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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, 1996
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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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
1996 1995
------------ -----------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available-for-sale, at estimated fair value
(amortized cost: 1996 - $271,741; 1995 - $295,403) $ 274,712 $ 307,596
Equity securities available-for-sale, at estimated fair value
(cost: 1996 - $6,964; 1995 - $3,017) 9,780 3,534
Mortgage loans on real estate 4,057 4,032
Policy loans on insurance contracts 85,180 82,073
------------ -----------
Total Investments 373,729 397,235
CASH AND CASH EQUIVALENTS 31,793 17,387
ACCRUED INVESTMENT INCOME 7,728 6,603
DEFERRED POLICY ACQUISITION COSTS 30,131 30,922
FEDERAL INCOME TAXES - CURRENT 1,817 0
FEDERAL INCOME TAXES - DEFERRED 0 3,622
REINSURANCE RECEIVABLES 1,319 493
OTHER ASSETS 3,658 2,653
SEPARATE ACCOUNTS ASSETS 569,228 544,432
------------ -----------
TOTAL ASSETS $ 1,019,403 $1,003,347
============ ===========
</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
1996 1995
------------ -----------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 318,337 $ 337,137
Claims and claims settlement expenses 5,689 2,901
------------ -----------
Total policy liabilities and accruals 324,026 340,038
OTHER POLICYHOLDER FUNDS 1,741 739
OTHER LIABILITIES 1,944 3,112
FEDERAL INCOME TAXES - CURRENT 0 185
FEDERAL INCOME TAXES - DEFERRED 561 0
PAYABLE TO AFFILIATES - NET 5,008 4,062
SEPARATE ACCOUNTS LIABILITIES 569,228 544,432
------------ -----------
Total Liabilities 902,508 892,568
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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 30,247 24,034
Net unrealized gain on investment securities available-for-sale 1,442 1,539
------------ -----------
Total Stockholder's Equity 116,895 110,779
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,019,403 $1,003,347
============ ===========
</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 Months Ended
September 30,
------------------------------
1996 1995
---------- -----------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 20,753 $ 22,248
Net realized investment gains (losses) 622 (514)
Policy charge revenue 8,850 8,001
---------- -----------
Total Revenues 30,225 29,735
---------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 12,514 13,164
Market value adjustment expense 222 73
Policy benefits (net of reinsurance recoveries: 1996 - $1,551;
1995 - $793) 1,520 655
Reinsurance premium ceded 907 822
Amortization of deferred policy acquisition costs 2,328 3,115
Insurance expenses and taxes 3,509 2,764
---------- -----------
Total Benefits and Expenses 21,000 20,593
---------- -----------
Earnings Before Federal Income
Tax Provision 9,225 9,142
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (1,223) 1,565
Deferred 4,235 1,587
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Total Federal Income Tax Provision 3,012 3,152
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NET EARNINGS $ 6,213 $ 5,990
========== ===========
</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,
-----------------------------
1996 1995
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 6,804 $ 7,239
Net realized investment gains (losses) 45 (115)
Policy charge revenue 3,139 2,772
--------- ----------
Total Revenues 9,988 9,896
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 4,126 4,263
Market value adjustment expense 222 73
Policy benefits (net of reinsurance recoveries: 1996 - $886;
1995 - $205) 427 161
Reinsurance premium ceded 342 212
Amortization of deferred policy acquisition costs 530 590
Insurance expenses and taxes 1,172 1,048
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Total Benefits and Expenses 6,819 6,347
---------- ----------
Earnings Before Federal Income
Tax Provision 3,169 3,549
FEDERAL INCOME TAX PROVISION:
Current 750 329
Deferred 336 867
---------- ----------
Total Federal Income Tax Provision 1,086 1,196
---------- ----------
NET EARNINGS $ 2,083 $ 2,353
========== ==========
</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 paid-in Retained investment stockholder's
Stock capital earnings gain (loss) equity
--------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,200 $ 83,006 $ 13,970 $ (3,363) $ 95,813
Net earnings 0 0 10,064 0 10,064
Net unrealized investment gain 0 0 0 4,902 4,902
--------- ---------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,200 83,006 24,034 1,539 110,779
--------- ---------- ---------- ----------- -------------
Net earnings 0 0 6,213 0 6,213
Net unrealized investment loss 0 0 0 (97) (97)
---------- ---------- ---------- ----------- -------------
BALANCE, September 30, $ 2,200 $ 83,006 $ 30,247 $ 1,442 $ 116,895
========== ========== ========== =========== =============
</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,
----------------------------
1996 1995
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<C> <C>
OPERATING ACTIVITIES:
Net earnings $ 6,213 $ 5,990
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 2,328 3,115
Capitalization of policy acquisition costs (1,537) (3,365)
(Accretion) and amortization of fixed maturity securities 3 (294)
Net realized investment (gains) losses (622) 514
Interest credited to policyholders' account balances 12,514 13,164
Provision for deferred Federal income tax 4,235 1,587
Cash and cash equivalents provided (used) by changes
in operating assets and liabilities:
Accrued investment income (1,125) (1,302)
Claims and claim settlement expenses 2,788 (2,256)
Federal income taxes - current (2,002) 1,213
Other policyholder funds 1,002 391
Payable to affiliates - net 946 1,385
Change in policy loans (3,107) (1,960)
Other - net (3,024) (476)
-------- --------
Net cash and cash equivalents provided by operating activities 18,612 17,706
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INVESTING ACTIVITIES:
Fixed maturity securities sold 88,824 57,629
Fixed maturity securities matured 26,481 30,975
Fixed maturity securities purchased (91,359) (85,667)
Equity securities sold 460 0
Equity securities purchased (4,072) 0
Mortgage loans on real estate sold 0 3,608
-------- --------
Net cash and cash equivalents provided by investing activities 20,334 6,545
-------- --------
</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,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 22,984 33,434
Withdrawals (includes transfers to Separate Accounts) (47,524) (61,203)
----------- -----------
Net cash and cash equivalents used by financing activities (24,540) (27,769)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,406 (3,518)
CASH AND CASH EQUIVALENTS:
Beginning of year 17,387 20,915
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End of period $ 31,793 $ 17,397
=========== ===========
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 779 $ 352
Intercompany interest $ 333 $ 347
</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. The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Results for the three months and nine months
ended September 30, 1996 and 1995 are not necessarily indicative
of annual results. These unaudited financial statements should
be read in conjunction with the financial statements and the
notes thereto included in the Company's 1995 Annual Report on
Form 10-K ("1995 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, 1996 and December 31, 1995,
was $84.2 million and $72.1 million, respectively. For the nine
months ended September 30, 1996 and 1995, statutory net income
was $10 million and $5 million, respectively.
