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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 SEPTEMBER 30, 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>
ASSETS September 30, December 31,
1997 1996
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<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $241,121; 1996 - $264,341) $ 246,731 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $14,523; 1996 - $8,975) 13,858 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 89,300 85,548
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Total Investments 349,889 367,567
CASH AND CASH EQUIVALENTS 27,728 7,828
ACCRUED INVESTMENT INCOME 7,503 5,952
DEFERRED POLICY ACQUISITION COSTS 29,718 29,272
REINSURANCE RECEIVABLES 155 1,065
OTHER ASSETS 6,082 4,569
SEPARATE ACCOUNTS ASSETS 736,476 591,814
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TOTAL ASSETS $ 1,157,551 $ 1,008,067
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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.)
BALANCE SHEETS
(Continued) (Dollars in Thousands, Except Per Share Amounts) (Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31,
1997 1996
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<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 315,258 $ 318,567
Claims and claims settlement expenses 1,992 2,572
-------------- --------------
Total policy liabilities and accruals 317,250 321,139
OTHER POLICYHOLDER FUNDS 2,039 1,160
FEDERAL INCOME TAXES - DEFERRED 1,876 626
FEDERAL INCOME TAXES - CURRENT 1,531 2,099
AFFILIATED PAYABLES - NET 3,917 5,026
OTHER LIABILITIES 3,090 1,649
SEPARATE ACCOUNTS LIABILITIES 736,476 591,814
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Total Liabilities 1,066,179 923,513
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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 17,022 9,219
Net unrealized gain on investment securities available-for-sale 110 1,095
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Total Stockholder's Equity 91,372 84,554
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,157,551 $ 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>
Nine Months Ended
September 30,
-------------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 19,157 $ 20,753
Net realized investment gains 2,119 622
Policy charge revenue 9,485 8,850
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Total Revenues 30,761 30,225
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 10,690 12,514
Market value adjustment expense 181 222
Policy benefits (net of reinsurance recoveries: 1997 - $241;
1996 - $1,551) 285 1,520
Reinsurance premium ceded 1,168 907
Amortization of deferred policy acquisition costs 3,205 2,328
Insurance expenses and taxes 3,468 3,509
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Total Benefits and Expenses 18,997 21,000
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Earnings Before Federal Income Tax Provision 11,764 9,225
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 2,182 (1,223)
Deferred 1,779 4,235
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Total Federal Income Tax Provision 3,961 3,012
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NET EARNINGS $ 7,803 $ 6,213
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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 EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 6,343 $ 6,804
Net realized investment gains 15 45
Policy charge revenue 3,350 3,139
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Total Revenues 9,708 9,988
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 2,838 4,126
Market value adjustment expense 89 222
Policy benefits (net of reinsurance recoveries: 1997 - $167;
1996 - $886) 94 427
Reinsurance premium ceded 402 342
Amortization of deferred policy acquisition costs 1,033 530
Insurance expenses and taxes 964 1,172
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Total Benefits and Expenses 5,420 6,819
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Earnings Before Federal Income Tax Provision 4,288 3,169
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,531 750
Deferred (34) 336
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Total Federal Income Tax Provision 1,497 1,086
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NET EARNINGS $ 2,791 $ 2,083
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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) (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)
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BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Net earnings 7,803 7,803
Net unrealized investment loss (985) (985)
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BALANCE, SEPTEMBER 30, 1997 $ 2,200 $ 72,040 $ 17,022 $ 110 $ 91,372
============= =============== ============ ============== ===============
</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,
---------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 7,803 $ 6,213
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 3,205 2,328
Capitalization of policy acquisition costs (3,651) (1,537)
Amortization, (accretion) and depreciation of investments (100) 3
Net realized investment gains (2,119) (622)
Interest credited to policyholders' account balances 10,690 12,514
Provision for deferred Federal income tax 1,779 4,235
Changes in operating assets and liabilities:
Accrued investment income (1,551) (1,125)
Claims and claims settlement expenses (580) 2,788
Federal income taxes - current (568) (2,002)
Other policyholder funds 879 1,002
Affiliates payables - net (1,109) 946
Policy loans on insurance contracts (3,752) (3,107)
Other - net 838 (3,024)
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Net cash and cash equivalents provided by operating activities 11,764 18,612
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INVESTING ACTIVITIES:
Sales of available-for-sale securities 62,413 89,284
Maturities of available-for-sale securities 37,625 26,481
Purchases of available-for-sale securities (80,147) (95,431)
Mortgage loans principal payments received 2,057 -
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Net cash and cash equivalents provided by investing activities 21,948 20,334
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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>
Nine Months Ended
September 30,
---------------------------------
1997 1996
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<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 75,813 $ 22,984
Withdrawals (net of transfers to Separate Accounts) (89,625) (47,524)
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Net cash and cash equivalents used by financing activities (13,812) (24,540)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 19,900 14,406
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387
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End of period $ 27,728 $ 31,793
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Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 2,749 $ 779
Intercompany interest 322 333
</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 unaudited condensed financial statements included herein
have been prepared by the Company 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 months and nine months
ended September 30, 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 September 30, 1997 and December 31, 1996,
was $61.5 million and $52.9 million, respectively. For the nine
month periods ended September 30, 1997 and 1996, statutory net
income was $8.6 million and $10.0 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 recorded in stockholder's equity at
September 30, 1997 and December 31, 1996:
September 30, December 31,
1997 1996
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(In Thousands)
Assets:
Fixed maturity securities $ 5,610 $ 4,762
Equity securities (665) 1,884
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4,945 6,646
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Liabilities:
Policyholders' account balances 4,775 4,962
Federal income taxes - deferred 60 589
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4,835 5,551
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Stockholder's equity:
Net unrealized gain on investment
securities available-for-sale $ 110 $ 1,095
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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 included in the 1996 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
1997 and 1996, 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.
