<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
2-99959
33-29851
33-31711
33-41858
33-43008
For Quarter Ended June 30, 1995 Commission File Number 33-58853
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Exact name of registrant as specified in its charter)
Delaware 04-2461439
(State or other jurisdiction of (IRS Employer I. D. No.)
incorporation or organization)
One Sun Life Executive Park, Wellesley Hills, MA. 02181
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 237-6030
NONE
Former name, former address, and former fiscal year,
if changed since last report.
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.
(1) Yes / X / No / /
(2) Yes / X / No / /
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
INDEX
Page
PART I: Financial Information Number
Item 1: Financial Statements:*
Balance Sheets -
June 30, 1995 and December 31, 1994 3
Statements of Operations -
Three Months Ended
June 30, 1995 and June 30, 1994 4
Statements of Operations -
Six Months Ended
June 30, 1995 and June 30, 1994 5
Statements of Capital Stock and Surplus -
Six Months Ended
June 30, 1995 and June 30, 1994 6
Statements of Cash Flows -
Six Months Ended
June 30, 1995 and June 30, 1994 7
Notes to Unaudited Financial Statements 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II: Other Information
None
* The balance sheet at December 31, 1994 has been taken from the
audited financial statements at that date. All other statements
are unaudited.
-2-
<PAGE>
Item 1. Financial Statements
Sun Life Assurance Company of Canada (U.S.)
Balance Sheets
<TABLE>
<CAPTION>
(in 000's)
(Unaudited) (See note below)
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Assets
Bonds $ 2,565,722 $ 2,471,152
Mortgage loans 1,032,746 1,120,981
Investments in subsidiaries 142,179 134,807
Real estate 90,703 89,487
Other invested assets 27,206 26,036
Policy loans 37,271 36,584
Cash (11,633) (11,459)
Investment income due and accrued 112,214 86,836
Funds withheld on reinsurance assumed 623,930 535,953
Due from separate accounts 131,231 145,099
Other assets 57,853 15,080
------------ ------------
General account assets 4,809,422 4,650,556
Unitized separate account assets 4,591,713 4,061,821
Non-unitized separate account assets 1,986,290 1,425,445
------------ ------------
$11,387,425 $10,137,822
------------ ------------
------------ ------------
Liabilities
Policy reserves $ 1,850,904 $ 1,765,327
Annuity and other deposits 2,288,239 2,277,104
Policy benefits in process of payment 5,175 5,796
Accrued expenses and taxes 20,185 12,386
Other liabilities 38,816 50,086
Due to parent and affiliates - net 96,890 41,881
Interest maintenance reserve 17,689 18,140
Asset valuation reserve 34,013 28,409
------------ ------------
General account liabilities 4,351,911 4,199,129
Unitized separate account liabilities 4,591,688 4,057,759
Non-unitized separate account liabilities 1,986,289 1,425,445
------------ ------------
10,929,888 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 451,637 449,589
------------ ------------
Total capital stock and surplus 457,537 455,489
------------ ------------
$11,387,425 $10,137,822
------------ ------------
------------ ------------
</TABLE>
Note: The balance sheet at December 31, 1994 has been taken from the
audited financial statements at that date.
See notes to unaudited financial statements.
-3-
<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Operations
<TABLE>
<CAPTION>
(in 000's)
Three Months Ended June 30,
1995 1994
---------- --------
<S> <C> <C>
Income
Premiums and annuity considerations $ 63,025 $ 87,893
Annuity and other deposit funds 311,279 197,631
Net investment income 85,926 80,277
Amortization of interest maintenance reserve 191 1,173
Realized losses on investments (1,512) (1,542)
Mortality and expense risk charges 14,499 12,867
Other income 7,875 5,095
---------- --------
487,283 383,394
Benefits and Expenses
Increase (decrease) in liability for annuity
and other deposit funds 40,727 (71,995)
Increase in policy reserves 37,543 47,140
Death, surrender benefits, and annuity payments 40,453 37,733
Annuity and other deposit fund withdrawals 240,495 227,451
Transfers to non-unitized separate account 66,204 80,656
-------- ---------
425,422 320,985
Operating expenses 9,577 7,120
Commissions 25,284 53,307
Dividends 5,209 2,414
Taxes, licenses and fees 2,851 727
-------- ---------
468,343 384,553
-------- ---------
Net income (loss) from operations before
surplus note interest and equity
in income of subsidiaries 18,940 (1,160)
Surplus note interest (7,788) 0
-------- ---------
Net income (loss) from operations before
equity in income of subsidiaries
and federal income tax 11,152 (1,160)
Equity in income of subsidiaries 12,022 8,510
Federal income tax expense (8,431) (3,128)
-------- ---------
Net income $ 14,743 $ 4,222
-------- ---------
-------- ---------
</TABLE>
See notes to unaudited financial statements.
