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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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Securities and Exchange Commission File No. 812-06037
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-2265014
(I.R.S. Employer Identification No.)
500 Boylston Street
Boston, Massachusetts 02116
(Address of principal executive offices)
(617) 663-3200
(Registrant's telephone number, including area code)
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Indicated by check mark whether the registrant (1) has filed 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.
__X__ Yes _____ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's sole class of common stock, as
of September 30, 1999 was 2,600.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
Quarterly Report on Form 10-Q
For the period ended September 30, 1999
Table of Contents
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Page
Part I Financial Information 3
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as at September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the nine months ended September 30, 1999 and 1998 4
Consolidated Statement of Changes in Shareholder's Equity as of September 30, 1999 5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9
Part II Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of matters to a vote of Security Holders 15
Item 5 Other Information 15
Item 6A Exhibits 15
Item 6B Reports on Form 8-K 18
</TABLE>
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
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AS AT AS AT
SEPTEMBER 30 DECEMBER 31
ASSETS ($ thousands) 1999 1998
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(UNAUDITED)
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INVESTMENTS
Fixed maturities available-for-sale, at fair value
(amortized cost: 1999 $157,436; 1998 $152,969) $ 155,492 $ 157,743
Short-term investments 29,568 34,074
Policy loans 5,758 5,175
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TOTAL INVESTMENTS $ 190,818 $ 196,992
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Cash and cash equivalents $ 27,312 $ 10,320
Accrued investment income 8,528 3,132
Deferred acquisition costs 572,979 449,332
Receivable for undelivered securities 175 -
Other assets 10,230 6,360
Due from reinsurers 771,096 641,858
Separate account assets 13,680,240 12,188,420
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TOTAL ASSETS $ 15,261,378 $ 13,496,414
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LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
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LIABILITIES:
Policyholder funds $ 130,101 $ 102,252
Payable to affiliates 27,680 4,644
Notes payable to affiliates 282,400 241,419
Deferred income taxes 37,569 23,777
Payable for securities 11,407 -
Other liabilities 24,724 25,980
Due to reinsurers 779,494 655,892
Separate account liabilities 13,680,240 12,188,420
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TOTAL LIABILITIES $ 14,973,615 $ 13,242,384
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SHAREHOLDER'S EQUITY:
Common stock (par value $1,000 per share - authorized,
3,000 shares; issued and outstanding, 2,600 shares) $ 2,600 $ 2,600
Additional paid-in capital 179,053 179,053
Retained earnings 106,985 70,293
Accumulated other comprehensive income (loss) (875) 2,084
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Total shareholder's equity $ 287,763 $ 254,030
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 15,261,378 $ 13,496,414
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</TABLE>
See accompanying notes.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
($ thousands) 1999 1998 1999 1998
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REVENUES:
Fees from separate accounts and policyholder funds $ 56,454 $ 42,666 $ 158,049 $ 123,556
Advisory fees and other distribution revenues 31,874 23,689 88,317 69,752
Premiums 4 - 27 -
Net investment income 3,226 3,124 9,423 9,044
Net realized investment gains (losses) (198) 306 (164) 509
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TOTAL REVENUE $ 91,360 $ 69,785 $ 255,652 $ 202,861
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BENEFITS AND EXPENSES:
Benefits to policyholders $ 1,927 $ 1,365 $ 4,645 $ 3,983
Amortization of deferred acquisition costs 20,071 28,749 44,703 49,597
Other insurance expenses 48,427 34,082 138,513 100,226
Financing costs 3,837 1,727 10,949 8,158
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TOTAL BENEFITS AND EXPENSES $ 74,262 $ 65,923 $ 198,810 $ 161,964
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INCOME BEFORE INCOME TAXES $ 17,098 $ 3,862 $ 56,842 $ 40,897
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INCOME TAX EXPENSE $ 6,033 $ 1,504 $ 20,150 $ 14,446
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NET INCOME $ 11,065 $ 2,358 $ 36,692 $ 26,451
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</TABLE>
See accompanying notes
