<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, 1996 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, 1996 and December 31, 1995 3
Statements of Operations -
Three Months Ended
June 30, 1996 and June 30, 1995 4
Statement of Operations -
Six Months Ended
June 30, 1996 and June 30, 1995 5
Statements of Capital Stock and Surplus -
Six Months Ended
June 30, 1996 and June 30, 1995 6
Statements of Cash Flows -
Six Months Ended
June 30, 1996 and June 30, 1995 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, 1995 has been taken from the audited
financial statements at that date. All other statements are unaudited.
-2-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
BALANCE SHEETS
(IN 000'S)
(UNAUDITED) (SEE NOTE BELOW)
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
----------- -----------
Bonds $ 2,319,417 $ 2,846,067
Preferred stock 0 1,149
Mortgage loans 1,024,401 1,066,911
Investments in subsidiaries 143,477 138,282
Real estate 94,711 95,575
Other invested assets 46,726 38,387
Policy loans 39,084 38,355
Cash 3,261 (20,280)
Investment income due and accrued 63,941 62,720
Funds withheld on reinsurance assumed 796,660 741,091
Due from separate accounts 188,247 148,675
Other assets 36,152 26,346
----------- -----------
General account assets 4,756,077 5,183,278
Unitized separate account assets 5,899,982 5,275,808
Non-unitized separate account assets 1,913,542 2,040,596
----------- -----------
$12,569,601 $12,499,682
----------- -----------
----------- -----------
LIABILITIES
Policy reserves $ 2,027,394 $ 1,937,301
Annuity and other deposits 2,074,936 2,290,656
Policy benefits in process of payment 4,884 5,884
Accrued expenses and taxes 42,130 44,114
Other liabilities 38,909 36,082
Due to (from) parent and affiliates - net (9,392) 9,498
Interest maintenance reserve 29,651 25,217
Asset valuation reserve 45,607 42,099
----------- -----------
General account liabilities 4,254,119 4,390,851
----------- -----------
Unitized separate account liabilities 5,899,958 5,275,783
Non-unitized separate account liabilities 1,913,542 2,040,596
----------- -----------
12,067,619 11,707,230
----------- -----------
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 496,082 786,552
----------- -----------
Total capital stock and surplus 501,982 792,452
----------- -----------
$12,569,601 $12,499,682
----------- -----------
----------- -----------
Note: The balance sheet at December 31, 1995 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.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATEMENTS OF OPERATIONS
(IN 000'S)
THREE MONTHS ENDED JUNE 30,
INCOME 1996 1995
--------- --------
Premiums and annuity considerations $ 70,961 $ 63,025
Annuity and other deposit funds 129,606 216,791
Transfers to separate accounts - net (12,676) (18,663)
Net investment income 88,771 85,926
Amortization of interest maintenance reserve 138 190
Realized losses on investments (821) (1,512)
Mortality and expense risk charges 19,907 14,499
Other income - net 19,581 7,875
--------- --------
315,467 368,131
--------- --------
BENEFITS AND EXPENSES
Increase (decrease) in liability for annuity
and other deposit funds (115,801) 40,727
Increase in policy reserves 46,979 37,543
Death, surrender benefits, and annuity payments 49,882 40,453
Annuity and other deposit fund withdrawals 271,613 121,344
Transfers to non-unitized separate account 578 66,204
--------- --------
253,251 306,271
Operating expenses 11,633 9,576
Commissions 33,161 25,284
Dividends 7,665 5,209
Taxes, licenses and fees 597 2,849
--------- --------
306,307 349,189
--------- --------
NET INCOME FROM OPERATIONS BEFORE
SURPLUS NOTE INTEREST AND EQUITY
IN INCOME OF SUBSIDIARIES 9,160 18,942
Surplus note interest (5,504) (7,787)
--------- --------
NET INCOME FROM OPERATIONS BEFORE
EQUITY IN INCOME OF SUBSIDIARIES
AND FEDERAL INCOME TAX 3,656 11,155
Equity in income of subsidiaries 21,424 12,022
Federal income tax expense (4,182) (8,432)
--------- --------
NET INCOME $ 20,898 $ 14,745
--------- --------
--------- --------
See notes to unaudited financial statements.
