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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file numbers
ended 33-1079, 33-58482 AND 333-09141
DECEMBER 31, 1998
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SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK 04-2845273
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
80 BROAD STREET, 10004
NEW YORK, NEW YORK
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (212) 943-3855
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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
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(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 2,000 shares of common stock outstanding on March 31, 1999, all
of which are owned by Sun Life Assurance Company of Canada (U.S.).
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1) (a)
AND (b) FOR FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY INSTRUCTION I.
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PART I
ITEM 1. BUSINESS.
The Company is a stock life insurance company incorporated in the state of New
York on May 25, 1983 and currently transacts business only in the State of New
York.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
(U.S.) ("Sun Life of Canada (U.S.)"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481, a stock life insurance company incorporated in
Delaware. Effective May 1, 1997, the Company's ultimate parent company, Sun Life
Assurance Company of Canada ("SLOC"), established a wholly-owned subsidiary, Sun
Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"), a Delaware corporation, to
serve as the holding company for Sun Life (U.S.). On December 18, 1997, Life
Holdco became a wholly-owned subsidiary of Sun Life Assurance Company of
Canada-U.S. Operations Holdings, Inc. ("US Holdco"). US Holdco is a wholly-owned
subsidiary of SLOC, 150 King Street West, Toronto, Ontario, Canada, a mutual
life insurance company incorporated pursuant to an Act of Parliament of Canada.
The Company is engaged in the sale of combination fixed and variable annuity
contracts, group life and group health insurance contracts. These contracts are
sold by insurance agents, some of whom are registered representatives of
national and regional stock brokerage firms and brokers.
ITEM 2. PROPERTIES.
The Company owns no properties.
The Company leases two separate facilities for its annuity operations and group
sales offices. On February 24, 1999, the Company terminated the lease associated
with its annuity operations office as it intends to consolidate the functions
performed at this facility with its parent company, Sun Life of Canada (U.S.).
The group sales office lease is scheduled to expire in July, 1999.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in various kinds of routine litigation which, in
management's judgement, is not of material importance to its total assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to Instruction I (2) (c) to Form 10-K.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
(U.S.) and as such there is no market for its common stock.
The Company paid a cash dividend of $3,000,000 to its immediate parent, Sun Life
of Canada (U.S.), on May 15, 1998.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to Instruction I (2) (a) to Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION
Omitted pursuant to Instruction I (2) (a) to Form 10-K.
RESULTS OF OPERATIONS
The Company had net income of $6,685,000 for 1998 as compared to $3,356,000 for
1997. The increase in net income between years was due directly to higher
earnings in the annuity and group disability businesses and an over-accrued
federal income tax provision at December 31, 1997, offset by lower earnings from
group life insurance. The increase in annuity income was primarily due to higher
fee income from market appreciation on separate account assets and lower reserve
strain from lower fixed annuity sales in 1998. The
2
increase in group health income was due directly to lower group accident and
health reserves from more favorable long term disability claims experience,
while group life earnings declined primarily from increased claims experience
and higher reserves offset by higher premium income.
YEAR 2000 COMPLIANCE
During the fourth quarter of 1996, SLOC began a comprehensive analysis of its
information technology ("IT") and non-IT systems, including its hardware,
software, data, data feed products, and internal and external supporting
services, to ensure the ability of these systems to correctly process date
calculations through the year 2000 and beyond. SLOC created a full-time Year
2000 project team in early 1997 to manage this endeavor across the Company. This
team, which works with dedicated personnel from all business units and with the
legal and audit departments, reports directly to the Company's senior management
on a monthly basis. In addition, SLOC's Year 2000 project is periodically
reviewed by internal and external auditors.
To date, all relevant systems have been identified and their components
inventoried, needed resolutions have been documented, timelines and project
plans have been developed, remediation and testing are in process. Over 90% of
the components have been remediated, tested and are certified as Year 2000
compliant. The majority of the remaining components are in the testing phase and
will be certified over the course of the year.
In mid-1997, the project team contacted all key vendors to obtain either their
certification for the products and services provided or their plan to make those
products and services compliant. Approximately 95% of these vendors have
responded and the project team has reviewed the responses, validated and
conducted tests with the vendors where appropriate. In addition, the project
team continues to work with critical business partners, such as third-party
administrators, investment property managers, investment mortgage
correspondents, and others, with the goal that these partners will continue to
be able to support the Company's objective of assuring Year 2000 compliance.
Non-IT applications, including building security, HVAC systems, and other such
systems, will be tested. Compliant client server and mainframe environments have
been built which allow for testing of critical dates such as December 31, 1999,
January 1, 2000, February 28, 2000, February 29, 2000 and March 1, 2000 without
impact to current production.
Although the Company expects all critical systems to be Year 2000 compliant
before the end of 1999, there can be no assurance that this result will be
completely achieved. Factors giving rise to this uncertainty include possible
loss of technical resources to perform the work, failure to identify all
susceptible systems, non-compliance by third-parties whose systems and
operations affect the Company, and other similar uncertainties. A possible
worst-case scenario might include one or more of the Company's significant
systems being non-compliant. Such a scenario could result in material disruption
to the Company's operations. Consequences of such disruptions could include,
among other possibilities, the inability to update customers' accounts, process
payments and other financial transactions; and report accurate data to
management, customers, regulators, and others. Consequences also could include
business interruptions or shutdowns, reputational harm, increased scrutiny by
regulators, and litigation related to Year 2000 issues. Such potential
consequences, depending on their nature and duration, could have a material
impact on the Company's results of operations and financial position.
In order to mitigate the risks to the Company of material adverse operational or
financial impacts from failure to achieve planned Year 2000 compliance, SLOC has
established contingency planning at the business unit and corporate levels. Each
business unit has ranked its applications as being of high, medium or low
business risk to ensure that the most critical are addressed first. The business
units also have developed alternate plans of action where possible, and
established dates for the alternate plans to be enacted. On the corporate level,
SLOC is in the process of enhancing its business continuation plan, by
identifying minimum requirements for facilities, computing, staffing, and other
factors; and it is developing a plan to support those requirements.