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
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ACCUMULATED
OTHER TOTAL
COMMON ADDITIONAL RETAINED COMPREHENSIVE SHAREHOLDER'S
($thousands) STOCK PAID-IN CAPITAL EARNINGS INCOME (LOSS) EQUITY
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Balance at January 1, 1999 $2,600 $179,053 $ 70,293 $ 2,084 $ 254,030
Comprehensive income (note 3) - - 36,692 (2,959) 33,733
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BALANCE, SEPTEMBER 30, 1999 $2,600 $179,053 $106,985 $ (875) $ 287,763
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</TABLE>
See accompanying notes
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30
($ thousands) 1999 1998
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OPERATING ACTIVITIES:
Net income $ 36,692 $ 26,451
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Amortization of bond discount and premium 586 490
Benefits to policyholders 4,645 3,983
Provision for deferred income tax 15,386 6,285
Net realized investment losses (gains) 164 (509)
Amortization of deferred acquisition costs 44,703 49,597
Acquisition costs deferred (166,185) (104,491)
Changes in assets and liabilities:
Accrued investment income (5,396) (188)
Other assets (3,870) 2,353
Receivable from affiliates - 4,605
Payable to affiliates 23,036 10,345
Other liabilities (1,256) 8,330
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Net cash (used in) provided by operating activities $ (51,495) $ 7,251
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INVESTING ACTIVITIES:
Purchase of fixed maturity securities $ (88,588) $ (37,722)
Proceeds from fixed maturity securities sold, matured or repaid 83,371 29,396
Net change in short-term investments 4,506 (43,511)
Net change in policy loans (583) (1,680)
Net change in receivable for undelivered securities (175) -
Net change in payable for securities 11,407 -
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Net cash used in investing activities $ 9,938 $ (53,517)
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FINANCING ACTIVITIES:
Net reinsurance (consideration) proceeds $ (5,636) $ (14,668)
Receipts credited to policyholder funds 35,341 8,793
Return of policyholder funds (12,137) (9,522)
Increase in notes payable to affiliates 40,981 57,045
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Net cash provided by financing activities $ 58,549 $ 41,648
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Increase (decrease) in cash and cash equivalents during the period $ 16,692 $ (4,618)
Cash and cash equivalents at beginning of year 10,320 7,339
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BALANCE, END OF PERIOD $ 27,312 $ 2,721
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</TABLE>
See accompanying notes.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company and its wholly-owned subsidiaries have been prepared in
accordance with generally accepted accounting principles ("GAAP"),
except that they do not contain complete notes. However, in the opinion
of management, these statements include all normal recurring
adjustments necessary for a fair presentation of the results. These
financial statements should be read in conjunction with the financial
statements and the related notes included in the Company's annual
report on Form 10-K for the year ended December 31, 1998. Operating
results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1999.
Certain 1998 balances have been reclassified to permit comparisons with
the 1999 presentations.
2. RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities.
Contracts that contain embedded derivatives, such as certain insurance
contracts, are also addressed by the Statement. FAS 133 requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. In July 1999 the FASB issued Statement 137 which delayed
the effective date of FAS 133 to fiscal years beginning after June 15,
2000. The Company is evaluating FAS No. 133 and has not determined its
impact on results of operations and financial condition.
3. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
COMPREHENSIVE INCOME:
($ thousands) 1999 1998 1999 1998
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NET INCOME $ 11,065 $ 2,358 $ 36,692 $ 26,451
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) arising
during the year (581) 1,344 (3,066) 1,853
Less:
Reclassification adjustment for realized
(gains) losses included in net income 129 (199) 107 (331)
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Other comprehensive income (loss) (452) 1,145 (2,959) 1,522
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COMPREHENSIVE INCOME $ 10,613 $ 3,503 $ 33,733 $ 27,973
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</TABLE>
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3. COMPREHENSIVE INCOME (CONTINUED)
Other comprehensive income is reported net of taxes recoverable
(payable) of $243 and ($617) for the three months and $1,594 and $(820)
for the nine months ended September 30, 1999 and 1998, respectively.
