<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 June 30, 1999 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) 943-4247
--------------------------
- ------------------------------------------------------------------------------
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
Page
Number
Part I: Financial Information
Item 1: Financial Statements:*
Statutory Statements of Admitted Assets,
Liabilities and Capital Stock and Surplus -
June 30, 1999 and December 31, 1998 3
Statutory Statements of Operations -
Three Months Ended June 30, 1999 and
June 30, 1998 4
Statutory Statements of Operations -
Six Months Ended June 30, 1999
and June 30, 1998 5
Statutory Statements of Changes in
Capital Stock and Surplus -
Six Months Ended June 30, 1999 and
June 30, 1998 6
Statutory Statements of Cash Flow -
Six Months Ended June 30, 1999 and
June 30, 1998 7
Notes to Unaudited Statutory Financial
Statements 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II: Other Information
NONE
* The Statutory Statement of Admitted Assets, Liabilities and Capital
Stock and Surplus at December 31, 1998 has been taken from the audited
statutory financial statements at that date. All other statutory
statements are unaudited.
2
<PAGE>
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND SURPLUS
<S> <C> <C>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
ADMITTED ASSETS
GENERAL ACCOUNT ASSETS:
Bonds $ 52,769,186 $ 57,916,869
Mortgage loans on real estate 14,505,092 17,657,672
Properties acquired in satisfaction of debt 1,696,772 1,755,854
Policy loans 609,291 625,023
Cash and short-term investments 10,913,631 5,928,556
Life insurance premiums and annuity
considerations due & uncollected 776,603 667,087
Accident and health premiums due and unpaid 196,118 156,493
Investment income due and accrued 767,593 780,020
Other assets 2,466 183,602
------------ ------------
General account assets 82,236,752 85,671,176
SEPARATE ACCOUNT ASSETS:
Unitized 562,925,003 527,942,310
Non-unitized 91,850,462 100,064,243
------------ ------------
Total admitted assets $737,012,217 $713,677,729
------------ ------------
------------ ------------
LIABILITIES
GENERAL ACCOUNT LIABILITIES:
Aggregate reserve for life policies and
contracts $ 23,622,643 $ 22,578,780
Aggregate reserve for accident and health
policies 8,370,000 7,830,000
Policy and contract claims 2,020,083 2,174,704
Liability for premium and other deposit funds 19,177,786 20,807,840
Interest maintenance reserve 807,891 830,941
Commissions to agents due or accrued 533,860 374,826
General expenses due or accrued 404,242 369,524
Transfers from Separate Accounts due or
accrued (18,262,826) (15,992,081)
Taxes, licenses and fees due or accrued 82,995 64,813
Federal income taxes due or accrued 474,000 700,000
Asset valuation reserve 1,385,063 1,047,787
Payable to parent, subsidiaries and affiliate 1,292,611 1,218,745
Other liabilities 3,232,582 684,361
------------ ------------
General account liabilities 43,140,930 42,690,240
SEPARATE ACCOUNT LIABILITIES:
Unitized 562,730,036 527,751,720
Non-unitized 91,850,462 100,064,243
------------ ------------
Total liabilities 697,721,428 670,506,203
------------ ------------
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 926,715 812,391
Unassigned funds 6,864,074 10,859,135
------------ ------------
Total surplus 37,290,789 41,171,526
------------ ------------
Capital stock and surplus 39,290,789 43,171,526
------------ ------------
Total liabilities, capital stock and surplus $737,012,217 $713,677,729
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited statutory financial statements
3
<PAGE>
<TABLE>
<CAPTION>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
INCOME
Premiums and annuity consideration $ 5,196,214 $ 3,951,890
Deposit-typed funds 8,730,489 29,986,986
Net investment income 1,286,846 1,646,076
Amortization of interest maintenance reserve 59,518 77,075
Net gain from operations from Separate Accounts 2,209 2,289
Income from fees associated with investment management,
administration and contract guarantees from Separate Accounts 1,852,711 1,587,797
Other income 195,552 232,826
----------- -----------
Total income 17,323,539 37,484,939
----------- -----------
BENEFITS AND EXPENSES
Death benefits $ 1,703,456 $ 1,145,188
Annuity benefits 1,125,622 1,111,185
