All other 361,213 411,648
---------- -----------
$1,066,911 $1,120,981
---------- -----------
---------- -----------
The Company has restructured mortgage loans totalling $49,846,000, against which
there are provisions of $8,799,000 at December 31, 1995.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $13,100,000 at
December 31, 1995.
-20-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. INVESTMENTS--GAINS AND LOSSES:
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- --------
(IN 000'S)
Net realized gains (losses) (pre-tax):
Bonds $(2,300) $ 0 $ 0
Mortgage loans 418 (5,689) (9,975)
Stocks 0 0 445
Real estate 391 (334) (2,873)
Other assets 57 (143) 0
------- ------- --------
$(1,434) $(6,166) $(12,403)
------- ------- --------
------- ------- --------
Changes in unrealized gains (losses):
Bonds $ 0 $ 0 $ 84
Mortgage loans (1,574) 0 0
Real estate 3,583 (671) (4,113)
Stocks 0 0 (411)
------- ------- --------
$ 2,009 $ (671) $ (4,440)
------- ------- --------
------- ------- --------
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 realized capital gains and losses credited or
charged to the interest maintenance reserve were a credit of $12,714,000 in
1995, a charge of $14,070,000 in 1994 and a credit of $40,993,000 in 1993. All
gains and losses are net of applicable taxes.
8. INVESTMENT INCOME:
Net investment income consisted of:
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN 000'S)
Interest income from bonds $205,445 $200,339 $204,405
Interest income from mortgage loans 99,753 106,347 99,790
Interest income from policy loans 2,777 2,670 2,503
Real estate investment income 10,693 8,649 8,593
Interest income on funds withheld 57,373 30,741 19,420
Other 2,627 1,418 645
-------- -------- --------
Gross investment income 378,668 350,164 335,356
Investment expenses 12,070 12,417 12,679
Interest expense on funds withheld 0 0 69,181
-------- -------- --------
$366,598 $337,747 $253,496
-------- -------- --------
-------- -------- --------
-21-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
9. DERIVATIVES:
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, gains or losses are deferred in IMR and amortized over the remaining life
of the hedged assets. At December 31, 1995, there were no futures contracts
outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
SWAPS OUTSTANDING
AT DECEMBER 31, 1995
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN 000'S)
Conventional interest rate swaps $367,000 $3,275
Foreign currency swap 2,745 290
Forward spread lock swaps $ 50,000 $ 112
The market values of interest rate swaps and forward spread lock agreements are
primarily obtained from dealer quotes. The market value is the estimated amount
that the Company would receive or pay on termination or sale, taking into
account current interest rates and the current creditworthiness of the counter
parties. The Company is exposed to potential credit loss in the event of
non-performance by counterparties. The counterparties are major financial
institutions and management believes that the risk of incurring losses related
to credit risk is remote.
10. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994 under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third party long-term debt financing, secured by the equipment
and non-recourse to the Company. At the end of the lease term, the Master Lessee
may exercise a fixed price purchase option to purchase the equipment.
-22-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
10. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the following
elements:
YEARS ENDED DECEMBER
31,
--------------------
1995 1994
--------- ---------
(IN 000'S)
Lease contracts receivable $ 111,611 $ 121,716
Less non-recourse debt (111,594) (121,699)
--------- ---------
17 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (13,132) (15,292)
--------- ---------
Investment in leveraged leases 28,035 25,875
Less fees (213) (237)
--------- ---------
Net investment in leveraged leases $ 27,822 $ 25,638
--------- ---------
--------- ---------
The net investment is classified as other invested assets in the accompanying
balance sheets.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
DECEMBER 31, 1995
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
Subject to discretionary withdrawal--with adjustment
--with market value adjustment $3,796,596 36.36%
--at book value less surrender charges (surrender
charge >5%) 4,066,126 38.94
--at book value (minimal or no charge or adjustment) 1,278,215 12.24
Not subject to discretionary withdrawal provision 1,301,259 12.46
---------- ----------
Total annuity actuarial reserves and deposit liabilities $10,442,196 100.00%
---------- ----------
---------- ----------
DECEMBER 31, 1994
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
Subject to discretionary withdrawal--with adjustment
-- with market value adjustment $3,083,623 35.98%
-- at book value less surrender charges (surrender
charge > 5%) 2,915,460 34.02
-- at book value (minimal or no charge or
adjustment) 1,252,843 14.62
Not subject to discretionary withdrawal provision 1,318,092 15.38
---------- ----------
Total annuity actuarial reserves and deposit liabilities $8,570,018 100.00%
---------- ----------
---------- ----------
12. RETIREMENT PLANS:
The Company participates with its parent company in a non-contributory defined
benefit pension plan covering essentially all employees. The benefits are based
on years of service and compensation.
