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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Nos. 33-34562; 33-60288; 333-48983
ML LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of Registrant as specified in its charter)
New York 16-1020455
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Church Street, 11th Floor
New York, New York 10080-6511
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(Address of Principal Executive Offices)
(212) 602-8250
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(Registrant's telephone no. including area code)
Securities registered pursuant to Section 12(b) or 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common 220,000
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REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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PART I
Item 1. Business.
The Registrant is engaged in the sale of life insurance and annuity
products. The Registrant is a stock life insurance company organized under the
laws of the State of New York on November 28, 1973. The Registrant is currently
subject to primary regulation by the New York State Insurance Department. The
Registrant is a direct wholly owned subsidiary of Merrill Lynch Insurance Group
("MLIG"). MLIG is an indirect wholly owned subsidiary of Merrill Lynch & Co.,
Inc. ("Merrill Lynch & Co."), a corporation whose common stock is traded on the
New York Stock Exchange.
Information pertaining to contract owner deposits, contract owner
account balances, and capital contributions can be found in the Registrant's
financial statements which are contained herein.
The Registrant is currently licensed to conduct life insurance and
annuity business in nine states. It currently sells its annuity products and
variable life insurance products only in the state of New York. During 1998,
annuity and life insurance sales were made principally in New York (87%, as
measured by total contract owner deposits).
The Registrant's life insurance and annuity products will be sold only
by licensed agents through Merrill Lynch Life Agency, Inc. ("MLLA") which is a
wholly owned subsidiary of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), pursuant to a general agency agreement by and between the Registrant
and MLLA. Sales are made by career life insurance agents whose sole
responsibility is the sale and servicing of insurance, and by Financial
Consultants of MLPF&S who are also licensed as insurance agents. At December 31,
1998, approximately 1,976 agents of MLLA were authorized to act for the
Registrant.
Item 2. Properties.
The Registrant's home office is located at 100 Church Street, 11th
Floor, New York, New York. This office space is leased from MLPF&S. In
addition, personnel performing services for the Registrant pursuant to its
Management Services Agreement operate in MLIG office space. Merrill Lynch
Insurance Group Services, Inc. ("MLIGS"), an affiliate of MLIG owns office
space in Jacksonville, Florida. MLIGS also leases certain office space in
Springfield, Massachusetts from Picknelly Family Limited Partnership. MLIG
occupies certain office space in Plainsboro, New Jersey through Merrill Lynch &
Co. An allocable share of the cost of each of these premises is paid by the
Registrant through the service agreement with MLIG.
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Item 3. Legal Proceedings.
There is no material pending litigation to which the Registrant is a
party or of which any of its property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against the Registrant
of which it has any knowledge.
Item 4. Submission of Matters to a Vote of Security Holders.
Information called for by this item is omitted pursuant to General
Instruction I. of Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The Registrant is a wholly owned subsidiary of MLIG, which is an
indirect wholly owned subsidiary of Merrill Lynch & Co. MLIG is the sole
record holder of Registrant's shares. Therefore, there is no public trading
market for Registrant's common stock.
During 1998, the Registrant did not pay any dividends. On December 12,
1997, the Registrant paid a $15,000,000 dividend to MLIG. The Registrant has
declared no cash dividends on its common stock at any other time during the two
most recent fiscal years. Under laws applicable to insurance companies domiciled
in the State of New York, notice of intention to declare a dividend must be
filed with the New York Superintendent of Insurance who may disallow the
payment. See Note 7 to the Registrant's financial statements.
(b) Not applicable.
Item 6. Selected Financial Data.
Information called for by this item is omitted pursuant to General
Instruction I. of Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
BUSINESS ENVIRONMENT
The Registrant (also referred to as "ML of New York") conducts its business in
the life insurance and annuity markets of the financial services industry.
These markets are faced with an increased strengthening of the regulatory
environment with particular emphasis on company solvency and sales practice
monitoring.
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Significant mergers within the financial services industry, as well as
legislative and judicial processes, are challenging the legal barriers that have
historically segregated many of its markets. The distribution channels for life
insurance and annuity products continue to diversify and now include banks, full
service and discount securities brokers, financial planners and the Internet.
Tax legislation, enacted during the third quarter 1997, increased the
competitiveness of non-insurance products in the individual retirement market by
reducing the long-term capital gains tax rate and creating new non-deductible
Individual Retirement Accounts (i.e., Roth IRAs). Additionally, current tax
legislative proposals, which are in various stages of the political process, may
have a material impact on the life insurance industry by reducing or eliminating
the tax advantages on certain products.
Demographically, the population is aging, which favors life insurance and
annuity products. In particular, management anticipates that markets will expand
for estate planning products and annuities, albeit in a more competitive
environment.
ECONOMIC ENVIRONMENT
During 1998, the propagation of economic instability among certain Asian,
Eastern European and Latin American economies, and its influence on investors
worldwide, contributed to the emergence of three important economic factors in
the U.S:
- - lower interest rates
- - widening credit spreads
- - equity market volatility
Investors' flight to quality resulted in an 83 basis point decrease on the
interest rate of the 30 year U.S. Treasury Bond, dropping its yield to 5.09% at
December 31, 1998. Similarly, rates on medium term U.S Treasury securities,
defined as 1 to 10 year terms, decreased 108 basis points to yield, on average,
4.56%.
In the corporate bond market, the combined effects of record levels of debt
issuance, investor concern regarding corporate earnings and the disappearance of
liquidity in certain markets resulted in a significant widening of interest rate
spreads as compared to U.S. Treasury securities. The spread between the 5-year
U.S Treasury Bond Index and the 5-year Corporate Financial Bond Index increased
from approximately 58 basis points at December 1997 to approximately 168 basis
points at December 1998.
