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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 QUARTERLY PERIOD ENDED MARCH 31, 1997
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
Item 1. Financial Statements.
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>
March 31, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $257,259; 1996 - $264,341) $ 258,798 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $9,392; 1996 - $8,975) 8,996 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 86,536 85,548
--------------- ---------------
Total Investments 354,330 367,567
CASH AND CASH EQUIVALENTS 17,513 7,828
ACCRUED INVESTMENT INCOME 7,352 5,952
DEFERRED POLICY ACQUISITION COSTS 28,814 29,272
REINSURANCE RECEIVABLES 326 1,065
OTHER ASSETS 3,411 4,569
SEPARATE ACCOUNTS ASSETS 597,234 591,814
--------------- ---------------
TOTAL ASSETS $ 1,008,980 $ 1,008,067
=============== ===============
</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.)
BALANCE SHEETS
(Continued) (Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 315,570 $ 318,567
Claims and claims settlement expenses 1,419 2,572
--------------- ---------------
Total policy liabilities and accruals 316,989 321,139
OTHER POLICYHOLDER FUNDS 1,648 1,160
FEDERAL INCOME TAXES - DEFERRED 339 626
FEDERAL INCOME TAXES - CURRENT 827 2,099
AFFILIATED PAYABLES - NET 3,531 5,026
OTHER LIABILITIES 2,438 1,649
SEPARATE ACCOUNTS LIABILITIES 597,234 591,814
--------------- ---------------
Total Liabilities 923,006 923,513
--------------- ---------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 72,040 72,040
Retained earnings 12,503 9,219
Net unrealized gain (loss) on investment securities available-for-sale (769) 1,095
--------------- ---------------
Total Stockholder's Equity 85,974 84,554
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,008,980 $ 1,008,067
=============== ===============
</TABLE>
See notes to financial statements
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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
March 31,
-------------------------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 6,377 $ 7,113
Net realized investment gains 2,459 381
Policy charge revenue 3,025 2,863
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Total Revenues 11,861 10,357
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 3,988 4,213
Market value adjustment expense 56 157
Policy benefits (net of reinsurance recoveries: 1997 - $66; 87 637
1996 - $225)
Reinsurance premium ceded 389 231
Amortization of deferred policy acquisition costs 1,223 1,046
Insurance expenses and taxes 1,291 1,158
--------------- ---------------
Total Benefits and Expenses 7,034 7,442
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Earnings Before Federal Income Tax Provision 4,827 2,915
FEDERAL INCOME TAX PROVISION
Current 828 670
Deferred 715 233
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Total Federal Income Tax Provision 1,543 903
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NET EARNINGS $ 3,284 $ 2,012
=============== ===============
</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 $ 24,034 $ 1,539 $ 110,779
Dividend to Parent (10,966) (24,034) (35,000)
Net earnings 9,219 9,219
Net unrealized investment loss (444) (444)
-------------- ------------- ------------ ----------- --------------
BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Net earnings 3,284 3,284
Net unrealized investment loss (1,864) (1,864)
-------------- ------------- ------------ ----------- -------------
BALANCE, March 31, 1997 $ 2,200 $ 72,040 $ 12,503 $ (769) $ 85,974
============== ============= ============ ============ =============
</TABLE>
See notes to financial statements
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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
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 3,284 $ 2,012
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 1,223 1,046
Capitalization of policy acquisition costs (765) (556)
Amortization, (accretion) and depreciation of investments (5) (60)
Net realized investment gains (2,459) (381)
Interest credited to policyholders' account balances 3,988 4,213
Provision for deferred Federal income tax 715 233
Changes in operating assets and liabilities:
Accrued investment income (1,400) (1,652)
Claims and claims settlement expenses (1,153) 2,744
Federal income taxes - current (1,272) 485
Other policyholder funds 488 347
Affiliates payables - net (1,495) 411
Policy loans on insurance contracts (988) 216
Other - net 2,687 (3,631)
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Net cash and cash equivalents provided by operating activities 2,848 5,427
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INVESTING ACTIVITIES:
Sales of available-for-sale securities 24,298 35,573
Maturities of available-for-sale securities 13,456 9,146
Purchases of available-for-sale securities (28,626) (25,221)
Mortgage loans principal payments received 2,057 -
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Net cash and cash equivalents provided by investing activities 11,185 19,498
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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
(Continued) (Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1997 1996
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<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 14,381 $ 6,574
Withdrawals (net of transfers to Separate Accounts) (18,729) (17,583)
--------------- ---------------
Net cash and cash equivalents used by financing activities (4,348) (11,009)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 9,685 13,916
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387
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End of period $ 17,513 $ 31,303
================ ===============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 2,099 $ 185
Intercompany interest 138 112
</TABLE>
See notes to financial statements
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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 and prevailing
industry practice requires management to make estimates that
affect the reported amounts and disclosure of contingencies in
the financial statements. Actual results could differ from
those estimates. Results for the three month periods ended
March 31, 1997 and 1996 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 1996 Annual Report on Form 10-K
("1996 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 March 31, 1997 and December 31, 1996,
was $55.9 million and $52.9 million, respectively. For the
three month periods ended March 31, 1997 and 1996, statutory
net income was $2.4 million and $2.3 million, respectively.
