<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 March 31, 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 of (I.R.S. Employer Identification No.)
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
Page
Number
Part I: Financial Information
Item 1: Financial Statements:*
Statutory Statements of Admitted Assets,
Liabilities and Capital Stock and Surplus -
March 31, 1999 and December 31, 1998 3
Statutory Statements of Operations -
Three Months Ended March 31, 1999 and March 31, 1998 4
Statutory Statements of Changes in Capital Stock and Surplus -
Three Months Ended March 31, 1999 and March 31, 1998 5
Statutory Statements of Cash Flow -
Three Months Ended March 31, 1999 and March 31, 1998 6
Notes to Unaudited Statutory Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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>
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>
MARCH 31, DECEMBER 31,
ADMITTED ASSETS 1999 1998
------------------- -------------------
<S> <C> <C>
GENERAL ACCOUNT ASSETS:
Bonds $ 54,330,505 $ 57,916,869
Mortgage loans on real estate 15,504,363 17,657,672
Properties acquired in satisfaction of debt 1,749,306 1,755,854
Policy loans 618,904 625,023
Cash and short-term investments 5,401,406 5,928,556
Life insurance premiums and annuity considerations due & uncollected 752,177 667,087
Accident and health premiums due and unpaid 229,712 156,493
Investment income due and accrued 1,089,516 780,020
Other assets 27,085 183,602
------------------- -------------------
General account assets 79,702,974 85,671,176
SEPARATE ACCOUNT ASSETS:
Unitized 537,378,158 527,942,310
Non-unitized 95,429,879 100,064,243
------------------- -------------------
Total admitted assets $ 712,511,011 $ 713,677,729
------------------- -------------------
------------------- -------------------
LIABILITIES
GENERAL ACCOUNT LIABILITIES:
Aggregate reserve for life policies and contracts $ 22,660,403 $ 22,578,780
Aggregate reserve for accident and health policies 8,012,000 7,830,000
Policy and contract claims 2,162,101 2,174,704
Liability for premium and other deposit funds 20,316,290 20,807,840
Interest maintenance reserve 808,498 830,941
Commissions to agents due or accrued 535,146 374,826
General expenses due or accrued 335,862 369,524
Transfers from Separate Accounts due or accrued (17,491,846) (15,992,081)
Taxes, licenses and fees due or accrued 88,980 64,813
Federal income taxes due or accrued 903,000 700,000
Asset valuation reserve 1,434,237 1,047,787
Payable to parent, subsidiaries and affiliates 1,661,690 1,218,745
Other liabilities 242,607 684,361
------------------- -------------------
General account liabilities 41,668,968 42,690,240
SEPARATE ACCOUNT LIABILITIES:
Unitized 537,185,400 527,751,720
Non-unitized 95,429,879 100,064,243
------------------- -------------------
Total liabilities 674,284,247 670,506,203
------------------- -------------------
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 867,992 812,391
Unassigned funds 5,858,772 10,859,135
------------------- -------------------
Total surplus 36,226,764 41,171,526
------------------- -------------------
Capital stock and surplus 38,226,764 43,171,526
------------------- -------------------
Total liabilities, capital stock and surplus $ 712,511,011 $ 713,677,729
------------------- -------------------
------------------- -------------------
</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 MARCH 31,
INCOME 1999 1998
----------------- -----------------
<S> <C> <C>
Premiums and annuity consideration $ 4,623,581 $ 4,346,887
Deposit-typed funds 9,255,174 27,464,238
Net investment income 1,392,489 1,775,170
Amortization of interest maintenance reserve 75,615 84,750
Net gain from operations from Separate Accounts 2,168 2,251
Income from fees associated with investment management, administration and
contract guarantees from Separate Accounts 1,776,297 1,417,383
Other income 213,976 411,044
----------------- -----------------
Total income 17,339,300 35,501,723
----------------- -----------------
BENEFITS AND EXPENSES
Death benefits $ 1,793,157 $ 1,758,058
Annuity benefits 1,575,408 1,622,609
Disability benefits and benefits under accident and health policies 318,366 232,051
Surrender benefits and other fund withdrawals 11,287,786 26,794,998
Interest on policy or contract funds 17,406 20,932
Increase in aggregate reserves for life and accident and health policies
and contracts 263,623 1,062,853
Decrease in liability for premium and other deposit funds (491,550) (6,264,004)
----------------- -----------------
Total benefits 14,764,196 25,227,497
Commissions on premiums and annuity considerations (direct business only) 1,122,361 2,155,717
General insurance expenses 1,192,955 1,299,000
Insurance taxes, licenses and fees, excluding federal income taxes 220,985 195,899
Net transfers to or (from) Separate Accounts (2,805,898) 4,367,087
----------------- -----------------
Total benefits and expenses 14,494,599 33,245,200
----------------- -----------------
Net gain from operations before dividends to policyholders and
federal income taxes 2,844,701 2,256,523
Federal income taxes incurred (excluding tax on capital gains) 874,369 813,473
----------------- -----------------
Net gain from operations after dividends to policyholders and federal
income taxes and before realized capital gains or (losses) 1,970,332 1,443,050
Net realized capital gains or (losses) less capital gains tax and transferred
to the interest maintenance reserve 0 (8,189)
----------------- -----------------
NET INCOME $ 1,970,332 $ 1,434,861
----------------- -----------------
----------------- -----------------
</TABLE>
See notes to unaudited statutory financial statements
4
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENT OF CHANGES IN CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------------- -----------------
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $ 43,171,526 $ 38,781,183
Net income 1,970,332 1,434,861
Change in net unrealized capital gains or (losses) 0 (50,000)
Change in non-admitted assets and related items (28,644) 27,314
Change in asset valuation reserve (386,450) 38,383
Dividends to stockholders (6,500,000) 0
----------------- -----------------
Net change in capital and surplus for the period (4,944,762) 1,450,558
----------------- -----------------
CAPITAL AND SURPLUS, END OF PERIOD $ 38,226,764 $ 40,231,741
----------------- -----------------
----------------- -----------------
</TABLE>
See notes to unaudited statutory financial statements