Equity market volatility was prevalent primarily during the second half of 1998.
After increasing approximately 17% through mid-year, the Standard & Poor's 500
Composite Stock Price Index ("S&P Index") dipped 10% during the third quarter
before rebounding 21% during the fourth quarter.
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SUMMARY
ML of New York sells variable and interest sensitive life insurance and annuity
products through Merrill Lynch & Co.'s retail network of Financial Consultants.
ML of New York competes for Merrill Lynch & Co.'s clients' life insurance and
annuity business with non-affiliated insurers whose products are also sold
through Merrill Lynch & Co.'s retail network ("non-proprietary products"), and
with insurers who solicit this business directly. The product lines that ML of
New York offers are focused in the highly competitive market segments of
retirement and estate planning. ML of New York competes in these market segments
by integrating its products into Merrill Lynch & Co.'s planning-based financial
management program.
ML of New York's financial management is based on prudent investment and
liability management and regular monitoring of its risk profile. ML of New York
also seeks to provide superior customer service and financial management to
promote the competitiveness of its products. ML of New York's customer service
centers have established standards of performance that are monitored on a
regular basis. Managers and employees in the customer service centers are
periodically evaluated based on their performance in meeting these standards.
ML of New York has strategically placed its marketing emphasis on the sale of
variable annuities, modified guaranteed annuities and variable life insurance
products. These products are designed to address the retirement and estate
planning needs of Merrill Lynch & Co.'s clients. The variable annuity product
provides tax-deferred savings with the opportunity for diversified investing in
a wide selection of underlying mutual fund portfolios. The modified guaranteed
annuity product provides a guaranteed fixed interest-crediting rate for a period
selected by the contract owner, but imposes a market value adjustment for
withdrawals prior to the expiration of the guarantee period. ML of New York
offers a variable life insurance product that provides life insurance protection
and allows the policyholder to allocate the cash value of the policy to
underlying mutual fund portfolios. The following table summarizes ML of New
York's sales activity for the three years ending December 31, 1998:
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<TABLE>
<CAPTION>
Premiums Collected % Change
---------------------------------------------- -----------------------------
1998 1997 1996 1998 - 1997 1997 - 1996
-------------- --------------- --------------- -------------- --------------
(In Millions)
<S> <C> <C> <C> <C> <C>
Variable Annuities $ 97 $ 101 $ 24 -4% 321%
Modified Guaranteed 2 5 5 -60% 0%
Annuities
Variable Life Insurance 10 11 8 -9% 38%
-------------- --------------- --------------- -------------- --------------
Total Premiums $ 109 $ 117 $ 37 -7% 216%
============== =============== =============== ============== ==============
</TABLE>
During 1998, ML of New York's total sales decreased 7%, but remained strong
overall, exceeding the $100 million level for the second consecutive year.
Variable annuity products continued to dominate overall sales by comprising 89%,
86% and 65% of total sales volume for the years ended 1998, 1997 and 1996,
respectively.
During 1997, ML of New York changed its distribution structure. Previously,
specialists supporting the sales force were responsible for both life and
annuity products. Beginning in 1997 and culminating during the second quarter
1998, ML of New York created two specialist positions within each sales district
where it was geographically feasible. The new distribution structure has
resulted in a greater and more focused coverage of ML of New York's sales force
and has, in management's view, contributed to the continued strength in variable
product sales.
Variable annuity sales decreased 4% during 1998 as compared to record sales
levels in 1997. During 1997, variable annuity sales increased 321% as compared
to 1996. The decrease in 1998 sales occurred primarily during the second half of
the year amid increased volatility in the equity markets. Overall, variable
annuity sales have remained strong over the last two years. Management
attributes the strong variable annuity sales to enhanced sales efforts related
to the addition of new investment options. Since December 1996, ML of New York
has added ten new investment options to certain of its variable annuity
products, some of which are managed by unaffiliated investment advisors. A
number of these mutual fund portfolios generally have aggressive growth
investment objectives that complement the underlying portfolios managed by
Merrill Lynch Asset Management, LP ("MLAM"), an indirect subsidiary of Merrill
Lynch & Co. Additionally, management believes that the generally favorable
equity markets over the past three years has also contributed to the strength of
variable annuity sales. During 1998, 1997 and 1996, the S&P Index has risen 27%,
31% and 20%, respectively. Future variable annuity sales could be negatively
impacted by continued volatility in the equity markets.
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Merrill Lynch & Co. offers an asset allocation service to ML of New York
variable annuity contract owners. An investment advisor allocates the
participating contract owner's account value among the available underlying
mutual fund portfolios based on the contract owner's investment objectives and
risk tolerance. ML of New York does not receive any financial remuneration from
Merrill Lynch & Co. for this service; however, management believes that its
availability has had a positive effect on variable annuity sales volume.
As previously stated, one of ML of New York's core goals is to provide superior
customer service to its clients. As evidence of progression towards this goal,
ML of New York received the DALBAR Annuity Service Award for its Retirement Plus
variable annuity during both 1998 and 1997.
