<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 5(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File No. 33-62895
- ----------------------------------- ----------------------------
John Hancock Variable Life Insurance Company
--------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 04-2664016
- --------------------------------------------------------- -------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
200 Clarendon Street, Boston, Massachusetts 02117
- --------------------------------------------------------- -------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (617)572-9196
-------------
</TABLE>
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) been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at August 15, 1996
----- ------------------
common stock, 50,000
$50 par value
1
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JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
--------------------------------------------
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
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Page #
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
- ------- ------------------------------
. Statement of Financial Position as of
June 30, 1996, and December 31, 1995.............. 3
. Statements of Operation and Unassigned
Deficit for the Three Months and Six Months
Ended June 30, 1996 and 1995...................... 4
. Condensed Statements of Cash Flows for
the Six Months Ended June 30,
1996, and 1995.................................... 5
. Statements of Stockholder's Equity
for the Six Months Ended
June 30, 1996, and 1995........................... 6
. Condensed Notes to Financial Statements........... 7
Item 2. Management's Discussion
and Analysis...................................... 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 12
SIGNATURES
</TABLE>
2
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PART I. FINANCIAL INFORMATION
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited)
June 30 December 31
1996 1995
----------------------------
<S> <C> <C>
(In millions)
ASSETS
Bonds $ 707.2 $ 552.8
Preferred stocks 5.0 5.0
Common stocks 1.5 1.7
Investment in affiliates 69.0 65.3
Mortgage loans on real estate 149.0 146.7
Real estate 43.4 36.4
Policy loans 71.4 61.8
Cash and temporary cash investments 12.5 76.6
Premiums due and deferred 37.3 39.6
Investment income due and accrued 20.5 18.6
Other general account assets 22.7 20.8
Assets held in separate accounts 2,790.5 2,421.0
----------------------------
TOTAL ASSETS $3,930.0 $3,446.3
============================
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves $ 790.3 $ 671.1
Federal income and other taxes
payable 15.2 14.2
Other accrued expenses 57.7 79.9
Asset valuation reserve 15.4 15.4
Obligations related to separate accounts 2,786.2 2,417.0
----------------------------
TOTAL OBLIGATIONS 3,664.8 3,197.6
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized
50,000 shares; issued and outstanding
shares 50,000 2.5 2.5
Paid-in capital 377.5 377.5
Unassigned deficit (114.8) (131.3)
----------------------------
TOTAL STOCKHOLDER'S EQUITY 265.2 248.7
----------------------------
TOTAL OBLIGATIONS AND STOCKHOLDER'S
EQUITY $3,930.0 $3,446.3
============================
</TABLE>
See condensed notes to the financial statements (unaudited).
3
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Three months ended Six months ended
June 30 June 30
-------------------------------------------
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
INCOME
Premiums $ 310.0 $ 142.9 $ 485.4 $ 242.8
Net investment income-Note 4 18.1 14.9 35.9 31.2
Other, net 47.9 20.0 73.9 43.5
-------------------------------------------
376.0 177.8 595.2 317.5
BENEFITS AND EXPENSES
Payments to policyholders and
beneficiaries 57.1 59.9 118.1 111.2
Additions to reserves to provide for
future payments to policyholders and
beneficiaries 244.5 66.8 342.4 100.8
Expenses of providing service to
policyholders and obtaining new
insurance 48.7 41.9 94.5 82.3
State and miscellaneous taxes 5.7 3.2 8.1 6.1
-------------------------------------------
356.0 171.8 563.1 300.4
GAIN FROM OPERATIONS
BEFORE FEDERAL INCOME TAXES
AND NET REALIZED CAPITAL GAINS 20.0 6.0 32.1 17.1
Federal income taxes 8.5 7.3 16.6 13.0
-------------------------------------------
GAIN FROM OPERATIONS
BEFORE NET REALIZED CAPITAL
GAINS (LOSSES) 11.5 (1.3) 15.5 4.1
Net realized capital gains (losses) (1.0) 0.2 (1.0) (0.6)
-------------------------------------------
NET GAIN (LOSS) 10.5 (1.1) 14.5 3.5
Unassigned deficit at beginning
of period (126.6) (157.9) (131.3) (162.1)
Net unrealized capital gains (losses)
and other adjustments 0.8 0.6 1.2 0.9
Change in separate account surplus 0.1 0.6 0.3 0.3
Other reserves and adjustments 0.4 0.1 0.5 (0.3)
-------------------------------------------
UNASSIGNED DEFICIT AT END OF PERIOD $(114.8) $(157.7) $(114.8) $(157.7)
===========================================
</TABLE>
See condensed notes to the financial statements (unaudited).
