<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1994
COMMISSION FILE NUMBER 33-34562; 33-60288
ML LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 16-1020455
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
100 CHURCH STREET
NEW YORK, NEW YORK 10080-6511
(Address of Principal Executive Offices)
(800) 333-6524
(Registrant's telephone number including area code)
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.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 220,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
PART I Financial Information
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
BALANCE SHEETS
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair
value (amortized cost: 1994 - $328,640; 1993 - $442,008) $ 324,763 $ 458,916
Equity securities available for sale, at estimated fair value
(cost: 1994 - $8,299; 1993 - $8,387) 7,251 7,195
Mortgage loans on real estate 7,939 17,627
Policy loans on insurance contracts 77,424 73,380
-------------- --------------
Total Investments 417,377 557,118
CASH AND CASH EQUIVALENTS 19,605 26,919
ACCRUED INVESTMENT INCOME 8,123 10,164
DEFERRED POLICY ACQUISITION COSTS 28,179 24,036
FEDERAL INCOME TAXES - DEFERRED 12,279 10,468
REINSURANCE RECEIVABLES 1,457 1,685
OTHER ASSETS 2,353 4,310
SEPARATE ACCOUNTS ASSETS 465,032 410,613
-------------- --------------
TOTAL ASSETS $ 954,405 $ 1,045,313
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
BALANCE SHEETS
(Concluded) (Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY June 30, December 31,
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 378,078 $ 523,382
Claims and claims settlement expenses 1,925 5,614
-------------- --------------
Total policy liabilities and accruals 380,003 528,996
OTHER POLICYHOLDER FUNDS 2,923 1,200
OTHER LIABILITIES 5,005 5,641
FEDERAL INCOME TAXES - CURRENT 1,646 864
PAYABLE TO AFFILIATES - NET 7,325 5,223
SEPARATE ACCOUNTS LIABILITIES 465,032 410,613
-------------- --------------
Total Liabilities 861,934 952,537
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 83,006 83,006
Retained earnings 9,971 8,497
Net unrealized investment loss (2,706) (927)
-------------- --------------
Total Stockholder's Equity 92,471 92,776
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 954,405 $ 1,045,313
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
STATEMENTS OF EARNINGS
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 17,351 $ 27,661
Net realized investment gains (losses) (1,252) 2,581
Policy charge revenue 4,990 3,983
-------------- --------------
Total Revenues 21,089 34,225
-------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 13,276 25,172
Market value adjustment expense 121 254
Policy benefits (net of reinsurance recoveries: 1994 - $280;
1993 - $410) 1,148 615
Reinsurance premium ceded 632 596
Amortization of deferred policy acquisition costs 1,935 4,188
Insurance expenses and taxes 1,710 2,709
-------------- --------------
Total Benefits and Expenses 18,822 33,534
-------------- --------------
Earnings Before Federal Income
Tax Provision 2,267 691
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,646 1,122
Deferred (853) (887)
-------------- --------------
Total Federal Income Tax Provision 793 235
-------------- --------------
NET EARNINGS $ 1,474 $ 456
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
STATEMENTS OF EARNINGS
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------------
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 7,736 $ 13,235
Net realized investment gains (losses) (1,287) 2,001
Policy charge revenue 2,525 2,213
-------------- --------------
Total Revenues 8,974 17,449
-------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 5,948 12,201
Market value adjustment expense 36 202
Policy benefits (net of reinsurance recoveries: 1994 - $202;
1993 - $145) 817 429
Reinsurance premium ceded 312 305
Amortization of deferred policy acquisition costs 901 2,032
Insurance expenses and taxes 916 1,492
-------------- --------------
Total Benefits and Expenses 8,930 16,661
-------------- --------------
Earnings Before Federal Income
Tax Provision 44 788
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 543 626
Deferred (527) (358)
-------------- --------------
Total Federal Income Tax Provision 16 268
-------------- --------------
NET EARNINGS $ 28 $ 520
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands)
=============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
----------- ------------- ------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 $ 2,200 $ 83,006 $ 6,689 $ 352 $ 92,247
Net earnings 0 0 1,808 0 1,808
Net unrealized investment loss 0 0 0 (1,279) (1,279)
----------- ------------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1993 2,200 83,006 8,497 (927) 92,776
Net earnings 0 0 1,474 0 1,474
Net unrealized investment loss 0 0 0 (1,779) (1,779)
----------- ------------- ------------- ------------- --------------
BALANCE, JUNE 30, 1994 $ 2,200 $ 83,006 $ 9,971 $ (2,706) $ 92,471
=========== ============ ============= ============= ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
=============================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,474 $ 456
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 1,935 4,188
