<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
For Quarter Ended September 30,1995 Commission File Number 33-43008
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 incorporation (IRS Employer I. D. No.)
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 -
September 30, 1995 and December 31, 1994 3
Statements of Operations -
Three Months Ended
September 30, 1995 and September 30, 1994 4
Statements of Operations -
Nine Months Ended
September 30, 1995 and September 30, 1994 5
Statements of Capital Stock and Surplus -
Nine Months Ended
September 30, 1995 and September 30, 1994 6
Statements of Cash Flows -
Nine Months Ended
September 30, 1995 and September 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
(IN 000'S)
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE BELOW)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
------------- ----------------
<S> <C> <C>
Bonds $ 2,564,055 $ 2,471,152
Mortgage loans 1,063,792 1,120,981
Investments in subsidiaries 145,769 134,807
Real estate 92,626 89,487
Other invested assets 27,753 26,036
Policy loans 37,629 36,584
Cash (4,090) (11,459)
Investment income due and accrued 64,894 86,836
Funds withheld on reinsurance assumed 678,409 535,953
Due from separate accounts 139,546 145,099
Other assets 45,202 15,080
----------- -----------
General account assets 4,855,585 4,650,556
Unitized separate account assets 4,940,719 4,061,821
Non-unitized separate account assets 1,984,917 1,425,445
----------- -----------
$11,781,221 $10,137,822
----------- -----------
----------- -----------
LIABILITIES
Policy reserves $ 1,884,546 $ 1,765,327
Annuity and other deposits 2,318,455 2,277,104
Policy benefits in process of payment 4,878 5,796
Accrued expenses and taxes 34,517 12,386
Other liabilities 65,518 50,086
Due to parent and affiliates - net 13,180 41,881
Interest maintenance reserve 19,588 18,140
Asset valuation reserve 36,399 28,409
----------- -----------
General account liabilities 4,377,081 4,199,129
----------- -----------
Unitized separate account liabilities 4,940,694 4,057,759
Non-unitized separate account liabilities 1,984,917 1,425,445
----------- -----------
11,302,692 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 472,629 449,589
----------- -----------
Total capital stock and surplus 478,529 455,489
----------- -----------
$11,781,221 $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
(IN 000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
INCOME 1995 1994
-------------- -------------
<S> <C> <C>
Premiums and annuity considerations $ 70,663 $ 60,254
Annuity and other deposit funds 103,761 179,390
Exchanges from separate accounts - net (852) 24,659
Net investment income 96,878 85,653
Amortization of interest maintenance reserve (125) 1,086
Realized losses on investments (361) (2,506)
Mortality and expense risk charges 15,981 13,498
Other income 7,608 26,695
-------- --------
293,553 388,729
-------- --------
BENEFITS AND EXPENSES
Increase (decrease) in liability for annuity
and other deposit funds 30,216 (14,878)
Increase in policy reserves 33,641 58,725
Death, surrender benefits, and annuity payments 51,526 40,239
Annuity and other deposit fund withdrawals 111,556 118,309
Transfers to non-unitized separate account 3,655 128,559
-------- --------
230,594 330,954
Operating expenses 8,617 8,109
Commissions 24,759 2,689
Dividends 3,887 3,776
Taxes, licenses and fees (425) 1,567
-------- --------
267,432 347,095
-------- --------
NET INCOME FROM OPERATIONS BEFORE
SURPLUS NOTE INTEREST AND EQUITY
IN INCOME OF SUBSIDIARIES 26,121 41,634
Surplus note interest (7,788) 0
-------- --------
NET INCOME FROM OPERATIONS BEFORE
EQUITY IN INCOME OF SUBSIDIARIES
AND FEDERAL INCOME TAX 18,333 41,634
Equity in income of subsidiaries 19,593 28,798
Federal income tax expense (14,201) (31,081)
-------- --------
NET INCOME $ 23,725 $ 39,351
