<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
For the Quarter Ended March 31, 1999 Commission File No. 33-62895
-------------------------------------------------------------------------
John Hancock Variable Life Insurance Company
--------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2664016
------------- ----------
(State or other jurisdiction (I.R.S. Employer incorporation
of organization) or 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
-------------
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.
<TABLE>
<CAPTION>
<S> <C>
Class Shares Outstanding at March 31, 1999
- ----- ------------------------------------
common stock, $50 par value 50,000
</TABLE>
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
--------------------------------------------
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Page
Item 1. Unaudited Financial Statements
Statements of Financial Position as of March 31,
1999 and December 31, 1998. . . . . . . . . . 1
Statements of Operations and Unassigned Deficit
for the Three Months Ended March 31, 1999 and 1998 2
Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998. . . . . . . . . 3
Statements of Stockholder's Equity for the
Three Months Ended March 31, 1999 and 1998. . 4
Condensed Notes to Financial Statements. . . . 5
Item 2. Management's Discussion and Analysis. . . 5
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . 11
</TABLE>
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
1999 1998
--------- --------------
(In millions)
<S> <C> <C>
ASSETS
Bonds . . . . . . . . . . . . . . . . . . . . . $1,226.7 $1,185.8
Preferred stocks . . . . . . . . . . . . . . . 35.2 36.5
Common stocks . . . . . . . . . . . . . . . . . 3.2 3.1
Investment in affiliates . . . . . . . . . . . 81.6 81.7
Mortgage loans on real estate . . . . . . . . . 406.3 388.1
Real estate . . . . . . . . . . . . . . . . . . 29.9 41.0
Policy loans . . . . . . . . . . . . . . . . . 147.5 137.7
Cash items:
Cash in banks . . . . . . . . . . . . . . . . 0.7 11.4
Temporary cash investments . . . . . . . . . 0.3 8.5
-------------------------
1.0 19.9
Premiums due and deferred . . . . . . . . . . . 30.8 32.7
Investment income due and accrued . . . . . . . 33.1 29.8
Other general account assets . . . . . . . . . 12.3 47.5
Assets held in separate accounts . . . . . . . 6,877.6 6,595.2
-------- --------
TOTAL ASSETS . . . . . . . . $8,885.2 $8,599.0
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . $1,718.3 $1,652.0
Federal income and other taxes payable . . . . . 21.7 44.3
Other general account obligations . . . . . . . . 124.4 150.9
Transfers from separate accounts, net . . . . . . (200.5) (190.3)
Asset valuation reserve . . . . . . . . . . . . . 20.8 21.9
Obligations related to separate accounts . . . . 6,871.7 6,589.4
-------- --------
TOTAL OBLIGATIONS . . . . . . 8,556.4 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . 377.5 377.5
Unassigned deficit . . . . . . . . . . . . . . . (51.2) (49.2)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . 328.8 330.8
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY. $8,885.2 $8,599.0
======== ========
</TABLE>
See condensed notes to the financial statements (unaudited).
1
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31
--------------------
1999 1998
--------- -----------
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . . . $ 223.6 $ 345.1
Net investment income. . . . . . . . . . . . . . . . 32.5 29.7
Other, net . . . . . . . . . . . . . . . . . . . . . 145.3 125.3
------- -------
401.4 500.1
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . . . 80.3 71.8
Additions to reserves to provide for future payments
to policyholders and beneficiaries . . . . . . . . 238.2 335.5
Expenses of providing service to policyholders and
obtaining new insurance. . . . . . . . . . . . . . 75.7 68.0
State and miscellaneous taxes . . . . . . . . . . . 2.8 8.2
------- -------
397.0 483.5
------- -------
GAIN FROM OPERATIONS BEFORE
FEDERAL INCOME TAXES AND NET
REALIZED CAPITAL LOSSES . . . 4.4 16.6
Federal income taxes . . . . . . . . . . . . . . . . . 1.0 7.8
------- -------
GAIN FROM OPERATIONS BEFORE NET
REALIZED CAPITAL GAINS (LOSSES). 3.4 8.8
Net realized capital gains (losses). . . . . . . . . . (1.5) (0.5)
------- -------
NET INCOME. . 1.9 8.3
Unassigned deficit at beginning of year . . . . . . . (49.2) (58.3)
Net unrealized capital (losses) gains and other
adjustments . . . . . . . . . . . . . . . . . . . . . 0.3 2.8
Other reserves and adjustments . . . . . . . . . . . . (4.2) (0.9)
------- -------
UNASSIGNED DEFICIT AT END OF YEAR . . $(51.2) $(48.1)
======= =======
</TABLE>
See condensed notes to the financial statements (unaudited).