As of year-end 1998, the Company expended, cumulatively, approximately $222,000
on its Year 2000 effort, and it expects to incur a further $70,000 on this
effort in 1999.
3
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 defines forward looking
statements as statements not based on historical fact. This Form 10-K includes
forward looking statements by the Company. These statements relate to such
topics as to Year 2000 compliance, volume growth, market share, and financial
goals. It is important to understand that these forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those that the statements anticipate. These risks and
uncertainties may concern, among other things:
- The Company's ability to identify and address Year 2000 issues
successfully, in a timely manner, and at reasonable cost. They also may
concern the ability of the Company's vendors, suppliers, other service
providers, and customers to successfully address their own Year 2000
issues in a timely manner.
- Heightened competition, particularly in terms of price, product features,
and distribution capability, which could constrain the Company's growth
and profitability.
- Changes in interest rates and market conditions.
- Regulatory and legislative developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This discussion covers market risks associated with investment portfolios that
support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy statement that it has established for that segment. The policy
statement discusses the segment's liability characteristics and liquidity
requirements, provides cash flow estimates, and sets targets for asset mix,
duration, and quality. Each quarter, investment and business unit managers
review these policy statements to ensure that the policies remain appropriate,
taking into account each segment's liability characteristics.
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted in
high-quality portfolios and have the effect of limiting credit risk. It is the
Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk; nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. The management of
interest rate risk exposure is discussed below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by well
diversified portfolios of fixed interest investments. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities (MBS) and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
government agencies and to collateralized mortgage obligations, which are
expected to exhibit relatively low volatility. The Company does not engage in
leveraged transactions and it does not invest in the more speculative forms of
these instruments such as the interest-only, principal-only, inverse floater, or
residual tranches.
Changes in the level of domestic interest rates affect the market value of fixed
interest assets and liabilities. Segments whose liabilities mainly arise from
the sale of products containing interest rate guarantees for
4
certain terms are sensitive to changes in interest rates. In these segments, the
Company uses "immunization" strategies, which are specifically designed to
minimize the loss from wide fluctuations in interest rates. The Company supports
these strategies using analytical and modeling software acquired from outside
vendors.
Significant features of the Company's immunization models include:
- an economic or market value basis for both assets and liabilities;
- an option pricing methodology;
- the use of effective duration and convexity to measure interest rate
sensitivity;
- the use of "key rate durations" to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1998 had a fair value of $29.2 million. Fixed
income investments supporting those liabilities had a fair value of $82.3
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998. The analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $.7
million and the corresponding assets would show a net decrease of $2.4 million.
The Company produced these estimates using computer models. Since these models
reflect assumptions about the future, they contain an element of uncertainty.
For example, the models contain assumptions about future policyholder behavior
and asset cash flows. Actual policyholder behavior and asset cash flows could
differ from what the models show. As a result, the models' estimates of duration
and market values may not reflect what actually will occur. The models are
further limited by the fact that they do not provide for the possibility that
management action could be taken to mitigate adverse results. The Company
believes that this limitation is one of conservatism; that is, it will tend to
cause the models to produce estimates that are generally worse than one might
actually expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements, in the form required by Regulation S-X, are set forth
below. The Company is not subject to the requirement to file supplementary
financial data specified by Item 302 of Regulation S-K.
5
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND
SURPLUS
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
ADMITTED ASSETS
General Account Assets:
Bonds $ 57,916,869 $ 61,703,336
Mortgage loans on real estate 17,657,672 25,787,001
Properties acquired in satisfaction
of debt 1,755,854 --
Policy loans 625,023 636,277
Cash and short-term investments 5,928,556 10,120,237
Life insurance premiums and annuity
considerations due and uncollected 667,087 791,011
Accident and health premiums due and
unpaid 156,493 158,858
Investment income due and accrued 780,020 1,083,939
Other assets 183,602 497,790
------------ ------------
General account assets 85,671,176 100,778,449
Separate Account Assets:
Unitized 527,942,310 406,430,585
Non-unitized 100,064,243 116,889,545
------------ ------------
Total Admitted Assets $713,677,729 $624,098,579
------------ ------------
------------ ------------
LIABILITIES, CAPITAL STOCK AND SURPLUS
General Account Liabilities:
Aggregate reserve for life policies
and contracts $ 22,578,780 $ 22,374,626
Aggregate reserve for accident and
health policies 7,830,000 7,414,000
Policy and contract claims 2,174,704 1,912,737
Liability for premium and other
deposit funds 20,807,840 31,341,254
Interest maintenance reserve 830,941 885,581
Commissions to agents due or accrued 374,826 521,106
General expenses due or accrued 369,524 415,105
Transfers from Separate Accounts due
or accrued (15,992,081) (7,224,058)
Taxes, licenses and fees due or
accrued 64,813 114,986
Federal income taxes due or accrued 700,000 1,000,000
Asset valuation reserve 1,047,787 1,346,335
Payable to parent, subsidiaries and
affiliates 1,218,745 1,266,475
Other liabilities 684,361 810,594
------------ ------------
General account liabilities 42,690,240 62,178,741
Separate Account Liabilities:
Unitized 527,751,720 406,249,110
Non-unitized 100,064,243 116,889,545
------------ ------------
Total liabilities 670,506,203 585,317,396
------------ ------------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000;
authorized issued and outstanding;
2,000 shares 2,000,000 2,000,000
------------ ------------
Gross paid in and contributed
surplus 29,500,000 29,500,000
Group life contingency reserve fund 812,391 180,457