Disability benefits and benefits under accident and health
policies 328,489 282,301
Surrender benefits and other fund withdrawals 15,339,382 16,478,100
Interest on policy or contract funds 20,829 18,153
Increase in aggregate reserves for life and accident and
health policies and contracts 1,320,240 215,252
Increase in liability for premium and other deposit funds (1,138,504) (1,854,847)
----------- -----------
Total benefits 18,699,514 17,395,332
Commissions on premiums and annuity considerations (direct
business only) 1,177,066 2,230,339
General insurance expenses 1,571,970 1,200,933
Insurance taxes, licenses and fees, excluding federal income
taxes 215,452 188,788
Net transfers to or (from) Separate Accounts (5,867,211) 13,976,884
----------- -----------
Total benefits and expenses 15,796,791 34,992,276
----------- -----------
Net gain from operations before dividends to policyholders and
federal income taxes 1,526,748 2,492,663
Federal income taxes incurred (excluding tax on capital gains) 456,990 425,910
----------- -----------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized capital gains or
(losses) 1,069,758 2,066,753
Net realized capital gains or (losses) less capital gains tax
and transferred to the interest maintenance reserve (27,322) 0
----------- -----------
NET INCOME $ 1,042,436 $ 2,066,753
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited statutory financial statements
4
<PAGE>
<TABLE>
<CAPTION>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
INCOME
Premiums and annuity consideration $ 9,819,795 $ 8,298,777
Deposit-typed funds 17,985,663 57,451,224
Net investment income 2,679,335 3,421,246
Amortization of interest maintenance reserve 135,133 161,825
Net gain from operations from Separate Accounts 4,377 4,540
Income from fees associated with investment management,
administration and contract guarantees from Separate Accounts 3,629,008 3,005,180
Other income 409,528 643,870
----------- -----------
Total income 34,662,839 72,986,662
----------- -----------
BENEFITS AND EXPENSES
Death benefits $ 3,496,613 $ 2,903,246
Annuity benefits 2,701,030 2,733,794
Disability benefits and benefits under accident and health
policies 646,855 514,352
Surrender benefits and other fund withdrawals 26,627,168 43,273,098
Interest on policy or contract funds 38,235 39,085
Increase in aggregate reserves for life and accident and
health policies and contracts 1,583,863 1,278,105
Decrease in liability for premium and other deposit funds (1,630,054) (8,118,851)
----------- -----------
Total benefits 33,463,710 42,622,829
Commissions on premiums and annuity considerations (direct
business only) 2,299,427 4,386,056
General insurance expenses 2,764,925 2,499,933
Insurance taxes, licenses and fees, excluding federal
income taxes 436,437 384,687
Net transfers to or (from) Separate Accounts (8,673,109) 18,343,971
----------- -----------
Total benefits and expenses 30,291,390 68,237,476
----------- -----------
Net gain from operations before dividends to policyholders
and federal income taxes 4,371,449 4,749,186
Federal income taxes incurred (excluding tax on capital gains) 1,331,359 1,239,383
----------- -----------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized capital gains or
(losses) 3,040,090 3,509,803
Net realized capital gains or (losses) less capital gains tax
and transferred to the interest maintenance reserve (27,322) (8,189)
----------- -----------
NET INCOME $ 3,012,768 $ 3,501,614
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited statutory financial statements
5
<PAGE>
<TABLE>
<CAPTION>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENT OF CHANGES IN CAPITAL STOCK AND SURPLUS
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $43,171,526 $38,781,183
Net income 3,012,768 3,501,614
Change in net unrealized capital gains or (losses) 0 (100,000)
Change in non-admitted assets and related items (56,229) 33,523
Change in asset valuation reserve (337,276) 40,136
Dividends to stockholders (6,500,000) (3,000,000)
----------- -----------
Net change in capital and surplus for the period (3,880,737) 475,273
----------- -----------
CAPITAL AND SURPLUS, END OF PERIOD $39,290,789 $39,256,456
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited statutory financial statements
6
<PAGE>
<TABLE>