2
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended March 31
------------------------------
1999 1998
-------------- ----------------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . $ 225.3 $ 465.2
Net investment income . . . . . . . . . . 29.9 26.2
Benefits to policyholders and beneficiaries (70.8) (75.0)
Dividends paid to policyholders . . . . . (6.1) (5.1)
Insurance expenses and taxes . . . . . . . (107.8) (91.9)
Net transfers to separate accounts . . . . (182.0) (192.5)
Other, net . . . . . . . . . . . . . . . . 175.7 19.9
------- -------
NET CASH PROVIDED FROM OPERATIONS . . . 64.2 146.8
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . (71.3) (120.6)
Bond sales . . . . . . . . . . . . . . . . 8.7 31.2
Bond maturities and scheduled redemptions 18.8 50.8
Bond prepayments . . . . . . . . . . . . . 3.2 0.0
Stock purchases . . . . . . . . . . . . . (0.2) (5.5)
Proceeds from stock sales . . . . . . . . 1.5 1.4
Real estate purchases . . . . . . . . . . (0.9) (0.2)
Real estate sales . . . . . . . . . . . . 10.4 (0.1)
Other invested assets purchases . . . . . 0.0 0.0
Proceeds from the sale of other invested
assets . . . . . . . . . . . . . . . . . 0.0 0.0
Mortgage loans issued . . . . . . . . . . (23.4) (20.2)
Mortgage loan repayments . . . . . . . . . 5.2 13.4
Other, net . . . . . . . . . . . . . . . . (2.8) (222.3)
------- -------
NET CASH USED IN INVESTING ACTIVITIES . (50.8) (272.1)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term note payable . (32.3) 0.0
------- -------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES . . . . . . . . . . . . . . (32.3) 0.0
------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS . . . . . . . . . (18.9) (125.3)
Cash and temporary cash investments at
beginning of year . . . . . . . . . . . . . 19.9 143.2
------- -------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR . . . . . . $ 1.0 $ 17.9
======= =======
</TABLE>
See condensed notes to the financial statements (unaudited).
3
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Paid-In Capital Unassigned Deficit Total
-----------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
For the three months ended March 31, 1998
(unaudited)
Balance at January 1, 1998 $2.5 $377.5 $(58.3) $321.7
1998 Transactions:
Net gain 8.3 8.3
Net unrealized capital gains and other
adjustments 2.8 2.8
Other reserves and adjustments (0.9) (0.9)
-----------------------------------------------------------
Balance at March 31, 1998 $2.5 $377.5 $(48.1) $331.9
===========================================================
For the three months ended March 31, 1999
(unaudited)
Balance at January 1, 1999 $2.5 $377.5 $(49.2) $330.8
1999 Transactions:
Net gain 1.9 1.9
Net unrealized capital gains and other
adjustments 0.3 0.3
Other reserves and adjustments (4.2) (4.2)
----------------------------------------------------------
Balance at March 31, 1999 $2.5 $377.5 $(51.2) $328.8
==========================================================
</TABLE>
See condensed notes to the financial statements (unaudited).
