<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
33-1079, 33-58482 and
For Quarter Ended September 30, 1998 Commission File Number 333-09141
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Exact name of registrant as specified in its charter)
New York 04-2845273
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
80 Broad Street, New York, New York 10004
- ------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 943-3855
--------------------------
- ------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
---- ----
(2) Yes X No
---- ----
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H (1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY INSTRUCTION H.
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I: Financial Information
Item 1: Financial Statements:*
Statutory Statements of Admitted Assets, Liabilities and Capital Stock and Surplus -
September 30, 1998 and December 31, 1997 3
Statutory Statements of Operations -
Three Months Ended September 30, 1998 and September 30, 1997 4
Statutory Statements of Operations -
Nine Months Ended September 30, 1998 and September 30, 1997 5
Statutory Statements of Changes in Capital Stock and Surplus -
Nine Months Ended September 30, 1998 and September 30, 1997 6
Statutory Statements of Cash Flow -
Nine Months Ended September 30, 1998 and September 30, 1997 7
Notes to Unaudited Statutory Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
</TABLE>
Part II: Other Information
* The Statutory Statement of Admitted Assets, Liabilities and
Capital Stock and Surplus at December 31, 1997 has been taken
from the audited statutory financial statements at that date.
All other statutory statements are unaudited.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ADMITTED ASSETS 1998 1997
------------ ------------
<S> <C> <C>
GENERAL ACCOUNT ASSETS:
Bonds $ 51,686,601 $ 61,703,336
Mortgage loans on real estate 20,541,959 25,787,001
Policy loans 646,142 636,277
Cash and short-term investments 13,699,874 10,120,237
Life insurance premiums and annuity
considerations due and uncollected 827,037 791,011
Accident and health premiums due and unpaid 121,464 158,858
Investment income due and accrued 1,271,427 1,083,939
Other assets 2,332 497,790
------------ ------------
General account assets 88,796,836 100,778,449
SEPARATE ACCOUNT ASSETS:
Unitized 455,581,690 406,430,585
Non-unitized 103,708,196 116,889,545
------------ ------------
Total admitted assets $648,086,722 $624,098,579
------------ ------------
------------ ------------
LIABILITIES
GENERAL ACCOUNT LIABILITIES:
Aggregate reserve for life policies and contracts $ 23,190,793 $ 22,374,626
Aggregate reserve for accident and health policies 8,079,000 7,414,000
Policy and contract claims 1,783,897 1,912,737
Liability for premium and other deposit funds 21,671,057 31,341,254
Interest maintenance reserve 793,167 885,581
Commissions to agents due or accrued 292,549 521,106
General expenses due or accrued 501,377 415,105
Transfers from Separate Accounts due or accrued (12,651,059) (7,224,058)
Taxes, licenses and fees due or accrued 55,638 114,986
Federal income taxes due or accrued 800,000 1,000,000
Asset valuation reserve 1,232,213 1,346,335
Payable to parent, subsidiaries and affiliates 1,969,511 1,266,475
Other liabilities 439,395 810,594
------------ ------------
General account liabilities 48,157,538 62,178,741
SEPARATE ACCOUNT LIABILITIES:
Unitized 455,393,332 406,249,110
Non-unitized 103,708,196 116,889,545
------------ ------------
Total liabilities 607,259,066 585,317,396
------------ ------------
CAPITAL STOCK AND SURPLUS
Capital stock - Par value $1,000:
Authorized, issued and outstanding;
2,000 shares 2,000,000 2,000,000
------------ ------------
Gross paid in and contributed surplus 29,500,000 29,500,000
Group life contingency reserve fund 753,044 180,457
Unassigned funds 8,574,612 7,100,726
------------ ------------
Total surplus 38,827,656 36,781,183
------------ ------------
Capital stock and surplus 40,827,656 38,781,183
------------ ------------
Total liabilities, capital stock and surplus $648,086,722 $624,098,579
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited statutory financial statements.
