<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 March 31, 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 / /
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SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
INDEX
Page
PART I: Financial Information Number
Item 1: Financial Statements:*
Balance Sheets -
March 31, 1996 and December 31, 1995 3
Statements of Operations -
Three Months Ended
March 31, 1996 and March 31, 1995 4
Statements of Capital Stock and Surplus -
Three Months Ended
March 31, 1996 and March 31, 1995 5
Statements of Cash Flows -
Three Months Ended
March 31, 1996 and March 31, 1995 6
Notes to Unaudited Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II: Other Information
Item 4: Submission of Matters to a
Vote of Security Holders 10
* The balance sheet at December 31, 1995 has been taken from the
audited financial statements at that date. All other statements
are unaudited.
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Sun Life Assurance Company of Canada (U.S.)
Balance Sheets
<TABLE>
<CAPTION>
(in 000's)
(Unaudited) (See note below)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Bonds $ 2,403,907 $ 2,846,067
Preferred stock 0 1,149
Mortgage loans 1,053,589 1,066,911
Investments in subsidiaries 139,336 138,282
Real estate 94,706 95,575
Other invested assets 38,838 38,387
Policy loans 39,334 38,355
Cash (2,807) (20,280)
Investment income due and accrued 66,629 62,720
Funds withheld on reinsurance assumed 794,215 741,091
Due from separate accounts 168,634 148,675
Other assets 31,315 26,346
------------ ------------
General account assets 4,827,696 5,183,278
Unitized separate account assets 5,657,608 5,275,808
Non-unitized separate account assets 1,966,877 2,040,596
------------ ------------
$12,452,181 $12,499,682
------------ ------------
------------ ------------
Liabilities
Policy reserves $ 1,980,415 $ 1,937,301
Annuity and other deposits 2,190,737 2,290,656
Policy benefits in process of payment 5,415 5,884
Accrued expenses and taxes 44,602 44,114
Other liabilities 33,431 36,082
Due to parent and affiliates - net 18,735 9,498
Interest maintenance reserve 28,763 25,217
Asset valuation reserve 43,993 42,099
------------ ------------
General account liabilities 4,346,091 4,390,851
Unitized separate account liabilities 5,657,584 5,275,783
Non-unitized separate account liabilities 1,966,877 2,040,596
------------ ------------
11,970,552 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 475,729 786,552
------------ ------------
Total capital stock and surplus 481,629 792,452
------------ ------------
$12,452,181 $12,499,682
------------ ------------
------------ ------------
</TABLE>
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.
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<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Operations
<TABLE>
<CAPTION>
(in 000's)
Three Months Ended March 31,
1996 1995
---------- --------
<S> <C> <C>
Income
Premiums and annuity considerations $ 69,238 $ 66,042
Annuity and other deposit funds 100,577 302,035
Transfers from (to) separate accounts-net (45,066) 47,385
Net investment income 86,837 86,725
Amortization of interest maintenance reserve 243 374
Realized losses on investments (620) (548)
Mortality and expense risk charges 18,389 13,566
Other income - net 20,530 (7,878)
---------- --------
250,128 507,701
Benefits and Expenses
Decrease in liability for annuity
and other deposit funds (99,919) (29,592)
Increase in policy reserves 43,113 48,034
Death, surrender benefits, and annuity payments 42,792 47,567
Annuity and other deposit fund withdrawals 274,668 130,980
Transfers to (from) non-unitized separate account (79,283) 267,345
-------- ---------
181,371 464,334
Operating expenses 10,413 9,163
Commissions 29,834 32,652
Dividends 5,627 7,502
Taxes, licenses and fees 876 2,113
-------- ---------
228,121 515,764
-------- ---------
Net income (loss) from operations before
surplus note interest and equity
in income of subsidiaries 22,007 (8,063)
Surplus note interest (6,700) (7,788)
-------- ---------
Net income (loss) from operations before
equity in income of subsidiaries
and federal income tax 15,307 (15,851)
Equity in income of subsidiaries 16,170 8,644
Federal income tax (expense) benefit (2,935) 1,108
-------- ---------
Net income (loss) $ 28,542 $ (6,099)
-------- ---------
-------- ---------
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Capital Stock and Surplus
<TABLE>
<CAPTION>
(in 000's) Three Months Ended March 31,
1996 1995
------------ ----------
<S> <C> <C>
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 $(62,802) $(84,766)
Net income (loss) 28,542 (6,099)
Change in non-admitted assets (1,599) (590)
Unrealized gains (losses) on real estate (872) 369
Change in and transfers of
separate account surplus 0 (7)
Change in asset valuation reserve (1,895) (11,735)
--------- ---------
Balance, end of period (38,626) (102,828)
--------- ---------
Total surplus 475,729 431,527
--------- ---------
Total capital stock and surplus $481,629 $437,427
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
Sun Life Assurance Company of Canada (U.S.)
