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Previous: THIRD AVENUE VALUE FUND INC, 24F-2NT, 1995-11-14 |
Next: CMA MASSACHUSETTS MUN MON FD OF CMA MULTI STATE MUN SERS TRU, N-30D, 1995-11-14 |
<PAGE> 1
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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 SEPTEMBER 30, 1995
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.
- --------------------------------------------------------------------------------
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<PAGE> 2
PART I Financial Information
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1995 1994
------------------ ------------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair
value (amortized cost: 1995 - $295,786; 1994 - $297,551) $ 302,019 $ 286,078
Equity securities available for sale, at estimated fair value
(cost: 1995 - $2,929; 1994 - $3,987) 3,797 4,301
Mortgage loans on real estate 4,032 7,941
Policy loans on insurance contracts 79,787 77,827
------------------ ------------------
Total Investments 389,635 376,147
CASH AND CASH EQUIVALENTS 17,397 20,915
ACCRUED INVESTMENT INCOME 8,656 7,354
DEFERRED POLICY ACQUISITION COSTS 27,933 31,031
FEDERAL INCOME TAXES - DEFERRED 7,021 9,749
REINSURANCE RECEIVABLES 495 605
OTHER ASSETS 3,741 3,265
SEPARATE ACCOUNTS ASSETS 529,286 471,656
------------------ ------------------
TOTAL ASSETS $ 984,164 $ 920,722
================== ==================
</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) (Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31,
1995 1994
------------------ ------------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 337,933 $ 340,882
Claims and claims settlement expenses 2,058 4,314
------------------ ------------------
Total policy liabilities and accruals 339,991 345,196
OTHER POLICYHOLDER FUNDS 1,923 1,532
OTHER LIABILITIES 2,036 2,113
FEDERAL INCOME TAXES - CURRENT 1,383 170
PAYABLE TO AFFILIATES - NET 5,627 4,242
SEPARATE ACCOUNTS LIABILITIES 529,286 471,656
------------------ ------------------
Total Liabilities 880,246 824,909
------------------ ------------------
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 19,960 13,970
Net unrealized investment loss (1,248) (3,363)
------------------ ------------------
Total Stockholder's Equity 103,918 95,813
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 984,164 $ 920,722
================== ==================
</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) (Unaudited)
<TABLE>
<CAPTION>
Nine Month Ended
September 30,
--------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 22,248 $ 24,900
Net realized investment losses (514) (2,148)
Policy charge revenue 8,001 7,630
------------------ ------------------
Total Revenues 29,735 30,382
------------------ ------------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 13,164 18,057
Market value adjustment expense 73 130
Policy benefits (net of reinsurance recoveries: 1995 - $793;
1994 - $432) 655 1,246
Reinsurance premium ceded 822 836
Amortization of deferred policy acquisition costs 3,115 2,944
Insurance expenses and taxes 2,764 2,502
------------------ ------------------
Total Benefits and Expenses 20,593 25,715
------------------ ------------------
Earnings Before Federal Income
Tax Provision 9,142 4,667
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,565 (383)
Deferred 1,587 1,331
------------------ ------------------
Total Federal Income Tax Provision 3,152 948
------------------ ------------------
NET EARNINGS $ 5,990 $ 3,719
================== ==================
</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) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 7,239 $ 7,549
Net realized investment losses (115) (896)
Policy charge revenue 2,772 2,640
------------------ ------------------
Total Revenues 9,896 9,293
------------------ ------------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 4,263 4,781
Market value adjustment expense 73 9
Policy benefits (net of reinsurance recoveries: 1995 - $205;
1994 - $200) 161 98
Reinsurance premium ceded 212 204
Amortization of deferred policy acquisition costs 590 1,009
Insurance expenses and taxes 1,048 793
------------------ ------------------
Total Benefits and Expenses 6,347 6,894
------------------ ------------------
Earnings Before Federal Income
Tax Provision 3,549 2,399
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 329 (2,029)
Deferred 867 2,184
------------------ ------------------
Total Federal Income Tax Provision 1,196 155
------------------ ------------------
NET EARNINGS $ 2,353 $ 2,244
================== ==================
</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) (Unaudited)
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common Stock paid-in Retained investment stockholder's
capital earnings loss equity
------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 2,200 $ 83,006 $ 8,497 $ (927) $ 92,776
Net earnings 0 0 5,473 0 5,473
Net unrealized investment loss 0 0 0 (2,436) (2,436)
------------- ------------- ------------- ------------- ---------------
BALANCE, DECEMBER 31, 1994 2,200 83,006 13,970 (3,363) 95,813
Net earnings 0 0 5,990 0 5,990
Net unrealized investment gain 0 0 0 2,115 2,115