3
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
INCOME 1998 1997
------------ -----------
<S> <C> <C>
Premiums and annuity considerations $ 4,148,522 $ 3,925,560
Deposit-type funds 15,857,631 29,644,724
Net investment income 1,599,322 2,103,551
Amortization of interest maintenance reserve 79,321 131,426
Net gain from operations from separate accounts 2,343 2,244
Fee income 251,190 199,188
------------ -----------
Total income 21,938,329 36,006,693
------------ -----------
BENEFITS AND EXPENSES
Death benefits 1,496,491 1,235,602
Annuity benefits 1,658,407 1,424,406
Disability benefits and benefits under accident
and health policies 280,090 248,843
Surrender benefits and other fund withdrawals 27,530,656 33,327,858
Interest on policy or contract claims 38,587 18,713
Increase in aggregate reserves for life and
accident and health policies and contracts 203,062 1,342,274
Decrease in liability for premium and other deposit
funds (1,551,346) (9,997,150)
------------ -----------
Total benefits 29,655,947 27,600,546
Commissions on premiums and annuity considerations
(direct business only) 1,434,752 2,236,527
General insurance expenses 962,420 1,292,484
Insurance taxes, licenses and fees, excluding
federal income taxes 143,999 169,973
Net transfers to (from) Separate Accounts (11,983,518) 4,171,562
------------ -----------
Total benefit and expenses 20,213,600 35,471,092
------------ -----------
Net gain from operations before dividends to
policyholders and federal income taxes 1,724,729 535,601
Federal income taxes incurred (excluding tax on
capital gains) 208,572 596,291
------------ -----------
Net gain from operations after dividends to
policyholders and federal income taxes and before
realized capital gains or (losses) 1,516,157 (60,690)
Net realized capital gain or (losses) less capital
gains tax and transferred to the interest maintenance
reserve (32,382) 0
------------ -----------
NET INCOME $ 1,483,775 $ (60,690)
------------ -----------
------------ -----------
</TABLE>
See notes to unaudited statutory financial statements.
4
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
INCOME 1998 1997
------------ ------------
<S> <C> <C>
Premiums and annuity considerations $ 12,447,299 $ 11,987,997
Deposit-type funds 76,606,514 91,868,239
Net investment income 5,020,568 6,836,460
Amortization of interest maintenance reserve 241,146 416,790
Net gain from operations from separate accounts 6,883 6,467
Fee income 895,060 470,401
------------ ------------
Total Income 95,217,470 111,586,354
------------ ------------
BENEFITS AND EXPENSES
Death benefits 4,399,737 3,839,934
Annuity benefits 4,392,201 4,217,865
Disability benefits and benefits under accident
and health policies 794,442 748,953
Surrender benefits and other fund withdrawals 103,735,442 81,044,249
Interest on policy or contract claims 77,672 58,676
Increase in aggregate reserves for life and
accident and health policies and contracts 1,481,167 4,697,776
Decrease in liability for premium and other
deposit funds (9,670,197) (25,275,084)
------------ ------------
Total benefits 105,210,464 69,332,369
Commissions on premiums and annuity considerations
(direct business only) 6,060,140 6,551,080
General insurance expenses 3,223,021 3,275,667
Insurance taxes, licenses and fees, excluding federal
income taxes 528,686 563,096
Net transfers to (from) Separate Accounts (26,278,756) 29,848,904
------------ ------------
Total benefit and expenses 88,743,555 109,571,116
------------ ------------
Net gain from operations before dividends to
policyholders and federal income taxes 6,473,915 2,015,238
Federal income taxes incurred (excluding tax on
capital gains) 1,447,955 1,488,500
------------ ------------
Net gain from operations after dividends to
policyholders and federal income taxes and before
realized capital gains or (losses) 5,025,960 526,738
Net realized capital gain or (losses) less capital
gains tax and transferred to the interest maintenance
reserve (40,571) (3,908)
------------ ------------
NET INCOME $ 4,985,389 $ 522,830
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited statutory financial statements.
5
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $38,781,183 $34,802,643
Net income 4,985,389 522,830
Change in net unrealized capital losses (100,181) (143,988)
Change in non-admitted assets and related items 47,143 1,643
Change in asset valuation reserve 114,122 103,109
Dividends to stockholders (3,000,000) 0
----------- -----------
Net change in capital and surplus for the period 2,046,473 483,594
----------- -----------
CAPITAL AND SURPLUS, END OF PERIOD $40,827,656 $35,286,237
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited statutory financial statements.
6
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds
received $ 89,018,153 $103,553,326
Net investment income received 4,836,880 7,136,810
Fee income 895,060 470,401
------------ ------------
Total receipts 94,750,093 111,160,537
------------ ------------
Benefits paid 113,533,334 89,396,248
Insurance expenses and taxes paid 10,013,480 10,118,572
Net cash transfers to (from) separate accounts (20,851,755) 32,632,945
Federal income tax payments (excluding tax on
capital gains) 1,647,955 808,500
------------ ------------
Total payments 104,343,014 132,956,265
------------ ------------
Net cash from operations (9,592,921) (21,795,728)
Proceeds from long-term investments sold, matured
or repaid (after deducting taxes on capital gains
of $58,241 for 1998, and $29,618 for 1997) 25,753,817 45,425,627
Other cash provided 1,268,788 2,321,445
------------ ------------
Total cash provided 27,022,605 47,747,072
------------ ------------
CASH APPLIED
Cost of long-term investments acquired 10,511,080 22,596,492
Dividends to stockholders paid 3,000,000 0
Other cash applied 338,967 2,589,996
------------ ------------
Total cash applied 13,850,047 25,186,488
------------ ------------
Net change in cash and short-term investments 3,579,637 764,856
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF PERIOD 10,120,237 4,614,994
------------ ------------
END OF PERIOD $ 13,699,874 $ 5,379,850
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited statutory financial statements.