-23-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA. The Company is charged for
its share of the pension cost based upon its covered participants. Pension plan
assets consist principally of a variable accumulation fund contract held in a
separate account of the parent company.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 87, which is in accordance with generally accepted accounting
principles.
The following table sets forth the funded status for the pension plan (for the
parent, Sun Life (U.S.), Sun Life (N.Y.) and Sunesco) at December 31, 1995 and
1994:
TOTAL PENSION PLAN
------------------
1995 1994
-------- --------
(IN 000'S)
Actuarial present value of benefit obligations:
Vested benefit obligation $(40,949) $(38,157)
Accumulated benefit obligation (42,452) (39,686)
-------- --------
-------- --------
Projected benefit obligation for service rendered to
date $(60,885) $(53,494)
Plan assets at fair value 117,178 101,833
-------- --------
Difference between plan assets and projected benefit
obligation 56,293 48,339
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (9,016) (1,238)
Unrecognized net asset at January 1, 1994, being
recognized
over 17 years (30,842) (32,898)
-------- --------
Prepaid pension cost included in other assets $ 16,435 $ 14,203
-------- --------
-------- --------
The components of the 1995 and 1994 pension cost for the pension plan were:
TOTAL PENSION
PLAN
-----------------
1995 1994
-------- -------
(IN 000'S)
Service cost $ 3,389 $ 2,847
Interest cost 4,050 3,770
Actual return on plan assets (16,388) (8,294)
Net amortization and deferral 6,715 (818)
-------- -------
Net pension income $ (2,234) $(2,495)
-------- -------
-------- -------
The Company's share of the group's accrued pension cost at December 31, 1995 and
1994 was $420,000 and $417,000, respectively. The Company's share of net
periodic pension cost was $3,000 and $417,000, respectively.
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
7.5% and 4.5%, respectively. The expected long-term rate of return on assets was
7.5%.
-24-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The Company also participates with its parent 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. Employer
contributions were $185,000, $152,000 and $124,000 for the years ended December
31, 1995, 1994, and 1993, respectively.
13. OTHER POST-RETIREMENT BENEFIT PLANS:
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement 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.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers Accounting for Post-retirement Benefits
other than Pensions". SFAS No. 106 requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee provides
services. SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of adoption or the amortization of the obligation over a
period of up to 20 years. The Company has elected to recognize this obligation
of approximately $400,000 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 $142,000, $114,000, and $120,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company's post-retirement
health care plans currently are not funded.
The following table sets forth the plan's funded status, reconciled with amounts
recognized in the Company's balance sheet:
DECEMBER 31,
----------------
1995 1994
------- -------
(IN 000'S)
Accumulated post-retirement benefit obligation:
--Retirees $ 0 $ 0
--Fully eligible active plan participants (601) (444)
--Other active plan participants 0 0
------- -------
--Accumulated post-retirement benefit obligation in excess
of plan assets (601) (444)
--Unrecognized gains from past experience (55) (110)
--Unrecognized transition obligation 280 320
------- -------
--Accrued post-retirement benefit cost $(376) $(234)
------- -------
------- -------
Net periodic post-retirement benefit cost components:
--Service cost--benefits earned $ 65 $ 49
--Interest cost on accumulated post-retirement benefit
obligation 42 33
--Amortization of transition obligation 40 40
--Net amortization and deferral (5) (8)
------- -------
--Net periodic post-retirement benefit cost $ 142 $ 114
------- -------
------- -------
The discount rate used in determining the accumulated post-retirement benefit
obligation was 7.5% in 1995 and 8% in 1994, and the assumed health care cost
trend rate was 12.0% graded to 6% over 10 years after which it remains constant.