During 1998, policy and contract surrenders increased $16.6 million (or 32%) to
$68.0 million as compared to 1997. During 1998, variable annuity surrenders
increased $4.1 million (or 40%) to $14.5 million primarily due to growth of that
block of business. During the same period, modified guaranteed annuity
surrenders increased $8.4 million (or 45%) to $26.8 million due to the lower
interest rate environment during 1998 as compared to 1997. During periods of
lower interest rates, modified guaranteed annuity contractholders are more
inclined to surrender their contracts for two reasons. First, contractholders
can lock-in gains resulting from the market value adjustment, which is applied
to withdrawals made prior to the expiration of the stated guarantee period. The
market value adjustment has an inverse relationship to changes in interest
rates. Second, interest-crediting rates offered upon renewal are generally lower
than the rates that had been credited prior to the renewal date.
FINANCIAL CONDITION
At December 31, 1998, ML of New York's assets were $1.2 billion, or $109 million
higher than the $1.1 billion in assets at December 31, 1997. The increase in
assets is attributable to increases in separate account assets. During 1998,
separate account assets increased $147 million (or 20%) to $887 million. The
increase is attributable to two factors. First, the separate accounts benefited
from strong investment performance associated with the generally rising equity
markets. During 1998, the separate accounts increased $92 million due to price
appreciation in the underlying mutual funds supporting the variable products.
Second, net cash inflow to the variable products contributed $55 million to the
growth in separate account assets.
General account assets decreased $38 million primarily due to the declining
number of fixed-rate contracts in-force.
Despite the moderate decrease in sales and increase in policy and contract
surrenders during 1998, ML of New York experienced deposits that exceeded
contract owner withdrawals. Deposits for 1998 were $94 million compared to
withdrawals of $75 million, resulting in a net cash inflow from contract owner
activity of $19 million.
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ML of New York maintains a conservative general account investment portfolio. ML
of New York has no mortgage or real estate investments. The following schedule
identifies ML of New York's general account invested assets by type:
<TABLE>
<S> <C>
Investment Grade Fixed Maturity Securities................................... 63%
Policy Loans................................................................. 29%
Equity Securities............................................................ 5%
Non-Investment Grade Fixed Maturity Securities............................... 3%
---------
100%
=========
</TABLE>
ML of New York's investment in collateralized mortgage obligations ("CMO") and
mortgage backed securities ("MBS") had a carrying value of $14 million as of
December 31, 1998. At December 31, 1998, approximately 99% of ML of New York's
CMO and MBS holdings were fully collateralized by the Government National
Mortgage Association, the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation. CMO and MBS securities are structured to allow
the investor to determine, within certain limits, the amount of interest rate
risk, prepayment risk and default risk that the investor is willing to accept.
It is this level of risk that determines the degree to which the yields on CMO
and MBS securities will exceed the yields that can be obtained from similarly
rated corporate securities.
As of December 31, 1998, ML of New York had 3,180 life insurance and annuity
contracts in-force with interest rate guarantees. The estimated average rate of
interest credited on behalf of contract owners was 5.46% during 1998. Invested
assets with an estimated effective yield of 6.61% supported the liabilities
related to insurance contracts with interest rate guarantees during 1998.
LIQUIDITY AND CAPITAL RESOURCES
ML of New York's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in-force. ML of New York has
developed and utilizes a cash flow projection system and regularly performs
asset / liability duration matching in the management of its asset and liability
portfolios. ML of New York anticipates funding all its cash requirements
utilizing cash from operations, normal investment maturities and anticipated
calls and repayments, consistent with prior years. As of December 31, 1998, ML
of New York's assets included $191 million of cash, short-term investments and
investment grade publicly traded available-for-sale securities that could be
liquidated if funds were required.
In order to continue to market life insurance and annuity products, ML of New
York must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under
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GAAP they are amortized over a period of time. Second, under statutory
accounting practices, the required additions to statutory reserves for new
business in some cases may initially exceed the statutory revenues attributable
to such business. These practices result in a reduction of statutory income and
surplus at the time of recording new business.
The National Association of Insurance Commissioners utilizes the Risk Based
Capital ("RBC") adequacy monitoring system. The RBC calculates the amount of
adjusted capital that a life insurance company should have based upon that
company's risk profile. As of December 31, 1998 and 1997, based on the RBC
formula, ML of New York's total adjusted capital level was well in excess of the
minimum amount of capital required to avoid regulatory action.
ML of New York has received claims paying ability ratings from the major
insurance rating agencies as follows: Standard and Poor's - "AA-", Fitch
Investor Services - "AA" and Moody's - "Aa3". Additionally, during 1998, ML of
New York's A.M. Best rating was upgraded from "A" to "A+".
ML of New York has developed a comprehensive capital management plan that will
continue to provide appropriate levels of capital for the risks that ML of New
York assumes, but will allow ML of New York to reduce its absolute level of
surplus. In implementing this plan, ML of New York paid a dividend to MLIG of
$15 million and $35 million during 1997 and 1996, respectively. No dividends
were paid during 1998.
ML of New York believes that it will be able to fund the capital and surplus
requirements of projected new business from current statutory earnings and
existing statutory capital and surplus. If sales of new business significantly
exceed projections, ML of New York may have to look to its parent and other
affiliated companies to provide the capital or borrowings necessary to support
its current marketing efforts. ML of New York's future marketing efforts could
be hampered should its parent and/or affiliates be unwilling to commit
additional funding.
YEAR 2000 COMPLIANCE
As the millennium approaches, ML of New York has undertaken initiatives to
address the Year 2000 problem (the "Y2K problem") in conjunction with the
Merrill Lynch & Co. Year 2000 Compliance Initiative. The Y2K problem is the
result of a widespread programming technique that causes computer systems to
identify a date based on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19." As a result, the year 2000
would be stored as "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
(e.g., computer databases) and non-information technology systems (e.g.,
elevators) to produce incorrect data or cease operating completely.
