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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, 1998
COMMISSION FILE NUMBER 33-34562; 33-60288; 333-48983
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,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $229,559; 1997 - $250,695) $ 234,253 $ 255,958
Equity securities, at estimated fair value
(cost: 1998 - $10,103; 1997 - $5,830) 9,188 5,029
Policy loans on insurance contracts 87,138 88,163
--------------- ---------------
Total Investments 330,579 349,150
CASH AND CASH EQUIVALENTS 14,136 10,063
ACCRUED INVESTMENT INCOME 6,781 5,416
DEFERRED POLICY ACQUISITION COSTS 30,489 30,406
REINSURANCE RECEIVABLES 390 429
OTHER ASSETS 3,540 3,405
SEPARATE ACCOUNTS ASSETS 814,098 739,712
--------------- ---------------
TOTAL ASSETS $ 1,200,013 $ 1,138,581
=============== ===============
</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>
March 31, December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 294,203 $ 307,333
Claims and claims settlement expenses 2,066 2,007
--------------- ---------------
Total policy liabilities and accruals 296,269 309,340
OTHER POLICYHOLDER FUNDS 1,713 1,941
FEDERAL INCOME TAXES - DEFERRED 1,575 1,905
FEDERAL INCOME TAXES - CURRENT 745 2,255
AFFILIATED PAYABLES 3,581 3,492
OTHER LIABILITIES 2,190 2,155
SEPARATE ACCOUNTS LIABILITIES 814,098 739,712
-------------- ---------------
Total Liabilities 1,120,171 1,060,800
-------------- ---------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 66,259 66,259
Retained earnings 11,930 9,692
Accumulated other comprehensive income (547) (370)
------------- ---------------
Total Stockholder's Equity 79,842 77,781
------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,200,013 $ 1,138,581
============= ===============
</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
March 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 5,655 $ 6,377
Net realized investment gains 145 2,459
Policy charge revenue 3,634 3,025
--------------- ---------------
Total Revenues 9,434 11,861
--------------- ---------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 3,645 3,988
Market value adjustment expense 132 56
Policy benefits (net of reinsurance recoveries: 1998 - $349;
1997 - $66) 255 87
Reinsurance premium ceded 400 389
Amortization of deferred policy acquisition costs 1,085 1,223
Insurance expenses and taxes 1,169 1,291
--------------- ---------------
Total Benefits and Expenses 6,686 7,034
--------------- ---------------
Earnings Before Federal Income Tax Provision 2,748 4,827
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 745 828
Deferred (235) 715
--------------- ---------------
Total Federal Income Tax Provision 510 1,543
--------------- ---------------
NET EARNINGS $ 2,238 $ 3,284
=============== ===============
</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 COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
NET EARNINGS $ 2,238 $ 3,284
--------------- ---------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized losses on investment securities:
Net unrealized holding losses arising during the period (579) (3,256)
Reclassification adjustment for gains included in net earnings (104) (2,247)
--------------- ---------------
Net unrealized losses on investment securities (683) (5,503)
Adjustments for:
Policyholder liabilities 411 2,637
Income tax benefit related to items of
other comprehensive income 95 1,002
--------------- ---------------
Other comprehensive income, net of tax (177) (1,864)
--------------- ---------------
COMPREHENSIVE INCOME $ 2,061 $ 1,420
=============== ===============
</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>
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
Stock capital earnings income equity
--------------- ----------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 2,200 $ 72,040 $ 9,219 $ 1,095 $ 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive income, net of tax (1,465) (1,465)
--------------- ----------------- --------------- -------------- --------------
BALANCE, DECEMBER 31, 1997 2,200 66,259 9,692 (370) 77,781
Net earnings 2,238 2,238
Other comprehensive income, net of tax (177) (177)
--------------- ----------------- --------------- -------------- --------------
BALANCE, MARCH 31, 1998 $ 2,200 $ 66,259 $ 11,930 $ (547) $ 79,842
=============== ================= =============== ============== ==============
</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>
Three Months Ended
March 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 2,238 $ 3,284
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 1,085 1,223
Capitalization of policy acquisition costs (1,168) (765)
Amortization, (accretion) and depreciation of investments (173) (5)
Net realized investment gains (145) (2,459)
Interest credited to policyholders' account balances 3,645 3,988
Provision (benefit) for deferred Federal income tax (235) 715