-4-
<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Operations
<TABLE>
<CAPTION>
(in 000's)
Six Months Ended June 30,
1995 1994
---------- --------
<S> <C> <C>
Income
Premiums and annuity considerations $129,067 $177,165
Annuity and other deposit funds 718,982 361,055
Net investment income 172,651 165,491
Amortization of interest maintenance reserve 564 2,335
Realized losses on investments (2,060) (4,161)
Mortality and expense risk charges 28,065 25,494
Other income (expense) (3) 6,912
---------- --------
1,047,266 734,291
Benefits and Expenses
Increase (decrease) in liability for annuity
and other deposit funds 11,135 (4,006)
Increase in policy reserves 85,577 94,517
Death, surrender benefits, and annuity payments 88,020 75,895
Annuity and other deposit fund withdrawals 423,758 351,946
Transfers to non-unitized separate account 333,549 79,358
-------- ---------
942,039 597,710
Operating expenses 18,739 14,291
Commissions 57,936 111,185
Dividends 12,711 5,963
Taxes, licenses and fees 4,962 2,316
-------- ---------
1,036,387 731,465
-------- ---------
Net income from operations before
surplus note interest and equity
in income of subsidiaries 10,878 2,826
Surplus note interest (15,575) 0
-------- ---------
Net income (loss) from operations before
equity in income of subsidiaries
and federal income tax (4,697) 2,826
Equity in income of subsidiaries 20,666 15,046
Federal income tax expense (7,324) (10,730)
-------- ---------
Net income $ 8,645 $ 7,142
-------- ---------
-------- ---------
</TABLE>
See notes to unaudited financial statements.
-5-
<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Capital Stock and Surplus
<TABLE>
<CAPTION>
(in 000's) Six Months Ended June 30,
1995 1994
------------ ----------
<S> <C> <C>
Capital Stock $ 5,900 $ 5,900
Paid-in Surplus 199,355 199,355
Surplus Notes 335,000 335,000
Unassigned Surplus
Balance, beginning of period $(84,767) $(57,068)
Net income 8,646 7,142
Change in non-admitted assets (1,729) 185
Unrealized gain on real estate 737 0
Change in and transfers of
separate account surplus (1) (314)
Change in asset valuation reserve (5,604) (8,041)
--------- ---------
Balance, end of period (82,718) (58,096)
--------- ---------
Total surplus 451,637 476,259
--------- ---------
Total capital stock and surplus $457,537 $482,159
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited financial statements.
-6-
<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Cash Flows
<TABLE>
<CAPTION>
(in 000's) Six Months Ended June 30,
1995 1994
---------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations before surplus note
interest and equity in income of subsidiaries $ (4,697) $ 2,826
Adjustments to reconcile net income (loss) to net cash:
Increase (decrease) in liability for annuity and other deposit funds 11,135 (4,006)
Increase in policy reserves 85,577 94,517
(Increase) decrease in investment income due and accrued (25,377) 13,602
Net accrual and amortization of discount and
premium on investments 1,252 4,522
Realized losses on investments 2,060 4,161
Change in non-admitted assets (1,729) 185
Change in funds withheld on reinsurance (87,977) (91,700)
Other 32,452 (65,094)
--------- --------
Net cash provided by (used in) operating activities 12,696 40,987
--------- --------
Cash flows from investing activities:
Proceeds from sale and maturity of investments 944,320 524,766
Purchase of investments (878,775) (493,810)
Net change in short-term investments (89,228) 21,485
Dividends from subsidiaries 6,777 9,700
--------- --------
Net cash provided by (used in) investing activities (16,906) 62,141
--------- --------
Cash flows from financing activities:
Repayment of seed capital 4,036 0
--------- --------
Net cash provided by financing activities 4,036 0
--------- --------
Increase (decrease) in cash during the period (174) 21,154
--------- --------
Cash balance, beginning of period (11,459) 2,056
--------- --------
Cash balance, end of period $ (11,633) $ 23,210
--------- --------
--------- --------
</TABLE>
See notes to unaudited financial statements.
-7-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Notes to Unaudited Financial Statements
(1) General
In management's opinion all adjustments, which include only
normal recurring adjustments, necessary for a fair presentation of the
financial statements have been made.