-25-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
13. OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED):
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the post-retirement
benefit obligation as of December 31, 1995 by $149,000 and the estimated service
and interest cost components of the net periodic post-retirement benefit cost
for 1995 by $29,000.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995 and 1994:
DECEMBER 31, 1995
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
ASSETS
Bonds 2,846,067 3,012,586
Mortgages 1,066,911 1,111,895
Real estate 95,575 98,437
LIABILITIES
Insurance reserves 124,066 124,066
Individual annuities 434,261 431,263
Pension products 2,227,882 2,265,386
Derivatives -- 3,387
DECEMBER 31, 1994
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
ASSETS
Bonds $2,471,152 $2,444,890
Mortgages 1,120,981 1,107,012
Real estate 89,487 91,072
LIABILITIES
Insurance reserves 129,302 129,302
Individual annuities 475,557 476,570
Pension products 2,772,618 2,668,382
Derivatives -- 1
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
using prices for publicly traded bonds of similar credit risk and maturity and
repayment characteristics.
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance, annuity and pension 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 market value.
-26-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
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.
15. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve (AVR) provides a reserve for losses from investments
in bonds, stocks, 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 (IMR) and amortized into income over the remaining
contractual life of the security sold.
The tables shown below present changes in the major elements of the AVR and IMR.
1995 1994
---------------- ---------------
AVR IMR AVR IMR
------- ------- ------- ------
(IN 000'S) (IN 000'S)
Balance, beginning of year $28,409 $18,140 $20,033 $31,414
Realized capital gains (losses), net of
tax (1,524) 7,977 (1,320) (9,958)
Amortization of investment gains 0 (897) 0 (3,316)
Unrealized investment gains (losses) 3,650 0 (3,537) 0
Required by formula 11,564 0 13,233 0
------- ------- ------- ------
Balance, end of year $42,099 $25,218 $28,409 $18,140
------- ------- ------- ------
------- ------- ------- ------
16. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $12,429,000, $43,200,000 and
$25,000,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
17. 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 for 1995 and 1994.
18. NEW ACCOUNTING PRONOUNCEMENT:
In April, 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
interpretation, annual financial statements of mutual life insurance enterprises
for fiscal years beginning after December 15, 1992, shall provide a brief
description that financial statements prepared on the basis of statutory
accounting practices will no longer be described as prepared in conformity with
generally accepted accounting principles. In January 1995, Statement of
Financial Accounting Standards
-27-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED):
No. 120 (SFAS No. 120) "Accounting and Reporting by Mutual Life Insurance
Enterprises for Certain Long Duration Participating Contracts" was issued. SFAS
No. 120 delays the effective date of interpretation No. 40 until fiscal years
beginning after December 15, 1995.
Beginning in 1996, the Company will file financial statements prepared in
accordance with all applicable pronouncements that define generally accepted
accounting principles for all enterprises.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS
We have audited the accompanying balance sheets of Sun Life Assurance Company of
Canada (U.S.) (a wholly-owned subsidiary of Sun Life Assurance Company of
Canada) as of December 31, 1995 and 1994, and the related statements of
operations, capital stock and surplus, and cash flows for each of the three
years in the period ended December 31, 1995. 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 audit 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996
-28-
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 REGISTRANT
The directors and principal officers of the Registrant are listed below,
together with information as to their ages, dates of election and principal
business occupations during the last five years (if other than their present
business occupations). Except as otherwise indicated, the directors and
officers of the Registrant who are associated with Sun Life Assurance Company
of Canada and/or its subsidiaries have been associated with Sun Life
Assurance Company of Canada for more than five years either in the position
shown or in other positions.
Richard B. Bailey, 69, Director (1983*)
500 Boylston Street
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity Company of New York
and a Director/Trustee of certain Funds in the MFS Family of Funds. Prior to
October 1, 1991 he was Chairman and a Director of Massachusetts Financial
Services Company.
A. Keith Brodkin, 60, Director (1990*)
500 Boylston Street
Boston, Massachusetts 02116
He is Chairman and a Director of Massachusetts Financial Services
Company; a Director of Sun Life Insurance and Annuity Company of New York;
and a Director/Trustee and/or Officer of the Funds in the MFS Family of Funds.