-4-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATEMENTS OF OPERATIONS
(IN 000'S)
SIX MONTHS ENDED JUNE 30,
INCOME 1996 1995
--------- --------
Premiums and annuity considerations $ 140,199 $129,067
Annuity and other deposit funds 230,183 518,826
Transfers from (to) separate accounts - net (57,742) 28,722
Net investment income 175,608 172,651
Amortization of interest maintenance reserve 381 564
Realized losses on investments (1,441) (2,060)
Mortality and expense risk charges 38,296 28,065
Other income - net 40,111 (3)
--------- --------
565,595 875,832
--------- --------
BENEFITS AND EXPENSES
Increase (decrease) in liability for annuity
and other deposit funds (215,720) 11,135
Increase in policy reserves 90,092 85,577
Death, surrender benefits, and annuity payments 92,674 88,020
Annuity and other deposit fund withdrawals 546,281 252,324
Transfers to (from) non-unitized separate account (78,705) 333,549
--------- --------
434,622 770,605
Operating expenses 22,046 18,739
Commissions 62,995 57,936
Dividends 13,292 12,711
Taxes, licenses and fees 1,473 4,962
--------- --------
534,428 864,953
--------- --------
NET INCOME FROM OPERATIONS BEFORE
SURPLUS NOTE INTEREST AND EQUITY
IN INCOME OF SUBSIDIARIES 31,167 10,879
--------- --------
Surplus note interest (12,204) (15,575)
--------- --------
NET INCOME (LOSS) FROM OPERATIONS BEFORE
EQUITY IN INCOME OF SUBSIDIARIES
AND FEDERAL INCOME TAX 18,963 (4,696)
Equity in income of subsidiaries 37,594 20,666
Federal income tax expense (7,117) (7,324)
--------- --------
NET INCOME $ 49,440 $ 8,646
--------- --------
--------- --------
See notes to unaudited financial statements.
-5-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATEMENTS OF CAPITAL AND SURPLUS
(IN 000'S) SIX MONTHS ENDED JUNE 30,
1996 1995
--------- --------
CAPITAL STOCK $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355
SURPLUS NOTES
Balance, beginning of period 650,000 335,000
Paid during period (335,000) 0
--------- --------
Balance, end of period 315,000 335,000
UNASSIGNED SURPLUS
Balance, beginning of period (62,801) (84,766)
Net income 49,440 8,646
Change in non-admitted assets (958) (1,729)
Unrealized gains (losses) on real estate (446) 737
Change in and transfers of
separate account surplus 0 (1)
Change in asset valuation reserve (3,508) (5,604)
--------- --------
Balance, end of period (18,273) (82,717)
--------- --------
Total surplus 496,082 451,638
--------- --------
TOTAL CAPITAL STOCK AND SURPLUS $ 501,982 $457,538
--------- --------
--------- --------
See notes to unaudited financial statements.
-6-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN 000'S) SIX MONTHS ENDED JUNE 30,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from operations before surplus note
interest and equity in income of subsidiaries $ 31,167 $ 10,879
ADJUSTMENTS TO RECONCILE NET INCOME FROM OPERATIONS
TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Increase (decrease) in liability for annuity and other deposit funds (215,720) 11,135
Increase in policy reserves 90,093 85,577
Increase in investment income due and accrued (1,222) (25,377)
Net accrual and amortization of discount and
premium on investments 1,887 1,251
Realized losses on investments 1,441 2,060
Change in non-admitted assets (958) (1,729)
Change in funds withheld on reinsurance (55,569) (87,977)
Other (37,840) 32,454
--------- --------
Net cash provided by (used in) operating activities (186,721) 28,273
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of investments 968,086 944,320
Purchase of investments (672,189) (878,775)
Net change in short-term investments 244,181 (89,228)
Investment in subsidiaries (1,000)
Dividends from subsidiaries 18,388 6,777
--------- --------
Net cash provided by (used in) investing activities 557,466 (16,906)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of surplus notes (335,000) 0
Payment of interest on surplus note (12,204) (15,575)
Repayment of seed capital 0 4,036
--------- --------
Net cash used in financing activities (347,204) (11,539)
--------- --------
Increase (decrease) in cash during the period 23,541 (172)
Cash balance, beginning of period (20,280) (11,460)
--------- --------
Cash balance, end of period $ 3,261 $(11,632)
--------- --------
--------- --------
</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 $5,256,000 and
$10,268,000 for the three and six month periods in 1996 and $4,791,000 and
$10,035,000 for the same periods in 1995.