Capitalization of policy acquisition costs (5,308) (2,416)
Amortization of fixed maturity securities (68) 727
Net realized investment (gains) losses 1,252 (2,581)
Interest credited to policyholders' account balances 13,276 25,172
Benefit for deferred Federal income tax (853) (887)
Cash and cash equivalents provided (used) by changes
in operating assets and liabilities:
Accrued investment income 2,041 1,337
Claims and claims settlement expenses (3,689) (694)
Federal income taxes - current 782 1,492
Other policyholder funds 1,723 2,094
Payable to affiliates - net 2,102 (6,950)
Change in policy loans (4,044) (3,627)
Other - net 1,547 158
-------------- --------------
Net cash and cash equivalents provided by
operating activities 12,170 18,469
-------------- --------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 80,396 31,387
Fixed maturity securities matured 55,404 167,283
Fixed maturity securities purchased (24,312) (154,513)
Equity securities available for sale sold 1,501 2,066
Equity securities available for sale purchased (29) (86)
Mortgage loans on real estate principal payments received 9,000 2,063
-------------- --------------
Net cash and cash equivalents provided by
investing activities 121,960 48,200
-------------- --------------
</TABLE>
See notes to financial statements
(continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- - ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Concluded) (Dollars in Thousands)
=============================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 31,369 24,325
Withdrawals (includes transfers to Separate Accounts) (172,813) (117,897)
-------------- --------------
Net cash and cash equivalents used by financing
activities (141,444) (93,572)
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,314) (26,903)
CASH AND CASH EQUIVALENTS:
Beginning of year 26,919 41,122
-------------- --------------
End of period $ 19,605 $ 14,219
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
================================================================
NOTE 1: BASIS OF PRESENTATION:
ML Life Insurance Company of New York (the "Company") is a
wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.
("MLIG"). The Company is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("Merrill Lynch & Co."). The Company
sells life insurance and annuity products, including variable
life insurance and variable annuities.
The condensed financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the unaudited financial statements presented herein
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial
position and the results of operations in accordance with
generally accepted accounting principles for the periods
presented. Results for the three and six months ended June 30,
1994 and 1993 are not necessarily indicative of annual results.
To facilitate comparison with the current periods, certain
amounts in the prior periods have been reclassified. These
unaudited financial statements should be read in conjunction
with the financial statements and the notes thereto included in
the Company's 1993 Annual Report on Form 10-K ("1993 Report").
The Company paid (recovered) Federal income taxes of $865,000
and $(332,000) for the six months ended June 30, 1994 and 1993,
respectively. The Company paid interest on affiliated borrowings
of $177,000 and $183,000 for the six months ended June 30, 1994
and 1993, respectively.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in
conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of New York and the
National Association of Insurance Commissioners. Statutory
capital and surplus at June 30, 1994 and December 31, 1993, was
$61,675,000 and $57,333,000, respectively. For the six months
ended June 30, 1994 and 1993, statutory net income was
$3,700,000 and $3,311,000, respectively.
<PAGE>
Item 2 Management's Narrative Analysis of the Results of
Operations
This Management's Narrative Analysis of the Results of
Operations should be read in conjunction with the accompanying
financial statements and notes thereto, in addition to the 1993
Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and
Results of Operations in the 1993 Report.
Changes in revenues and expenses in most cases are similar for
the three month and six month periods. Therefore, the discussion
emphasizes the comparison between the six months of 1994 and
1993, with additional information on the three month periods
presented where appropriate.
Business Overview
The Company's earnings are principally derived from two
sources: the net income from investment of fixed rate life
insurance and annuity contract owner deposits less interest
credited to contract owners, commonly known as spread, and fees
charged to variable life insurance and variable annuity contract
owners. The costs associated with acquiring contract owner
deposits are amortized over the period in which the Company
anticipates holding those funds. In addition, the Company incurs
expenses associated with the maintenance of inforce contracts.
Life insurance and annuity deposits received in the first six
months of 1994 increased $7,044,000 to $31,369,000, when
compared to the same period in 1993. The increase was
primarily attributable to sales of the Company's variable
annuity product.