4. SEGMENT DISCLOSURES
The Company reports three business segments: Annuities, Pensions, and
Life Insurance. The Annuities segment consists of annuity contracts
that provide the customer with the opportunity to invest in mutual
funds managed by independent investment managers and the Company or in
the general account of the Company, with investment returns
accumulating on a tax-deferred basis. The Pensions segment offers
401(k) products to customers in the State of New York. The Individual
Life Insurance segment offers traditional non-participating life
insurance to the New York State market. No significant assets or
revenues have been generated to date in these two segments. The
following is a summary of the contribution to net income of the three
business segments:
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
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Annuities $ 11,698 $ 3,139 $ 38,094 $ 27,623
Pensions (382) (115) (1,125) (198)
Life Insurance (251) (666) (277) (974)
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NET INCOME (LOSS) $ 11,065 $ 2,358 $ 36,692 $ 26,451
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</TABLE>
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Item 2. Management's Discussion And Analysis of Results of Operations And
Financial Condition
OVERVIEW
The following analysis of the consolidated results of operations and financial
condition of The Manufacturers Life Insurance Company of North America
(hereinafter referred to as "MNA" or the "Company") should be read in
conjunction with the Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements.
CORPORATE STRUCTURE AND OVERVIEW
The Company is a wholly-owned subsidiary of Manulife-Wood Logan Holding Co.,
Inc. ("MWL"). MWL is 78.4% owned by The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA") and 21.6% owned by MRL Holding, LLC ("MRL"). ManUSA and MRL
are indirectly wholly-owned subsidiaries of The Manufacturers Life Insurance
Company, which in turn is a wholly-owned subsidiary of Manulife Financial
Corporation. Manulife Financial Corporation and its subsidiaries are known
collectively as "Manulife Financial".
Manulife Financial is a leading provider of financial protection products and
investment management services to individuals, families, businesses and groups
in selected international markets. Manulife Financial operates in 16 countries
and territories worldwide, with more than 27,000 employees and agents. Funds
under management by Manulife Financial were $96.7 billion (Cdn) as of December
31, 1998 with a consolidated surplus position of $6.0 billion (Cdn).
MNA is licensed to sell fixed and variable annuities, traditional life and
variable life insurance, and accident and health insurance in all states except
New Hampshire and New York. MNA has two subsidiaries, The Manufacturers Life
Insurance Company of New York ("MNY") and Manufacturers Securities Services, LLC
("MSS"). MNY is an insurance subsidiary licensed to sell fixed and variable
annuities, traditional life insurance, and accident and health insurance in the
State of New York only. MSS, a majority-owned broker dealer, acts as investment
advisor to the Manufacturers Investment Trust ("MIT"), a no-load, open-end
management investment company organized as a Massachusetts business trust and is
the principal underwriter of the Company's variable annuity and life insurance
contracts and is the exclusive distributor of its insurance products in the
State of New York. MSS is the successor to NASL Financial Services, Inc. ("NASL
Financial"), a broker dealer that conducted operations until September 30, 1997,
when it was reorganized into MSS. Prior to October 1, 1997, NASL Financial also
acted as investment advisor to North American Funds (NAF), a no-load, open-end
management investment company organized as a Massachusetts business trust.
The Company, along with The Manufacturers Life Insurance Company, enjoys strong
financial ratings that enhance its ability to attract new sales and retain
assets. Distributors and consumers of variable and fixed annuity products have
begun to utilize the relative financial strength ratings as a criteria in
choosing an annuity carrier. The Company has received financial strength ratings
of A++ (Superior) by A.M. Best, AA+ (Very Strong) by Standards and Poor's and
Aa2 (Excellent) by Moody's Investor Services. The Company is rated AAA (Highest)
by Duff & Phelps in terms of its ability to meet contractual obligations to
policyholders.
Prior to 1998, the Company reported two segments, Annuities and Mutual Funds.