4
<PAGE>
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 practices differ from
generally accepted accounting principles (GAAP). Pursuant to Financial
Accounting Standard Board Interpretation 40, "Applicability of General Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises" (FIN 40),
as amended which was effective for 1996 financial statements, financial
statements based on statutory accounting practices can no longer be described as
prepared in conformity with GAAP.
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 months period ended March 31,1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
ITEM 2. Management's Discussion and Analysis
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
During the past three months, JHVLICO's total assets grew primarily
due to the growth in the total assets of the JHVLICO's separate accounts.
Likewise, its total obligations grew. Total shareholder equity slightly
decreased during this period. The following chart shows a percentage growth
in both total assets and obligations, and a percentage decrease in total
shareholder equity for the three-month period ending March 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 % change
---------- ----------
(In millions)
<S> <C> <C> <C>
Total assets - JHVLICO $8,885.2 $8,599.0 3.3%
Total assets - JHVLICO separate accounts $6,877.6 $6,595.2 4.3%
Total obligations - JHVLICO $8,556.4 $8,268.2 3.5%
Total obligations - JHVLICO separate accounts $6,871.7 $6,589.4 4.3%
Total shareholder equity $328.8 $330.8 (0.6%)
</TABLE>
Separate account assets and liabilities consist primarily of the fund balances
associated with JHVLICO's variable life and annuity business. The asset
holdings include fixed income, equity growth, total return real estate, global,
and international mutual funds with liabilities representing amounts due to
policyholders.
INVESTMENTS
JHVLICO's bond portfolio remains highly diversified. It maintains the diversity
of its bond portfolio by
* investing in a wide variety of geographic regions and industry groups, and
* limiting the size of individual investment relative to the total portfolio.
JHVLICO invests new money predominantly in long-term investment grade
corporate bonds. As a result, 87.1% of JHVLICO's general account bonds were
investment grade bonds, and 10.0% were medium grade bonds as of March 31, 1999.
The corresponding percentages as of December 31, 1998, were 86.1% and 10.8%,
respectively. For medium grade bonds, JHVLICO invests mostly in private
placements that provide long-term financing for medium size companies. These
bonds typically are protected by individually negotiated financial covenants
5
<PAGE>
and/or collateral. As of March 31, 1999, the remaining 2.9% of JHVLICO's total
general account bonds consisted of lower grade bonds and bonds in default. Bonds
in default represent 0.5% of JHVLICO's general account bonds.
Management believes JHVLICO's commercial mortgage lending practices
continue to be strong. JHVLICO generally makes mortgage loans against
properties with proven track records and highoccupancy levels. Typically,
JHVLICO does not make construction or condominium loans nor lend more than
75% of the property's value at the time of the loan. JHVLICO uses a computer
based mortgage risk analysis system in managing the credit risk related to
its mortgage loans.
JHVLICO has outstanding commitments to purchase long-term bonds and
issue real estate mortgages totaling $19.0 million and $12.8 million,
respectively, at March 31, 1999. The corresponding amounts at December
31, 1998 were $5.9 million and $24.8 million, respectively. JHVLICO monitors
the creditworthiness of borrowers under long-term bond commitments and requires
collateral as deemed necessary. If funded, loans related to real estate
mortgages would be fully collateralized by the related properties. Most of the
commitments at March 31, 1999 expire in 1999.
RESERVES AND OBLIGATIONS
JHVLICO's obligations consist primarily of aggregate reserves for life
and annuity policies and contracts. As of March 31, 1999, JHVLICO's general
account reserves totaled $1,718.3 million and its separate account obligations
totaled $6,871.7 million. As of December 31, 1998, the corresponding amounts
were $1,652.0 million and $6,589.4 million, respectively. JHVLICO computes
these liabilities in accordance with commonly accepted actuarial standards.
Its actuarial assumptions are in accordance with, or more conservative than,
those called for in state regulations. All reserves meet the requirements of
Massachusetts insurance laws.
