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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 MARCH 31, 1994
COMMISSION FILE NUMBER 33-34562; 33-60288
ML LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of Registrant as specified in its charter)
NEW YORK 16-1020455
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
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.
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PART I Financial Information
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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 March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
INVESTMENTS
Fixed maturity securities available for sale, at estimated fair
value (amortized cost: 1994 - $399,453; 1993 - $442,008) $ 402,114 $ 458,916
Equity securities available for sale, at estimated fair value
(cost: 1994 - $8,348; 1993 - $8,387) 10,685 7,195
Mortgage loans on real estate 17,627 17,627
Policy loans on insurance contracts 74,980 73,380
------------ ------------
Total Investments 505,406 557,118
CASH AND CASH EQUIVALENTS 13,739 26,919
ACCRUED INVESTMENT INCOME 9,131 10,164
DEFERRED POLICY ACQUISITION COSTS 26,821 24,036
FEDERAL INCOME TAXES - DEFERRED 11,915 10,468
REINSURANCE RECEIVABLES 1,633 1,685
OTHER ASSETS 5,877 4,310
SEPARATE ACCOUNTS ASSETS 445,828 410,613
------------ ------------
TOTAL ASSETS $ 1,020,350 $ 1,045,313
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</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.)
BALANCE SHEETS
(Concluded) (Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 458,835 $ 523,382
Claims and claims settlement expenses 5,575 5,614
------------ ------------
Total policy liabilities and accruals 464,410 528,996
OTHER POLICYHOLDER FUNDS 3,782 1,200
OTHER LIABILITIES 7,094 5,641
FEDERAL INCOME TAXES - CURRENT 1,968 864
PAYABLE TO AFFILIATES - NET 5,130 5,223
SEPARATE ACCOUNTS LIABILITIES 445,828 410,613
------------ ------------
Total Liabilities 928,212 952,537
------------ ------------
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 9,942 8,497
Net unrealized investment loss (3,010) (927)
------------ ------------
Total Stockholder's Equity 92,138 92,776
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,020,350 $ 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>
Three Months Ended
March 31,
---------------------------
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 9,615 $ 14,426
Net realized investment gains 35 580
Policy charge revenue 2,465 1,770
------------ ------------
Total Revenues 12,115 16,776
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 7,328 12,971
Market value adjustment expense 85 52
Policy benefits (reinsurance recoveries: 1994 - $78;
1993 - $265) 331 186
Reinsurance premium ceded 320 291
Amortization of deferred policy acquisition cost 1,034 2,156
Insurance expenses and taxes 794 1,217
------------ ------------
Total Benefits and Expenses 9,892 16,873
------------ ------------
Earnings (Loss) Before Federal Income
Tax Provision (Benefit) 2,223 (97)
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,104 496
Deferred (326) (529)
------------ ------------
Total Federal Income Tax Provision (Benefit) 778 (33)
------------ ------------
NET EARNINGS (LOSS) $ 1,445 $ (64)
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</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 stockholders'
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 1,445 0 1,445
Net unrealized investment loss 0 0 0 (2,083) (2,083)
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1994 $ 2,200 $ 83,006 $ 9,942 $ (3,010) $ 92,138
============ ============ ============ ============ ============
</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>
Three Months Ended
March 31,
---------------------------
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 1,445 $ (64)
Adjustments to reconcile net earnings (loss) to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 1,035 2,156
Capitalization of policy acquisition costs (2,393) (1,312)
Amortization of fixed maturity securities 4 241
Net realized investment gains (35) (580)
Interest credited to policyholders' account balances 7,328 12,971
Benefit for deferred Federal income tax (326) (529)
Cash and cash equivalents provided (used) by changes
in operating assets and liabilities:
Accrued investment income 1,033 124
Policy liabilities and accruals (39) (642)
Federal income taxes - current 1,104 828
Other policyholder funds 2,582 1,321
Payable from affiliates - net (92) 2,386
Policy loans (1,600) 363
Other - net (153) 5,902
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Net cash and cash equivalents provided by
operating activities 9,893 23,165
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INVESTING ACTIVITIES:
Fixed maturity securities sold 33,695 20,759
Fixed maturity securities matured 29,513 77,885
Fixed maturity securities purchased (20,533) (107,152)
Equity securities available for sale sold 68 0
Equity securities available for sale purchased (31) 0
------------ ------------
Net cash and cash equivalents provided (used) by
investing activities 42,712 (8,508)
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</TABLE>
See notes to financial statements
(continued)
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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>
Three Months Ended
March 31,
---------------------------
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 14,658 9,926
Withdrawals (net of transfers to Separate Accounts) (80,443) (63,730)
------------ ------------
Net cash and cash equivalents used by financing
activities (65,785) (53,804)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (13,180) (39,147)
CASH AND CASH EQUIVALENTS:
Beginning of year 26,919 41,122
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End of period $ 13,739 $ 1,975
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</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
MARCH 31, 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 months ended March 31, 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 recovered Federal income taxes of $0 and $(332,000)
for the three months ended March 31, 1994 and 1993,
respectively. The Company paid interest on affiliated borrowings
of $80,000 and $21,000 for the three months ended March 31, 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 March 31, 1994 and December 31, 1993, was
$61,366,000 and $57,333,000, respectively. For the three months
ended March 31, 1994 and 1993, statutory net income was
$3,077,000 and $605,000, 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.
Business Overview
The Company's gross 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 three
months of 1994 increased $4,732,000 to $14,658,000, when
compared to the same period in 1993. The increase was
attributable to an increase in sales of the Company's variable
annuity product.
For 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 three months of 1994, approximately
$77,000,000 of 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 or exchange the contract
for another annuity product offered by the Company 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
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
quarter of 1994 and for the year ending 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 $ 12 16% $ 76 25%
Exchanged into either the variable annuity
product or the market value adjusted
annuity product 40 51% 101 33%
Surrendered 25 33% 127 42%
------ ----- ------- -----
Total $ 77 100% $ 304 100%
The rates of renewal, exchange and surrender experienced are
consistent with management's projections.
To fund all business activities, the Company maintains an
investment portfolio of high quality and liquidity. As of March
31, 1994, the Company's invested assets and cash equivalents
consist of approximately 55% liquid or readily marketable
securities.
As of March 31, 1994, approximately $39,500,000 (9.8%)
of the Company's fixed maturity securities, were invested
in securities 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 three month periods ended March 31, 1994 and 1993, the
Company reported net earnings of $1,445,000 and a net loss of
$(64,000), respectively.
Net investment income and interest credited to policy holder
account balances for the three months ended March 31,
1994 as compared to the same period in 1993 have
declined by approximately $4,811,000 and $5,643,000,
respectively, resulting in a net increase in interest spread of
$832,000. 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 to the prevailing rate.
Net realized investment gains declined $545,000 for the three
months ended March 31, 1994 as compared to the same period in
1993 principally as a result of changes in the interest rate
environment between the two periods. During the first quarter 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 $695,000 during the current
three 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 $145,000 during the
current three 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 $1,122,000 during the three months ended March 31,
1994 as compared to the same period in 1993. ML of New York
adjusts the amortization of deferred policy acquisition costs
based on realized investment gains recognized on normal trading
activity in ML of New York's investment portfolios.
Approximately $500,000 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.
Insurance expenses and taxes decreased approximately $423,000
during the current three 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.
<PAGE> 4
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
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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: May 12, 1994
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</TABLE>