Statements of Cash Flows
<TABLE>
<CAPTION>
(in 000's) Three Months Ended March 31,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations before surplus note
interest and equity in income of subsidiaries $ 22,007 $ (8,063)
Adjustments to reconcile net income (loss) from operations
to net cash provided by (used in) operating activities:
Decrease in liability for annuity and other deposit funds (99,919) (29,592)
Increase in policy reserves 43,113 48,034
Increase in investment income due and accrued (3,910) (17,917)
Net accrual and amortization of discount and
premium on investments 954 623
Realized losses on investments 620 548
Change in non-admitted assets (1,599) (590)
Change in funds withheld on reinsurance (53,124) (47,899)
Other (16,311) 42,482
----------- ----------
Net cash used in operating activities (108,169) (12,374)
----------- ----------
Cash flows from investing activities:
Proceeds from sale and maturity of investments 549,027 445,862
Purchase of investments (323,300) (361,248)
Net change in short-term investments 233,147 (54,643)
Investment in subsidiaries (1,000) 0
Dividends from subsidiaries 9,468 478
----------- ----------
Net cash provided by investing activities 467,342 30,449
----------- ----------
Cash flows from financing activities:
Repayment of surplus notes (335,000) 0
Payment of interest on surplus note (6,700) (7,788)
Repayment of seed capital 0 4,032
----------- ----------
Net cash used in financing activities (341,700) (3,756)
----------- ----------
Increase in cash during the year 17,473 14,319
Cash balance, beginning of period (20,280) (11,460)
----------- ----------
Cash balance, end of period $ (2,807) $ 2,859
----------- ----------
----------- ----------
</TABLE>
See notes to unaudited financial statements.
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<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 $5,012,000 and
$5,244,000 for the three month periods in 1996 and 1995.
(3) Investments in Subsidiaries
The following is combined unaudited summarized financial information of the
subsidiaries as of March 31, 1996 and 1995 and for the three months then ended:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(000's)
<S> <C> <C>
Intangible assets $ 11,672 $ 12,995
Other assets, net of liabilities 127,345 126,960
--------- --------
Total net assets $ 139,017 $139,955
--------- --------
--------- --------
Total income $ 156,241 $141,649
Total expenses (137,602) (131,953)
Income tax expense (8,459) (4,062)
--------- --------
Net income $ 10,180 $ 5,634
--------- --------
--------- --------
</TABLE>
(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.
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded expenses of approximately $6,648,000 in 1996 and
$3,018,000 in 1995, representing payables to the Registrant in lieu of
Federal income taxes.