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
-4-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
INCOME 1995 1994
-------------- -------------
<S> <C> <C>
Premiums and annuity considerations $ 199,730 $ 237,419
Annuity and other deposit funds 622,587 445,918
Exchanges from separate accounts - net 27,870 33,267
Net investment income 269,529 251,145
Amortization of interest maintenance reserve 439 3,420
Realized losses on investments (2,421) (6,667)
Mortality and expense risk charges 44,046 38,992
Other income 7,605 33,607
---------- ----------
1,169,385 1,037,101
---------- ----------
BENEFITS AND EXPENSES
Increase (decrease) in liability for annuity
and other deposit funds 41,351 (18,884)
Increase in policy reserves 119,218 153,242
Death, surrender benefits, and annuity payments 139,547 116,134
Annuity and other deposit fund withdrawals 363,881 384,338
Transfers to non-unitized separate account 337,203 207,917
---------- ----------
1,001,200 842,747
Operating expenses 27,356 22,400
Commissions 82,694 113,873
Dividends 16,598 9,739
Taxes, licenses and fees 4,537 3,883
---------- ----------
1,132,385 992,642
---------- ----------
NET INCOME FROM OPERATIONS BEFORE
SURPLUS NOTE INTEREST AND EQUITY
IN INCOME OF SUBSIDIARIES 37,000 44,459
Surplus note interest (23,363) 0
---------- ----------
NET INCOME FROM OPERATIONS BEFORE
EQUITY IN INCOME OF SUBSIDIARIES
AND FEDERAL INCOME TAX 13,637 44,459
Equity in income of subsidiaries 40,259 43,844
Federal income tax expense (21,525) (41,811)
---------- ----------
NET INCOME $ 32,371 $ 46,492
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
-5-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
(IN 000'S)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 32,371 46,494
Change in non-admitted assets (2,435) (457)
Unrealized gain on real estate 1,096 0
Change in and transfers of
separate account surplus (1) (183)
Change in asset valuation reserve (7,990) (7,520)
-------- --------
Balance, end of period (61,726) (18,734)
-------- --------
Total surplus 472,629 515,621
-------- --------
TOTAL CAPITAL STOCK AND SURPLUS $478,529 $521,521
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
-6-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from operations before equity
in income of subsidiaries $ 13,637 $ 44,461
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH:
Increase (decrease) in liability for annuity and
other deposit funds 41,351 (18,884)
Increase in policy reserves 119,218 153,242
Decrease in investment income due and accrued 590 4,186
Net accrual and amortization of discount and
premium on investments 1,821 6,305
Realized losses on investments 2,421 6,667
Change in non-admitted assets (2,435) (457)
Change in funds withheld on reinsurance (121,103) (132,328)
Other (12,628) (102,115)
----------- --------
Net cash provided by (used in) operating activities 42,873 (38,922)
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of investments 1,295,015 967,323
Purchase of investments (1,288,636) (922,396)
Net change in short-term investments (58,997) (19,720)
Dividends from subsidiaries 13,077 17,400
----------- --------
Net cash provided by (used in) investing activities (39,540) 42,607
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of seed capital 4,036 0
----------- --------
Net cash provided by financing activities 4,036 0
----------- --------
Increase in cash during the period 7,369 3,685
Cash balance, beginning of period (11,459) 2,056
----------- --------
Cash balance, end of period $ (4,090) $ 5,741
----------- --------
----------- --------
</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 enables the parent to
provide certain services amounted to approximately $3,673,000 and $13,708,000
for the three and nine month periods in 1995 and $5,922,000 and $14,151,000
for the same periods in 1994.
