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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 JUNE 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>
June 30, December 31,
1997 1996
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<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $250,328; 1996 - $264,341) $ 254,449 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $12,171; 1996 - $8,975) 11,808 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 86,963 85,548
-------------- --------------
Total Investments 353,220 367,567
CASH AND CASH EQUIVALENTS 26,394 7,828
ACCRUED INVESTMENT INCOME 6,680 5,952
DEFERRED POLICY ACQUISITION COSTS 29,312 29,272
REINSURANCE RECEIVABLES 146 1,065
OTHER ASSETS 3,442 4,569
SEPARATE ACCOUNTS ASSETS 678,195 591,814
-------------- --------------
TOTAL ASSETS $ 1,097,389 $ 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, except per share amounts) (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 314,020 $ 318,567
Claims and claims settlement expenses 1,753 2,572
-------------- --------------
Total policy liabilities and accruals 315,773 321,139
OTHER POLICYHOLDER FUNDS 2,565 1,160
FEDERAL INCOME TAXES - DEFERRED 1,895 626
FEDERAL INCOME TAXES - CURRENT 651 2,099
AFFILIATED PAYABLES - NET 4,000 5,026
OTHER LIABILITIES 5,757 1,649
SEPARATE ACCOUNTS LIABILITIES 678,195 591,814
-------------- --------------
Total Liabilities 1,008,836 923,513
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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 14,231 9,219
Net unrealized gain on investment securities available-for-sale 82 1,095
-------------- --------------
Total Stockholder's Equity 88,553 84,554
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,097,389 $ 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>
Six Months Ended
June 30,
------------------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 12,814 $ 13,949
Net realized investment gains 2,104 577
Policy charge revenue 6,135 5,911
-------------- --------------
Total Revenues 21,053 20,437
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 7,852 8,388
Market value adjustment expense 92 200
Policy benefits (net of reinsurance recoveries: 1997 - $74;
1996 - $665) 191 1,093
Reinsurance premium ceded 766 565
Amortization of deferred policy acquisition costs 2,172 1,798
Insurance expenses and taxes 2,504 2,337
-------------- --------------
Total Benefits and Expenses 13,577 14,381
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Earnings Before Federal Income Tax Provision 7,476 6,056
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 651 (1,973)
Deferred 1,813 3,899
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Total Federal Income Tax Provision 2,464 1,926
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NET EARNINGS $ 5,012 $ 4,130
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</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
June 30,
------------------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 6,437 $ 6,836
Net realized investment gains (losses) (355) 196
Policy charge revenue 3,110 3,008
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Total Revenues 9,192 10,040
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 3,864 4,175
Market value adjustment expense 36 3
Policy benefits (net of reinsurance recoveries: 1997 - $8;
1996 - $440) 104 456
Reinsurance premium ceded 377 334
Amortization of deferred policy acquisition costs 949 752
Insurance expenses and taxes 1,213 1,179
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Total Benefits and Expenses 6,543 6,899
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Earnings Before Federal Income Tax Provision 2,649 3,141
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FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (177) (2,643)
Deferred 1,098 3,666
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Total Federal Income Tax Provision 921 1,023
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NET EARNINGS $ 1,728 $ 2,118
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</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 STOCKHOLDER'S EQUITY
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common Stock paid-in Retained investment stockholder's
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 5,012 5,012
Net unrealized investment loss (1,013) (1,013)
-------------- -------------- -------------- -------------- --------------
BALANCE, JUNE 30, 1997 $ 2,200 $ 72,040 $ 14,231 $ 82 $ 88,553
============== ============== ============== ============== ==============
</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>
Six Months Ended
June 30,
------------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,012 $ 4,130
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 2,172 1,798
Capitalization of policy acquisition costs (2,212) (997)
Amortization, (accretion) and depreciation of investments (32) (7)
Net realized investment gains (2,104) (577)
Interest credited to policyholders' account balances 7,852 8,388
Provision for deferred Federal income tax 1,813 3,899
Changes in operating assets and liabilities:
Accrued investment income (728) (755)
Claims and claims settlement expenses (819) 3,651
Federal income taxes - current (1,448) (2,158)
Other policyholder funds 1,405 346
Affiliates payables - net (1,026) 481
Policy loans on insurance contracts (1,415) (2,473)
Other - net 6,156 (5,137)
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Net cash and cash equivalents provided by operating activities 14,626 10,589