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<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Notes to Unaudited Financial Statements (continued)
(5) Investment Income
Net investment income consisted of:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
-------- -------
(000's)
<S> <C> <C>
Interest income from bonds $46,025 $50,444
Interest income from mortgage loans 24,387 25,883
Interest income from policy loans 510 561
Real estate investment income 2,555 2,240
Interest income on funds withheld 15,444 10,036
Other 606 963
-------- -------
Gross investment income 89,527 90,127
Investment expenses 2,690 3,402
-------- -------
$86,837 $86,725
-------- -------
-------- -------
</TABLE>
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<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net income from operations before surplus note interest and equity in income
of subsidiaries and federal income tax increased by $30,068,000 from a loss
of $8,061,000 for the three months ended March 31, 1995 to a gain of
$22,007,000 for the same period in 1996. Reinsurance agreements with the
parent had the effect of decreasing net income by $11,520,000 in 1995 as
compared to increasing net income by $6,298,000 in 1996. Prior to reinsurance,
net income from operations increased by $12,250,000 from $3,459,000 in 1995 to
$15,709,000 for the same period in 1996. Mortality and expense risk charges
increased by $4,823,000 reflecting the increase in the sales related to
unitized separate account assets. Commissions decreased by $2,281,000 as a
result of fewer sales of combination fixed/variable annuities. The remaining
increase in net income of approximately $5,146,000 reflects the earnings with
respect to the individual market value adjusted annuities for the three
months ended March 31, 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 the market value adjusted cash values and, in
turn, the reserves. Fewer sales and the change in the mix between fixed and
variable deposits for this product line from 70% fixed and 30% variable in
1995 to 8% fixed and 92% variable in 1996 results in less strain.
Total revenues decreased by $257,574,000 from $507,701,000 for the three
months ended March 31, 1995 to $250,128,000 for the same period in 1996.
Revenues from reinsurance transactions increased by $2,247,000. Premiums and
annuity considerations on a pre-reinsurance basis increased by $6,307,000
reflecting increased annuitizations. Fixed annuity deposit funds decreased by
$240,882,000 as interest rates remained at low levels. Sales of group pension
guaranteed investment contracts increased by $39,424,000 primarily as the result
of unusually slow sales for the three months in 1995. Pre-reinsurance net
investment income decreased by $5,296,000 reflecting a decrease in the
general account invested asset base and lower yields. Net transfers from the
separate accounts decreased by $92,451,000 reflecting the decline in interest
rates and less movement of monies into the fixed rate environment. Mortality
and expense risk charges increased by $4,823,000 reflecting the market
appreciation in the unitized separate accounts. Other income increased by
$28,408,000 from an expense of $7,878,000 in 1995 to income of $20,530,000
reflecting an increase in the surplus transfer from the separate accounts.
Benefits and expenses decreased by $287,643,000 from $515,764,000 for the
three months ended March 31, 1995 to $228,121,000 for the same period in
1996. Reinsurance had the effect of decreasing benefits and expenses by
$15,571,000 primarily from lower commissions due to no assumption of new
contract issues. Prior to reinsurance, benefits and expenses decreased by
$272,072,000. The change in the liability for annuity and other deposit funds
decreased by $70,327,000 reflecting lower interest credited rates. Policy
reserves increased by $5,066,000 reflecting the increased annuitizations.
Annuity and other deposit fund withdrawals increased by $143,688,000 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 $346,628,000 reflecting the lower interest credited
rates. Commissions decreased by $2,818,000 reflecting fewer annuity and other
deposit fund sales discussed above. Taxes, licenses and fees decreased by
$1,237,000 reflecting lower guarantee fund assessments.
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<PAGE>
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of the Registrant was held
on February 7, 1996.
(b) The following directors of Registrant were re-elected at the
annual meeting:
Richard B. Bailey David D. Horn
A. Keith Brodkin John S. Lane
M. Colyer Crum Angus A. MacNaughton
John R. Gardner John D. McNeil
(c) Not applicable
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<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 May 13, 1996 /s/ Bonnie S. Angus
------------------------ ----------------------------------
Bonnie S. Angus
Secretary
Date May 13, 1996 /s/ Robert P. Vrolyk
------------------------ ----------------------------------
Robert P. Vrolyk
Vice President and Actuary
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