7
<PAGE>
Sun Life Insurance and Annuity Company of New York
Notes to Unaudited Statutory Financial Statements
(1) General
In management's opinion all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial statements
have been made.
(2) Management and Service Contracts
The Registrant has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will furnish to the Registrant, as requested, personnel as well
as certain investment and administrative services on a cost reimbursement
basis. Expenses under these agreements amounted to approximately $168,000
and $901,000 for the three and nine month periods in 1998 and $513,000 and
$1,219,000 for the three and nine month periods in 1997, respectively.
8
<PAGE>
Sun Life Insurance and Annuity Company of New York
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Net Income
The Registrant had net income of $1,484,000 and $4,985,000 for the three and
nine month periods ended September 30, 1998 as compared to net loss of
$61,000 and net income of $523,000 for the same periods ended September 30,
1997. The $1,544,000 and $4,463,000 increase in earnings for the three and
nine month periods was primarily due to higher fee income from market
appreciation on separate account assets, increased group life and accident
and health premiums and lower group accident and health reserves from more
favorable long term disability claims experience.
Income
Total income decreased by $14,068,000 and $16,369,000 for the three and nine
month periods ended September 30, 1998, as compared to the same periods in
1997. The decreases were due primarily to lower fixed annuity deposits, the
result of heightened competition of the dollar cost averaging ("DCA") sales
program in the Registrant's market-value adjusted combination fixed/variable
annuity product. Under the DCA program, deposits are made into the fixed
portion of the annuity contract and receive a more favorable crediting rate
for the policy year. During the year, the fixed deposit is exchanged to the
variable portion of the contract in equal periodic installments. In addition,
the volatility of the stock market during this past August and September
contributed to lower variable annuity sales. Also contributing to the
decline in income was a decrease in net investment income from a decline in
general account invested assets, the result of fixed annuity maturities
exceeding fixed annuity sales. Group life and accident and health premiums
increased between periods as a result of the continued growth of the
Registrant's group business.
Benefits and Expenses
Policyholder benefits increased by $2,055,000 and $35,878,000 for the three
and nine month periods ended September 30, 1998 as compared to the same
periods in 1997. The increases were due to higher surrenders from fixed DCA
transfers to the Registrant's unitized separate account and withdrawals
primarily from separate account contracts for which the surrender charge
period has expired. The change in liability for premium and other deposits
decreased during the reporting periods as a result of the increase in
surrenders of the contracts described above.
Commissions, general expenses and taxes, licenses and fees decreased by
$1,158,000 and $578,000 for the three and nine month periods ended September
30, 1998 as compared to the same periods in 1997. Commission expenses
decreased for the three and nine month periods as a result of lower fixed
annuity sales. The decrease in general expenses during the three month
period is primarily due to lower allocated expenses from parent while the
year-to-date decrease is primarily due to lower allocated expenses from
parent, bank charges and mortgage service fees offset by higher legal and
retainer fees. Taxes, licenses and fees decreased between periods primarily
as a result of a reduction in the New York State premium tax rate and
elimination of a premium tax surcharge. The decrease in net transfers to
separate accounts was due primarily to lower fixed annuity deposits and
increases in separate account surrenders as described above.
Federal income tax expenses decreased for the three and nine month periods
primarily from a $637,000 over-accrual of the 1997 year-end federal income
tax provision.
Capital and Surplus
The total capital stock and surplus position of the Registrant at September
30, 1998, was $40.8 million. The Registrant's management considers its
surplus position to be adequate.
9
<PAGE>
Sun Life Insurance and Annuity Company of New York
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year 2000 Compliance
During the 4th quarter of 1996, the Registrant began a comprehensive analysis
of its information technology ("IT") and non-IT systems, including its
hardware, software, data, data feed products and internal and external
supporting services, to address the ability of these systems to correctly
process date calculations through the year 2000 and beyond. The Registrant
created a full-time Year 2000 project team in early 1997 to manage this
endeavor across the Company. This team, which works with dedicated personnel
from all business units and with the legal and audit departments, reports
directly to the Registrant's senior management on a monthly basis. In
addition, the Registrant's Year 2000 project is periodically reviewed by
internal and external auditors.