Every year, JHVLICO performs reserve adequacy testing, usually during the
fourth quarter. Intensive asset adequacy testing was performed in 1998 for the
vast majority of reserves. During 1999 and 1998, JHVLICO made no refinements
to reserves.
JHVLICO's investment reserves include the asset valuation reserve ("AVR"),
and interest maintenance reserve ("IMR") required by the NAIC and state
insurance regulatory authorities. The AVR stabilizes 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 interest rate changes.
Each year, the amount of an insurer's AVR will fluctuate as the non-
interest related capital gains and/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 AVR reserve objective (as
determined annually according to the type and quality of an insurer's assets)
and the actual AVR.
JHVLICO includes the AVR in its obligations. Its AVR was $20.8 million at
March 31, 1999, and $21.9 million as of December 31, 1998. During 1998, JHVLICO
made a voluntary contribution of $0.7 million to the AVR. Such contributions
may result in a slower rate of growth of, or a reduction to, shareholder equity.
During 1999 there have been no voluntary contributions to the AVR. Changes in
the AVR are accounted for as direct increases or decreases
6
<PAGE>
in shareholder equity. The impact of the AVR on JHVLICO's shareholder equity
position will depend, in part, on JHVLICO's investment portfolio.
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. JHVLICO does not reflect these amounts in its
shareholder equity account but amortizes them into net investment income over
the estimated remaining lives of the investments disposed. At March 31, 1999
and December 31, 1998, JHVLICO's IMR balance was $10.0 million and $10.7
million, respectively. The impact of the IMR on JHVLICO's shareholder equity
depends upon the amount of future interest related capital gains and losses on
fixed income investments.
RESULTS OF OPERATIONS
For the quarter ending March 31, 1999, net gain from operations, before net
realized capital gains/losses, totaled $3.4 million, $5.4 million lower than the
same period during 1998. The reduction in operating earnings is mainly due to
the strain from increased sales of variable annuities during the current period.
An increase in expenses of providing service to policyholders further dampened
the gain.
For the quarter ending March 31, 1999, total revenues decreased by 19.7%
(or $98.7 million) to $401.4 million as compared to the same period in 1998.
For the quarter ending March 31, 1999, premium, net of premium ceded to
reinsurers, decreased by 35.2% (or $121.5 million) to $223.6 million as compared
to the same period during 1998. This decrease in premium is primarily due
to large ($130.0 million) single premium corporate owned life insurance sales
occurring during the quarter ending March 31, 1998, which have not recurred
during the quarter ending March 31, 1999. For the quarter ending March 31, 1999
net investment income increased by 9.4% (or $2.8 million) to $32.5 million as
compared to the same period during 1998. This increase is primarily due to a
9.4% (or $2.1 million) increase in gross income on long-term bonds, and a 34.4%
(or $1.9 million) increase in gross income on commercial and agricultural
mortgages as compared to the same period during 1998. The increases can both be
attributed to an increased asset base. Other income increased by $20.0 million
compared to the same period during 1998. This increase was primarily
attributable to the increase in commission and expense allowances, and reserve
adjustments on reinsurance ceded.
For the quarter ending March 31, 1999, total benefits and expenses
decreased by 17.9% (or $86.5 million) to $397.0 million as compared the same
period during 1998. For the quarter ending March 31, 1999, benefit payments
and additions to reserves decreased by 21.8% (or $88.8 million) to $318.5
million as compared to same period during 1998. This decrease is primarily the
result of a $128.4 million decrease in reserves associated with the termination
of a large corporate owned life insurance case. For the quarter ending March 31,
1999, insurance expenses increased by 11.3% (or $7.7 million) to $75.7 million
as compared to the same period during 1998. This consists of a $1.4 million
decrease in commission expenses resulting from lower sales, and a $9.1 million
increase in the expenses of providing services to policyholders.