M. Colyer Crum, 63, Director (1986*)
Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
He is a Professor at the Harvard Business School and a Director of Sun
Life Assurance Company of Canada, Sun Life Insurance and Annuity
Company of New York, Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Natural Resources Trust, Merrill
Lynch Ready Assets Trust, Merrill Lynch Special Value Fund, Inc., Merrill
Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money Fund,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, Inc.,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest New York Insured Fund, Inc., MuniYield Florida Insured Fund,
MuniYield Insured Fund II, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund III,
Inc., and MuniYield Pennsylvania Fund.
John R. Gardner, 58, President and Director (1986*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is President and a Director of Sun Life Assurance Company of Canada
and Sun Life Insurance and Annuity Company of New York and a Director of
Massachusetts Financial Services Company, Massachusetts Casualty Insurance
Company and Sun Life Financial Services Limited.
_____________
* Year Elected Director
-29-
John S. Lane, 61, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company
of Canada and a Director of Sun Investment Services Company, Sun Life
Insurance and Annuity Company of New York and Sun Capital Advisers, Inc.
David D. Horn, 54, Senior Vice President and General Manager
and Director (1970, 1985*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and General Manager for the United States of
Sun Life Assurance Company of Canada; Chairman and President and a Director
of Sun Investment Services Company; President and a Director of Sun Benefit
Services Company, Inc., Sun Canada Financial Co., and Sun Life Financial
Services Limited; Senior Vice President and a Director of Sun Life Insurance
and Annuity Company of New York; Vice President and a Director of Sun Growth
Variable Annuity Fund, Inc.; a Director of Sun Capital Advisers, Inc;
Chairman and a Director of Massachusetts Casualty Insurance Company; a
Trustee of MFS/Sun Life Series Trust; and a Member of the Boards of Managers
of Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, Total
Return Variable Account, Managed Sectors Variable Account and World
Governments Variable Account.
Angus A. MacNaughton, 64, Director (1985*)
950 Tower Lane, Metro Tower, Suite 1170
Foster City, California 94404
He is President of Genstar Investment Corporation and a Director of
Sun Life Assurance Company of Canada, Sun Life Insurance and Annuity
Company of New York, Canadian Pacific, Ltd., Stelco Inc. and Varian
Associates, Inc.
John D. McNeil, 62, Chairman and Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman and a Director of Sun Life Assurance Company of Canada
and Sun Life Insurance and Annuity Company of New York; a Director of
Massachusetts Financial Services Company; President and a Director of Sun
Growth Variable Annuity Fund, Inc.; Chairman and a Trustee of MFS/Sun Life
Series Trust; Chairman and a Member of the Boards of Managers of Money Market
Variable Account, High Yield Variable Account, Capital Appreciation Variable
Account, Government Securities Variable Account, Total Return Variable
Account, Managed Sectors Variable Account and World Governments Variable
Account; and a Director of Shell (Canada) Limited and Canadian Pacific, Ltd.
Robert A. Bonner, 51, Vice President, Pensions (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Pensions for the United States of Sun Life
Assurance Company of Canada.
Robert E. McGinness, 54, Vice President and Counsel (1983)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President and Counsel for the United States of Sun Life
Assurance Company of Canada; Vice President and Counsel and a director of Sun
Investment Services Company and Sun Benefit Services Company, Inc.; and a
Director of New London Trust, F.S.B. and Massachusetts Casualty Insurance
Company.
_____________
* Year Elected Director
-30-
S. Caesar Raboy, 59, Vice President, Individual Insurance (1991)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Individual Insurance for the United States of Sun
Life Assurance Company of Canada; Vice President of Sun Life Insurance
and Annuity Company of New York; and Vice President and a Director of Sun
Life Financial Services Limited. Prior to 1990 he was President and Chief
Operating Officer of Connecticut Mutual Life Insurance Company.
C. James Prieur, 44, Vice President, Investments (1993)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Investments for the United States of Sun Life
Assurance Company of Canada; Vice President, Investments of Sun Investment
Services Company and Sun Life Insurance and Annuity Company of New York; and
a Director of Sun Capital Advisers, Inc., New London Trust, F.S.B. and Sun
Canada Financial Co.