ML of New York believes that it has identified and evaluated its internal Y2K
problem and is devoting sufficient resources to renovating technology systems
that are not already Year 2000
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compliant. The resource-intensive renovation phase (as discussed further) of ML
of New York's Year 2000 efforts was approximately 92% completed as of year-end
1998. ML of New York will focus primarily on completing its renovation efforts
and testing and on integration of the Year 2000 programs during the remainder of
1999. In order to focus attention on the Y2K problem, management has deferred
certain other technology projects; however this deferral is not expected to have
a material adverse effect on ML of New York's business, results of operations,
or financial condition.
The failure of ML of New York's technology systems relating to a Y2K problem
would likely have a material adverse effect on ML of New York's business,
results of operations, or financial condition. This effect could include
disruption of normal business transactions, such as the processing of
contractholder transactions, the valuation of contractholder liabilities and the
recording and valuation of assets. The Y2K problem could also increase ML of New
York's exposure to risk and its need for liquidity.
In 1995, Merrill Lynch & Co. established the Year 2000 Compliance Initiative,
which is an enterprisewide effort to address the risks associated with the Y2K
problem, both internal and external. The Year 2000 Compliance Initiative's
efforts to address the risks associated with the Y2K problem have been organized
into six segments or phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.
The planning phase involved defining the scope of the Year 2000 Compliance
Initiative, including its annual budget and strategy, and determining the level
of expert knowledge available within Merrill Lynch & Co. regarding particular
systems or applications. The pre-renovation phase involved developing a detailed
enterprisewide inventory of applications and systems, identifying the scope of
necessary renovations to each application or system, and establishing a
conversion schedule. During the renovation phase, source codes are actually
converted, date fields are expanded or windowed (windowing is used on an
exception basis only), test data is prepared, and each system or application is
tested using a variety of Year 2000 scenarios. The production testing phase
validates that a renovated system is functionally the same as the existing
production version, that renovation has not introduced defects, and that
expanded or windowed date fields continue to handle current dates properly. The
certification phase validates that a system can run successfully in a Year 2000
environment. The integration testing phase, which will occur throughout 1999,
validates that a system can successfully interface with both internal and
external systems. Finally, as ML of New York continues to implement new systems,
they are also being tested for Year 2000 readiness.
In 1996 and 1997, as part of the planning and pre-renovation phases, both plans
and funding of plans for inventory, preparation, renovation, and testing of
computer systems for the Y2K problem were approved. All plans for both
mission-critical and non-mission-critical systems are tracked and monitored. The
work associated with the Year 2000 Compliance Initiative has been accomplished
by Merrill Lynch & Co. employees, with the assistance of consultants where
necessary.
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As part of the production testing and certification phases, ML of New York has
performed, and will continue to perform, both internal and external Year 2000
testing intended to address the risks from the Y2K problem. As of year-end 1998,
production testing was approximately 92% completed.
ML of New York continues to survey and communicate with third parties whose Y2K
readiness is important to the company. Information technology and
non-information technology vendors and service providers are contacted in order
to obtain their Y2K compliance plans. Based on the nature of the response and
the importance of the product or service involved, ML of New York determines if
additional testing is needed. The results of these efforts are maintained in a
database that is accessible throughout Merrill Lynch & Co. Third parties that
have been contacted include vendors and service providers; a process to access
and rate their responses has been developed. This information will be used by ML
of New York to manage risk resulting from the Y2K problem. Management is unable
at this point to ascertain whether all significant third parties will
successfully address the Y2K problem. ML of New York will continue to monitor
third parties' Year 2000 readiness to determine if additional or alternative
measures are necessary. In connection with information technology and
non-information technology products and services, contingency plans may include
selection of alternate vendors or service providers and changing business
practices so that a particular system is not needed. In light of the
interdependency of the parties in or serving the financial markets, however,
there can be no assurance that all Y2K problems will be identified and
remediated on a timely basis or that all remediation will be successful. The
failure of exchanges, clearing organizations, vendors, service providers,
counterparties, regulators, or others to resolve their own processing issues in
a timely manner could have a material adverse effect on ML of New York's
business, results of operations, and financial condition.
The primary costs associated with the Year 2000 Compliance Initiative are
incurred by Merrill Lynch & Co. and are not directly allocated to the various
business units. These costs include planning and oversight of the Year 2000
Compliance Initiative, as well as certain Information Systems personnel costs
involved in implementation and testing. All other costs incurred by ML of New
York, primarily non-Information Systems personnel costs, systems upgrades and
replacement of desk-top software, have not been material to ML of New York's
results of operations or financial condition. However, there can be no assurance
that the costs associated with remediation efforts or the possible failure of
remediation efforts would not have a material adverse effect on ML of New York's
business, results of operations, and financial condition.
RESULTS OF OPERATIONS
ML of New York's gross earnings are principally derived from two sources:
- - the net earnings from investment of fixed rate life insurance and annuity
contract owner deposits less interest credited to contract owners, commonly
known as spread, and
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- - the charges imposed on variable life insurance and variable annuity contracts
The costs associated with acquiring contract owner deposits are amortized over
the period in which ML of New York anticipates holding those funds. In addition,
ML of New York incurs expenses associated with the maintenance of in-force
contracts.
1998 compared to 1997
ML of New York recorded net earnings of $4.8 million and $9.7 million for 1998
and 1997, respectively.