The Mutual Fund segment consisted solely of NAF, a group of thirteen mutual
funds. During 1997, the Company disposed of its Mutual Fund segment to an
unrelated party. In 1998 and 1997, pursuant to a revised plan of operations for
MNY, the Company entered the Pensions and the Life Insurance businesses in the
State of New York. The Company now reports three segments: Annuities, Pensions,
and Life Insurance. Two of the Company's segments, Pensions and Life Insurance,
are in the development stage and the assets,
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revenues and operations of those segments are not material to the Company's
September 30, 1999 financial position or results of operations. The remainder of
this discussion will be limited to the Annuities segment except as noted.
The Company's primary source of earnings from the Annuities segment are fees
assessed against policyholder account balances held in the Company's separate
accounts including: mortality and expense risk charges, surrender charges, and
an annual administrative charge. In addition, the segment earns a spread between
the advisory fees charged to manage the separate account assets invested in MIT
and the subadvisory fees paid to external managers of those assets. A key factor
in the Company's profitability is sustained growth in the underlying assets
through market performance coupled with the ability to acquire and retain
variable annuity and life deposits.
FORWARD-LOOKING STATEMENTS
Certain information included herein is forward-looking within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not limited to,
statements concerning anticipated operating results, financial resources, growth
in existing markets and the impact of the year 2000. Such forward-looking
information involves important risks and uncertainties that could significantly
affect actual results and cause them to differ materially from expectations
expressed herein. These risks and uncertainties include changes in general
economic conditions, the effect of regulatory, tax and competitive changes in
the environment in which the Company operates, fluctuations in interest rates,
performance of financial markets and the Company's ability to achieve
anticipated levels of earnings.
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REVIEW OF CONSOLIDATED OPERATING RESULTS AND CONSOLIDATED FINANCIAL CONDITION
REVIEW OF CONSOLIDATED OPERATING RESULTS
The discussion that follows compares results for the three months ended
September 30, 1999 to the three months ended September 30, 1998.
The Company recorded net income of $11.1 million in 1999 versus net income
of $2.4 million in 1998, an increase of $8.7 million or 369%. Revenues grew by
31% to $91.4 million as a result of growth in fee income earned on additional
separate account assets, increasing advisory profits associated with additional
assets in MIT, and investment income from higher general account assets.
Separate account assets at September 30, 1999 compared to September 30, 1998
were higher by $3.3 billion or 32%. The asset growth is attributed to an
increase in variable annuity sales, strong equity market performance, and
favorable contract persistency. Total sales during the third quarter of 1999
were $941 million, an increase of 41% over the same quarter in 1998. Total fees,
including advisory fees, generated by separate accounts and policyholder funds
increased by $22.0 million or 33% in 1999.
The Company incurred total benefits and expenses in 1999 of $74.3 million, an
increase of $8.3 million, or 13% compared to 1998. The additional expenses
reflect an increase in non-capitalized acquisition expenses, increasing
sub-advisory expenses associated with additional assets in MIT, and higher
financing costs which were offset by a decrease in Deferred Acquisition Costs
(DAC) amortization. The amortization of DAC was reduced by $8.7 million during
the third quarter of 1999 due primarily to improved investment performance of
the Company's Separate Account Assets compared to the third quarter of 1998. It
is this asset base against which fees are assessed. Higher projected fees due to
the quarter's results compared to that of 1998 resulted in a reduced DAC
amortization for the quarter. The Company paid an additional $4.2 million of
sub-advisory expenses during the third quarter of 1999. The Company's commission
financing loans increased by approximately $41.0 million over September 30, 1998
levels resulting in additional financing costs.
The discussion that follows compares results for the nine months ended September
30, 1999 to the nine months ended September 30, 1998.
The Company recorded net income of $36.7 million in 1999 versus net income of
$26.5 million in 1998, an increase of $10.2 million or 39%. Revenues grew by 26%
to $255.7 million as a result of growth in fee income earned on additional
separate account assets, increasing advisory profits associated with additional
assets in MIT, and investment income from higher general account assets.
Separate account assets at September 30, 1999 compared to September 30, 1998
were higher by $3.3 billion or 32%. The asset growth is attributed to an
increase in variable annuity sales, strong equity market performance, and
favorable contract persistency. Total sales during the first nine months of 1999
were $2.4 billion, an increase of 33% over the same period in 1998. Total fees,
including advisory fees, generated by separate accounts and policyholder funds
increased by $53 million or 27% in 1999.