(3) INVESTMENTS IN SUBSIDIARIES
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1996 and 1995 and for the six months ended:
1996 1995
---- ----
( 000's)
--------
Intangible assets $ 11,171 $ 13,178
Other assets, net of liabilities 132,245 129,001
--------- ---------
Total net assets $ 143,416 $ 142,179
--------- ---------
--------- ---------
Total income $ 329,090 $ 285,222
Total expenses (285,661) (261,384)
Income tax expense (19,454) (9,688)
--------- ---------
Net income $ 23,975 $ 14,150
--------- ---------
--------- ---------
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1996 and 1995 for the three months ended:
1996 1995
---- ----
( 000's)
--------
Total income $ 172,849 $ 143,573
Total expenses (148,059) (129,431)
Income tax expense (10,995) (5,626)
--------- ---------
Net income $ 13,795 $ 8,516
--------- ---------
--------- ---------
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded expenses of approximately $8,362,000 and $15,010,000
for the three month and six month periods in 1996 and $3,498,000 and
$6,516,000 for the same periods in 1995.
The change in equity in income of subsidiaries reported in the summary of
operations, differs from the net income reported above, due to federal income
taxes and a minority shareholder interest not held by the Registrant.
-8-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(4) SURPLUS NOTES
The Registrant repaid $335,000,000 of surplus notes to its parent on January
16, 1996 after having received permission from the Delaware Department of
Insurance.
(5) INVESTMENT INCOME
Net investment income consisted of:
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
---- ----
(000's)
-------
Interest income from bonds $ 93,243 $ 98,297
Interest income from mortgage loans 48,139 50,661
Interest income from policy loans 1,332 1,355
Real estate investment income 4,992 5,398
Interest income on funds withheld 31,703 20,820
Other 1,177 1,684
-------- --------
Gross investment income 180,586 178,215
Investment expenses 4,978 5,564
-------- --------
Net investment income $175,608 $172,651
-------- --------
-------- --------
THREE MONTHS ENDED
JUNE 30,
-------------------
1996 1995
---- ----
(000's)
-------
-------- --------
Interest income from bonds $ 47,218 $ 47,853
Interest income from mortgage loans 23,752 24,778
Interest income from policy loans 822 794
Real estate investment income 2,437 3,158
Interest income on funds withheld 16,259 10,784
Other 571 721
-------- --------
Gross investment income 91,059 88,088
Investment expenses 2,288 2,162
-------- --------
Net investment income $ 88,771 $ 85,926
-------- --------
-------- --------
-9-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income from operations before surplus note interest, equity in income of
subsidiaries and federal income tax increased by $20,288,000 from $10,879,000
for the six months ended June 30, 1995 to $31,167,000 for the same period in
1996. Reinsurance agreements with the parent had the effect of decreasing net
income by $8,694,000 in 1995 as compared to increasing net income by
$9,850,000 in 1996. Prior to reinsurance, net income from operations
increased by $5,115,000 from $3,998,000 in 1995 to $9,113,000 for the same
period in 1996. Mortality and expense risk charges increased by $10,231,000
reflecting the increase in sales related to unitized separate assets.
Commissions increased by $6,595,000 reflecting an increase in sales of
annuity deposits held in the separate accounts. The remaining charge to
income net of approximately $1,892,000 reflects the change in earnings with
respect to the individual market value adjusted annuities for the six months
ended June 30, 1996. The interplay between the market value of the assets
and the timing of change in interest rates credited to contracts which impact
the calculation of the market value adjusted cash values and, in turn, the
reserves.
Total revenues decreased by approximately $310,237,000 from $875,832,000 for
the six months ended June 30, 1995 to $565,595,000 for the same period in
1996. Revenues from reinsurance transactions increased by $6,355,000.
Premiums and annuity considerations on a pre-reinsurance basis increased by
$15,666,000 reflecting increased annuitizations. Fixed annuity deposit funds
decreased by $288,643,000 as interest rates remained at low levels.
Pre-reinsurance net investment income decreased by $7,926,000 reflecting a
decrease in the general account invested asset base and lower yields. Net
transfers from the separate accounts decreased by $86,464,000 reflecting the
decline in interest rates and less movement of monies into the fixed rate
environment. Mortality and expense risk charges increased by $10,231,000
reflecting the increase in the unitized separate accounts. Other income
increased by $40,114,000 reflecting an increase in the surplus transfer from
the separate accounts.
Benefits and expenses decreased by $330,525,000 from $864,953,000 for the six
months ended June 30, 1995 to $534,428,000 for the same period in 1996.
Reinsurance had the effect of decreasing benefits and expenses by $12,189,000
primarily from lower commissions due to no assumption of new contract issues.