Net earnings derived from interest spread decreased $3.2 million during 1998 as
compared to 1997. During 1997, Merrill Lynch Life determined that certain
policyholder reserves exceeded amounts required resulting in reductions to those
reserves. Excluding these reductions, interest spread decreased $2.2 million
during 1998 as compared to 1997. The reduction in interest spread is primarily a
result of ML of New York's $15 million dividend payment to its stockholder
during the fourth quarter 1997 and the declining number of fixed rate contracts
in-force.
Net realized investment losses were $2.0 million during 1998 as compared to net
realized investment gains of $1.9 million during 1997. During 1998, ML of New
York incurred $1.9 million in credit-related losses due to the book value
adjustment on one fixed maturity security. During 1997, ML of New York realized
a $2.0 million credit-related gain on the disposition of a single equity
security investment.
Policy charge revenue increased $2.4 million (or 19%) during the current year as
compared to 1997. The increase in policy charge revenue is primarily
attributable to the increase in policyholders' variable account balances. During
1998, average variable account balances increased $140 million (or 21%) as
compared to 1997.
The market value adjustment expense is attributable to ML of New York's modified
guaranteed annuity product. This contract provision results in a market value
adjustment to the cash surrender value of those contracts that are surrendered
before the expiration of their interest rate guarantee period. During 1998, the
market value adjustment expense increased $0.3 million (or 144%) as compared to
1997 consistent with the increase in surrender activity resulting from the lower
interest rate environment in 1998.
Policy benefits increased $0.8 million (or 109%) during 1998 as compared to 1997
due to increased mortality for variable life insurance products.
Reinsurance premium ceded increased $0.1 million (or 8%) to $1.7 million during
1998. This increase is attributable to the combined effect of the increasing age
of policyholders and increased insurance in-force.
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Amortization of deferred policy acquisition costs increased $1.6 million to $5.8
million in 1998. Approximately $1.5 million of the increase is attributable to
the retrospective adjustment of deferred policy acquisition costs as a result of
revising estimated future gross profits assumptions for certain life insurance
and annuity products.
Insurance expenses and taxes increased $0.3 million (or 7%) during 1998 as
compared to 1997. During the third quarter 1998, the Company incurred $0.3
million in expenses due to the writedown of various leasehold improvements and
other expenses associated with the closure of its New York service center.
1997 compared to 1996
ML of New York recorded net earnings of $9.7 million and $9.2 million for 1997
and 1996, respectively.
Net investment income and interest credited to policyholders' account balances
for 1997 as compared to 1996 both declined by approximately $2 million. The
reduction in net investment income is primarily attributable to the reduction in
fixed rate contracts in-force and stockholder dividend payments. The decrease in
interest credited to policyholders' account balances is primarily attributable
to the reduction in fixed rate contracts in-force. Additionally, during 1997,
certain policyholder reserves were determined to be in excess of amounts
required, resulting in a $1 million reduction to interest credited.
Net realized investment gains were $1.9 million and $2.2 million during 1997 and
1996, respectively. The decrease is primarily due to credit related losses on
fixed maturity investments during 1997.
Policy charge revenue increased $1.1 million (or 9%) during the current year as
compared to 1996. The increase in policy charge revenue is primarily
attributable to the increase in policyholders' variable account balances. Asset
based charges increased $1.3 million (or 23%) consistent with the growth in the
separate account assets. Non-asset based charges decreased $0.2 million during
1997 as compared to 1996 primarily due to an increase in the number of in-force
variable life policies reaching the end of their deferred policy load collection
period.
The decrease in policy benefits of $0.5 million during 1997 as compared to 1996
is attributable to favorable mortality experienced during the current year.
Reinsurance premium ceded increased $0.3 million to $1.6 million during 1997.
This increase is attributable to the combined effect of the increasing age of
policyholders and increased insurance in-force resulting from the strong equity
markets.
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Segment Information
ML of New York's operating results are categorized into two business segments:
Life Insurance and Annuities. ML of New York's Life Insurance segment consists
of variable life insurance products and interest-sensitive life products. ML of
New York's Annuity segment consists of variable annuities and interest-sensitive
annuities. All other earnings represent earnings on assets that do not support
contractholder liabilities. Net earnings by segment were as follows:
<TABLE>
<CAPTION>
Segment 1998 1997 1996
------- ---- ---- ----
<S> <C> <C> <C>
Life Insurance $0.5 $2.1 $2.1
Annuities $2.6 $5.3 $4.6
Other $1.7 $2.3 $2.5
</TABLE>
The products that comprise the Life Insurance and Annuity segments generally
possess similar economic characteristics. As such, the financial condition and
results of operations of each business segment are generally consistent with
Merrill Lynch Life's consolidated financial condition and results of operations
presented herein.
ML of New York is not dependent upon any single customer, and no single customer
accounted for more than 10% of its revenues during 1998.
Inflation
ML of New York's operations have not been materially impacted by inflation and
changing prices during the preceding three years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential change in a financial instrument's value caused by
fluctuations in certain underlying risk factors. ML of New York is primarily
subject to market risk resulting from fluctuations in interest rates and credit
spreads.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of investments, primarily fixed maturity securities and
preferred equity securities, as well as interest sensitive liabilities. Changes
in interest rates have an inverse relationship to the value of investments and
interest sensitive liabilities. ML of New York manages interest rate risk as
part of its asset / liability management strategy. For each portfolio,
management monitors the expected changes in assets and liabilities, as produced
by ML of New York's model, resulting from various interest rate scenarios. Based
on these results, management closely matches the duration and convexity of
insurance liabilities to the duration and convexity of assets supporting
- 14 -
<PAGE> 15
those liabilities.