------------- ------------- ------------- ------------- ---------------
BALANCE, September 30, 1995 $ 2,200 $ 83,006 $ 19,960 $ (1,248) $ 103,918
============= ============= ============= ============= =============
</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) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,990 $ 3,719
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 3,115 2,944
Capitalization of policy acquisition costs (3,365) (6,958)
Amortization of fixed maturity securities (294) (262)
Net realized investment losses 514 2,148
Interest credited to policyholders' account balances 13,164 18,057
Provision (benefit) for deferred Federal income tax 1,587 1,331
Cash and cash equivalents provided (used) by changes
in operating assets and liabilities:
Accrued investment income (1,302) 2,213
Claims and claim settlement expenses (2,256) (3,292)
Federal income taxes - current 1,213 (2,893)
Other policyholder funds 391 1,646
Payable to affiliates - net 1,385 218
Change in policy loans (1,960) (2,447)
Other - net (476) (5,051)
------------------ ------------------
Net cash and cash equivalents provided by
operating activities 17,706 11,373
------------------ ------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 57,629 91,690
Fixed maturity securities matured 30,975 79,814
Fixed maturity securities purchased (85,667) (45,282)
Equity securities available for sale sold 0 4,955
Equity securities available for sale purchased 0 (28)
Mortgage loans on real estate sold 3,608 9,000
------------------ ------------------
Net cash and cash equivalents provided by
investing activities 6,545 140,149
------------------ ------------------
</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) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 33,434 45,800
Withdrawals (includes transfers to Separate Accounts) (61,203) (216,415)
------------------ ------------------
Net cash and cash equivalents used by financing
activities (27,769) (170,615)
------------------ ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,518) (19,093)
CASH AND CASH EQUIVALENTS:
Beginning of year 20,915 27,464
------------------ ------------------
End of period $ 17,397 $ 8,371
================== ==================
Supplementary Disclosure of Cash Flow
Information:
Cash paid for:
Federal income taxes $ 352 $ 865
Intercompany interest $ 347 $ 177
</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 (UNAUDITED)
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 month and nine month periods
ended September 30, 1995 and 1994 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 1994 Annual Report on Form 10-
K ("1994 Report").
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 September 30, 1995 and December 31, 1994,
was $72.2 million and $64.9 million, respectively. For the nine
months ended September 30, 1995 and 1994, statutory net income
was $5.3 million and $3.7 million, respectively.
NOTE 3. ACCOUNTING CHANGES:
In the first quarter of 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS No. 114 establishes
accounting standards for creditors to measure the impairment of
certain loans. SFAS No. 118 amends SFAS No. 114 to allow
creditors to use existing methods for recognizing interest
income on an impaired loan, rather than the method originally
required by SFAS No. 114. The impact of these pronouncements on
the Company's financial statements as of September 30, 1995 was
not material.
NOTE 4. INVESTMENTS:
The Company's investments in debt and equity securities are
classified as available for sale and are recorded at fair value.
The Company is required to adjust deferred policy acquisition
costs and certain policyholder liabilities associated with
investments classified as available for sale. These adjustments
are recorded in stockholder's equity and assume that the
unrealized gain or loss on available for sale securities was
realized. These investments primarily support in-force,
universal life-type contracts under SFAS No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments". The table that follows provides the components of
the unrealized loss recorded in stockholder's equity for
available for sale investments:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1995 1994
------------------ ------------------
(In Thousands)
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $ 6,233 $ (11,473)
Equity securities available for sale 868 314
Deferred policy acquisition costs (171) 3,177
Federal income taxes - deferred 671 1,812
------------------ ------------------
7,601 (6,170)
------------------ ------------------
Liabilities:
Policyholders' account balances 8,849 (2,807)
------------------ ------------------
Stockholder's equity:
Net unrealized investment loss $ (1,248) $ (3,363)
================= ==================
</TABLE>
<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 1994
Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and
Results of Operations in the 1994 Report.
Changes in revenues and expenses in most cases are similar for
the three month and nine month periods. Therefore, the
discussion emphasizes the comparison between the nine months of
1995 and 1994, 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 in-force contracts.