(3) INVESTMENTS IN SUBSIDIARIES
The following is combined unaudited summarized financial information of the
subsidiaries as of September 30, 1995 and 1994 and for the nine months then
ended:
1995 1994
---- ----
(000's)
-------
Intangible assets $12,676 $13,976
Other assets, net of liabilities 133,093 124,671
-------- --------
Total net assets $145,769 $138,647
-------- --------
-------- --------
Total income $426,027 $346,693
Total expenses (381,082) (298,182)
Income tax expense (20,905) (21,189)
-------- --------
Net income $24,040 $27,322
-------- --------
-------- --------
The following is combined unaudited summarized financial information of the
subsidiaries for the three months ended September 30, 1995 and 1994:
Total income $140,805 $121,301
Total expenses (119,698) (101,418)
Income tax expense (11,217) (7,752)
-------- --------
Net income $9,890 $12,131
-------- --------
-------- --------
-8-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded expenses of approximately $16,219,000 and $9,703,000
for the nine and three month periods in 1995 and $16,638,000 and $6,719,000
for the same periods in 1994 representing payables to the Registrant in lieu
of federal income taxes. The federal income tax expense includes provision
for federal income taxes currently payable of $22,000,000 and $13,796,000 for
the nine and three month periods in 1995 and $39,000,000 and $18,699,000 for
the same periods in 1994.
(4) INVESTMENT INCOME
Net investment income consisted of:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1995 1994
---- ----
(000's)
-------
Interest income from bonds $150,962 $150,388
Interest income from mortgage loans 74,888 80,212
Interest income from policy loans 2,026 2,008
Real estate investment income 9,150 6,658
Interest income on funds withheld 41,267 21,759
Other 1,723 6
-------- --------
Gross investment income $280,016 $261,031
Investment expenses 10,487 9,886
$269,529 $251,145
-------- --------
-------- --------
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1995 1994
---- ----
(000's)
-------
Interest income from bonds $52,665 $49,859
Interest income from mortgage loans 24,227 27,170
Interest income from policy loans 671 663
Real estate investment income 3,752 2,219
Interest income on funds withheld 20,447 8,235
Other 39 (231)
-------- --------
Gross investment income $101,801 $87,915
Investment expenses 4,923 2,261
$96,878 $85,654
-------- --------
-------- --------
-9-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET INCOME
Net income before equity in income of subsidiaries and federal income tax was
$13,637,000 for the nine months ending September 30,1995, compared to
$44,459,000 for the similar period in 1994, a net decrease of approximately
$31,000,000. Reinsurance had the effect of increasing net income by
approximately $8,000,000 for the nine months ended September 30, 1995 as
compared to the same period in 1994. The reinsurance results are improved
because the new business surplus strain has declined. The individually
marketed fixed annuity product showed decreased earnings of approximately
$17,000,000 as compared to 1994. This decrease was primarily driven by NAIC
policyholder reserve strengthening. Group pension earnings increased by
approximately $4,000,000 compared to the similar period in 1994 reflecting
increased investment income caused by growth in the asset base. Operating
expenses increased by approximately $5,000,000 from $22,000,000 in 1994 to
$27,000,000 in 1995 as a result of an increase in staffing and an increase
in the amounts allocated from the parent including corporate chargebacks.
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 nine months ending September 30, 1995 amounted to $23,363,000
in additional expense during this period. Had the Registrant accrued quarterly
in 1994, the same amount would have been expensed and the net income before
subsidiaries and taxes would have only reflected a $7,000,000 change in
earnings.
REVENUES
Total revenues increased by $132,284,000 from $1,037,101,000 for the nine
months ended September 30, 1994, to $1,169,385,000 for the same period in
1995. Reinsurance had the effect of decreasing total revenues by $7,920,000
from $199,766,000 for the nine months ended September 30, 1994 to
$191,846,000 for the same period in 1995. This decrease reflects the assumed
block of reinsured business being closed as of December 31, 1993. Annuity
and other deposits increased by $176,669,000 reflecting increased sales of
individually marketed annuities. Group pension premiums decreased by
$22,376,000 reflecting a decrease in new lottery business. Mortality and
expense risk charges increased by $5,054,000 reflecting the increase in the
market value of the separate accounts.