Bonnie S. Angus, 54, Secretary (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Secretary for the United States of Sun Life Assurance
Company of Canada; and Secretary of Sun Investment Services Company, Sun
Benefit Services Company, Inc., MFS/Sun Life Series Trust, Sun Growth
Variable Annuity Fund, Inc., Money Market Variable Account, High Yield
Variable Account, Capital Appreciation Variable Account, Government
Securities Variable Account, Total Return Variable Account, Managed Sectors
Variable Account, World Governments Variable Account, Sun Life Insurance and
Annuity Company of New York, Sun Capital Advisers, Inc., New London Trust,
F.S.B., Sun Life Financial Services Limited and Sun Canada Financial Co.
L. Brock Thomson, 54, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Portfolio Management for the United States of Sun
Life Assurance Company of Canada; Vice President and Treasurer of Sun
Investment Services Company, Sun Benefit Services Company, Inc., Sun Life
Insurance and Annuity Company of New York and Sun Capital Advisers, Inc.; and
Assistant Treasurer of Massachusetts Casualty Insurance Company.
Robert P. Vrolyk, 42, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Finance for the United States of Sun Life
Assurance Company of Canada; Vice President, Controller and Actuary of Sun
Life Insurance and Annuity Company of New York; Vice President and a Director
of Sun Canada Financial Co.; and Chief Actuary and a Director of
Massachusetts Casualty Insurance Company.
The directors, officers and employees of the Registrant, are covered
under a commercial blanket bond and a liability policy.
_____________
* Year Elected Director
-31-
ITEM 11. EXECUTIVE COMPENSATION.
All of the executive officers of the Registrant also serve as officers
of Sun Life Assurance Company of Canada and receive no compensation directly
from the Registrant. Allocations have been made as to such officers time
devoted to duties as executive officers of the Registrant and its
subsidiaries. The allocated cash compensation of all executive officers of
the Registrant as a group for services rendered in all capacities to the
Registrant and its subsidiaries during 1995, totalled $812,410. The
allocated compensation of the named executive officers is as follows:
ALLOCATED COMPENSATION
----------------------
OTHER ALLOCATED
NAME/POSITION YEAR SALARY BONUS COMPENSATION
------------- ---- -------- ------- ---------------
John D. McNeil 1995 $ 76,854 $29,344
Chairman 1994 $ 59,189 $12,284
1993 $ 16,655 $ 3,482
David D. Horn 1995 $176,800 $52,728 $5,787
Senior Vice President 1994 $ 68,985 $22,995
and General Manager 1993 $ 64,818 $22,160
Robert A. Bonner, 1995 $134,227 $24,824 $9,892
Vice President, Pensions 1994 $111,632 $15,706
1993 $ 97,160 $18,877
Vice President and Actuary 1995 $ 93,079 $19,136
1994 $ 90,026 $17,552
1993 $ 67,587 $16,897
C. James Prieur,
Vice President, Investments 1995 $ 95,416 $36,650
1994 $ 82,918 $17,398
1993 $ 80,621 $20,155
Robert Leach,
Vice President, Individual
Annuities 1995 $138,500 $25,371
1994 $132,248 $13,500
1993 $125,000 $13,500
Directors of the Registrant who are also officers of Sun Life Assurance
Company of Canada or its affiliates receive no compensation in addition to
their compensation as officers of Sun Life Assurance Company of Canada or its
affiliates. Messrs. Bailey, Crum and MacNaughton receive compensation in the
amount of $5,000 per year, plus $800 for each board or committee meeting
attended, plus expenses.
No shares of the Registrant are owned by any executive officer or
director. The Registrant is a wholly-owned subsidiary of Sun Life Assurance
Company of Canada, 150 King Street West, Toronto, Ontario, Canada.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is not applicable since the Registrant is wholly-owned by Sun
Life Assurance Company of Canada.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REINSURANCE
See discussion of Reinsurance in Item 1.
SERVICE CONTRACT
The Registrant has an agreement with its parent company which provides
that the parent company will furnish, as requested, personnel as well as
certain services and facilities on a cost reimbursement basis. Expenses
under this agreement amounted to approximately $20,293,000 in 1995.