<CAPTION>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds received $27,570,486 $65,927,234
Net investment income received 2,785,919 3,678,402
Fees associated with investment management, administration
and contract guarantees from Separate Accounts 3,629,008 3,005,180
Fee income 409,528 643,870
----------- -----------
Total receipts 34,394,941 73,254,686
----------- -----------
Benefits paid 33,669,022 49,741,163
Insurance expenses and taxes paid 5,288,855 7,492,376
Net cash transfers to (from) separate accounts (6,402,364) 23,286,208
Federal income tax payments (excluding tax on capital gains) 1,557,359 1,663,383
----------- -----------
Total payments 34,112,872 82,183,130
----------- -----------
Net cash from operations 282,069 (8,928,444)
Proceeds from long-term investments sold, matured or repaid
(after deducting taxes on capital gains of $45,641 for
1999, and $160,617 for 1998) 23,774,248 19,272,450
Other cash provided 3,160,937 1,859,613
----------- -----------
Total cash provided 26,935,185 21,132,063
CASH APPLIED
Cost of long-term investments acquired 15,408,565 6,372,573
Dividends to stockholders paid 6,500,000 3,000,000
Other cash applied 323,614 1,685,069
----------- -----------
Total cash applied 22,232,179 11,057,642
----------- -----------
Net change in cash and short-term investments 4,985,075 1,145,977
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF PERIOD 5,928,556 10,120,237
----------- -----------
END OF PERIOD $10,913,631 $11,266,214
----------- -----------
----------- -----------
</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 $572,000 and
$782,000 for the three and six month periods in 1999 and $424,000 and
$733,000 for the three and six month periods in 1998, 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 $1,042,000 and $3,013,000 for the three and
six month periods ended June 30, 1999, respectively, as compared to
$2,067,000 and $3,502,000 for the same periods ended June 30, 1998. The
$1,025,000 and $489,000 decrease in earnings for the three and six month
periods, respectively, was due primarily to an increase in group death claims
from adverse mortality experience and higher general insurance expenses due
to the transition of group insurance operations to the Registrant's parent
company, offset by higher fee income for appreciating separate account assets.
Income
Total income decreased by $20,161,000 and $38,324,000 for the three and six
month periods ended June 30, 1999, respectively, as compared to the same
periods in 1998. The decreases were due primarily to the decline in annuity
deposit fund sales relating to the dollar cost averaging ("DCA") program of
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 contracts 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. The decline in DCA
sales was attributable to the Registrant adhering to the New York State
Insurance Department's ("Department") request to limit the DCA crediting rate
the Registrant, and its competitors, could offer. The Department recently
issued guidelines for enhanced interest rate offerings to New York issued
contracts and the Registrant expects to resume offering an enhanced DCA
crediting rate by the middle of the third quarter of 1999. During the first
half of 1999, the decline in annuity deposit fund sales was also adversely
impacted by the implementation, in November 1998, of the Department's
Regulation 60, which governs replacement sales. Also contributing to the
decline in income for the three and six month periods ended June 30, 1999,
were decreases in net investment income due to 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 while fee income increased from market appreciation on separate
account assets.
Benefits and Expenses
Policyholder benefits increased by $1,304,000 and decreased by $9,159,000 for
the three and six month periods ended June 30, 1999, respectively, as
compared to the same periods in 1998. The increase in benefits during the
three month period was due primarily to an increase in death benefits on
group life insurance policies and a smaller decrease in annuity reserves from
fewer annuity surrenders. The year-to-date decrease in benefits was due
primarily to lower surrender benefits, the result of fewer maturing annuity
contracts and the effects of Regulation 60 (discussed above), offset by an
increase in death benefits.