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INVESTING ACTIVITIES:
Sales of available-for-sale securities 45,786 71,527
Maturities of available-for-sale securities 17,624 18,324
Purchases of available-for-sale securities (50,457) (65,771)
Mortgage loans principal payments received 2,057 -
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Net cash and cash equivalents provided by investing activities 15,010 24,080
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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>
Six Months Ended
June 30,
------------------------------------
1997 1996
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<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 45,861 $ 13,660
Withdrawals (net of transfers to Separate Accounts) (56,931) (33,603)
Net cash and cash equivalents used by financing -------------- ---------------
activities (11,070) (19,943)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 18,566 14,726
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387
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End of period $ 26,394 $ 32,113
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Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 2,099 $ 185
Intercompany interest 203 227
</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 six-months
ended June 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 June 30, 1997 and December 31, 1996, was
$59.2 million and $52.9 million, respectively. For the six month
periods ended June 30, 1997 and 1996, statutory net income was
$5.6 million and $8.0 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
June 30, 1997 and December 31, 1996:
1997 1996
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(In Thousands)
Assets:
Fixed maturity securities $ 4,121 $ 4,762
Equity securities (363) 1,884
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3,758 6,646
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Liabilities:
Policyholders' account balances 3,633 4,962
Federal income taxes - deferred 43 589
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3,676 5,551
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Stockholder's equity:
Net unrealized gain on
securities available-for-sale $ 82 $ 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.
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 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 six months of 1997 and 1996 were $49.2 million and $16.6
million, respectively. New variable annuity sales increased
$27.8 million 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 $2.5 million during the first six 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 six months of 1997, separate account assets
increased $86 million (15%) to $678 million. The increase is
attributable to two factors. First, the separate accounts
benefited from strong fund performance associated with the
generally rising equity markets. During the first six months of
1997, the separate accounts increased $60 million due to price
appreciation in the underlying funds supporting the variable
products. Second, net cash flow for variable products, during
the same period, increased $26 million due to significantly
increased sales.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of June 30, 1997,
the Company's assets included $221 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, 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 six month periods ended June 30, 1997 and 1996, the
Company reported net earnings of $5.0 million and $4.1 million,
respectively. During the three months ended June 30, 1997 and
1996, the Company reported net earnings of $1.7 million and $2.1
million, respectively.
Net investment income and interest credited to policyholders'
account balances for the six months ended June 30, 1997 as
compared to the same period in 1996 have declined by
approximately $1.1 million and $0.5 million, respectively,
resulting in a net decrease in interest spread of $0.6 million.
The reductions in net investment income and interest spread are
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.
Net realized investment gains (losses) increased $1.5 million
for the six months ended June 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 fixed maturities of $0.4 million
during the second quarter of 1997.
Policy charge revenue increased $0.2 million during the current
six 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 $0.9 million from $1.1 million during
the first six months of 1996 to $0.2 million during the same
period in 1997. The decrease is primarily attributable to one
mortality claim for $0.4 million incurred during the first six
months of 1996.
Amortization of deferred acquisition costs increased $0.4
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: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 254,449
<EQUITIES> 11,808
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 353,220
<CASH> 26,394
<RECOVER-REINSURE> 146
<DEFERRED-ACQUISITION> 29,312
<TOTAL-ASSETS> 1,097,389
<POLICY-LOSSES> 1,753
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 2,565
<POLICY-HOLDER-FUNDS> 314,020
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 86,353
<TOTAL-LIABILITY-AND-EQUITY> 1,097,389
0
<INVESTMENT-INCOME> 12,814
<INVESTMENT-GAINS> 2,104
<OTHER-INCOME> 6,135
<BENEFITS> 191
<UNDERWRITING-AMORTIZATION> 2,172
<UNDERWRITING-OTHER> 2,504
<INCOME-PRETAX> 7,476
<INCOME-TAX> 2,464
<INCOME-CONTINUING> 5,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,012
<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>
