<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 JUNE 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
I-1
<PAGE> 3
<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 June 30, December 31,
1995 1994
----------------- -----------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair
value (amortized cost: 1995 - $283,948; 1994 - $297,551) $ 291,408 $ 286,078
Equity securities available for sale, at estimated fair value
(cost: 1995 - $3,114; 1994 - $3,987) 3,844 4,301
Mortgage loans on real estate 7,620 7,941
Policy loans on insurance contracts 77,992 77,827
----------------- -----------------
Total Investments 380,864 376,147
CASH AND CASH EQUIVALENTS 24,450 20,915
ACCRUED INVESTMENT INCOME 7,276 7,354
DEFERRED POLICY ACQUISITION COSTS 27,382 31,031
FEDERAL INCOME TAXES - DEFERRED 8,551 9,749
REINSURANCE RECEIVABLES 611 605
OTHER ASSETS 9,618 3,265
SEPARATE ACCOUNTS ASSETS 507,299 471,656
----------------- -----------------
TOTAL ASSETS $ 966,051 $ 920,722
================= =================
See notes to financial statements (Continued)
</TABLE>
<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 June 30, December 31,
1995 1994
----------------- -----------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 340,430 $ 340,882
Claims and claims settlement expenses 3,598 4,314
----------------- -----------------
Total policy liabilities and accruals 344,028 345,196
OTHER POLICYHOLDER FUNDS 1,233 1,532
OTHER LIABILITIES 6,047 2,113
FEDERAL INCOME TAXES - CURRENT 1,407 170
PAYABLE TO AFFILIATES - NET 5,700 4,242
SEPARATE ACCOUNTS LIABILITIES 507,299 471,656
----------------- -----------------
Total Liabilities 865,714 824,909
----------------- -----------------
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 17,606 13,970
Net unrealized investment loss (2,475) (3,363)
----------------- -----------------
Total Stockholder's Equity 100,337 95,813
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 966,051 $ 920,722
================= =================
See notes to financial statements
</TABLE>
<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>
Six Months Ended
June 30,
-----------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 15,009 $ 17,351
Net realized investment losses (399) (1,252)
Policy charge revenue 5,229 4,869
---------------- -----------------
Total Revenues 19,839 20,968
---------------- -----------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 8,901 13,276
Policy benefits (net of reinsurance recoveries: 1995 - $588;
1994 - $280) 494 1,148
Reinsurance premium ceded 610 632
Amortization of deferred policy acquisition costs 2,525 1,935
Insurance expenses and taxes 1,716 1,710
---------------- -----------------
Total Benefits and Expenses 14,246 18,701
---------------- -----------------
Earnings Before Federal Income
Tax Provision 5,593 2,267
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,237 1,646
Deferred 720 (853)
---------------- -----------------
Total Federal Income Tax Provision 1,957 793
---------------- -----------------
NET EARNINGS $ 3,636 $ 1,474
================ =================
See notes to financial statements
</TABLE>
<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
June 30,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 7,318 $ 7,736
Net realized investment losses (138) (1,287)
Policy charge revenue 2,627 2,489
---------------- ----------------
Total Revenues 9,807 8,938
---------------- ----------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 4,353 5,948
Policy benefits (net of reinsurance recoveries: 1995 - $188;
1994 - $159) 398 817
Reinsurance premium ceded 297 312
Amortization of deferred policy acquisition costs 1,377 901
Insurance expenses and taxes 847 916
---------------- ----------------
Total Benefits and Expenses 7,272 8,894
---------------- ----------------
Earnings Before Federal Income
Tax Provision 2,535 44
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,055 542
Deferred (168) (527)
---------------- ----------------
Total Federal Income Tax Provision 887 15
---------------- ----------------
NET EARNINGS $ 1,648 $ 29
================ ================
See notes to financial statements
</TABLE>
<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 paid-in Retained investment stockholder's
Stock 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 3,636 0 3,636
Net unrealized investment gain 0 0 0 888 888
-------------- -------------- -------------- ------------- -----------------
BALANCE, JUNE 30, 1995 $ 2,200 $ 83,006 $ 17,606 $ (2,475) $ 100,337
============== ============== ============== ============= =================
</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>
Six Months Ended
June 30,
-----------------------------------
1995 1994
<S> ----------------- -----------------
OPERATING ACTIVITIES: <C> <C>
Net earnings $ 3,636 $ 1,474
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 2,525 1,935
Capitalization of policy acquisition costs (2,534) (5,308)
Amortization of fixed maturity securities (235) (68)
Net realized investment losses 399 1,252
Interest credited to policyholders' account balances 8,901 13,276
Provision (benefit) for deferred Federal income tax 720 (853)
Cash and cash equivalents provided (used) by changes in
operating assets and liabilities:
Accrued investment income 78 2,041
Claims and claim settlement expenses (716) (3,689)
Federal income taxes - current 1,237 782
Other policyholder funds (299) 1,723
Payable to affiliates - net 1,458 2,102
Change in policy loans (165) (4,044)
Other - net (2,427) 1,547
Net cash and cash equivalents provided by ----------------- -----------------
operating activities 12,578 12,170
----------------- -----------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 53,569 80,396
Fixed maturity securities matured 19,219 55,404
Fixed maturity securities purchased (58,155) (24,312)
Equity securities available for sale sold 0 1,501
Equity securities available for sale purchased 0 (29)
Mortgage loans on real estate principal payments received 0 9,000
Net cash and cash equivalents provided by ----------------- -----------------
investing activities 14,633 121,960