New life insurance premium and annuity deposits received in the
first nine months of 1995 and 1994 were $33.4 million and $45.8
million, respectively. Variable annuity deposits received during
the first nine months of 1995 decreased $24.2 million to $11.7
million as compared to the same period in 1994. However,
modified guaranteed annuity sales increased $10.6 million from
$6.0 million during the first nine months of 1994 to $16.6
million during the first nine months of 1995. The increase in
modified guaranteed annuity sales trended higher during the
first three months of 1995; however, sales decreased during the
next six months as interest rates declined. The decline in total
life insurance and annuity deposits received during the first
nine months of 1995 as compared to the same period in 1994 is
reflective of increased competition by non-affiliated insurers
whose products may also be sold through Merrill Lynch & Co.'s
retail network.
During the first nine months of 1995, approximately $47.8
million 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 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 nine months of 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------ -------------------
Amount % Amount %
----------- ----- ------------ -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Renewed with an adjustment to the
applicable interest crediting rate $ 8 16% $ 23 12%
Exchanged into either the variable annuity
product or the market value adjusted
annuity product offered by the Company 22 46% 96 50%
Surrendered 18 38% 73 38%
----------- ----- ------------ -----
Total $ 48 100% $ 192 100%
=========== ===== ============ =====
</TABLE>
The rates of renewal, exchange and surrender experienced are
consistent with management's expectations.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of September 30,
1995, the Company's assets included $260.0 million of cash,
short-term investments and investment grade publicly traded
fixed maturity securities that could be liquidated if funds were
required.
As of September 30, 1995, approximately $13.8 million (4.6%) 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.
During the third quarter 1995, the Company sold to an affiliate
a $3.8 million participation interest in a mortgage loan which
was in default. The participation interest was valued utilizing
the appraised value of the underlying collateral of this
mortgage loan.
Results of Operations
For the nine month periods ended September 30, 1995 and 1994,
the Company reported net earnings of $6.0 million and $3.7
million, respectively. For the three month periods ended
September 30, 1995 and 1994, the Company reported $2.4 million
and $2.2 million, respectively.
Net investment income and interest credited to policyholders'
account balances for the nine months ended September 30, 1995 as
compared to the same period in 1994 have declined by
approximately $2.7 million and $4.9 million, respectively,
resulting in a net increase in interest spread of $2.2 million.
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 losses declined $1.6 million for the
nine months ended September 30, 1995 as compared to the same
period in 1994. During both the second quarter 1995 and 1994,
the Company recorded credit related adjustments of book value on
certain investments of $0.8 million and $2.0 million,
respectively. The remaining change in realized investment losses
is primarily attributable to normal sales activity from the
available for sale portfolios.
Policy benefits decreased approximately $0.7 million from $1.2
million for the first nine months of 1994 to $0.7 million for
the current nine month period. This decrease is primarily
attributable to a decrease in mortality claims during the
current nine month period as compared to the same period during
1994.
Amortization of deferred policy acquisition costs increased
approximately $0.2 million during the nine months ended
September 30, 1995 as compared to the same period in 1994.
During the current quarter, the Company reevaluated the expected
gross profits on certain of it's life insurance and annuity in-
force contracts and determined that life to date amortization
required adjustments. As a result, the Company recorded a
reduction in amortization of $0.5 million. The increase in
amortization is primarily attributable to the increase in
variable annuity contracts in-force.
The Company's effective federal income tax rate increased from
20% during the first nine months of 1994 to 34% for the same
period during 1995, principally as a result of recording an
adjustment to pre-1994 tax liabilities during the third quarter
1994.
<PAGE>
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.
Financial Data Schedule.
(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: November 14, 1995
I-3
<PAGE> 5
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 302019
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3797
<MORTGAGE> 4032
<REAL-ESTATE> 0
<TOTAL-INVEST> 389635
<CASH> 17397
<RECOVER-REINSURE> 495
<DEFERRED-ACQUISITION> 27933
<TOTAL-ASSETS> 984164
<POLICY-LOSSES> 2058
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1923
<POLICY-HOLDER-FUNDS> 337933
<NOTES-PAYABLE> 0
<COMMON> 2200
0
0
<OTHER-SE> 101718
<TOTAL-LIABILITY-AND-EQUITY> 984164
0
<INVESTMENT-INCOME> 22248
<INVESTMENT-GAINS> (514)
<OTHER-INCOME> 8001
<BENEFITS> 655
<UNDERWRITING-AMORTIZATION> 3115
<UNDERWRITING-OTHER> 2764
<INCOME-PRETAX> 9142
<INCOME-TAX> 3152
<INCOME-CONTINUING> 5990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5990
<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>
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