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The Company incurred total benefits and expenses in 1999 of $198.8 million, an
increase of $36.8 million, or 23% compared to 1998. The additional expenses
reflect an increase in non-capitalized acquisition expenses, increasing
sub-advisory expenses associated with additional assets in MIT, and higher
financing costs. The amortization of DAC was reduced by $4.9 million during 1999
due primarily to improved investment performance of the Company's Separate
Account Assets compared to same period in 1998. It is this asset base against
which fees are assessed. Higher projected fees due to the quarter's results
compared to that of 1998 resulted in a reduced DAC amortization for the quarter.
The Company paid an additional $9.0 million of sub-advisory expenses during the
first nine months of 1999. The Company's commission financing loans increased by
approximately $41.0 million over September 30, 1998 levels resulting in
additional financing costs. Offsetting this increase in financing costs were the
effects of the Company's reinsurance treaties, which lowered the overall
financing costs for the period.
CONSOLIDATED FINANCIAL POSITION
September 30, 1999 compared to December 31, 1998
Total assets increased from $13.5 billion at December 31, 1998 to $15.3 billion
at September 30, 1999, an increase of $1.8 billion or 13%. Separate account
assets increased by 12% over the first nine months of 1999 and represent 90% of
total assets as the Company continues to focus on its variable option annuity
products. The Company continues to own only investment grade fixed maturity
investments to support its general account liabilities and shareholder's equity.
The Company's DAC asset grew by 28% as the Company experienced increased annuity
sales volumes during the first nine months of 1999. The Company deferred the
related costs, net of current amortization, associated with those sales.
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the Company's separate accounts. During the first nine
months of 1999, the Company borrowed an additional $41.0 million from The
Manufacturers Life Insurance Company to support its sales volumes and related
acquisition expenses.
The growth in retained earnings is primarily due to net income from operations
of $36.7 million. The Company's shareholder's equity decreased by $3.0 million
due to lower market values associated with invested assets at September 30,
1999.
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MARKET RISK
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The primary market risk exposure for the
Company is the impact of lower than expected equity market performance on its
asset-related fee revenue. The Company also has certain exposures to changes in
interest rates.
The Company earns asset based fees on the asset levels invested in the separate
accounts. As a result, the Company is subject to equity risk and the effect
changes in equity market levels will have on the amounts invested in the
separate accounts.
Interest rate risk is the risk that the Company will incur economic losses due
to adverse changes in interest rates. This risk arises from the issuance of
certain interest sensitive annuity products and the investing of those proceeds
in fixed rate investments. The Company manages its interest rate risk through an
asset/liability management program. The Company has established a target
portfolio mix which takes into account the risk attributes of the liabilities
supported by the assets, expectations of market performance, and a generally
conservative investment philosophy. Preservation of capital and maintenance of
income flows are key objectives of this program. In addition, the Company has
diversified its product portfolio offerings to include products that contain
features that will protect it against fluctuations in interest rates. Those
features include adjustable crediting rates, policy surrender charges, and
market value adjustments on liquidations.
Based on the Company's overall exposure to interest rate and equity price risks,
the Company believes that changes in market rates would not materially affect
the consolidated near-term financial position, results of operations or
cashflows of the Company as of September 30, 1999. Refer to the Company's Annual
Report on form 10-K for a more detailed discussion of market risks.
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by the Company's ultimate parent company, Manulife
Financial Corporation, on behalf of all of its subsidiaries, to ensure that the
computer systems and processes of all of the Manulife Financial companies,
including the Company's, will continue to perform through the end of this
century and in the next.
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In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
Project was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this Project include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification.
Management believes that the certification phase was completed for all the
Company's critical IT and Non-IT systems as of June 30, 1999. Management
believes that the Company's non-critical systems were Year 2000 compliant by the
end of the first quarter 1999.