4
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JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
June 30
-------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums $ 488.5 $ 245.8
Net investment income 34.3 31.3
Benefits to policyholders and
beneficiaries (109.7) (105.4)
Dividends paid to policyholders (7.7) (6.1)
Insurance expenses and taxes (101.7) (90.3)
Net transfers to separate accounts (234.1) (87.9)
Other, net 54.7 21.4
------------------
NET CASH PROVIDED FROM OPERATIONS 124.3 8.8
Cash flows used in investing activities:
Bond purchases (263.5) (22.8)
Bond sales 84.4 8.8
Bond maturities and scheduled
redemptions 11.3 17.7
Bond prepayments 12.0 0.3
Stock purchases (1.4) (1.7)
Proceeds from stock sales 0.0 0.2
Real estate purchases (6.2) (10.5)
Real estate sales 0.1 0.0
Other invested assets purchases (0.2) (0.1)
Proceeds from the sale of other
invested assets 0.6 0.0
Mortgage loans issued (13.2) (3.0)
Mortgage loan repayments 9.5 12.3
Other, net (21.8) (25.8)
-----------------
NET CASH USED IN INVESTING ACTIVITIES (188.4) (24.6)
DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (64.1) (15.8)
Cash and temporary cash investments at
beginning of year 76.6 76.0
------------------
CASH AND TEMPORARY CASH INVESTMENTS
AT THE END OF PERIOD $ 12.5 $ 60.2
==================
</TABLE>
See condensed notes to the financial statements (unaudited).
5
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JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Paid-in Unassigned
Stock Capital Deficit Total
---------------------------------------
(In millions)
<S> <C> <C> <C> <C>
For the six months ended June 30, 1995
(unaudited)
Balance at January 1, 1995 $ 25.0 $355.0 $(162.1) $217.9
1995 Transactions:
Net gain 3.5 3.5
Net unrealized capital gains and
other adjustments 0.9 0.9
Change in separate account
surplus 0.3 0.3
Other reserves and adjustments (0.3) (0.3)
Reclassification of paid-in
capital (22.5) 22.5 0.0
-------------------------------------
Balance at June 30, 1995 $ 2.5 $377.5 $(157.7) $222.3
=====================================
For the six months ended June 30, 1996
(unaudited)
Balance at January 1, 1996 $ 2.5 $377.5 $(131.3) $248.7
1996 Transactions:
Net gain 14.5 14.5
Net unrealized capital gains and
other adjustments 1.2 1.2
Change in separate account
surplus 0.3 0.3
Other reserves and adjustments 0.5 0.5
-------------------------------------
Balance at June 30, 1996 $ 2.5 $377.5 $(114.8) $265.2
=====================================
</TABLE>
See condensed notes to the financial statements (unaudited).
6
<PAGE>
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared on
the basis of accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners, which were considered generally
accepted accounting principles for a stock life insurance company wholly-owned
by a mutual company for years prior to 1996. However, in April 1993, the
Financial Accounting Standard Board (FASB) issued Interpretation 40,
"Applicability of General Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" (Interpretation). The Interpretation, as
amended, is effective for 1996 annual financial statements and thereafter and no
longer will allow statutory-basis financial statements to be described as being
prepared in conformity with generally accepted accounting principles (GAAP).