Unassigned funds 10,859,135 7,100,726
------------ ------------
Total Surplus 41,171,526 36,781,183
------------ ------------
Capital stock and surplus 43,171,526 38,781,183
------------ ------------
Total liabilities, capital stock and
surplus $713,677,729 $624,098,579
------------ ------------
------------ ------------
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
6
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
INCOME:
Premiums and annuity considerations $ 16,979,974 $ 16,013,160 $ 10,880,575
Deposit-type funds 84,013,114 115,692,429 67,770,004
Net investment income 6,397,852 8,824,668 12,313,903
Amortization of interest maintenance
reserve 319,812 519,001 704,763
Net gain from operations from
Separate Accounts 9,115 8,743 8,101
Income from fees associated with
investment management,
administration and contract
guarantees from Separate Accounts 6,262,374 4,707,296 3,591,170
Other income 1,179,261 657,755 701,242
------------ ------------ ------------
Total Income 115,161,502 146,423,052 95,969,758
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death benefits 6,237,281 4,916,746 2,881,367
Annuity benefits 5,758,805 5,439,091 7,175,995
Disability benefits and benefits
under accident and health policies 1,094,851 939,635 464,615
Surrender benefits and other fund
withdrawals 73,863,143 79,016,904 114,578,203
Interest on policy or contract funds 101,516 75,069 83,323
Increase in aggregate reserves for
life and accident and health
policies and contracts 620,154 5,199,040 1,550,701
Decrease in liability for premium
and other deposit funds (10,533,414) (30,405,893) (67,996,389)
------------ ------------ ------------
Total Benefits 77,142,336 65,180,592 58,737,815
Commissions on premiums and annuity
considerations (direct business
only) 4,850,390 5,582,738 3,047,358
General insurance expenses 7,017,562 7,687,478 6,093,131
Insurance taxes, licenses and fees,
excluding federal income taxes 709,440 788,386 729,244
Net transfers to Separate Accounts 16,673,071 61,695,832 22,581,654
------------ ------------ ------------
Total Benefits and Expenses 106,392,799 140,935,026 91,189,202
------------ ------------ ------------
Net gain from operations before
federal income taxes 8,768,703 5,488,026 4,780,556
Federal income taxes incurred
(excluding tax on capital gains) 2,070,545 2,315,259 1,938,734
------------ ------------ ------------
Net gain from operations after
federal income taxes and before
realized capital gains 6,698,158 3,172,767 2,841,822
Net realized capital (losses) gains
less capital gains tax and
transferred to the interest
maintenance reserve (13,249) 183,262 (439,101)
------------ ------------ ------------
NET INCOME $ 6,684,909 $ 3,356,029 $ 2,402,721
------------ ------------ ------------
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SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
7
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31,
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1998 1997 1996
----------- ----------- -----------
CAPITAL AND SURPLUS, BEGINNING OF YEAR $38,781,183 $34,802,643 $31,964,414
----------- ----------- -----------
Net income 6,684,909 3,356,029 2,402,721
Change in net unrealized capital
gains 359,000 138,000 702,000
Change in nonadmitted assets and
related items 47,886 (14,391) 32,888
Change in asset valuation reserve 298,548 498,902 (299,380)
Dividend to stockholder (3,000,000) -- --
----------- ----------- -----------
Net change in capital and surplus
for the year 4,390,343 3,978,540 2,838,229
----------- ----------- -----------
CAPITAL AND SURPLUS, END OF YEAR $43,171,526 $38,781,183 $34,802,643
----------- ----------- -----------
----------- ----------- -----------
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
8
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
CASH PROVIDED
Premiums, annuity considerations and
deposit funds received $101,168,181 $138,347,877 $ 82,896,939
Net investment income 6,731,025 9,707,801 14,106,521
Fees associated with investment
management, administration and
contract guarantees from Separate
Accounts 6,262,374 4,707,296 3,591,170
Fee income 1,179,261 657,755 701,242
------------ ------------ ------------
Total receipts 115,340,841 153,420,729 101,295,872
------------ ------------ ------------
Benefits paid 86,793,629 122,170,301 128,975,968
Insurance expenses and taxes paid 12,819,426 13,540,362 9,712,774
Net cash transfers to separate
accounts 25,441,094 41,721,173 25,804,874
Federal income tax payments
(excluding tax on capital gains) 2,370,545 1,715,259 2,909,899
------------ ------------ ------------
Total payments 127,424,694 179,147,095 167,403,515
------------ ------------ ------------
Net cash from operations (12,083,853) (25,726,366) (66,107,643)
------------ ------------ ------------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$135,651 for 1998, $222,860 for
1997 and ($112,405) for 1996) 37,410,774 59,132,310 86,583,714
Other cash provided 813,054 325,543 4,654,856
------------ ------------ ------------
Total cash provided 38,223,828 59,457,853 91,238,570
------------ ------------ ------------
CASH APPLIED
Cost of long-term investments
acquired (26,671,265) (27,369,138) (28,654,582)
Other cash applied (3,660,391) (857,106) (166,107)
------------ ------------ ------------
Total cash applied (30,331,656) (28,226,244) (28,820,689)
------------ ------------ ------------
Net change in cash and short-term
investments (4,191,681) 5,505,243 (3,689,762)
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF YEAR 10,120,237 4,614,994 8,304,756
------------ ------------ ------------
END OF YEAR $ 5,928,556 $ 10,120,237 $ 4,614,994
------------ ------------ ------------
------------ ------------ ------------
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
9
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Insurance and Annuity Company of New York (the "Company") is
incorporated as a life insurance company and is currently engaged in the sale of
individual fixed and variable annuities, group life and group long-term
disability insurance. The parent company, Sun Life Assurance Company of Canada
(U.S.) ("Sun Life of Canada (U.S.)"), is ultimately a wholly-owned subsidiary of
Sun Life Assurance Company of Canada ("Sun Life (Canada)"), a mutual life
insurance company.
The Company, which is domiciled in the State of New York, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the Insurance Department of the State of New York. Prescribed
accounting practices include a variety of publications of the National
Association of Insurance Commissioners ("NAIC"), as well as New York State laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles ("GAAP") for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April of 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation") which became effective in 1996 that has changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with GAAP. Consequently, these financial
statements prepared in conformity with statutory accounting practices as
described above, vary from and are not intended to present the Company's
financial position, results of operations or cash flow in conformity with GAAP.