The following table presents the estimated net impact on the fair value of
non-trading investments and interest sensitive liabilities resulting from
various hypothetical interest rate scenarios, based on assumptions contained in
ML of New York's model:
<TABLE>
<CAPTION>
Change in Interest Rates Change in Fair Value
<S> <C>
+ 100 basis points ($2.6)
+ 50 basis points ($1.4)
- 50 basis points $1.5
- 100 basis points $3.0
</TABLE>
ML of New York's model is based on existing business inforce as of year-end 1998
without considering the impact of new life insurance and annuity sales on assets
or liabilities. The model incorporates ML of New York's fixed maturity
securities and preferred equity investments excluding variable rate securities
with rate resettings in less than ninety days, securities with a maturity of
less than ninety days, and securities that are in or near default. The changes
in interest rate scenarios, noted above, assume parallel shifts in the yield
curve occurring uniformly throughout the year.
Additionally, certain products have features that mitigate the impact of
interest rate risk. Examples include surrender charges, market value
adjustments, and resetting of interest credited rates (subject to certain
guaranteed minimum crediting rates). For interest sensitive life products the
guaranteed minimum rate is 4%. For interest sensitive annuity products,
excluding modified guaranteed annuities, the guaranteed minimum rates range from
3% to 5%, with the greatest concentration in the 3% to 4% range.
Credit Spread Risk
Credit spread risk arises from the possibility that changes in credit spreads
will affect the value of investments. Credit spreads represent the credit risk
premiums required by market participants for a given credit quality, i.e., the
additional yield that a debt instrument issued by a AA-rated entity must produce
over a risk-free alternative (e.g., U.S. Treasury instrument).
The following table presents the estimated net impact on the fair value of
non-trading investments resulting from various hypothetical fluctuations in
credit spreads, based on assumptions contained in ML of New York's model:
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
Change in Credit Spreads Change in Fair Value
<S> <C>
+ 50 basis points ($2.9)
+ 10 basis points ($0.6)
- 10 basis points $0.6
- 50 basis points $3.0
</TABLE>
ML of New York's model is based on existing business inforce as of year-end 1998
without considering the impact of new life insurance and annuity sales on
assets. The model incorporates ML of New York's fixed maturity securities and
preferred equity investments excluding securities with a maturity of less than
ninety days and securities that are in or near default. The changes in credit
spreads, noted above, assume a uniform occurrence throughout the year.
Liability valuations for modified guaranteed annuities mitigate ML of New York's
exposure to credit spread risk. Contractholder surrender values reflect changes
in spread between corporate bonds and U.S. Treasury securities since the market
value adjusted account value is based on current crediting rates for new and
renewal contracts. These crediting rates are adjusted weekly and reflect current
market conditions.
Credit Risk
Credit risk represents the loss that ML of New York would incur if an issuer
fails to perform its contractual obligations and the value of the security held
has been permanently impaired or is deemed worthless. ML of New York manages its
credit risk by setting investment policy guidelines that assure diversification
with respect to investment, issuer, geographic location and credit quality.
Management regularly monitors compliance of each investment portfolio's status
with the investment policy guidelines, including timely updates of
credit-related securities.
A number of assumptions must be made to obtain the expected fair value changes
noted above. There is no reason to believe that historically simulated interest
rate and credit spread movements have any predictive power for future fair value
changes. The unprecedented volatility experienced during the third quarter 1998
demonstrates the limitations of these models.
Item 8. Financial Statements and Supplementary Data.
The financial statements of Registrant are set forth in Part
IV hereof and are incorporated herein by reference.
- 16 -
<PAGE> 17
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Information called for by items 10 through 13 of this part is
omitted pursuant to General Instruction I. of Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Financial Statements and Exhibits.
(1) The following financial statements of the
Registrant are filed as part of this report:
a. Independent Auditors' Report dated February
22, 1999.
b. Balance Sheets at December 31, 1998 and
1997.
c. Statements of Earnings for the Years Ended
December 31, 1998, 1997 and 1996.
d. Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and
1996.
e. Statements of Stockholder's Equity for the
Years Ended December 31, 1998, 1997 and
1996.
f. Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.
g. Notes to Financial Statements for the Years
Ended December 31, 1998, 1997 and 1996.
(2) Not applicable.
(3) The following exhibits are filed as part of
this report as indicated below:
- 17 -
<PAGE> 18
3.1 Certificate of Amendment of the Charter of ML Life
Insurance Company of New York. (Incorporated by reference
to Exhibit 6(a)(ii) to Post-Effective Amendment No. 10 to
ML of New York Variable Annuity Account A's registration
statement on Form N-4, File No. 33-43654, filed December 9,
1996.)
3.2 By-Laws of ML Life Insurance Company of New York.
(Incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to ML of New York Variable
Annuity Account A's registration statement on Form N-4,
File No. 33-43654, filed December 9, 1996.)
4.1 Modified Guaranteed Annuity Contract. (Incorporated by
reference to Exhibit 4(a) to Pre-Effective Amendment No. 1
to the Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
4.2 Modified Guaranteed Annuity Contract Application.
(Incorporated by reference to Exhibit 4(b) to Pre-Effective
Amendment No. 1 to the Registrant's registration statement
on Form S-1, File No. 33-34562, filed October 16, 1990.)
4.3 Qualified Retirement Plan Endorsement. (Incorporated by
reference to Exhibit 4(c) to Pre-Effective Amendment No. 1
to the Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
4.4 IRA Endorsement. (Incorporated by reference to Exhibit 4(d)
to Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed October 16, 1990.)