Upon the effective date of the Interpretation, in order for their financial
statements to be described as being prepared in conformity with GAAP, mutual
life insurance companies will be required to adopt all applicable authoritative
GAAP pronouncements in any general-purpose financial statements that they may
issue. John Hancock Variable Life Insurance Company (the Company) has not
quantified the effects of the application of the Interpretation on its financial
statements.
The Company has not yet determined whether for general purposes it will continue
to issue statutory-basis financial statements or statements adopting all
applicable authoritative GAAP pronouncements. If the Company decides that its
general-purpose financial statements will be prepared in accordance with GAAP
rather than statutory accounting practices, the financial statements included
herein would have to be restated to reflect all applicable authoritative GAAP
pronouncements, including Statement of Financial Accounting Standards (SFAS)
Nos. 60, 97, and 113.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
As of June 30, 1996, total assets grew by 14.0% to $3,930.0 million, from
$3,446.3 million at December 31, 1995. This increase is principally due to the
growth in the separate accounts where assets increased by 15.3% during 1996 from
$2,421.0 million at December 31, 1995, to $2,790.5 million at June 30, 1996.
Total obligations
7
<PAGE>
grew by 14.6% to $3,664.8 million from $3,197.6 million at December 31, 1995.
Most of this growth in total obligations was in the separate accounts, which
grew by $369.2 million during 1996, from $2,417.0 million at December 31, 1995,
to $2,786.2 million at June 30, 1996. Separate account assets and liabilities
consist primarily of the fund balances associated with variable life and annuity
business. The asset holdings include fixed income, equity growth, total return
real estate, and global mutual funds, with liabilities representing amounts due
to policyholders. Total stockholder's equity grew by 6.6% from $248.7 million at
December 31, 1995, to $265.2 million at June 30, 1996.
Investments
The Company continues to address industry wide issues of asset quality and
liquidity that have emerged in recent years. JHVLICO's bond portfolio is highly
diversified. It maintains diversity by geographic region, industry group, and
limiting the size of individual investments relative to the total portfolio.
For the past several years, the Company has invested new money predominantly in
long-term investment grade corporate bonds as a means of lowering the relative
proportion of assets invested in commercial mortgages. As a result, the
Company's holdings in investment (NAIC SVO classes 1 and 2) and medium (NAIC SVO
class 3) grade bonds are 89.8% and 7.8%, respectively, of total general account
bonds at June 30, 1996. The corresponding percentages at December 31, 1995 were
90.1% and 6.7%, respectively. Most of the medium grade bonds are private
placements that provide long-term financing for medium size companies. These
bonds typically are protected by individually negotiated financial covenants
and/or collateral. At June 30, 1996, the balance (NAIC SVO classes 4, 5, and 6)
of 2.4% of total general account bonds consists of lower grade bonds and bonds
in default. Bonds in default represent 0.8% of total general account bonds.
Management believes the Company's commercial mortgage lending philosophy
and practices are sound. The Company generally makes mortgage loans against
properties with proven track records and high occupancy levels, and typically
does not make construction or condominium loans nor lend more than 75% of the
property's value at the time of the loan. To assist in the management of its
mortgage loans, the Company uses a computer-based mortgage risk analysis system.
The Company has outstanding commitments to purchase long-term bonds and
issue real estate mortgages totaling $58.2 million and $2.4 million,
respectively at June 30, 1996. The corresponding amounts at December 31, 1995
were $16.6 million and $5.4 million, respectively. The Company monitors the
creditworthiness of borrowers under long-term bond commitments and requires
collateral as deemed necessary. The majority of these commitments expire in
1996 and 1997.