LIQUIDITY AND CAPITAL RESOURCES
JHVLICO's liquidity resources for the period ending March 31, 1999 and December
7
<PAGE>
31, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
Type of investment 1999 1998
---------- ---------------
(In millions)
<S> <C> <C>
Cash and short-term investments . . . . . . $1.0 $19.9
Public bond . . . . . . . . . . . . . . . 604.3 461.9
Investment-grade private placement bonds . 549.2 619.9
</TABLE>
In addition, JHVLICO's separate accounts are highly liquid and available to meet
most outflow needs for variable life insurance.
JHVLICO's management believes the liquidity resources above of $1,154.5
million as of March 31, 1999, strongly position JHVLICO to meet all its
obligations to policyholders and others. Funds provided by normal operations
generally satisfy JHVLICO's financing needs. As of March 31, 1999, JHVLICO has
$29.6 million note payable to an affiliate. The interest is paid on a variable
rate, and the principal is expected to be repaid by the end of the second
quarter of 1999. As of December 31, 1998, JHVLICO had $61.9 in outstanding
borrowings from an affiliate.
Total surplus, also know as stockholder's equity, plus the AVR, amounted to
$349.6 million as of March 31, 1999, and $352.7 million as of December 31, 1998.
The current statutory accounting treatment of taxes for deferred acquisition
costs ("DAC taxes") currently results in a reduction to JHVLICO's surplus. This
reduction will persist during periods of growth in new business. DAC taxes
result from federal income tax law that approximates acquisition expenses, and
then spreads the corresponding tax deduction over a period of years. As a
result, the DAC tax is collected immediately and subsequently returned to
through tax deductions in later years.
Since it began operations, JHVLICO 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 was credited to capital stock as of March
31, 1999. In 1993, JHVLICO returned $1.8 million of capital to John Hancock.
To support JHVLICO's operations, for the indefinite future, John Hancock will
continue to make capital contributions, if necessary, to ensure that JHVLICO
maintains a shareholder's equity of at least $1.0 million. JHVLICO's
stockholder's equity, net of unassigned deficit, amounted to $328.8 million at
March 31, 1999, and $330.8 million at December 31, 1998.
In December, 1992, the NAIC approved risk-based capital ("RBC") standards
for life insurance companies. It also approved a model act (the "RBC Model
Act") to apply such standards at the state level. The RBC Model Act requires
life insurers to submit an annual RBC report comparing the company's total
adjusted capital (statutory surplus plus AVR, voluntary investment reserves, and
one-half the apportioned dividend liability) with its risk-based capital as
calculated by an RBC formula. The formula takes into account the risk
characteristics of the company's investments and products. Insurance regulators
use the formula as an early warning tool to identify possible weakly capitalized
companies for purposes of initiating further regulatory action, not as a means
to rank insurers. As of March 31, 1999, JHVLICO's total adjusted capital as
defined by the NAIC was well in excess of the RBC standards.
YEAR 2000 IMPACT
JHVLICO relies on John Hancock Mutual Life Insurance Company (John
Hancock), its parent company, for information processing services. John Hancock
8
<PAGE>
is executing its plan to address the impact of the Year 2000 issues that result
from computer programs being written using two digits to reflect the year rather
than four to define the applicable year and century. Historically, the first
two digits were hard-coded to save memory. Many of John Hancock's computer
programs that have date-sensitive software, including those relied upon by
JHVLICO, may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in an information technology (IT) system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. In addition, non-IT systems including,
but not limited to, security alarms, elevators and telephones are subject to
malfunction due to their dependence on embedded technology such as
micro-controllers for proper operation. As described, the Year 2000 project
presents a number of challenges for financial institutions since the correction
of Year 2000 issues in IT and non-IT systems will be complex and costly for the
entire industry.