(See Note 17 for further discussion relative to the Company's basis of financial
statement presentation.) The effects on the financial statements of the
variances between the statutory basis of accounting and GAAP, although not
reasonably determinable, are presumed to be material.
INVESTED ASSETS--
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans at the amounts of the unpaid balances.
Real estate investments are carried at the lower of cost, adjusted for
accumulated depreciation, or appraised value less encumbrances. Short-term
investments are carried at amortized cost which approximates fair value.
Depreciation of buildings and improvements is calculated using the straight-line
method over the estimated useful life of the property, generally three to
sixteen years.
POLICY AND CONTRACT RESERVES--
The reserves for group life insurance, group long-term disability insurance and
annuity contracts, developed by accepted actuarial methods, have been
established and maintained on the basis of published mortality and morbidity
tables using assumed interest rates and valuation methods that will provide
reserves at least as great as those required by law and contract provisions.
INCOME AND EXPENSES--
For group life, group long-term disability and annuity contracts, premiums are
recognized as revenues over the premium paying period, whereas commissions and
other costs applicable to the acquisition of new business are charged to
operations as incurred.
10
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED):
SEPARATE ACCOUNTS--
The Company has established unitized separate accounts applicable to individual
qualified and nonqualified variable annuity contracts.
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 statutory financial
statements. Assets held in the separate accounts are carried at market values as
determined by the quoted market prices of the underlying investments.
The Company has also established a nonunitized separate account for amounts
allocated to the fixed portion of a certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as payable (receivable) to (from) the general account. Transfers
from separate accounts due or accrued amounted to $15,992,000 in 1998 and
$7,224,000 in 1997.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING--
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the State of New York will require adoption of the Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER--
Preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain 1997 and 1996 amounts have been reclassified to conform to amounts as
presented in 1998.
11
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. BONDS:
Investments in debt securities are as follows:
DECEMBER 31, 1998
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ----------- --------
(IN 000'S)
Long-term bonds:
United States Government and
government agencies and authorities $16,153 $ 319 $(31) $16,441
Public utilities 11,353 213 (16) 11,550
Transportation 2,553 19 -- 2,572
Finance 6,260 122 (9) 6,373
All other corporate bonds 21,598 430 (37) 21,991
-------- ---------- --- --------
Total long-term bonds 57,917 1,103 (93) 58,927
Short-term bonds -- U.S. Treasury
Bills, bankers acceptances and
commercial paper 5,258 -- -- 5,258
-------- ---------- --- --------
$63,175 $1,103 $(93) $64,185
-------- ---------- --- --------
-------- ---------- --- --------
DECEMBER 31, 1997
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN 000'S)
Long-term bonds:
United States Government and
government agencies and authorities $15,005 $ 311 -$- $15,316
Foreign governments 523 16 -- 539
Public utilities 12,126 341 -- 12,467
Finance 4,026 80 -- 4,106
All other corporate bonds 30,023 696 (16) 30,703
-------- ---------- --- --------
Total long-term bonds 61,703 1,444 (16) 63,131
Short-term bonds -- U.S. Treasury
Bills, bankers acceptances and
commercial paper 9,406 -- -- 9,406
-------- ---------- --- --------
$71,109 $1,444 $(16) $72,537
-------- ---------- --- --------
-------- ---------- --- --------
12
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. BONDS: (CONTINUED):
The amortized cost and estimated fair value of debt securities at December 31,
1998 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call and/or prepayment penalties.
DECEMBER 31, 1998
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ------------
(IN 000'S)
Maturities are:
Due in one year or less $18,463 $ 18,549
Due after one year through five
years 19,429 19,827
Due after five years through ten
years 11,328 11,421
Due after ten years 8,434 8,803
--------- ------------
Subtotal 57,654 58,600
Mortgage-backed securities 5,521 5,585
--------- ------------
$63,175 $ 64,185
--------- ------------
--------- ------------
Proceeds from sales and maturities of investments in debt securities during
1998, 1997 and 1996 were $29,068,000, $42,986,000 and $76,431,000, respectively.
Gross gains of $407,000, $395,000 and $537,000 and gross losses of $2,000,
$40,000 and $183,000 were realized on such sales during 1998, 1997 and 1996,
respectively.
A bond, included above, with an amortized cost of approximately $404,000 and
$408,000 at December 31, 1998 and 1997, respectively, was on deposit with the
Superintendent of Insurance of the State of New York as required by law.
3. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
The following table shows the geographic distribution of the mortgage loan
portfolio at December 31:
1998 1997
------- -------
(IN 000'S)
California $ 3,421 $ 4,672
Florida 777 3,313
Massachusetts 1,090 2,556
New York 2,868 4,375
Ohio 1,291 1,308
All other 8,211 9,563
------- -------
$17,658 $25,787
------- -------
------- -------
As of December 31, 1998, the Company has no restructured mortgage loans. As of
December 31, 1997, the Company had restructured loans totaling $960,000 against
which there were allowances for losses of $250,000.
The Company has made no commitments of mortgage loans on real estate into the
future.
13
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
4. INVESTMENT GAINS (LOSSES):
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997 1996
----- ----- -----
(IN 000'S)
Realized capital gains (losses):
Bonds $ 7 $ (99) $ 237
Mortgage loans (8) (6) (676)
Real estate (12) 288 --
----- ----- -----
$ (13) $ 183 $(439)
----- ----- -----
----- ----- -----
Changes in unrealized capital gains on
mortgage loans $ 359 $ 138 $ 702
----- ----- -----
----- ----- -----
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 gross realized capital gains credited
to the IMR were $408,000, $355,000 and $354,000 in 1998, 1997 and 1996,
respectively. All gains are transferred net of applicable income taxes.