8
<PAGE>
Reserves and Obligations
The Company's obligations principally consist of aggregate reserves for
life policies and contracts of $790.3 million in the general account and
obligations of $2,786.2 million in the separate accounts at June 30, 1996. The
corresponding amounts at December 31, 1995 were $671.1 million and $2,417.0
million, respectively. These liabilities are computed in accordance with
commonly accepted actuarial standards and are based on actuarial assumptions
which are in accordance with, or more conservative than, those called for in
state regulations. All reserves meet the requirements of the insurance laws of
the Commonwealth of Massachusetts. Intensive asset adequacy testing was
performed in 1995 for all reserves. As a result of that testing, no additional
reserves were established. Adequacy testing is done annually and generally
performed in the fourth quarter.
The Company's total obligations include the Asset Valuation Reserve ("AVR")
required by the NAIC and state insurance regulatory authorities. At June 30,
1996 and December 31, 1995, the AVR was $15.4 million. The AVR contained
voluntary contributions of $2.8 million in 1995. There was no voluntary
contribution made during the six months ended June 30, 1996. Management
believes the Company's level of reserve is adequate and is made more
conservative by the voluntary contributions.
The AVR was established to stabilize statutory surplus from non-interest
related fluctuations in the market value of bonds, stocks, mortgage loans, real
estate and other invested assets. The AVR generally captures realized and
unrealized capital gains or losses on such assets, other than those resulting
from changes in interest rates. Each year, the amount of an insurer's AVR will
fluctuate as capital gains or losses are absorbed by the reserve. To adjust for
such changes over time, an annual contribution must be made to the AVR equal to
20% of the difference between the maximum AVR (as determined annually according
to the type and quality of an insurer's assets) and the actual AVR. The AVR
provisions permitted a phase-in period whereby the required contribution was 10%
in 1992, 15% in 1993, and the full 20% factor thereafter.
Such contributions may result in a slower rate of growth of, or a reduction
to, surplus. Changes in the AVR are accounted for as direct increases or
decreases in surplus. The impact of the AVR on the surplus position of John
Hancock in the future will depend in part on the composition of the Company's
investment portfolio.
The Interest Maintenance Reserve ("IMR") captures realized capital gains
and losses (net of taxes) on fixed income investments (primarily bonds and
mortgage loans) resulting from changes in interest rate levels. These amounts
are not reflected in the Company's capital account and are amortized into net
investment income over the estimated remaining lives of the investments
disposed. At June 30, 1996 and December 31, 1995 the balance of the IMR was
$6.0 million and $6.9 million, respectively. The impact of the IMR on the
surplus of the Company depends upon the amount of future interest related
capital gains and losses on fixed income investments.
9
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Results of Operations
For the six months ending June 30, 1996, the net gain from operations was
$14.5 million, $11.0 million higher than the same period during 1995. For the
quarter ending June 30, 1996, the net gain from operations was $10.5 million,
$11.6 million higher than the same period during 1995.
For the six months ending June 30, 1996, total revenues increased by 87.5%, or
$277.7 million to $595.2 million as compared to the same period during 1995. For
the quarter ending June 30, 1996, total revenues increased by 111.5%, or 198.2
million as compared to the same period in 1995. For the six months ending June
30, 1996, premiums, net of premium ceded to reinsurers, increased by 99.9% or
$242.6 million to $485.4 as compared to the same period during 1995. For the
quarter ending June 30, 1996 premiums, net of premium ceded to reinsurers,
increased by 116.9% or $167.1 million as compared to the same period during
1995. Of this three month increase, $100.0 million was due to sales of corporate
owned life insurance. For the six months ending June 30, 1996, net investment
income increased by 15.1% or $4.7 million to $35.9 million as compared to the
same period during 1995. For the quarter ending June 30, 1996, net investment
income increased by 21.5% or $3.2 million as compared to the same period during
1995. These increases can be attributed to an increase in gross income on long-
term bonds for the six and three month periods ended June 30, 1996 of $4.9
million, and $2.9 million, respectively. The increase on long-term bond income
was the result of an increased asset base. For the six months ending June 30,
1996, and for the quarter ending June 30, 1996, other income increased by $30.4
million and $27.9 million, respectively compared to the same periods in 1995.