4.5 Company Name Change Endorsement. (Incorporated by reference
to Exhibit 4(e) to Post-Effective Amendment No. 3 to the
Registrant's registration statement on Form S-1, File No.
33-34562, filed March 30, 1992.)
4.6 IRA Endorsement, MLNY009 (Incorporated by reference to
Exhibit 4(d)(2) to Post-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No.
33-60288, filed March 31, 1994).
- 18 -
<PAGE> 19
4.7 Modified Guaranteed Annuity Contract MLNY-AY-991/94.
(Incorporated by reference to Exhibit 4(a)(2) to
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60288,
filed December 7, 1994).
4.8 Qualified Retirement Plan Endorsement MLNY-AYQ-991/94.
(Incorporation by reference to Exhibit 4(c)(2) to
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60288,
filed December 7, 1994).
10.1 General Agency Agreement between Royal Tandem Life
Insurance Company and Merrill Lynch Life Agency Inc.
(Incorporated by reference to Exhibit 10(a) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed October 16, 1990.)
10.2 Investment Management Agreement by and between Royal Tandem
Life Insurance Company and Equitable Capital Management
Corporation. (Incorporated by reference to Exhibit 10(b) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed October 16, 1990.)
10.3 Shareholders' Agreement by and among The Equitable Life
Assurance Society of the United States and Merrill Lynch &
Co., Inc. and Tandem Financial Group, Inc. (Incorporated by
reference to Exhibit 10(c) to Pre-Effective Amendment No. 1
to the Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
10.4 Service Agreement by and between Royal Tandem Life
Insurance Company and Tandem Financial Group, Inc.
(Incorporated by reference to Exhibit 10(d) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed October 16, 1990.)
10.5 Service Agreement by and between Tandem Financial Group,
Inc. and Merrill Lynch & Co., Inc. (Incorporated by
reference to Exhibit 10(e) to Pre-Effective Amendment No. 1
to the Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
- 19 -
<PAGE> 20
10.6 Form of Investment Management Agreement by and between
Royal Tandem Life Insurance Company and Merrill Lynch Asset
Management, Inc. (Incorporated by reference to Exhibit
10(f) to Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed March 7, 1991.)
10.7 Assumption Reinsurance Agreement between Merrill Lynch Life
Insurance Company, Tandem Insurance Group, Inc. and Royal
Tandem Life Insurance Company and Family Life Insurance
Company. (Incorporated by reference to Exhibit 10(g) to
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed March 30, 1992.)
10.8 Indemnity Agreement between ML Life Insurance Company of
New York and Merrill Lynch Life Agency, Inc. (Incorporated
by reference to Exhibit 10(h) to Post-Effective Amendment
No. 3 to the Registrant's registration statement on Form
S-1, File No. 33-34562, filed March 30, 1992.)
10.9 Amended General Agency Agreement between ML Life Insurance
Company of New York and Merrill Lynch Life Agency, Inc.
(Incorporated by reference to Exhibit 10(i) to
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-34562,
filed March 30, 1992.)
10.10 Amended Management Agreement between ML Life Insurance
Company of New York and Merrill Lynch Asset Management,
Inc. (Incorporated by reference to Exhibit 10(j) to the
Registrant's registration statement on Form S-1, File No.
33-60288, filed March 30, 1993.)
10.11 Mortgage Loan Servicing Agreement between ML Life Insurance
Company of New York and Merrill Lynch & Co., Inc.
(Incorporated by reference to Exhibit 10(k) to
Post-Effective Amendment No. 4 to the Registrant's
registration statement on Form S-1, File No. 33-60288,
filed March 29, 1995.)
24.1 Power of attorney of Frederick J. C. Butler. (Incorporated
by reference to Exhibit 24(a) to Post-Effective Amendment
No. 1 to the Registrant's registration statement on Form
S-1, File No. 33-60288, filed March 31, 1994.)
- 20 -
<PAGE> 21
24.2 Power of attorney of Michael P. Cogswell. (Incorporated by
reference to Exhibit 24(b) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.3 Power of attorney of Joseph E. Crowne. (Incorporated by
reference to Exhibit 24(d) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.4 Power of attorney of David M. Dunford. (Incorporated by
reference to Exhibit 24(e) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.5 Power of attorney of Robert L. Israeloff. (Incorporated by
reference to Exhibit 24(g) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.6 Power of attorney of Allen N. Jones. (Incorporated by
reference to Exhibit 24(j) to Post-Effective Amendment No.
6 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 27, 1997.)
24.7 Power of attorney of Cynthia L. Kahn. (Incorporated by
reference to Exhibit 24(i) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.8 Power of attorney of Robert A. King. (Incorporated by
reference to Exhibit 24(j) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.9 Power of attorney of Irving M. Pollack. (Incorporated by
reference to Exhibit 24(k) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.10 Power of attorney of Barry G. Skolnick. (Incorporated by
reference to Exhibit 24(l) to Post-Effective Amendment No.
1 to
- 21 -
<PAGE> 22
the Registrant's registration statement on Form S-1, File
No. 33-60288, filed March 31, 1994.)
24.11 Power of attorney of Anthony J. Vespa. (Incorporated by
reference to Exhibit 24(n) to Post-Effective Amendment No.
1 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 31, 1994.)
24.12 Power of attorney of Gail R. Farkas. (Incorporated by
reference to Exhibit 24(g) to Post-Effective Amendment No.
5 to the Registrant's registration statement on Form S-1,
File No. 33-60288, filed March 26, 1996.)