To date, relevant systems have been identified and their components
inventoried, needed resolutions have been documented, timelines and project
plans have been developed, remediation and testing are in process, and many
of the Registrant's applications have been certified as compliant. The
Registrant's goal is to complete the majority of the effort by the end of
1998. However, a small number of tasks will be pushed into the first quarter
of 1999 to accommodate testing of vendor upgrades not available until late
1998, re-testing interfaces once all systems are certified as compliant, and
re-testing of mission critical functions.
In mid-1997, the project team contacted all key vendors to obtain either
their certification for the products and services provided or their plan to
make those products and services compliant. To date, approximately 90% of
these vendors have responded, and the project team is in the process of
reviewing these responses. In addition, the project team recently has opened
communications with critical business partners, such as third-party
administrators, investment property managers, investment mortgage
correspondents, and others, with the goal that these partners will continue
to be able to support the Registrant's objective of assuring Year 2000
compliance.
Non-IT applications will be tested in accordance with the Registrant's
standard Year 2000 test strategy, including building security, HVAC systems,
and other such systems. Compliant client server and mainframe environments
have been built which allow for testing of critical dates such as December
31, 1999, January 1, 2000, February 28, 2000, February 29, 2000 and March 1,
2000 without impact to current production.
Although the Registrant expects all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be completely achieved. Factors giving rise to this uncertainty include
possible loss of technical resources to perform the work, failure to identify
all susceptible systems, non-compliance by third-parties whose systems and
operations affect the Registrant, and other similar uncertainties. A
possible worst-case scenario might include one or more of the Registrant's
significant systems being non-compliant. Such a scenario could result in
material disruption to the Registrant's operations. Consequences of such
disruptions could include, among other possibilities, the inability to update
customers' accounts, process payments and other financial transactions; and
report accurate data to management, customers, regulators, and others.
Consequences also could include business interruptions or shutdowns,
reputational harm, increased scrutiny by regulators, and litigation related to
Year 2000 issues. Such potential consequences, depending on their nature and
duration, could have a material impact on the Registrant's results of
operations and financial position.
10
<PAGE>
Sun Life Insurance and Annuity Company of New York
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year 2000 Compliance (continued)
In order to mitigate the risks to the Registrant of material adverse
operational or financial impacts from failure to achieve planned Year 2000
compliance, the Registrant has established contingency planning at the
business unit and corporate levels. Each business unit has ranked its
applications as being of high, medium or low business risk to ensure that the
most critical are addressed first. The business units also have developed
alternate plans of action where possible, and established dates for the
alternate plans to be enacted. On the corporate level, the Registrant is in
the process of enhancing its business continuation plan, by identifying
minimum requirements for facilities, computing, staffing, and other factors;
and it is developing a plan to support those requirements.
By year-end 1998, the Registrant expects to have expended, cumulatively,
approximately $100,000 on its Year 2000 effort, and it expects to incur a
further $50,000 on this effort in 1999.
Cautionary Statement
Statements by the Registrant in the Form 10-Q and in other contexts that are
not historical fact are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These may include, among others,
forward-looking statements relating to Year 2000 compliance, volume growth,
market share, and financial goals. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
including but not limited to the following: (1) uncertainties relating to the
ability of the Registrant to identify and address Year 2000 issues
successfully and in a timely manner and at costs that are reasonably in line
with the Registrant's estimates, and the ability of the Registrant's vendors,
suppliers, other service providers, and customers to identify and address
successfully their own Year 2000 issues in a timely manner; (2) heightened
competition, particularly with respect to price, product features, and
distribution capability, which could constrain growth and profitability in
the Registrant's businesses; (3) significant changes in interest rates and
market conditions; and (4) regulatory and legislative uncertainties and
developments.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sun Life Insurance and Annuity Company of New York
November 13, 1998 s/ Robert R. Vrolyk
------------------------------------------------
Robert P. Vrolyk, Vice President, Controller and
Actuary
November 13, 1998 s/ Ellen B. King
-----------------------------------------------
Ellen B. King, Secretary
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND
SURPLUS AND THE STATUTORY STATEMENTS OF OPERATIONS ON PAGES 3 AND 5 OF THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 64,345,000
<DEBT-MARKET-VALUE> 66,026,000
<EQUITIES> 0
<MORTGAGE> 20,542,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 85,533,000
<CASH> 1,042,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 648,087,000
<POLICY-LOSSES> 33,054,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 21,671,000
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000,000
<OTHER-SE> 38,828,000
<TOTAL-LIABILITY-AND-EQUITY> 648,087,000
89,054,000
<INVESTMENT-INCOME> 5,269,000
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 895,000
<BENEFITS> 105,210,000
<UNDERWRITING-AMORTIZATION> 6,060,000
<UNDERWRITING-OTHER> (22,527,000)
<INCOME-PRETAX> 6,474,000
<INCOME-TAX> 1,448,000
<INCOME-CONTINUING> 4,985,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,985,000
<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>