5. NET INVESTMENT INCOME:
Net investment income consisted of the following for:
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------- ------- -------
(IN 000'S)
Interest income from bonds $ 4,570 $ 5,622 $ 8,576
Interest income from mortgage loans 1,926 3,279 4,252
Real estate investment income 22 483 376
Other investment income (loss) 125 170 (93)
------- ------- -------
Gross investment income 6,643 9,554 13,111
Investment expenses 245 729 797
------- ------- -------
Net investment income $ 6,398 $ 8,825 $12,314
------- ------- -------
------- ------- -------
6. REINSURANCE:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will reinsure the mortality and morbidity risks of the group life
insurance contracts and group long-term disability contracts issued by the
Company. Under these agreements, basic death benefits and long-term disability
benefits are reinsured on a yearly renewable term basis. The agreements provide
that Sun Life (Canada) will reinsure the mortality risks in excess of $50,000
per policy for group life insurance contracts and $4,000 per policy per month
for the group long-term disability contracts ceded by the Company. For the year
ended December 31, 1997 and 1996, the agreements provided that Sun Life (Canada)
would reinsure $3,000 per policy per month for the group long-term disability
contracts ceded by the Company. Reinsurance transactions under these agreements
had the effect of increasing (decreasing) income from operations by $(771,000),
$139,000 and $(500,000) for the years ended December 31, 1998, 1997, and 1996,
respectively.
The group life and long-term disability reinsurance agreements require that the
reinsurer provide funds in amounts equal to the reserves ceded.
14
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. REINSURANCE: (CONTINUED):
The following are summarized pro forma results of operations of the Company for
the years ended December 31, 1998, 1997 and 1996 before the effect of
reinsurance transactions with Sun Life (Canada).
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- -------- --------
(IN 000'S)
Income:
Premiums, annuity deposits and other
revenues $105,728 $142,915 $ 85,947
Net investment income 6,718 9,343 13,019
-------- -------- --------
Subtotal 112,446 152,258 98,966
Benefits and expenses:
Policyholder benefits 79,918 101,371 64,328
Other expenses 22,988 45,538 29,357
-------- -------- --------
Subtotal 102,906 146,909 93,685
-------- -------- --------
Income from operations $ 9,540 $ 5,349 $ 5,281
-------- -------- --------
-------- -------- --------
7. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
DECEMBER 31, 1998
(IN 000'S)
AMOUNT % OF TOTAL
-------- ----------
Subject to discretionary withdrawal:
--with market value adjustment $ 98,744 15.18
--at book value less surrender charges
(surrender charge > 5%) 7,108 1.09
--at book value (mimimal or no charge
or adjustment) 523,814 80.54
Not subject to discretionary withdrawal
provision 20,709 3.19
-------- ----------
Total annuity actuarial reserves and
deposit liabilities $650,375 100.00
-------- ----------
-------- ----------
DECEMBER 31, 1997
(IN 000'S)
AMOUNT % OF TOTAL
-------- ----------
Subject to discretionary withdrawal:
--with market value adjustment $120,764 21.37
--at book value less surrender charges
(surrender charge > 5%) 13,811 2.45
--at book value (mimimal or no charge
or adjustment) 410,484 72.65
Not subject to discretionary withdrawal
provision 19,972 3.53
-------- ----------
Total annuity actuarial reserves and
deposit liabilities $565,031 100.00
-------- ----------
-------- ----------
8. SEGMENT INFORMATION:
The Company offers financial products and services such as fixed and variable
annuities, group life insurance and group long-term disability protection.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate surplus segment to provide for the capital
needs of the various operating segments and to engage in other financing related
activities.
15
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
8. SEGMENT INFORMATION: (CONTINUED):
The Retirement Products and Services ("RPS") segment markets and administers
individual variable and fixed annuity products, including market value adjusted
annuities, while the Group Insurance segment markets and administers group life
insurance and group long-term disability products.
The following amounts pertain to the various business segments:
TOTAL
FEDERAL GENERAL
TOTAL TOTAL PRETAX INCOME ACCOUNT
REVENUES EXPENDITURES INCOME TAXES ASSETS
--------------- --------------- ------------ ------------ ---------------
1998:
RPS $ 97,936,000 $ 92,889,000 $ 5,047,000 $ 449,000 $ 36,148,000
Group Insurance 15,155,000 13,251,000 1,904,000 654,000 14,685,000
Corporate Surplus 2,071,000 253,000 1,818,000 968,000 34,838,000
--------------- --------------- ------------ ------------ ---------------
Total: $ 115,162,000 $ 106,393,000 $ 8,769,000 $ 2,071,000 $ 85,671,000
--------------- --------------- ------------ ------------ ---------------
--------------- --------------- ------------ ------------ ---------------
1997:
RPS $ 130,926,000 $ 127,120,000 $ 3,806,000 $ 1,803,000 $ 43,799,000
Group Insurance 12,623,000 13,791,000 (1,168,000) (406,000) 10,706,000
Corporate Surplus 2,874,000 24,000 2,850,000 918,000 46,273,000
--------------- --------------- ------------ ------------ ---------------
Total: $ 146,423,000 $ 140,935,000 $ 5,488,000 $ 2,315,000 $ 100,778,000
--------------- --------------- ------------ ------------ ---------------
--------------- --------------- ------------ ------------ ---------------
1996:
RPS $ 84,260,000 $ 83,271,000 $ 989,000 $ 547,000 $ 88,745,000
Group Insurance 8,494,000 7,875,000 619,000 116,000 7,820,000
Corporate Surplus 3,216,000 43,000 3,173,000 1,276,000 30,182,000
--------------- --------------- ------------ ------------ ---------------
Total: $ 95,970,000 $ 91,189,000 $ 4,781,000 $ 1,939,000 $ 126,747,000
--------------- --------------- ------------ ------------ ---------------
--------------- --------------- ------------ ------------ ---------------
9. RETIREMENT PLANS:
The Company participates with Sun Life (Canada) and Sun Life of Canada (U.S.) in
a noncontributory defined benefit pension plan covering essentially all
employees. The benefits are based on years of service and compensation.