-32-
LEASES
The Registrant leases office space to the parent company under lease
agreements with terms expiring in September, 1999 and options to extend the
terms for each of thirteen successive five year terms at fair market rental
not to exceed 125% of the fixed rent for the term which is ending. Rent
received by the Registrant under the leases for 1995 amounted to
approximately $4,891,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial statements (set forth in Item 8):
- Balance Sheets as of December 31, 1995 and December 31, 1994.
- Statements of Operations for each of the three years ended
December 31, 1995, December 31, 1994 and December 31, 1993.
- Statements of Capital Stock and Surplus for each of the three
years ended December 31, 1995, December 31, 1994 and December
31, 1993.
- Statements of Cash Flows for each of the three years ended
December 31, 1995, December 31, 1994 and December 31, 1993.
- Notes to Financial Statements.
- Independent Auditors' Report.
(a) 2. Financial statement schedules (set forth below):
- Schedule I - Summary of Investments, Other than Investments in
Related Parties.
- Schedule VI - 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.
-33-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SCHEDULE I
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN
RELATED PARTIES
Amount at which shown in
Type of Investment Cost Value the balance sheet*
Fixed maturities:
Bonds:
Unites States government and
government agencies and authorities $ 467,597 $ 489,937 $ 467,597
States, municipalities and political
subdivisions 2,252 2,333 2,252
Foreign governments 38,303 42,848 38,303
Public utilities 513,704 558,967 513,704
Transportation 215,786 236,359 215,786
Finance 225,074 238,836 225,074
All other corporate bonds 1,045,745 1,105,701 1,045,745
---------- ---------- ----------
Total fixed maturities 2,508,461 2,674,981 2,508,461
---------- ---------- ----------
Mortgage loans on real estate 1,066,911 xxxxxxxxx 1,066,911
Real estate 92,441 xxxxxxxxx 71,699*
Real estate acquired in satisfaction
of debt 26,384 xxxxxxxxx 23,875
Other invested assets 38,387 xxxxxxxxx 38,387
Policy loans 38,355 xxxxxxxxx 38,355
Short-term investments 337,606 xxxxxxxxx 337,606
Total investments $4,108,545 xxxxxxxxx $4,085,294
---------- ---------- ----------
---------- ---------- ----------
*Net of provision for unrealized loses of $10,689
-34-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SCHEDULE VI
REINSURANCE
% AMOUNT
ASSUMED
CEDED TO ASSUMED FROM NET TO NET
DIRECT OTHER COMPANIES OTHER COMPANIES AMOUNT AMOUNT
------ --------------- --------------- ------ ------
Life Insurance In -Force
(in 000's)
December 31, 1995 $1,277,888 $6,580,848 $12,011,507 $6,708,547 179.0%
---------- ---------- ---------- ---------- ------
December 31, 1994 $1,342,863 $6,957,308 $12,584,516 $6,970,071 180.6%
---------- ---------- ---------- ---------- ------
December 31, 1993 $1,424,983 $7,020,735 $12,579,451 $6,983,699 180.1%
---------- ---------- ---------- ---------- ------
Life Insurance Premiums
(in 000's)
December 31, 1995 $6,051 $10,258 $217,449 $213,242 101.9%
------ ------- -------- -------- ------
December 31, 1994 $6,490 $8,327 $246,571 $244,734 100.8%
------ ------- -------- -------- ------
December 31, 1993 $7,185 $6,572 $284,997 $285,610 99.8%
------ ------- -------- -------- ------
-35-
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER
Sun Life Assurance Company of Canada (U.S.)
Wellesley Hills, Massachusetts
We have audited the balance sheets of Sun Life Assurance Company of
Canada (U.S.) (wholly-owned subsidiary of Sun Life Assurance Company of
Canada) as of December 31, 1995 and 1994 and the related statements of
operations, capital stock and surplus and cash flows for each of the three
years in the period ended December 31, 1995, and have issued our report
thereon dated February 7, 1996 (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. 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
Boston, Massachusetts
February 7, 1996
-36-
(A) 3 AND (C). EXHIBITS:
The following Exhibits are incorporated herein by reference unless otherwise
indicated:
EXHIBIT NO.