(2) Management and Service Contracts
Expenses under the agreement with the parent which provides for the parent
to provide certain services amounted to approximately $4,791,000 and
$10,035,000 for the three and six month periods in 1995 and $3,819,000 and
$8,229,000 for the same periods in 1994.
(3) Investments in Subsidiaries
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1995 and 1994 and for the six months then ended:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000's)
<S> <C> <C>
Intangible assets $ 13,178 $ 14,001
Other assets, net of liabilities 129,001 119,833
--------- --------
Total net assets $ 142,179 $133,834
--------- --------
--------- --------
Total income $ 285,222 $225,392
Total expenses (261,384) (196,764)
Income tax expense (9,688) (13,437)
--------- --------
Net income $ 14,150 $ 15,191
--------- --------
--------- --------
</TABLE>
The following is combined unaudited summarized financial information of the
subsidiaries for the three months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
<S> <C> <C>
Total income $143,573 $115,487
Total expenses (129,431) (99,244)
Income tax expense (5,626) (7,644)
--------- ---------
Net income $ 8,516 8,599
--------- ---------
--------- ---------
</TABLE>
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded expenses of approximately $6,516,000 and $3,498,000
for the six and three month periods in 1995 and $9,919,000 and $5,253,000 for
the same periods in 1994 representing a reimbursement to the Registrant for
filing a consolidated federal tax return. The federal income tax expense
includes provision for federal income taxes currently payable of $8,204,000
and $7,825,000 for the six and three month periods in 1995 and $20,301,000
and $4,301,000 for the same periods in 1994.
-8-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Notes to Unaudited Financial Statements (continued)
(4) Investment Income
Net investment income consisted of:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1995 1994
-------- -------
(000's)
<S> <C> <C>
Interest income from bonds $ 98,297 $100,530
Interest income from mortgage loans 50,661 53,042
Interest income from policy loans 1,355 1,345
Real estate investment income 5,398 4,439
Interest income on funds withheld 20,820 13,524
Other 1,684 237
-------- -------
Gross investment income 178,215 173,117
Investment expenses 5,564 7,626
-------- -------
$172,651 $165,491
-------- -------
-------- -------
Three Months Ended
June 30,
----------------------
1995 1994
-------- -------
(000's)
<S> <C> <C>
Interest income from bonds $ 47,853 $ 49,679
Interest income from mortgage loans 24,778 26,622
Interest income from policy loans 794 704
Real estate investment income 3,158 1,376
Interest income on funds withheld 10,784 6,458
Other 721 127
-------- --------
Gross investment income 88,088 84,966
Investment expenses 2,162 4,689
$ 85,926 $ 80,277
-------- --------
-------- --------
</TABLE>
-9-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
NET INCOME
The net loss before equity in income of subsidiaries and federal income tax
was $4,697,000 for the six months ending June 30, 1995 compared to net
income of $2,826,000 for the similar period in 1994. Reinsurance had the
effect of decreasing net income by $1,657,000 for the six months ended June
30, 1995 as compared to the same period in 1994. The individually marketed
annuity products, both fixed and variable, showed increased earnings as
compared to 1994. The profits are driven primarily by the increased block
of inforce business. As measured by reserves, the inforce business for
these products has increased by more than 25% since June 1994. In addition,
1994 earnings were lower due to higher reserve requirements on certain
variable annuities which resulted from the unrealized depreciation in the
market value of variable annuity assets during the period in 1994. Variable
annuity assets have shown significant unrealized appreciation during 1995.
Group pension earnings also increased as compared to 1994. Operating
expenses increased by $4,448,000 from $14,291,000 for the six months ended
June 30, 1994 to $18,739,000 for the same period in 1995 as a result of
increased amounts allocated from the parent under service agreements. The
increase in taxes, licenses and fees reflects higher state premium taxes
and guarantee fund assessments. During 1995, the Registrant began accruing
interest on surplus notes on a quarterly basis rather than on an annual
basis. Accrued interest on such notes for the six months in 1995 amounted
to $15,575,000. Had the Registrant accrued quarterly in 1994, the same
amount would have been expensed.
REVENUES
Total revenues increased by $312,975,000 from $734,291,000 for the six
months ended June 30, 1994 to $1,047,266,000 for the same period in 1995.