BENEFITS AND EXPENSES
Benefits and expenses increased by $139,743,000 from $992,642,000 for the
nine months ended September 30, 1994 to $1,132,385,000 for the same period in
1995. Reinsurance benefits and expenses decreased by $15,885,000 from
$200,699,000 for the nine months ended September 30, 1994 to $184,814,000 for
the same period in 1995. Annuity and other deposit fund withdrawals
decreased for the nine months ended September 30, 1995 as compared to 1994
reflecting fewer surrenders of fixed annuities for which interest rate
guarantee periods have expired. Transfers to the non-unitized separate
account increased by $129,286,000 from $207,917,000 for the nine months ended
September 30, 1994 to $337,203,000 for the same period in 1995 reflecting the
increase in individual annuity sales described above. Operating expenses,
as noted above, increased due to additional staffing and parent allocations.
Federal income taxes decreased reflecting the decrease in net income from
operations before equity income of subsidiaries and federal taxes.
-10-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET INCOME
Net income before equity in income of subsidiaries and federal income taxes
was $18,333,000 for the three months ended September 30, 1995 compared to
$41,634,000 for the same period in 1994. Reinsurance had the effect of
increasing net income by approximately $9,000,000 for the three months ended
September 30, 1995 as compared to the same period in 1994. The individually
marketed annuity products showed decreased earnings of approximately
$22,000,000 as a result of NAIC policyholder reserve strengthening. Group
pension three month earnings decreased by approximately $2,000,000, but
improved in its year to date results. Accrued interest on surplus notes
amounted to approximately $8,000,000 for the three months ended September 30,
1995. Had the Registrant accrued quarterly in 1994, the same amount would
have been expensed.
REVENUES
Total revenue decreased by $95,176,000 from $388,729,000 for the three months
ended September 30, 1994 to $293,553,000 for the same period in 1995.
Reinsurance had the effect of increasing revenues by $34,220,000 for the
three months ended September 30, 1995 as compared to the similar period in
1994. Group pension lottery premiums decreased by approximately $19,000,000
for the three months ended September 30, 1995 as compared to the similar
periods in 1994 while annuitizations of the individually marketed contracts
increased by approximately $7,000,000. Annuity and other deposit funds
decreased by $75,629,000 from $179,390,000 for the three months ended
September 30, 1994 to $103,761,000 for the same period in 1995. Sales of
individually marketed fixed annuities decreased by $91,236,000 from
$131,415,000 for the three months ended September 30, 1994 to $40,179,000 for
the same period in 1995. Sales of group pension guaranteed interest contracts
increased by $15,647,000 from $43,794,000 in 1994 to $59,441,000 in 1995.
Exchanges from separate accounts decreased by approximately $26,000,000 as a
result of an increase in funds transferred to the variable accounts.
Mortality and expense risk fees increased by $2,483,000 reflecting the
increase in separate account assets. Other income decreased by $19,087,000
from $26,695,000 for the three months ended September 30, 1994 to $7,608,000
reflecting a decrease in the surplus transfer from the separate accounts.
BENEFITS AND EXPENSES
Benefits and expenses decreased by $79,663,000 from $347,095,000 for the
three months ended September 30, 1994 to $267,432,000 for the same period in
1995. Reinsurance had the effect of increasing benefits and expenses by
$24,601,000 for the three months ended September 30, 1995 as compared to the
similar period in 1994. Benefits and expenses were impacted by a decrease in
the runoff of a maturing block of business, which resulted in the net change
in the liability for annuity and deposit funds and reserves increasing by
approximately $20,000,000. Annuity and other deposit fund withdrawals
decreased by approximately $7,000,000 reflecting fewer surrenders of fixed
annuities. Transfers to the non-unitized separate account decreased by
$124,904,000 from $128,559,000 for the three months ended September 30, 1994
to $3,655,000 for the same period in 1995 reflecting the decrease in sales of
individual marketed annuities. Federal income tax expense decreased
reflecting the decrease in net income from operations.
-11-
<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 November 14, 1995 /s/Bonnie S. Angus
------------------------
Bonnie S. Angus
Secretary
Date November 14, 1995 /s/Robert P. Vrolyk
------------------------
Robert P. Vrolyk
Vice President and
Actuary
-12-