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA; the plan is currently
fully funded. 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 Sun Life
(Canada).
The Company's share of the group's accrued pension cost at December 31, 1998,
1997 and 1996 was $275,000, $211,000 and $178,000, respectively. The Company's
share of net periodic pension cost was $65,000, $33,000 and $81,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
The Company also participates with Sun Life (Canada), Sun Life of Canada (U.S.)
and certain affiliates in a 401(k) savings plan for which substantially all
employees are eligible. The Company matches, up to specified amounts, employees'
contributions to the plan. Employer contributions were $30,000, $28,000 and
$27,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
16
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. RETIREMENT PLANS: (CONTINUED):
OTHER POSTRETIREMENT BENEFIT PLANS--
In addition to pension benefits, the Company provides certain health, dental and
life insurance benefits ("postretirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement 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 $455,000 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 $6,000, $16,000, and $8,000 for the years ended December
31, 1998, 1997 and 1996, respectively. The Company's postretirement health,
dental and life insurance benefits currently are not funded.
17
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. RETIREMENT PLANS: (CONTINUED):
The following table sets forth the change in the pension and other
postretirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's statutory
financial statements at December 31:
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
---------- ---------- ---------- ---------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year $ 79,684 $ 70,848 $ 9,845 $ 9,899
Service cost 4,506 4,251 240 306
Interest cost 6,452 5,266 673 725
Amendments -- 1,000 -- --
Actuarial (gain) loss 21,975 -- 308 (801)
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Benefit obligation at end of year $ 110,792 $ 79,684 $ 10,419 $ 9,845
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share:
Benefit obligation at beginning of year $ 269 $ 239 $ 89 $ 83
Benefit obligation at end of year 515 269 21 89
Change in plan assets:
Fair value of plan assets at beginning of year $ 136,610 $ 122,807 $ -- $ --
Actual return on plan assets 16,790 15,484 -- --
Employer contribution -- -- 647 284
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Fair value of plan assets at end of year $ 151,575 $ 136,610 $ -- $ --
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Funded status $ 40,783 $ 56,926 $ (10,419) $ (9,845)
Unrecognized net actuarial gain (loss) (2,113) (18,147) 586 257
Unrecognized transition (asset) obligation (24,674) (26,730) 185 230
Unrecognized prior service cost 7,661 8,241 -- --
---------- ---------- ---------- ---------
Prepaid (accrued) benefit cost $ 21,657 $ 20,290 $ (9,648) $ (9,358)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share of accrued benefit cost $ (275) $ (211) $ (41) $ (35)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets 8.00% 7.50% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
18
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. RETIREMENT PLANS: (CONTINUED):
For measurement purposes, a 10.1% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998 (5.7% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
---------- --------- --------- ---------
(IN THOUSANDS)
Components of net periodic benefit cost:
Service cost $ 4,506 $ 4,251 $ 239 $ 306
Interest cost 6,452 5,266 673 725
Expected return on plan assets (10,172) (9,163) -- --
Amortization of transition (asset) obligation (2,056) (2,056) 45 45
Amortization of prior service cost 580 517 -- --
Recognized net actuarial (gain) loss (677) (789) (20) 71
---------- --------- --------- ---------
Net periodic benefit cost $ (1,367) $ (1,974) $ 937 $ 1,147
---------- --------- --------- ---------
---------- --------- --------- ---------
The Company's share of net periodic benefit cost $ 64 $ 33 $ 6 $ 16
---------- --------- --------- ---------
---------- --------- --------- ---------
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------- -------------------
(IN 000'S)
Effect on total of service and interest cost components $ 210 $ (170)
Effect on postretirement benefit obligation $ 2,026 $ (1,697)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1998 and 1997:
1998 1997
----------------------------- -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ------------ -------------- ------------
(IN 000'S)
ASSETS:
Bonds $ 63,175 $ 64,185 $ 71,109 $ 72,537
Mortgages 17,658 18,157 25,787 26,557
LIABILITIES:
Individual annuities $ 29,724 $ 29,212 $ 40,479 $ 38,177
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, maturity,
repayment and liquidity characteristics.
19
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED):
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance and annuity contracts that do not involve
mortality or morbidity risks) are estimated using discounted cash flow analyses
or surrender values. Those contracts that are deemed to have short-term
guarantees have a carrying amount equal to the estimated market value.
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. 11. Statutory
Investment Valuation Reserves: The asset valuation reserve ("AVR") provides a
reserve for losses from investments in bonds, mortgage loans, real-estate and
other invested assets with related increases or decreases being recorded
directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an IMR and amortized
into income over the remaining contractual life of the security sold.
The table shown below presents changes in the major elements of the AVR and IMR:
1998 1997
-------------- --------------
AVR IMR AVR IMR
------ ------ ------ ------
(IN 000'S) (IN 000'S)
Balance, beginning of year $1,346 $ 886 $1,845 $1,174
Net realized capital (losses) gains, net
of tax (13) 265 183 231
Amortization of net investment gains -- (320) -- (519)
Unrealized investment gains 359 -- 138 --
Required by formula (644) -- (820) --
------ ------ ------ ------
Balance, end of year $1,048 $ 831 $1,346 $ 886
------ ------ ------ ------
------ ------ ------ ------
12. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES:
Activity in the liability for unpaid claims and claim adjustment expense is
summarized below (in 000's).
1998 1997 1996
------- ------- -------
Balance, January 1 $10,239 $ 6,129 $ 4,320
Claims incurred 8,491 9,008 5,061
Claims paid (6,960) (4,898) (3,252)
------- ------- -------
Balance, December 31 $11,770 $10,239 $ 6,129
------- ------- -------
------- ------- -------
The information presented above includes unpaid benefit claims and claim
adjustment expenses for the group life and group long-term disability contracts.
As of December 31, 1998 and 1997, the unpaid claim and claim adjustment
liability for these contracts is included in Policy Reserves.