Changes in operating assets and liabilities:
Accrued investment income (1,365) (1,400)
Claims and claims settlement expenses 59 (1,153)
Federal income taxes - current (1,510) (1,272)
Other policyholder funds (228) 488
Affiliated payables - net 89 (1,495)
Policy loans on insurance contracts 1,025 (988)
Other - net (61) 2,687
Net cash and cash equivalents provided by --------------- ---------------
operating activities 3,256 2,848
--------------- ---------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 30,061 24,298
Maturities of available-for-sale securities 23,084 13,456
Purchases of available-for-sale securities (35,964) (28,626)
Mortgage loans principal payments received - 2,057
Net cash and cash equivalents provided by --------------- ----------------
investing activities 17,181 11,185
--------------- ----------------
</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,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 21,272 $ 14,381
Withdrawals (including transfers to / from Separate Accounts) (37,636) (18,729)
Net cash and cash equivalents used by financing --------------- ---------------
activities (16,364) (4,348)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,073 9,685
CASH AND CASH EQUIVALENTS:
Beginning of year 10,063 7,828
--------------- ---------------
End of period $ 14,136 $ 17,513
=============== ===============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 2,255 $ 2,099
Intercompany interest 32 138
</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 ended March 31,
1998 and 1997 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 1997 Annual Report on Form 10-K ("1997 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, 1998 and December 31, 1997, was
$54.0 million and $51.1 million, respectively. For the three
month periods ended March 31, 1998 and 1997, statutory net
income was $2.9 million and $2.4 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 accumulated other comprehensive income, which is
a component of stockholder's equity and assumes 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 loss recorded in accumulated other
comprehensive income at March 31, 1998 and December 31, 1997:
March 31, December 31,
1998 1997
---------- ----------
(In Thousands)
Assets:
Fixed maturity securities $ 4,694 $ 5,263
Equity securities (915) (801)
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3,779 4,462
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Liabilities:
Policyholders' account balances 4,621 5,032
Federal income taxes - deferred (295) (200)
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4,326 4,832
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Stockholder's equity:
Accumulated other comprehensive income $ (547) $ (370)
========== ==========
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 1997
Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 1997 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.
Life insurance premiums and annuity deposits received in the
first three months of 1998 and 1997 were $25.5 million and $15.6
million, respectively. The increase is attributable to
increased sales of the Company's variable annuity product.
During the first quarter 1998, variable annuity deposits
increased $11.5 million (or 99%). Management attributes the
increase in variable annuity sales to the continued strength of
the U.S. equity markets. During the first quarter 1998, the
Standard & Poor's 500 Composite Stock Price Index rose 14%,
ending the quarter near its historical high point. Future
variable annuity sales could be negatively impacted if the
equity markets enter a period of decline. Partially offsetting
the increase in variable annuity sales was the reduction in
modified guaranteed annuity sales which declined $1.6 million
(or 86%). Sales volume of this product is reflective of the
current interest rate environment and will generally increase
and decrease in a direct relationship with changes in interest
rates. During the first quarter 1998, interest rates remained
generally lower with medium term rates on U.S. Treasury securities
at approximately 5.6%. This represents a 97 basis point decrease
from the first quarter 1997.
During the first three months of 1998, separate account assets
increased $74 million (or 10%) to $814 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 three
months of 1998, separate account assets increased $61 million
due to price appreciation in the underlying funds supporting the
variable products. Second, net cash inflow to the variable
products contributed $13 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 March 31, 1998,
the Company's assets included $193 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, 1998 approximately $12.2 million (or 5.2%) 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). 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.