In addition to efforts directed at the Company's own systems, Manulife Financial
consulted vendors, customers, borrowers and other third parties with which the
Company deals in an effort to ensure that no material aspect of the Company's
operations will be hindered by Year 2000 problems of these third parties. This
process included sending questionnaires to third parties regarding the state of
their Year 2000 readiness and, where possible or where appropriate, conducting
further due diligence activities. Where appropriate, risk management steps are
being followed as a result of the third-party assessment.
The Year 2000 Project Management Office for Manulife Financial's U.S. Division
has coordinated the preparation and completion of contingency plans on behalf of
U.S. Division affiliates and subsidiaries, including the Company, in the event
that Manulife Financial's Year 2000 Project has not fully resolved its Year 2000
issues.
Management believes that, due to the modifications made to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operational problems for the Company's computer systems. As part of the Year
2000 Project, critical systems were "time-shift" tested in the year 2000 and
beyond to confirm that they will continue to function properly before, during
and after the change to the year 2000. However, there can be no assurance that
Manulife Financial's Year 2000 Project, including consulting third parties and
its contingency planning, will avoid any material adverse effect on the
Company's operations, customer relations or financial condition.
Manulife Financial estimates the total cost of its Year 2000 Project will be
approximately $60.5 million,* of which $58.7 million* has been incurred through
September 30, 1999. In addition, previously unbudgeted costs associated with the
start up of a new joint venture in Japan in April 1999 are estimated to be $5.0
million,* of which approximately $3.2 million* was incurred through September
30, 1999. These previously unbudgeted costs will be shared by Manulife Financial
and its joint venture partner. There can be no assurance that the actual costs
incurred will not be materially higher than estimated. Manulife Financial's Year
2000 costs were $12.5 million* for the first nine months of 1999, including the
total joint venture costs, and $26.4 million* for the first nine months of 1998.
Most costs will be expensed as incurred; however, those costs attributed to the
purchase of new software and hardware will generally be capitalized.
* All figures are shown in US dollars converted from Canadian dollars using
the average exchange rate of 1.490 in effect September 30, 1999.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
No reportable events
Item 2 - Changes In Securities
(a) and (b) No reportable events
(c)
The Company currently sells Venture Group Annuity, a flexible premium payment
deferred variable unallocated group annuity, to retirement plans that qualify
for special tax treatment under Section 401(a) of the Internal Revenue Code.
Sales of these securities are not required to be registered under the Securities
Act of 1933 (Section 3(a)(2) of this Act). Manufacturers Securities Services,
LLC, a majority owned subsidiary of the Company is the principal underwriter of
the contracts and Wood Logan Associates, Inc., an affiliate of the Company, is
the promotional agent. There are no maximum or minimum purchase payments
required to establish a contract. The value of a contract will vary according to
the investment performance, charges and expenses of the subaccounts in which the
contract is invested. As of September 30, 1999, the total variable assets in the
Venture Group Annuity was $[114,448,742].
Items 3 - Defaults Upon Senior Securities
No reportable events
Item 4 - Submission Of Matters To A Vote Of Security Holders
No reportable events
Item 5 - Other Information
No reportable events
Item 6A - Exhibits
(3) Exhibits (the Registrant is also referred to as the "Company")
- --------------------------------------------------------------------------------
Exhibit No. Description
- --------------------------------------------------------------------------------
1(a) Underwriting Agreement between the Company and Manufacturers
Securities Services, LLC, formerly NASL Financial Services,
Inc. (Underwriter) - Incorporated by reference to Exhibit
(b)(3)(i) to Form N-4, file number 33-76162, filed March 1,
1999.
1(b)i Promotional Agent Agreement between Manufacturers Securities
Services, LLC, formerly NASL Financial Services, Inc.
(Underwriter), the Company and Wood Logan Associates, Inc.
(Promotional Agent) - Incorporated by reference to
Post-Effective Amendment No. 3 to Registration Statement on
Form N-4, file number 33-76162, filed April 29, 1997 on
behalf of The Manufacturers Life Insurance Company of North
America Separate Account A.