Commissions, general expenses and taxes, licenses and fees decreased by
$656,000 and $1,770,000 for the three and six month periods ended June 30,
1999, respectively, as compared to the same periods in 1998. Commissions
decreased as a result of a decline in annuity deposit fund sales while
general expenses and taxes, licenses and fees increased primarily a result of
higher allocated expenses from parent and an increase in insurance department
exam fees, respectively. The decrease in net transfers to separate accounts
was due directly to lower variable annuity sales.
Capital and Surplus
The total capital stock and surplus position of the Registrant at June 30,
1999, was $39.3 million. A cash dividend of $6.5 million was paid to its
immediate parent Sun Life Assurance Company of Canada (U.S.). 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 fourth quarter of 1996, the Registrant's ultimate parent, Sun Life
Assurance Company of Canada ("SLOC"), 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. SLOC 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, SLOC's Year 2000 project
is periodically reviewed by internal and external auditors.
To date, all 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. 98% of the
components have been remediated, tested and based on those tests have been
certified as Year 2000 compliant. The majority of the remaining components
are in the testing phase and will be certified over the course of the year.
In mid-1997, the project team contacted all key vendors to obtain their
representation that the products and services provided will not have a Year
2000 issue. In addition, the project team continues to work 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 business
after the Year 2000.
Non-IT applications, including building security, HVAC systems, and other
such systems, as well as IT applications have been tested. 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 will have addressed issues it has found with its
systems, there can be no assurance that Year 2000 will not impact the
Company's operations. 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
systems being effected by Year 2000. Such a scenario could result in
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 an impact on the Registrant's results of operations and financial
position.
In order to mitigate the risks to the Registrant of material adverse
operational or financial impacts the Year 2000 problem, SLOC 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 . Each business area has identified their critical business
processes, developed alternative plans of action where possible and are in
the process of refining and testing those alternatives. On the corporate
level, SLOC 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.
As of year-end 1998, the Registrant expended, cumulatively, approximately
$222,000 on its Year 2000 effort, and it expects to incur a further $70,000
on this effort in 1999, of which approximately $24,000 was incurred in the
six months ended June 30, 1999.
10
<PAGE>
Sun Life Insurance and Annuity Company of New York
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Cautionary Statement
This Form 10-K includes forward-looking statements by the Company under the
Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact: they relate to such topics as future product
values. Year 2000 compliance, volume growth, market share, market risk and
financial goals. It is important to understand that these forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those that the statements
anticipate. These risks and uncertainties may concern among other things:
- - The Company's ability to identify and address Year 2000 issues
successfully, in a timely manner, and at reasonable cost. They also may
concern the ability of the Company's vendors, suppliers, other service
providers, and customers to successfully address their own Year 2000
issues in a timely manner.
- - Heightened competition, particularly in terms of price, product features,
and distribution capability, which could constrain the Company's growth and
profitability.
- - Changes in interest rates and market conditions.
- - Regulatory and legislative developments.
- - Developments in consumer preferences and behavior patterns.
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
August 12, 1999 s/ Robert R. Vrolyk
-------------------------------------------------------
Robert P. Vrolyk, Vice President, Treasurer, Controller
and Actuary
August 12, 1999 s/ Ellen B. King
-------------------------------------------------------
Ellen B. King, Counsel, Litigation and 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 JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 60,987,000
<DEBT-MARKET-VALUE> 60,180,000
<EQUITIES> 0
<MORTGAGE> 14,505,000
<REAL-ESTATE> 1,697,000
<TOTAL-INVEST> 77,798,000
<CASH> 2,696,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 737,012,000
<POLICY-LOSSES> 34,013,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 19,178,000
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000,000
<OTHER-SE> 37,291,000
<TOTAL-LIABILITY-AND-EQUITY> 737,012,000
27,805,000
<INVESTMENT-INCOME> 2,819,000
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 4,039,000
<BENEFITS> 33,464,000
<UNDERWRITING-AMORTIZATION> 2,299,000
<UNDERWRITING-OTHER> (5,472,000)
<INCOME-PRETAX> 4,371,000
<INCOME-TAX> 1,331,000
<INCOME-CONTINUING> 3,013,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,013,000
<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>