20
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. FEDERAL INCOME TAXES:
The Company files a consolidated federal income tax return with Sun Life of
Canada (U.S.) and other affiliates. Federal income taxes are calculated as if
the Company filed a return as a separate company. No provision is recognized for
timing differences which may exist between financial statement and taxable
income. Such differences include reserves, depreciation and accrual of market
discount on bonds. The Company made cash payments to Sun Life of Canada (U.S.)
of $2,506,000, $1,938,000 and $2,797,000 during 1998, 1997 and 1996,
respectively.
14. LEASE COMMITMENTS:
The Company leases two separate facilities for its annuity operations and group
sales offices. Both leases commenced in March 1994. On February 24, 1999, the
Company terminated its lease at the 80 Broad Street location as it intends to
consolidate the functions performed at this facility with its parent company,
Sun Life of Canada (U.S.) (See Note 18 for further discussion). The group sales
office lease is scheduled to expire in July 1999. Consequently, the Company has
no future lease commitments to report. Rent expense under these leases in 1998,
1997 and 1996 amounted to $344,000, $348,000 and $336,000, respectively.
15. MANAGEMENT AND SERVICE CONTRACTS:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will furnish to the Company, as requested, personnel as well as certain
investment, actuarial and administrative services on a cost reimbursement basis.
Expenses under these agreements amounted to approximately $1,037,000 in 1998,
$1,155,000 in 1997 and $1,866,000 in 1996.
16. RISK-BASED CAPITAL:
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting practices,
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1998 and 1997.
17. ACCOUNTING POLICIES AND PRINCIPLES:
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting and GAAP are described as follows. Statutory accounting practices do
not recognize the following assets or liabilities which are reflected under
GAAP; deferred acquisition costs, deferred federal income taxes and statutory
non admitted assets. AVR and IMR are established under statutory accounting
practices but not under GAAP. Methods for calculating real estate depreciation
and investment valuation allowances differ under statutory accounting practices
and GAAP. Premiums for investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting policies generally accepted in Canada in the normal
course of business, the management of the Company has determined that the cost
of complying with Statement No. 120 would exceed the benefits that the Company,
or the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
statutory financial statements.
21
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned Subsidiary of Sun Life Assurance Company of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
18. SUBSEQUENT EVENT:
Subsequent to December 31, 1998, the Company announced its intention to
consolidate the customer service and accounting functions, currently performed
at its office at 80 Broad Street in New York, New York, with its parent company,
Sun Life of Canada (U.S.), based in Wellesley Hills, Massachusetts. A plan to
transfer these operations, effective July 1, 1999, was presented to the New York
State Insurance Department on February 8, 1999, and is currently undergoing
review. The Company will maintain its corporate home office in the State of New
York and will continue to offer individual annuity, group life and group
disability products to residents of New York. This action is expected to improve
operating efficiencies and achieve greater economies of scale. As a result of
this event, the Company will be terminating approximately 18 employees and is
expecting to incur severance related costs ranging between $250,000 and
$490,000. In addition, the expense associated with terminating its lease at the
80 Broad Street facility will total approximately $77,000.
22
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Insurance and Annuity
Company of New York ("the Company") as of December 31, 1998 and 1997, and the
related statutory statements of operations, changes in capital stock and
surplus, and cash flow for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 17 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of New York,
which is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and capital stock and
surplus of Sun Life Insurance and Annuity Company of New York as of December 31,
1998 and 1997, and the results of its operations and its cash flow for each of
the three years in the period ended December 31, 1998 on the basis of accounting
described in Notes 1 and 17.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Insurance and
Annuity Company of New York as of December 31, 1998 and 1997 or the results of
its operations or its cash flow for each of the three years in the period ended
December 31, 1998.
As management has stated in Note 17, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Insurance and Annuity Company of New York has determined that the cost
of complying with Statement No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts, would exceed the benefits that the Company, or the
users of its financial statements would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
DELOITTE & TOUCHE LLP
February 4, 1999
(except for Note 18 for which the date is March 25, 1999.)
23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No events have occurred which are required to be reported by Item 304 of
Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Omitted pursuant to Instruction I (2) (c) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to Instruction I (2) (c) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to Instruction I (2) (c) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to Instruction I (2) (c) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial statements (set forth in Item 8):
-- Statutory Statements of Admitted Assets, Liabilities and Capital Stock
and Surplus as of December 31, 1998 and December 31, 1997.
-- Statutory Statements of Operations for each of the three years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
-- Statutory Statements of Changes in Capital Stock and Surplus for each
of the three years ended December 31, 1998, December 31, 1997 and
December 31, 1996.
-- Statutory Statements of Cash Flow for each of the three years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
-- Notes to Statutory Financial Statements, Years Ended December 31,
1998, 1997 and 1996.
-- Independent Auditors' Report.
(a) 2. Financial statement schedules (set forth below):
-- Schedule I--Summary of Investments, Other than Investments in
Affiliates.
-- Schedule VI--Summary of Reinsurance.
-- Independent Auditors' Report.
Financial statement schedules not included in this Form 10-K have been omitted
because the required information either is not applicable or is presented in the
consolidated financial statements or notes thereto.