These increases were primarily attributable to the increase in commission and
expense allowances and reserve adjustments on reinsurance ceded.
For the six months ending June 30, 1996, total benefits and expenses increased
by 87.5% or $262.7 million to $563.1 million as compared to the same period
during 1995. For the quarter ending June 30, 1996 total benefits and expenses
increased by 107.2% or $184.2 million as compared to the same period during
1995. For the six months ending June 30, 1996, benefit payments and additions to
reserves increased by 117.2% or $248.5 million to $460.5 million as compared to
the same period during 1995. For the quarter ending June 30, 1996, benefit
payments and additions to reserves increased by 138.0% or $174.9 million as
compared to the same period during 1995. For the six months ending June 30,
1996, insurance expenses increased by 14.8% or $12.2 million to $94.5 million as
compared to the same period during 1995. For the quarter ending June 30, 1996,
insurance expenses increased by 16.2% or $6.8 million as compared to the same
period during 1995. These increases in insurance expenses were attributable
largely to commission expense resulting from the sale of new business.
10
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Liquidity and Capital Resources
The Company's liquidity resources at June 30, 1996, include cash and short-
term investments of $12.5 million, public bonds of $352.8 million, and
investment grade private placement bonds of $339.6 million. The corresponding
amounts at December 31, 1995 were $76.6 million, $206.2 million, and $294.7
million, respectively. In addition, the Company's separate accounts are highly
liquid and are available to meet most outflow needs for variable life insurance.
Management believes the liquidity resources above of $704.9 million as of
June 30, 1996, strongly position the Company to meet all its obligations to
policyholders and others. Generally, the Company's financing needs are met by
means of funds provided by normal operations. As of June 30, 1996 and year end
1995, the Company had no outstanding borrowings from sources outside its
affiliated group.
Total surplus, or stockholder's equity, including the AVR, is $280.6
million as of June 30, 1996 compared to $264.1 million as of December 31, 1995.
The current statutory accounting treatment of deferred acquisition cost ("DAC")
taxes results in an understatement of the Company's surplus, which will persist
during periods of growth in new business written. These taxes result from
federal income tax law that approximates acquisition expenses and then spreads
the corresponding tax deduction over a period of years. The result is a DAC tax
which is collected immediately and subsequently returned through tax deduction
in later years.
Since it began its operations, the Company has received a total of $381.8
million in capital contributions from John Hancock, of which $377.5 million is
credited to paid-in capital and $2.5 million is credited to capital stock as of
June 30, 1996. In 1993, $1.8 million of capital was returned to John Hancock.
To support the Company's operations, for the indefinite future, John Hancock is
committed to make additional capital contributions if necessary to ensure that
the Company maintains a positive net worth. The Company's stockholder's equity,
net of unassigned deficit, was $265.2 million at June 30, 1996 and $248.7
million at December 31, 1995.
11
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Sheet
(b) Reports on Form 8-K
None
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.
John Hancock Variable
Life Insurance Company
----------------------
(Registrant)
Date: 8-21-96 /s/ Henry D. Shaw
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Vice Chairman and President
Date: 8-22-96 /s/ Patrick F. Smith
------- --------------------
Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL POSITION STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1,000
<DEBT-HELD-FOR-SALE> 707,211,837
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,542,524
<MORTGAGE> 149,028,061
<REAL-ESTATE> 43,437,916
<TOTAL-INVEST> 906,220,338
<CASH> 12,468,852
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 3,930,019,730
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 791,267,985
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
5,030,000
<COMMON> 1,515,524
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,930,019,730
485,442,512
<INVESTMENT-INCOME> 35,891,372
<INVESTMENT-GAINS> (990,139)
<OTHER-INCOME> 73,921,562
<BENEFITS> 555,050,826
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 31,081,080
<INCOME-TAX> 16,620,715
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,460,365
<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>