For all of 1994, approximately $228,000,000 of fixed deferred
annuity liabilities will reach the expiration of their interest
rate guarantee period. This represents approximately 44% of the
Company's policy liabilities and accruals as of the beginning of
1994. During the first six months of 1994, approximately
$168,000,000 of these fixed deferred annuity liabilities reached
the expiration of their interest rate guarantee period. At the
expiration of an interest rate guarantee period, the contract
owner has an option to either surrender without
incurring a surrender charge or to "renew" with an adjustment
of the interest crediting rate to the prevailing rate at the
time of renewal. The Company has offered those contract owners
electing to surrender the opportunity to exchange their contract
for either a variable annuity or market value adjusted annuity
contract. The following table summarizes the contract owners'
selections for the first six months of 1994 and for the year
ended December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
Amount % Amount %
------ ----- ------ -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Renewed with an adjustment to the
applicable interest crediting rate $ 25 15% $ 76 25%
Exchanged into either the variable annuity
product or the market value adjusted
annuity product offered by the Company 83 49% 101 33%
Surrendered 60 36% 127 42%
------ ----- ------ -----
Total $ 168 100% $ 304 100%
====== ===== ====== =====
</TABLE>
<PAGE>
The rates of renewal, exchange and surrender experienced are
consistent with management's projections. As of June 30, 1994,
substantially all fixed deferred annuity contracts have reached
the expiration of their initial interest rate guarantee period.
As a result, for the remainder of 1994 and for 1995 it is
anticipated that the lapse experience of the inforce fixed
deferred annuity business will be significantly reduced from the
levels of the preceding two years.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of June 30, 1994,
the Company's invested assets and cash equivalents consisted of
approximately 56% liquid or readily marketable securities.
As of June 30, 1994, approximately $34,900,000 (10.8%) of the
Company's fixed maturity securities were
considered non-investment grade. The Company defines non-
investment grade as unsecured corporate debt obligations which
do not have a rating equivalent to Standard and Poor's BBB or
higher (or similar rating agency), and are not guaranteed by an
agency of the federal government. Non-investment grade
securities are speculative and are subject to significantly
greater risks related to the creditworthiness of the issuers and
the liquidity of the market for such securities. The Company
carefully selects, and closely monitors, such investments.
Results of Operations
For the six month periods ended June 30, 1994 and 1993, the
Company reported net earnings of $1,474,000 and $456,000,
respectively. For the three month periods ended June 30, 1994
and 1993, the Company reported $28,000 and $520,000,
respectively.
Net investment income and interest credited to policyholders
account balances for the six months ended June 30, 1994
as compared to the same period in 1993 have
declined by approximately $10,310,000 and $11,896,000,
respectively, resulting in a net increase in interest spread of
$1,586,000. This increase in interest spread is primarily
attributable to the adjustment of the guaranteed interest
crediting rate on those contracts which have reached the end of
their interest rate guarantee period and were renewed at the
prevailing rate.
Net realized investment gains (losses) declined $3,833,000 for
the six months ended June 30, 1994 as compared to the same
period in 1993. Approximately $2,000,000 of the decline was
attributable to second quarter 1994 credit related adjustments
of book value on certain fixed maturity securities and a
commercial mortgage loan. The remainder of the decline was a
result of dispositions resulting in substantially reduced
net realized investment gains during the current six month
period as compared to the same period during 1993. During the
first six months of 1994, interest rates rose from the
historically low levels reached during 1993 generally reducing
the fair value of the fixed maturity securities portfolio.
Policy charge revenue increased $1,007,000 during the current
six month period as compared to the same period during 1993.
This is primarily attributable to the increase in contracts in
force of the variable annuity product.
Policy benefits increased approximately $533,000 during the
current six month period as compared to the same period during
1993 due to a period to period change in mortality experience.
The Company's reinsurance and risk retention programs have
remained unchanged between 1994 and 1993.
Amortization of deferred policy acquisition costs decreased
approximately $2,253,000 during the six months ended June 30,
1994 as compared to the same period in 1993. The Company adjusts
the amortization of deferred policy acquisition costs based on
realized investment gains recognized on normal dispositions
in the Company's investment portfolios. Approximately $1,000,000
of the decrease in deferred policy acquisition costs is
attributable to the decrease during 1994 in realized investment
gains. The remainder of the decrease in amortization is
attributable to a decline in fixed annuity contracts inforce
partially offset by an increase in the variable annuity
contracts inforce.
<PAGE>
Insurance expenses and taxes decreased approximately $999,000
during the current six month period as compared to the same
period during 1993. The reduction in expenses is attributable to
operational efficiencies and the completion during 1993 of
certain policy administration system enhancements.
I-1
<PAGE> 3
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
I-2
<PAGE> 4
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.
ML LIFE INSURANCE COMPANY OF NEW YORK
/s/ JOSEPH E. CROWNE
-------------------------------------
Joseph E. Crowne
Senior Vice President and
Chief Financial Officer
Date: August 11, 1994
I-3