24
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
SCHEDULE I
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN AFFILIATES
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------------------------------------------------------------ --------- ----------- -----------------
(IN 000'S)
Bonds:
United States government and government agencies and authorities $ 16,153 $ 16,441 $ 16,153
Public utilities 11,353 11,550 11,353
Transportation 2,553 2,572 2,553
Finance 6,260 6,373 6,260
All other corporate bonds 21,598 21,991 21,598
--------- ----------- -------
Total bonds 57,917 58,927 57,917
--------- ----------- -------
Mortgage loans 17,658 17,658 17,658
Real estate 1,756 1,756 1,756
Policy loans 625 625 625
Short-term investments 5,258 5,258 5,258
--------- ----------- -------
Total investments $ 83,214 $ 84,224 $ 83,214
--------- ----------- -------
--------- ----------- -------
25
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
SCHEDULE VI
SUMMARY OF REINSURANCE
CEDED TO
GROSS OTHER NET
AMOUNT COMPANIES AMOUNT
------------ ------------ ------------
(IN 000'S)
1998
Life Insurance In Force $ 4,544,991 $ 1,010,872 $ 3,534,119
------------ ------------ ------------
------------ ------------ ------------
Premiums
Life Insurance $ 13,576 $ 2,723 $ 10,853
Accident and Health 4,254 824 3,430
------------ ------------ ------------
Total Premiums $ 17,830 $ 3,547 $ 14,283
------------ ------------ ------------
------------ ------------ ------------
1997
Life Insurance in Force $ 4,113,017 $ 879,923 $ 3,233,094
------------ ------------ ------------
------------ ------------ ------------
Premiums
Life Insurance $ 11,759 $ 2,379 $ 9,380
Accident and Health 3,677 1,066 2,611
------------ ------------ ------------
Total Premiums $ 15,436 $ 3,445 $ 11,991
------------ ------------ ------------
------------ ------------ ------------
1996
Life Insurance In Force $ 3,044,368 $ 400,572 $ 2,643,796
------------ ------------ ------------
------------ ------------ ------------
Premiums
Life Insurance $ 7,506 $ 1,408 $ 6,098
Accident and Health 2,773 828 1,945
------------ ------------ ------------
Total Premiums $ 10,279 $ 2,236 $ 8,043
------------ ------------ ------------
------------ ------------ ------------
26
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
We have audited the statutory statements of admitted assets, liabilities and
capital stock and surplus of Sun Life Insurance and Annuity Company of New York
(wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) as of
December 31, 1998 and 1997 and the related statutory statements of operations,
changes in capital stock and surplus and cash flow for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 4, 1999 (which report is included elsewhere in this Form 10-K). Our
audits also included the financial statement schedules listed in Item 14 (a) 2
in this Form 10-K. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects, the information therein set forth.
DELOITTE & TOUCHE LLP
February 4, 1999
27
ITEM 14. CONTINUED
(a) 3 and (c). Exhibits:
The following Exhibits are incorporated herein by reference:
EXHIBIT NO.
- ----------------
3 Declaration of Intent and Charter and By-Laws (Filed as Exhibit 6 to Post-Effective Amendment No. 2
to the Registration Statement on Form N-4 (File No. 333-05037))
4(a) Flexible Payment Deferred Combination Variable and Fixed Annuity Contract [Compass 1] (Filed as
Exhibit 4 to Post-Effective Amendment No. 17 to Registration Statement on Form N-4 (File No.
2-95002))
(b) Flexible Payment Deferred Combination Variable and Fixed Annuity Contract [Compass 2] (Filed as
Exhibit 4 to Post-Effective Amendment No. 18 to Registration Statement on Form N-4 (File No.
2-95003))
(c) Flexible Payment Deferred Combination Variable and Fixed Annuity Contract [Compass 3] (Filed as
Exhibit 4 to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No.
33-19765))
(d) Single Payment Deferred Combination Variable and Fixed Individual Annuity Contract [Regatta NY]
(Filed as Exhibit 4 to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File
No. 33-41629))
(e) Flexible Payment Deferred Combination Variable and Fixed Individual Annuity Contract [Regatta Gold
NY] (Filed as Exhibit 4 to Post-Effective Amendment No. 2 to Registration Statement on Form N-4
(File No. 333-05037))
24 Powers of Attorney (Filed herewith)
27 Financial Data Schedule (Filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter.
(d) No additional financial statements are required to be filed.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUN LIFE INSURANCE AND ANNUITY COMPANY
OF NEW YORK
(Registrant)
By: /s/ C. JAMES PRIEUR
-----------------------------------
C. James Prieur,
PRESIDENT
Date: March 31, 1999
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
*/s/ DONALD A. STEWART Chairman and Director
------------------------------------------- (Principal Executive Date: February 11, 1999
Donald A. Stewart Officer)
Vice President,
/s/ ROBERT P. VROLYK Controller and Actuary
------------------------------------------- (Principal Financial & Date: March 31, 1999
Robert P. Vrolyk Accounting Officer)
*/s/ JOHN D. MCNEIL
------------------------------------------- Director Date: February 11, 1999
John D. McNeil
*/s/ JOHN S. LANE
------------------------------------------- Director Date: February 17, 1999
John S. Lane
*/s/ DAVID D. HORN
------------------------------------------- Director Date: February 10, 1999
David D. Horn
*/s/ JOHN G. IRELAND
------------------------------------------- Director Date: February 10, 1999
John G. Ireland
- ---------
* By Ellen B. King pursuant to Power of Attorney filed herewith.
29
/s/ C. JAMES PRIEUR
- ------------------------------------------- President and Director Date: March 31, 1999
C. James Prieur
*/s/ RICHARD B. BAILEY
- ------------------------------------------- Director Date: February 10,
Richard B. Bailey 1999
*/s/ FIORAVANTE G. PERROTTA
- ------------------------------------------- Director Date: February 18,
Fioravante G. Perrotta 1999
*/s/ RALPH F. PETERS
- ------------------------------------------- Director Date: February 18,
Ralph F. Peters 1999
*/s/ PETER R. O'FLINN
- ------------------------------------------- Director Date: February 10,
Peter R. O'Flinn 1999
*/s/ ANGUS A. MACNAUGHTON
- ------------------------------------------- Director Date: February 10,
Angus A. MacNaughton 1999
*/s/ M. COLYER CRUM
- ------------------------------------------- Director Date: February 10,
M. Colyer Crum 1999
*/s/ SEYMOUR C. RABOY
- ------------------------------------------- Senior Vice President Date: March 10, 1999
Seymour C. Raboy and Director
*/s/ FREDERICK B. WHITTEMORE
- ------------------------------------------- Director Date: February 10,
Frederick B. Whittemore 1999
- ----------------------------
*By Ellen B. King pursuant to Power of Attorney filed herewith
30