<PAGE>
NOTE 3. 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. The following reconciles the net
unrealized investment gain recorded in stockholder's equity at
September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
(In Thousands)
Assets:
Fixed maturity securities available for sale $ 2,971 $ 12,193
Equity securities available for sale 2,816 517
Federal income taxes - deferred (777) (829)
-------- ---------
5,010 11,881
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Liabilities:
Policyholders' account balances 3,568 10,342
-------- ---------
Stockholder's equity:
Net unrealized gain on investment securities available-for-sale $ 1,442 $ 1,539
======== =========
</TABLE>
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 1995
Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and
Results of Operations in the 1995 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
1996 and 1995, 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
deferred and 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 1996 and 1995 were $22.9 million and $33.4
million, respectively. During the first nine months of 1996,
interest rates were, on average, lower than for the same period
for 1995. The Company's modified guaranteed annuity product, a
fixed interest rate product, experienced a $14.0 million (84%)
decline in sales during the first nine months of 1996 as
compared to the same period during 1995. Partially offsetting
this decline in sales, variable annuity deposits received during
the first nine months of 1996 increased $3.5 million (30%) to
$15.2 million as compared to the same period in 1995. Management
attributes the shift in investor demand from fixed interest rate
products to variable products to the lower interest rate
environment and the generally rising equity markets during the
preceding nine months.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of September 30,
1996, the Company's assets included $246 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, 1996, approximately $13 million (4.9%) 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 nine month periods ended September 30, 1996 and 1995,
the Company reported net earnings of $6.2 million and $6.0
million, respectively. During the three months ended September
30, 1996 and 1995, the Company reported net earnings of $2.1
million and $2.4 million, respectively.
Net investment income and interest credited to policyholders'
account balances for the nine months ended September 30, 1996 as
compared to the same period in 1995 have declined by
approximately $1.5 million and $0.7 million, respectively,
resulting in a net decrease in interest spread of $0.8 million.
The reductions in net investment income, interest credited to
policyholders' account balances and interest spread are
primarily attributable to the reduction in fixed rate contracts
in-force.
Net realized investment gains (losses) increased $1 million for
the nine months ended September 30, 1996 as compared to the same
period in 1995. The change in realized investment losses is
primarily attributable to $0.8 million of credit related
adjustments to the book value of investments being recorded
during the first nine months of 1995. There have been no credit
related adjustments recorded during 1996.
Policy charge revenue increased $0.8 million during the current
nine month period as compared to the same period during 1995.
The increase in policy charge revenue is primarily attributable
to the increase in policyholders' account balances of the
variable annuity product.
Policy benefits increased approximately $0.8 million from $0.7
million for the first nine months of 1995 to $1.5 million. This
increase is primarily attributable to an increase in mortality
claims during the current nine month period as compared to the
same period during 1995.
Amortization of deferred acquisition costs decreased
approximately $0.8 million during the nine months ended
September 30, 1996 to $2.3 million. This decrease is primarily
attributable to lower gross profits on the Company's variable
life product line resulting from the increase in policy
benefits.
Insurance expenses and taxes increased $0.7 million to $3.5
million, during the current nine month period as compared to the
same period during 1995. Approximately $0.2 million of the
increase was attributable to normal increases in operating
expenses and product development initiatives. Implementation of
modifications to MLIG's cost allocation system resulted in a
$0.4 million increase in expense allocations to the Company.
These modifications were implemented to facilitate the Company's
compliance with New York insurance law. Additionally, $0.1
million of the increase was attributable to a reduction in the
amount of expenses which were capitalized reflecting the decline
in sales volume of the Company's annuity products.
<PAGE>
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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: November 13, 1996
I-3
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EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 274,712
<EQUITIES> 9,780
<MORTGAGE> 4,057
<REAL-ESTATE> 0
<TOTAL-INVEST> 373,729
<CASH> 31,793
<RECOVER-REINSURE> 1,319
<DEFERRED-ACQUISITION> 30,131
<TOTAL-ASSETS> 1,019,403
<POLICY-LOSSES> 5,689
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,741
<POLICY-HOLDER-FUNDS> 318,337
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 114,695
<TOTAL-LIABILITY-AND-EQUITY> 1,019,403
0
<INVESTMENT-INCOME> 20,753
<INVESTMENT-GAINS> 622
<OTHER-INCOME> 8,850
<BENEFITS> 1,520
<UNDERWRITING-AMORTIZATION> 2,328
<UNDERWRITING-OTHER> 3,509
<INCOME-PRETAX> 9,225
<INCOME-TAX> 3,012
<INCOME-CONTINUING> 6,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,213
<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>