1 Underwriting Agreement (filed as Exhibit 1 to Registration Statement on Form S-1 (Reg. No. 2-
99959) and as Exhibit 1 to Pre-Effective Amendment No. 2 to the Registration Statement on Form S-
2 (Reg. No. 33-29851)).
3 Certificate of incorporation and by-laws (filed as Exhibits 3(a) and 3(b) to the Registration
Statements on Form S-1 (Reg. Nos. 2-99959 and 33-29851)).
4 Combination Fixed/Variable Group Annuity Contracts and Certificates (filed as Exhibit 4 to
Amendment No. 2 to Registration Statement on Form S-1 (Reg. No. 2-99959); as Exhibit 4 to Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-2 (Reg. No. 33-29851); as
Exhibit 4 to the Registration Statement on Form S-2 (Reg. No. 33-43008); and as Exhibit 4 to Post-
Effective Amendment No. 3 to the Registration Statement on Form S-2 (Reg. No. 33-43008)).
5 Opinion re: Legality (filed as Exhibit 5 to Amendment No. 1 to Registration Statement on Form S-1
(Reg. No. 2-99959); Exhibit 5 to Pre-Effective Amendment No. 2 to the Registration Statement on
Form S-2 (Reg. No. 33-29851); Exhibit 5 to the Registration Statement on Form S-2 (Reg. No. 33-
31711); and as Exhibit 5 to the Registration Statement on Form S-2 (Reg. No. 33-43008).
8 Opinion re: Tax Matters (filed as Exhibit No. 8 to Amendment No. 1 to Registration Statement on
Form S-1 (Reg. No. 2-99959).
10 Service Agreement dated January 18, 1971, between Sun Life Assurance Company of Canada and
Registrant (filed as Exhibit 9(a) to Registration Statement on Form N-8B-2 of Sun Life of Canada
(U.S.) Variable Account D).
22 Subsidiaries of the Registrant (filed herewith).
24 Powers of attorney (filed herewith).
27 Financial Data Schedule (filed herewith).
(B) REPORTS ON FORM 8-K
No reports have been filed on Form 8-K.
(D) NO ADDITIONAL FINANCIAL STATEMENTS ARE REQUIRED TO BE FILED.
-37-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Sun Life Assurance Company of Canada
(U.S.), has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sun Life Assurance Company of Canada (U.S.)
(Registrant)
By:* /s/ JOHN D. McNEIL
------------------------
John D. McNeil, Chairman
Date: March 28, 1996
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
*/s/ JOHN D. McNEIL * /s/ RICHARD B. BAILEY
- ------------------------------------ ---------------------------------
John D. McNeil Richard B. Bailey
Chairman and Director Director
(Principal Executive Officer)
Date: March 28, 1996 Date: March 28, 1996
----------------------------- ---------------------------
* /s/ ROBERT P. VROLYK * /s/ A. KEITH BRODKIN
- ------------------------------------ ---------------------------------
Robert P. Vrolyk A. Keith Brodkin
Vice President and Actuary Director
(Principal Financial & Accounting Officer)
Date: March 28, 1996 Date: March 28, 1996
----------------------------- ---------------------------
- -----------------------------------------------------------------
*By Bonnie S. Angus pursuant to Power of Attorney filed herewith.
-38-
* /s/ DAVID D. HORN * /s/ JOHN R. GARDNER
- ------------------------------------ ---------------------------------
David D. Horn John R. Gardner
Senior Vice President and President and Director
General Manager and Director
Date: March 28, 1996 Date: March 28, 1996
----------------------------- ---------------------------
* /s/ JOHN S. LANE * /s/ M. COLYER CRUM
- ------------------------------------ ---------------------------------
John S. Lane M. Colyer Crum
Director Director
Date: March 28,1996 Date: March 28, 1996
----------------------------- ---------------------------
* /s/ ANGUS A. MACNAUGHTON
- ------------------------------------
Angus A. MacNaughton
Director
Date: March 28,1996
-----------------------------
- -----------------------------------------------------------------
*By Bonnie S. Angus pursuant to Power of Attorney filed herewith.