Life insurance premium and annuity deposits received in the
first nine months of 1997 and 1996 were $81.3 million and $27.0
million, respectively. New variable annuity sales increased
$48.5 million (or 319%) during 1997, as a result of enhanced
sales efforts related to the company's introduction of five new
investment options managed by entities not affiliated with
Merrill Lynch & Co. and an index fund managed by Merrill Lynch
Asset Management, L.P. Management also attributes the increase
in variable annuity sales to the generally rising equity markets
during the past two and a half years. New variable life sales
as measured by premiums increased $3.3 million (or 67%) during
the first nine months of 1997 as compared to the same period in
1996. Management attributes this increase to Merrill Lynch &
Co.'s planning based financial management program for individual
investors. The financial plans developed from this program
include an analysis of financial needs which may include
identification of a need which can be addressed through the
purchase of life insurance. The implementation of these plans
has, in management's view, contributed to the growth in variable
life premiums.
During the first nine months of 1997, separate account assets
increased $145 million (or 24%) to $736 million. The increase is
attributable to two factors. First, the separate accounts
benefited from strong underlying fund performance associated with
the generally rising equity markets. During the first nine months
of 1997, the separate accounts increased $100 million due to price
appreciation in the underlying funds supporting the variable
products. Second, net cash inflow to the variable products
contributed $45 million to the growth in separate account
assets.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of September 30,
1997, the Company's assets included $215 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, 1997, approximately $14.7 million (or 6.0%)
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, 1997 and 1996,
the Company reported net earnings of $7.8 million and $6.2
million, respectively. During the three months ended September
30, 1997 and 1996, the Company reported net earnings of $2.8
million and $2.1 million, respectively.
Net investment income and interest credited to policyholders'
account balances for the nine months ended September 30, 1997 as
compared to the same period in 1996 have declined by
approximately $1.6 million and $1.8 million, respectively,
resulting in a net increase in interest spread of $0.2 million.
The reduction in net investment income is primarily a result of
the fourth quarter 1996 stockholder dividend payment and the
declining fixed rate contracts in-force. The reduction in
interest credited to policyholders' account balances are
primarily a result of declining fixed rate contracts in-force.
Additionally, certain policyholder reserves were determined to
be in excess of amounts required, resulting in a $1.0 million
reduction to policyholders' account balances during the third
quarter of 1997.
Net realized investment gains increased $1.5 million for the
nine months ended September 30, 1997 as compared to the same
period in 1996. The change in realized investment gains is
primarily attributable to credit related gains of $2.0 million
on the disposition of a single preferred stock investment during
the first quarter of 1997, partially offset by credit related
reductions to the book value of a fixed maturity security of
$0.9 million during the second and third quarters of 1997.
Policy charge revenue increased $0.6 million (or 7%) during the
current nine 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 account
balances. Asset based charges increased $0.8 million (or 21%)
consistent with the growth in the separate account assets. Non-
asset based charges decreased $0.2 million (or -4%) primarily
due to the increase in the number of inforce in variable life
policies reaching the end of their deferred premium load
collection period.
Policy benefits decreased $1.2 million, primarily as a result of
five large claims incurred during the first nine months of 1996.
Each of these five claims exceeded $0.1 million and totaled $0.8
million in aggregate. No single death claim was greater than
$0.1 million during 1997.
Amortization of deferred acquisition costs increased $0.9
million during the current period as compared to the same period
during 1996. This increase is primarily attributable to higher
gross profits on the Company's variable life product line
resulting from 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, JR.
-----------------------------------------
Joseph E. Crowne, Jr.
Senior Vice President and
Chief Financial Officer
Date: November 13, 1997
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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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 246,731
<EQUITIES> 13,858
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 349,889
<CASH> 27,728
<RECOVER-REINSURE> 155
<DEFERRED-ACQUISITION> 29,718
<TOTAL-ASSETS> 1,157,551
<POLICY-LOSSES> 1,992
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 2,039
<POLICY-HOLDER-FUNDS> 315,258
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 89,172
<TOTAL-LIABILITY-AND-EQUITY> 1,157,551
0
<INVESTMENT-INCOME> 19,157
<INVESTMENT-GAINS> 2,119
<OTHER-INCOME> 9,485
<BENEFITS> 285
<UNDERWRITING-AMORTIZATION> 3,205
<UNDERWRITING-OTHER> 3,468
<INCOME-PRETAX> 11,764
<INCOME-TAX> 3,961
<INCOME-CONTINUING> 7,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,803
<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>