Prior to reinsurance, benefits and expenses decreased by $318,336,000. The
change in the liability for annuity and other deposit funds decreased by
$226,855,000 reflecting lower interest credited rates. Policy reserves
increased by $16,410,000 reflecting the increased annuitizations. Annuity and
other deposit fund withdrawals increased by $293,957,000 as a result of
increased surrenders of fixed annuities for which interest rate guarantee
periods have expired. Transfers to the non-unitized separate account
decreased by $412,254,000 reflecting the lower interest credited rates.
Commissions increased by $6,595,000 reflecting an increase in unitized
separate account deposits. Death, surrender benefits and annuity payments
increased by $4,065,000 primarily reflecting the increased annuitizations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net income from operations before surplus note interest and equity in income
of subsidiaries and federal income tax decreased by approximately $9,782,000
from $18,942,000 for the three months ended June 30, 1995 to $9,160,000 for
the same period in 1996. Reinsurance agreements with the parent had the
effect of increasing net income by $725,000. Prior to reinsurance, net
income decreased by $10,505,000 from $16,114,000 for the three months ended
June 30, 1995 to $5,609,000 for the same period in 1996. Mortality and
expense risk charges increased by $5,408,000 reflecting an increase in sales
related to unitized separate account assets. Commissions increased by
$8,877,000 reflecting increased annuity deposit funds held in the separate
accounts. There is also strain associated with the additional sales of the
deposit funds. The remaining decrease in net income of approximately
$7,038,000 reflects the earnings with respect to the individual market value
adjusted annuities for the three moths ended June 30, 1996. The interplay
between the market value of the assets and the timing of changes in interest
rates credited to contracts which impact the calculation of market value
adjusted cash values and, in turn, the reserves.
-10-
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (CONTINUED)
Total revenues decreased by approximately $52,664,000 from $368,131,000 for
the three months ended June 30, 1995 to $315,467,000 for the same period in
1996. Revenues from reinsurance transactions increased by $4,106,000. Premiums
and annuity considerations on a pre-reinsurance basis increased by $9,366,000
reflecting increased annuitizations. Fixed annuity deposit funds decreased
by $87,185,000 as interest rates remained at low levels. Pre-reinsurance net
investment income decreased by $2,631,000 reflecting a decrease in the
general account invested asset base and lower yields. Net transfers to
separate accounts increased by $5,987,000 reflecting the decrease in fixed
annuity deposit funds. Mortality and expense risk charges increased by
$5,408,000 reflecting the increase in the unitized separate accounts. Other
income increased by $11,706,000 reflecting an increase in the surplus
transfer from the separate accounts.
Benefits and expenses decreased by approximately $42,882,000 from
$349,189,000 for the three months ended June 30, 1995 to $306,307,000 for the
same period in 1996. Reinsurance had the effect of increasing benefits and
expenses by $4,470,000. Prior to reinsurance, benefits and expenses
decreased by $47,352,000. The change in the liability for annuity and other
deposit funds decreased by $156,528,000 reflecting lower interest credited
rates. Policy reserves increased by $11,344,000 reflecting the increased
annuitizations. Annuity and other deposit fund withdrawals increased by
$150,269,000 reflecting the increase in surrenders of fixed annuities.
Transfers to the non-unitized separate account decreased by $65,626,000
reflecting lower interest credited rates. Commissions increased by
$8,877,000 reflecting an increase in unitized separate account deposits.
Death, surrenders and annuity payments increased by approximately $3,876,000
reflecting the increased annuitizations.
-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 August 9, 1996 /s/ Robert P. Vrolyk
---------------- ------------------------
Robert P. Vrolyk
Principal Financial Officer and
Vice President and Actuary
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 5 OF THE COMPANY'S FORM
10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,319,417
<DEBT-MARKET-VALUE> 2,372,583
<EQUITIES> 0
<MORTGAGE> 1,024,401
<REAL-ESTATE> 94,711
<TOTAL-INVEST> 3,671,077
<CASH> 3,261
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 12,569,601
<POLICY-LOSSES> 2,027,394
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,884
<POLICY-HOLDER-FUNDS> 2,074,936
<NOTES-PAYABLE> 0
0
0
<COMMON> 5,900
<OTHER-SE> 496,082
<TOTAL-LIABILITY-AND-EQUITY> 12,569,601
350,936
<INVESTMENT-INCOME> 175,989
<INVESTMENT-GAINS> (1,441)
<OTHER-INCOME> 40,111
<BENEFITS> 434,622
<UNDERWRITING-AMORTIZATION> 62,995
<UNDERWRITING-OTHER> 23,519
<INCOME-PRETAX> 18,963
<INCOME-TAX> 7,117
<INCOME-CONTINUING> 49,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,440
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