5
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
--------------- ---------------
CASH PROVIDED
<S> <C> <C>
Premiums, annuity considerations and deposit funds received $ 13,634,615 $ 33,770,276
Net investment income received 1,118,038 1,489,533
Fees associated with investment management, administration and
contract guarantees from Separate Accounts 1,776,297 1,417,383
Fee income 213,976 411,043
--------------- ---------------
Total receipts 16,742,926 37,088,235
--------------- ---------------
Benefits paid 15,006,726 48,492,089
Insurance expenses and taxes paid 2,385,476 3,673,758
Net cash transfers to (from) separate accounts (1,306,133) (8,643,732)
Federal income tax payments (excluding tax on capital gains) 671,369 989,473
--------------- ---------------
Total payments 16,757,438 44,511,588
--------------- ---------------
Net cash from operations (14,512) (7,423,353)
Proceeds from long-term investments sold, matured or repaid (after deducting
taxes on capital gains of $28,631 for 1999, and $10,527 for 1998) 8,994,786 9,771,303
Other cash provided 683,321 1,922,929
--------------- ---------------
Total cash provided 9,678,107 11,694,232
CASH APPLIED
Cost of long-term investments acquired 3,224,317 4,432,712
Dividends to stockholders paid 6,500,000
Other cash applied 466,428 1,158,883
--------------- ---------------
Total cash applied 10,190,745 5,591,595
--------------- ---------------
Net change in cash and short-term investments (527,150) (1,320,716)
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF PERIOD 5,928,556 10,120,237
--------------- ---------------
END OF PERIOD $ 5,401,406 $ 8,799,521
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to unaudited statutory financial statements
6
<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 $210,000 and $309,000
for the three month periods in 1999 and 1998, respectively.
-7-
<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 $1,970,000 and $1,435,000 for the three
month periods ended March 31, 1999 and 1998, respectively. The increase in
earnings between 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 for the three months ended March 31, 1999 was $17,339,000, a
decrease of $18,162,000 from the same period one year ago. The decrease was
primarily due to a decline in annuity deposit fund sales associated with 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 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. 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 for New York issued contracts and the
Registrant expects to resume offering an enhanced DCA crediting rate by the
end of the second quarter 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 was a decrease in net investment
income, the result of a decline in general account invested assets. Group
life and accident and health premiums increased between periods as a result
of the continuing growth of the Registrant's group business.
Benefits and Expenses
Policyholder benefits was $14,764,000 for the three months ended March 31,
1999, a decrease of $10,463,000 from the same period one year ago. The
decrease was due primarily to lower surrender benefits, the result of fewer
maturing annuity contracts during the first quarter of 1999 and the effects
of Regulation 60 (discussed above).
Commissions, general expenses and taxes, licenses and fees was $2,536,000 for
the three months ended March 31, 1999, a decrease of $1,114,000 between
periods. Commission and general expenses decreased as a result of lower
annuity deposit sales and allocated expense from parent, respectively, while
taxes, licenses and fees increased between periods primarily as a result of
higher insurance department exam fees. The decrease in net transfers to
separate accounts was due primarily to lower annuity deposits sales and a
decline in separate account surrenders.
Capital and Surplus
The total capital stock and surplus position of the Registrant at March 31,
1999, was $38.2 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.
-8-
<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 ensure 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. Over 90%
of the components have been remediated, tested and are 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 either
their certification for the products and services provided or their plan to
make those products and services compliant. Approximately 95% of these
vendors have responded and the project team has reviewed the responses,
validated and conducted tests with the vendors where appropriate. 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 objective of assuring Year
2000 compliance.
Non-IT applications, including building security, HVAC systems, and other
such systems, will be 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 expects all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be 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.
-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 (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, 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 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, 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.
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
sales, 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.
-10-
<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
May 14, 1999 s/ Robert R. Vrolyk
------------------------------------------------
Robert P. Vrolyk, Vice President, Controller and
Actuary
May 14, 1999 s/ Ellen B. King
------------------------------------------------
Ellen B. King, Secretary
-11-
<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 4 OF THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 58,694,000
<DEBT-MARKET-VALUE> 58,979,298
<EQUITIES> 0
<MORTGAGE> 15,504,000
<REAL-ESTATE> 1,749,000
<TOTAL-INVEST> 76,566,000
<CASH> 1,038,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 712,511,000
<POLICY-LOSSES> 32,835,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,316,000
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000,000
<OTHER-SE> 36,227,000
<TOTAL-LIABILITY-AND-EQUITY> 712,511,000
13,879,000
<INVESTMENT-INCOME> 1,470,000
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,990,000
<BENEFITS> 14,764,000
<UNDERWRITING-AMORTIZATION> 1,122,000
<UNDERWRITING-OTHER> (1,392,000)
<INCOME-PRETAX> 2,845,000
<INCOME-TAX> 874,000
<INCOME-CONTINUING> 1,970,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,970,000
<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>