1(b)ii Amendment to Promotional Agent Agreement - Incorporated by
reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4, file number 33-76162, filed February
25, 1988 on behalf of The Manufacturers Life Insurance
Company of North America Separate Account A.
2 Not Applicable
15
<PAGE> 16
3(i)(a) Certificate of Incorporation of the Company - Incorporated
by reference to Form 10Q, file number 812-06037, filed
November 14, 1997 on behalf of The Manufacturers Life
Insurance Company of North America.
3(i)(b) Certificate of Amendment of Certificate of Incorporation of
the Company, Name Change, July 1984 - Incorporated by
reference to Form 10Q, file number 812-06037, filed November
14, 1997 on behalf of The Manufacturers Life Insurance
Company of North America.
3(i)(c) Certificate of Amendment of Certificate of Incorporation of
the Company, Authorization of Capital, December 1994 -
Incorporated by reference to Form 10Q, file number
812-06037, filed November 14, 1997 on behalf of The
Manufacturers Life Insurance Company of North America.
3(i)(d) Certificate of Amendment of Certificate of Incorporation of
the Company, Name Change, March 1997 - Incorporated by
reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1, file number 333-6011, filed October
9, 1997 on behalf of The Manufacturers Life Insurance
Company of North America.
3(i)(e) Certificate of Amendment of Certificate of Incorporation of
the Company, Registered Agent, July 1997 - Incorporated by
reference to Form 10Q, file number 812-06037, filed November
14, 1997 on behalf of The Manufacturers Life Insurance
Company of North America.
3(ii) Amended and Restated By-Laws of the Company - Incorporated
by reference to Form 10Q, file number 812-06037, filed
November 14, 1997 on behalf of The Manufacturers Life
Insurance Company of North America.
4(i) Form of Individual Single Payment Deferred Fixed Annuity
Non-Participating Contract Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-1, file number
33-6011, filed June 14, 1996
4(ii) Form of Group Single Payment Deferred Fixed Annuity
Non-Participating Contract - Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-1, file number
33-6011, filed June 14, 1996
4(iii) Individual Retirement Annuity Endorsement - Incorporated by
reference to Exhibit 4 to Registration Statement on Form
S-1, file number 33-6011, filed June 14, 1996
4(iv) ERISA Tax-Sheltered Annuity Endorsement - Incorporated by
reference to Exhibit 4 to Registration Statement on Form
S-1, file number 33-6011, filed June 14, 1996
4(v) Tax-Sheltered Annuity Endorsement - Incorporated by
reference to Exhibit 4 to Registration Statement on Form
S-1, file number 33-6011, filed June 14, 1996
4(vi) Section 401 Plans Endorsement - Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-1, file number
33-6011, filed June 14, 1996
5 Opinion and Consent of James D. Gallagher, Esq. -
Incorporated by reference to Exhibit 5 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1,
file number 33-6011, filed January 29, 1997
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
16
<PAGE> 17
10(i) Form of broker-dealer agreement between the Company,
Manufacturers Securities Services, LLC, formerly NASL
Financial Services, Inc. (underwriter), Wood Logan
Associates, Inc. (Promotional Agent) and broker-dealers
-Incorporated by reference to Exhibit (b)(3)(iii) to
pre-effective amendment no. 1 to Form N-4, file number
33-9960, filed February 2, 1987 on behalf of the NASL
Variable Account of the Company, now known as The
Manufacturers Life Insurance Company of North America
Separate Account A
(10)(ii) Reinsurance and Guaranteed Death Benefits Agreement between
the Company and Connecticut General Life Insurance Company
- Incorporated by reference to Exhibit (b)(7)(i) to
Registration Statement on Form N-4, file number 33-76162,
filed March 1, 1996
(10)(iii) Reinsurance Agreement between the Company and PaineWebber
Life Insurance Company - Incorporated by reference to
Exhibit (b)(7)(iii) to Registration Statement on Form N-4,
file number 33-76162, filed March 1, 1996
(10)(iv) Coinsurance Agreement between the Company and Peoples
Security Life Insurance Company - Incorporated by reference
to Exhibits (10)(iv) through (10)(viii) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1,
file number 33-6011, filed January 29, 1997
(10)(v) Reinsurance and Accounts Receivable Agreements between the
Company and ITT Lyndon Life - Incorporated by reference to
Exhibits (10)(iv) through (10)(viii) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1,
file number 33-6011, filed January 29, 1997
(10)(vi) Automatic Modified -Coinsurance Reinsurance Agreement
between the Company and Transamerica Occidental Life
Insurance Company - Incorporated by reference to Exhibits
(10)(iv) through (10)(viii) to Pre-Effective Amendment No.