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 (loss) recorded
in stockholder's equity at March 31, 1997 and December 31,
1996:
1997 1996
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(In Thousands)
Assets:
Fixed maturity securities $ 1,539 $ 4,762
Equity securities (396) 1,884
Federal income taxes - deferred 413 (589)
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1,557 6,057
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Liabilities:
Policyholders' account balances 2,325 4,962
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Stockholder's equity:
Net unrealized gain (loss) on investment
securities available-for-sale $ (769) $ 1,095
========== ==========
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
1996 Financial Statements and Notes to Financial Statements
and the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the 1996 Report.
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 three months of 1997 and 1996 were $14.4 million and
$6.6 million, respectively. New variable annuity sales
increased $5.6 million as a result of enhanced sales efforts,
during the first quarter 1997, introducing five new externally
managed funds and an index fund managed by Merrill Lynch Asset
Management, L.P. New sales of the Company's modified
guaranteed annuity product increased $1.5 million primarily
due to interest rates being, on average, 69 basis points
higher during the first quarter 1997 than the first quarter
1996.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of March 31, 1997,
the Company's assets included $224 million of cash, short-term
investments and investment grade publicly traded fixed
maturity securities that could be liquidated if funds were
required.
As of March 31, 1997, approximately $12 million (4.8%) 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 three month periods ended March 31, 1997 and 1996, the
Company reported net earnings of $3.3 million and $2.0
million, respectively.
Net investment income and interest credited to policyholders'
account balances for the three months ended March 31, 1997 as
compared to the same period in 1996 have declined by
approximately $0.7 million and $0.2 million, respectively,
resulting in a net decrease in interest spread of $0.5
million. The reductions in net investment income and interest
spread are primarily a result of the fourth quarter 1996
stockholder dividend payments and the declining fixed rate
contracts inforce. The reduction in interest credited to
policyholders' account balances are primarily a result of
declining fixed rate contracts in-force.
Net realized investment gains (losses) increased $2 million
for the three months ended March 31, 1997 as compared to the
same period in 1996. The change in realized investment gains
is primarily attributable to $2.0 million of credit related
gains on the disposition of a single preferred stock
investment during the first three months of 1997.
Policy charge revenue increased $0.2 million during the
current three month period as compared to the same period
during 1996. The increase in policy charge revenue is
primarily attributable to the increase in policyholders'
variable annuity account balances.
Policy benefits decreased $0.5 million from $0.6 million for
the first three months of 1996 to $0.1 million. This decrease
is primarily attributable to one mortality claim for $0.4
million incurred during the first quarter 1996.
Amortization of deferred acquisition costs increased
approximately $0.2 million during the three months ended March
31, 1997 to $1.2 million. This increase is primarily
attributable to the decrease in policy benefits.
I-1
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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: May 13, 1997
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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 258,798
<EQUITIES> 8,996
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 354,330
<CASH> 17,513
<RECOVER-REINSURE> 326
<DEFERRED-ACQUISITION> 28,814
<TOTAL-ASSETS> 1,008,980
<POLICY-LOSSES> 1,419
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,648
<POLICY-HOLDER-FUNDS> 315,570
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 83,774
<TOTAL-LIABILITY-AND-EQUITY> 1,008,980
0
<INVESTMENT-INCOME> 6,377
<INVESTMENT-GAINS> 2,459
<OTHER-INCOME> 3,025
<BENEFITS> 87
<UNDERWRITING-AMORTIZATION> 1,223
<UNDERWRITING-OTHER> 1,291
<INCOME-PRETAX> 4,827
<INCOME-TAX> 1,543
<INCOME-CONTINUING> 3,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,284
<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>