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as
of April 1998, included the identification, inventory, analysis, and
prioritization of IT and non-IT systems and processes to determine their
conversion or replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components, the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated
systems. The validation phase is expected to be complete by mid 1999, after
renovation is accomplished. Testing facilities will be used through the
remainder of 1999 to perform special functional testing. Special functional
testing includes testing, as required, with material third parties and industry
groups and performing reviews of "dry runs" of year-end activities. Scheduled
testing of material relationships with third parties, including those impacting
JHVLICO, is underway. It is anticipated that testing with material business
partners will continue through much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. Implementation is being performed concurrently during
the renovation phase and is expected to be completed before the end of the
second quarter of 1999.
9
<PAGE>
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through March 31, 1999, John Hancock has incurred and
expensed approximately $12.8 million in related payroll costs for its internal
IT personnel on the project. The estimated range of remaining internal IT
personnel costs of the project is approximately $5 to $6 million. Through March
31, 1999, John Hancock has incurred and expensed approximately $42.0 million in
external costs for the project. The estimated range of remaining external costs
of the project is approximately $29.5 to $30.5 million. The total costs of the
Year 2000 project to John Hancock, based on management's best estimates, include
approximately $18.8 million in internal IT personnel, $7.4 million in the
external modification of software, $33.8 million for external solution
providers, $19.1 million in replacement costs of non-compliant IT systems and
$12.2 million in oversight, test facilities and other expenses. Accordingly,
the estimated range of total costs of the Year 2000 project to John Hancock,
internal and external, is approximately $90 to $95 million. However, there can
be no guarantee that these estimates will be achieved and actual results could
materially differ from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
John Hancock's total Year 2000 project costs include the estimated impact
of external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, including those upon which JHVLICO relies, would not have material
adverse effect on John Hancock or JHVLICO. It is documented in trade
publications that companies in foreign countries are not acting as intensively
as domestic companies to remediate Year 2000 issues. Accordingly, it is
expected that Company facilities based outside the United States face higher
degrees of risks from data exchanges with material business partners. In
addition, JHVLICO has numerous customers that hold its products. Nearly all
products sold by JHVLICO contain date sensitive data, examples of which are
policy expiration dates, birth dates and premium payment dates. Finally, the
regulated nature of JHVLICO's industry exposes it to potential supervisory or
enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock and JHVLICO depend.
John Hancock's contingency plans are being designed to keep each subsidiary's
operations functioning in the event of a failure or delay due to the Year 2000
record format and date calculation changes. Contingency plans are being
constructed based on the foundation of extensive business resumption plans that
John Hancock has maintained and updated periodically, which outline responses to
situations that may affect critical business functions. These plans also
provide emergency operations guidance, which defines a documented order of
actions to respond to problems. These extensive business resumption plans are
being enhanced to cover Year 2000 situations.
10
<PAGE>
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: May 14, 1999 /s/ Thomas J. Lee
-----------------
Thomas J. Lee
Vice President
Date: May 14, 1999 /s/ Patrick F. Smith
--------------------
Patrick F. Smith
Controller
11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF FINANCIAL POSITION AND THE STATEMENTS OF OPERATIONS AND UNASSIGNED
DEFICIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,226,663,496
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 120,024,398
<MORTGAGE> 406,303,158
<REAL-ESTATE> 29,880,717
<TOTAL-INVEST> 1,782,871,769
<CASH> 980,483
<RECOVER-REINSURE> 554,731
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 8,885,205,150
<POLICY-LOSSES> 1,732,240,759
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 27,665,161
<NOTES-PAYABLE> 29,568,673
0
0
<COMMON> 2,500,000
<OTHER-SE> 326,286,278
<TOTAL-LIABILITY-AND-EQUITY> 8,885,205,150
223,578,805
<INVESTMENT-INCOME> 32,457,884
<INVESTMENT-GAINS> (1,513,047)
<OTHER-INCOME> 145,369,614
<BENEFITS> 318,561,339
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 2,874,758
<INCOME-TAX> 995,582
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,879,176
<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>