----------------- -----------------
</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>
Six Months Ended
June 30,
-----------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 22,346 31,369
Withdrawals (includes transfers to Separate Accounts) (46,022) (172,813)
Net cash and cash equivalents used by financing ----------------- -----------------
activities (23,676) (141,444)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,535 (7,314)
CASH AND CASH EQUIVALENTS:
Beginning of year 20,915 26,919
----------------- ------------------
End of period $ 24,450 $ 19,605
================= ==================
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 0 $ 865
Intercompany interest $ 228 $ 177
See notes to financial statements
</TABLE>
<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 six month periods
ended June 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 June 30, 1995 and December 31, 1994, was
$68.7 million and $64.9 million, respectively. For the six months
ended June 30, 1995 and 1994, statutory net income was $3.2
million and $4.4 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 June 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>
June 30, Dec. 31,
1995 1994
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $ 7,460 $ (11,473)
Equity securities available for sale 730 314
Deferred policy acquisition costs (481) 3,177
Federal income taxes - deferred 1,334 1,812
-------------- --------------
9,043 (6,170)
-------------- --------------
Liabilities:
Policyholders' account balances 11,518 (2,807)
-------------- --------------
Stockholder's equity:
Net unrealized investment loss $ (2,475) $ (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 six month periods. Therefore, the discussion
emphasizes the comparison between the six 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 six months of 1995 and 1994 were $22.3 million and $31.4
million, respectively. Variable annuity deposits received during
the first six months of 1995 decreased $22.1 million to $5.4
million as compared to the same period in 1994. However, modified
guaranteed annuity sales increased $12.6 million from $1.7
million during the first six months 1994 to $14.2 million during
the first six months of 1995. The increase in modified guaranteed
annuity sales trended higher during the first quarter of 1995,
however, sales decreased during the second quarter as interest
rates declined. The decline in total life insurance and annuity
deposits received during the first six 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. Additionally, the
volatility in the equity markets during 1995 resulted in reduced
investor demand for the Company's variable annuity product.
During the first six months of 1995, approximately $42.0 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 six months of 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
Amount % Amount %
---------- ----- --------- -----
<S> <C> <C> <C> <C>
Renewed with an adjustment to the (Dollars in Millions)
applicable interest crediting rate $ 7 17% $ 25 15%
Exchanged into either the variable annuity
product or the market value adjusted
annuity product offered by the Company 20 47% 83 49%
Surrendered 15 36% 60 36%
---------- ----- --------- -----
Total $ 42 100% $ 168 100%
========== ===== ========= =====
</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 June 30, 1995, the
Company's assets included $249.0 million of cash, short-term
investments and investment grade publicly traded fixed maturity
securities that could be liquidated if funds were required.
As of June 30, 1995, approximately $22.8 million (7.8%) 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, 1995 and 1994, the
Company reported net earnings of $3.6 million and $1.5 million,
respectively. For the three month periods ended June 30, 1995 and
1994, the Company reported $1.6 million and $0.0 million,
respectively.
Net investment income and interest credited to policyholders'
account balances for the six months ended June 30, 1995 as
compared to the same period in 1994 have declined by
approximately $2.3 million and $4.4 million, respectively,
resulting in a net increase in interest spread of $2.1 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 $0.9 million for the six
months ended June 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 charge revenue increased $0.4 million during the current
six month period as compared to the same period during 1994. The
increase in policy charge revenue is primarily attributable to
the increase in policyholder's account balances of the variable
annuity product.
Policy benefits decreased approximately $0.6 million from $1.1
million for the first six months of 1994 to $0.5 million for the
current six month period. This decrease is primarily attributable
to a decrease in mortality claims during the current six month
period as compared to the same period during 1994.
Amortization of deferred policy acquisition costs increased
approximately $0.6 million during the six months ended June 30,
1995 as compared to the same period in 1994. The increase in
amortization is primarily attributable to the increase in
variable annuity contracts in-force.
<PAGE>
<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.
Financial Data Schedule.
(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: August 10, 1995
I-3
<PAGE> 6
EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 291,408
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,844
<MORTGAGE> 7,620
<REAL-ESTATE> 0
<TOTAL-INVEST> 380,864
<CASH> 24,450
<RECOVER-REINSURE> 611
<DEFERRED-ACQUISITION> 27,382
<TOTAL-ASSETS> 966,051
<POLICY-LOSSES> 3,598
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,233
<POLICY-HOLDER-FUNDS> 340,430
<NOTES-PAYABLE> 0
<COMMON> 2,200
0
0
<OTHER-SE> 98,137
<TOTAL-LIABILITY-AND-EQUITY> 966,051
0
<INVESTMENT-INCOME> 15,009
<INVESTMENT-GAINS> (399)
<OTHER-INCOME> 5,229
<BENEFITS> 494
<UNDERWRITING-AMORTIZATION> 2,525
<UNDERWRITING-OTHER> 1,716
<INCOME-PRETAX> 5,593
<INCOME-TAX> 1,957
<INCOME-CONTINUING> 3,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,636
<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>