1 to the Registration Statement on Form S-1, file number
33-6011, filed January 29, 1997
(10)(vii) Automatic Yearly Renewable Term Reinsurance Agreement
between the Company and Transamerica Occidental Life
Insurance Company - Incorporated by reference to Exhibits
(10)(iv) through (10)(viii) to Pre-Effective Amendment No. 1
to the Registration Statement on Form S-1, file number
33-6011, filed January 29, 1997
(10)(viii) Amendment No. 1 to the Variable Annuity Guaranteed Death
Benefit Reinsurance Agreement between the Company and
Connecticut General Life Insurance Company - Incorporated by
reference to Exhibits (10)(iv) through (10)(viii) to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-1, file number 33-6011, filed January 29, 1997
(10)(ix) Coinsurance Agreement between the Company and The
Manufacturers Life Insurance Company (USA) Incorporated by
reference to Form 10K, file number 812-06037, filed March
31, 1998 on behalf of The Manufacturers Life Insurance
Company of North America
11 Not Applicable
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
17
<PAGE> 18
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 The Company has the following wholly owned subsidiaries:
Manufacturers Securities Services, LLC and The Manufacturers
Life Insurance Company of New York
22 Not Applicable
23(i) Not Applicable
23(ii) Not Applicable
24 (i) Power of Attorney - John D. Richardson, Director and
Chairman of the Company - Incorporated by reference to
Post-Effective Amendment No. 3 to Registration Statement on
Form N-4, file number 33-76162, filed April 29, 1997 on
behalf of The Manufacturers Life Insurance Company of North
America Separate Account A.
24(ii) Power of Attorney - David W. Libbey, Principal Financial
Officer of the Company - Incorporated by reference to Form
10Q, file number 812-06037, filed November 14, 1997 on
behalf of The Manufacturers Life Insurance Company of North
America.
24(iii) Power of Attorney - Peter Hutchison, Director of the Company
- Incorporated by reference to Post-Effective Amendment No.
4 to Registration Statement on Form N-4, file number
33-76162, filed February 25, 1988 on behalf of The
Manufacturers Life Insurance Company of North America
Separate Account A.
24(iv) Power of Attorney - John D. DesPrez III - Incorporated by
reference to Exhibit (14)(iv) to post-effective amendment
no. 1 to Form N-4, file number 333-38081 filed April 19,
1999.
25 Not Applicable
26 Not Applicable
27 Financial Data Schedule - Filed herein.
28 Not Applicable
ITEM 6B - REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter.
18
<PAGE> 19
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.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(Registrant)
By: /s/ DAVID W. LIBBEY
---------------------------------------
David W. Libbey
Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: November 15, 1999
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial data schedule for quarter ended September 30, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 155,492
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 190,818
<CASH> 27,312
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 572,979
<TOTAL-ASSETS> 15,261,378
<POLICY-LOSSES> 130,101
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 13,680,240
<NOTES-PAYABLE> 282,400
0
0
<COMMON> 2,600
<OTHER-SE> 285,163
<TOTAL-LIABILITY-AND-EQUITY> 15,261,378
27
<INVESTMENT-INCOME> 9,423
<INVESTMENT-GAINS> (164)
<OTHER-INCOME> 246,366
<BENEFITS> 4,645
<UNDERWRITING-AMORTIZATION> 44,703
<UNDERWRITING-OTHER> 138,513
<INCOME-PRETAX> 56,842
<INCOME-TAX> (20,150)
<INCOME-CONTINUING> 36,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,692
<EPS-BASIC> 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>