Comprehensive Income
For the three months ended March 31, 1998 and 1997, the Company
reported comprehensive income of $2.1 million and $1.4 million,
respectively. A discussion of the results of operations and
changes in other comprehensive income follows:
Results of Operations
For the three month periods ended March 31, 1998 and 1997, the
Company reported net earnings of $2.2 million and $3.3 million,
respectively.
During the first quarter 1998, net investment income and
interest credited to policyholders' account balances declined by
approximately $0.7 million and $0.3 million, respectively,
resulting in a net decrease in interest spread of $0.4 million
when compared to the first quarter 1997. The reduction in net
investment income is primarily a result of the Company's fourth
quarter 1997 dividend payment to its stockholder, declining
fixed rate contracts in-force, and the declining yield on the
company's fixed maturity portfolio. The reduction in interest
credited to policyholders' account balances is primarily a
result of the declining fixed rate contracts in-force and the
declining crediting rate on newly issued and renewal fixed rate
contracts. The declines in investment yield and crediting rate
are a result of the current lower interest rate environment.
Net realized investment gains decreased $2.3 million for the
three months ended March 31, 1998 as compared to the same period
in 1997. Credit related gains of $2.0 million on the
disposition of a single preferred stock investment during the
first quarter of 1997 accounts for this difference.
Policy charge revenue increased $0.6 million (or 20%) during the
first quarter 1998 as compared to the same period during 1997.
The increase in policy charge revenue is primarily attributable
to the increase in policyholders' variable account balances.
Average variable account balances increased $182 million (or
31%) during the first quarter 1998 as compared to the same
period in 1997. Asset based policy charges increased $0.6
million (or 34%) consistent with the growth in separate account
assets. Non-asset based policy charges were flat as compared to
the prior year.
Policy benefits increased $0.2 million to $0.3 million during
the current three month period from $0.1 million in the same
period during 1997. The increase is primarily due to the
increase in variable life death claims.
Amortization of deferred acquisition costs decreased $0.1
million during the current period as compared to the same period
during 1997. This decrease is primarily attributable to lower
interest-related realized gains on the Company's modified
guaranteed annuity.
Insurance expenses and taxes decreased $0.1 million during the
first quarter 1998 as compared to the same period in 1997.
During the first quarter 1997, the company incurred $0.2 million
in insurance department fees related to the most recent
triennial examination.
Other Comprehensive Income
The Company reported a decrease in other comprehensive income of
$0.2 million during the first quarter 1998 as compared to a
decrease of $1.9 million during the first quarter 1997.
Other comprehensive income is impacted by the change in net
unrealized holding gains (losses) on investment securities and
the related adjustments to deferred policy acquisition costs,
policyholders' liabilities and deferred income taxes.
Generally, the most significant factor that impacts net
unrealized holding gains (losses) on investment securities is
changes in interest rates. At March 31, 1998, interest rates on
medium term U.S. Treasury securities remained relatively flat
from December 31, 1997. This compares to the approximately 53
basis point increase from December 31, 1996 to March 31, 1997.
The change in net unrealized holding gains (losses) has an
inverse relationship to changes in interest rates.
<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, JR.
-----------------------------------------
Joseph E. Crowne, Jr.
Senior Vice President and
Chief Financial Officer
Date: May 14, 1998
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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-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 234,253
<EQUITIES> 9,188
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 330,579
<CASH> 14,136
<RECOVER-REINSURE> 390
<DEFERRED-ACQUISITION> 30,489
<TOTAL-ASSETS> 1,200,013
<POLICY-LOSSES> 2,066
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,713
<POLICY-HOLDER-FUNDS> 294,203
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 77,642
<TOTAL-LIABILITY-AND-EQUITY> 1,200,013
0
<INVESTMENT-INCOME> 5,655
<INVESTMENT-GAINS> 145
<OTHER-INCOME> 3,634
<BENEFITS> 255
<UNDERWRITING-AMORTIZATION> 1,085
<UNDERWRITING-OTHER> 1,169
<INCOME-PRETAX> 2,748
<INCOME-TAX> 510
<INCOME-CONTINUING> 2,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,238
<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>