Reinsurance had the effect of decreasing total revenues by $42,140,000 from
$163,355,000 for the six months ended June 30, 1994 to $121,215,000 for the
same period in 1995. This decrease reflects the assumed block of reinsured
business was closed as of December 31, 1993. Annuity and other deposit
funds increased by $357,927,000 reflecting increased annuity sales of
$371,572,000 and decreased sales of group pension deposit contracts of
$13,645,000. Included in the annuity sales are exchanges from the
Registrant's separate accounts of approximately $199,568,000 for the six
months ended June 30, 1995 compared to $102,071,000 for the same period in
1994. Mortality and expense risk charges increased by $2,571,000, partially
as a result of market appreciation of contracts participating in the
separate accounts.
-10-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (CONTINUED)
BENEFITS AND EXPENSES
Total benefits and expenses increased by $304,922,000 from $731,465,000 for
the six months ended June 30, 1994 to $1,036,387,000 for the same period in
1995. Reinsurance benefits and expenses decreased by $40,486,000 from
$170,393,000 for the six months ended June 30, 1994 to $129,907,000 for the
same period in 1995. Annuity and other deposit fund withdrawals increased
for the six months ended June 30, 1995 as compared to 1994 as a result of
increased surrenders of fixed annuities for which interest rate guarantee
periods have expired. Included in these annuity deposit fund withdrawals
are exchanges under certain annuity contracts from the fixed account to the
separate accounts of $171,433,489 for the six months ended June 30, 1995
compared to $85,917,000 for the same period in 1994. Transfers to
non-unitized separate account increased reflecting the individual annuity
sales described above. Operating expenses, as noted above, increased due to
an increased allocation from the parent. Federal income taxes decreased
reflecting the net loss from operations for the six months ended June 30,
1995 as compared to net income for the similar period in 1994.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
NET INCOME
Net income before equity in income of subsidiaries and federal income tax
was $11,152,000 for the three months ended June 30, 1995 compared to a net
loss of $1,160,000 for the similar period in 1994. Reinsurance had the
effect of increasing net income by $2,490,000 for the three months ended
June 30, 1995 as compared to the same period in 1994. The individually
marketed annuity products, both fixed and variable, showed increased
earnings as compared to 1994. The profits are driven primarily by the
increased block of inforce business. As measured by reserves, the inforce
business for these products has increased by more than 25% since June 1994.
In addition, 1994 earnings were lower due to higher reserve requirements on
certain variable annuities which resulted from the unrealized depreciation
in the market value of variable annuity assets during the period in 1994.
Variable annuity assets have shown significant unrealized appreciation
during 1995. Group pension earnings also increased as compared to 1994.
Operating expenses increased by $2,457,000 as result of the increase in the
allocation from the parent. Taxes, licenses and fees increased by
$2,124,000 from $727,000 for three months ended June 30, 1994 compared to
$2,851,000 for the same period in 1995, reflecting increased state premium
taxes and guarantee fund assessments. Accrued interest on surplus notes
amounted to $7,788,000 for the three months ended June 30, 1995. Had the
Registrant accrued quarterly in 1994, the same amount would have been
expensed.
-11-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994 (CONTINUED)
REVENUES
Total revenues increased by $103,889,000 from $383,394,000 for the three
months ended June 30, 1994 to $487,283,000 for the same period in 1995.
Reinsurance had the effect of decreasing revenues by $17,700,000 for the
three months ended June 30, 1995 as compared to the similar period in 1994.
Annuity and other deposit funds increased by $119,648,000 reflecting
increased annuity sales of $59,299,000 and increased group pension deposits
of $60,349,000. Mortality and expense risk charges increased by $1,632,000
from $12,867,000 for the three months ended June 30, 1994 as compared to
$14,499,000 for the same period in 1995 reflecting the increase in separate
account assets.
BENEFITS AND EXPENSES
Total benefits and expenses increased by $83,790,000 from $384,553,000 for
the three months ended June 30, 1994 to $468,343,000 for the same period in
1995. Reinsurance had the effect of decreasing benefits and expenses by
$20,194,000 for the three months ended June 30, 1995 as compared to the
similar period in 1994. The increase in the liability for annuity and other
deposit funds reflects the increase in annuity and other deposits discussed
above. Operating expenses, as noted above, increased due to an increased
allocation from the parent. Taxes, licenses and fees also increased, due
primarily to increased state premium taxes. Federal income tax expense
increased reflecting the net gain from operations for the three months
ended June 30, 1995 as compared to 1994.
-12
<PAGE>
SIGNATURES
Pursuant to the requirements 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 Assurance Company
of Canada (U.S.)
Date August 11, 1995 /s/ Bonnie S. Angus
------------------------ ----------------------------------
Bonnie S. Angus
Secretary
Date August 11, 1995 /s/ David D. Horn
------------------------ ----------------------------------
David D. Horn
Senior Vice President and
General Manager
-13-