24.13 Power of attorney of Stanley C. Peterson. (Incorporated by
reference to Exhibit 24.13 to Annual Report on Form 10-K,
File Nos. 33-34562 and 33-60288, filed March 30, 1998.)
27.1 Financial Data Schedule is filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of
the fiscal year ended December 31, 1998.
- 22 -
<PAGE> 23
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report...............................................................................
Balance Sheets at December 31, 1998 and 1997...............................................................
Statements of Earnings for the Years Ended December 31, 1998, 1997 and 1996 ...............................
Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996....................
Statements of Stockholder's Equity for the Years Ended December 31, 1998, 1997 and 1996....................
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996..............................
Notes to Financial Statements for the Years Ended December 31, 1998, 1997 and 1996.........................
</TABLE>
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying balance sheets of ML Life
Insurance Company of New York (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of December
31, 1998 and 1997, and the related statements of earnings,
comprehensive income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $197,588; 1997 - $250,695) $ 200,681 $ 255,958
Equity securities, at estimated fair value
(cost: 1998 - $14,684; 1997 - $5,830) 13,718 5,029
Policy loans on insurance contracts 88,083 88,163
------------- -------------
Total Investments 302,482 349,150
CASH AND CASH EQUIVALENTS 18,707 10,063
ACCRUED INVESTMENT INCOME 4,968 5,416
DEFERRED POLICY ACQUISITION COSTS 29,742 30,406
REINSURANCE RECEIVABLES 652 429
OTHER ASSETS 4,261 3,405
SEPARATE ACCOUNTS ASSETS 887,170 739,712
------------- -------------
TOTAL ASSETS $ 1,247,982 $ 1,138,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 269,246 $ 307,333
Claims and claims settlement expenses 2,986 2,007
------------- -------------
Total policy liabilities and accruals 272,232 309,340
OTHER POLICYHOLDER FUNDS 1,783 1,941
FEDERAL INCOME TAXES - DEFERRED 119 1,905
FEDERAL INCOME TAXES - CURRENT 1,347 2,255
AFFILIATED PAYABLES - NET 1,253 3,492
OTHER LIABILITIES 2,124 2,155
SEPARATE ACCOUNTS LIABILITIES 887,170 739,712
------------- -------------
Total Liabilities 1,166,028 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 14,462 9,692
Accumulated other comprehensive loss (967) (370)
------------- -------------
Total Stockholder's Equity 81,954 77,781
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,247,982 $ 1,138,581
============= =============
</TABLE>
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 21,549 $ 25,465 $ 27,520
Net realized investment gains (losses) (1,998) 1,947 2,169
Policy charge revenue 15,484 13,064 11,959
------------- ------------- -------------
Total Revenues 35,035 40,476 41,648
------------- ------------- -------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 13,832 14,532 16,586
Market value adjustment expense 567 232 301
Policy benefits (net of reinsurance recoveries: 1998 - $1,191
1997 - $690; 1996 - $1,584) 1,630 781 1,311
Reinsurance premium ceded 1,705 1,584 1,262
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Insurance expenses and taxes 4,900 4,563 4,595
------------- ------------- -------------
Total Benefits and Expenses 28,393 25,811 27,839
------------- ------------- -------------
Earnings Before Federal Income Tax Provision 6,642 14,665 13,809
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 3,337 2,905 102
Deferred (1,465) 2,068 4,488
------------- ------------- -------------
Total Federal Income Tax Provision 1,872 4,973 4,590
------------- ------------- -------------
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
============= ============= =============
</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
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
------------- ------------ -------------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding losses arising during the period (4,329) (413) (4,206)
Reclassification adjustment for (gains) losses included
in net earnings 1,994 (1,771) (1,858)
------------- ------------ -------------
Net unrealized losses on investment securities (2,335) (2,184) (6,064)
Adjustments for:
Policyholder liabilities 1,417 (70) 5,380
Income tax benefit related to items of
other comprehensive loss 321 789 240
------------- ------------ -------------
Other comprehensive loss, net of tax (597) (1,465) (444)
------------- ------------ -------------
COMPREHENSIVE INCOME $ 4,173 $ 8,227 $ 8,775
============= ============ =============
</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
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Stockholder's
stock Capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 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
Other comprehensive loss, net of tax (444) (444)
----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 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 loss, net of tax (1,465) (1,465)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 2,200 66,259 9,692 (370) 77,781
Net earnings 4,770 4,770
Other comprehensive loss, net of tax (597) (597)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 2,200 $ 66,259 $ 14,462 $ (967) $ 81,954
=========== ============ ============ ============ ============
</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
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,770 $ 9,692 $ 9,219
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Capitalization of policy acquisition costs (5,095) (5,253) (2,134)
Amortization (accretion) of investments (262) (239) 1
Net realized investment (gains) losses 1,998 (1,947) (2,169)
Interest credited to policyholders' account balances 13,832 14,532 16,586
Provision (benefit) for deferred Federal income tax (1,465) 2,068 4,488
Changes in operating assets and liabilities:
Accrued investment income 448 536 651
Claims and claims settlement expenses 979 (565) (329)
Federal income taxes - current (908) 156 1,914
Other policyholder funds (158) 781 421
Affiliated payables - net (2,239) (1,534) 964
Policy loans on insurance contracts 80 (2,615) (3,475)
Other, net (1,110) 2,306 (3,951)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activites 16,629 22,037 25,970
------------ ------------ ------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 102,967 88,882 155,645
Maturities of available-for-sale securities 59,161 51,060 34,455
Purchases of available-for-sale securities (119,611) (120,965) (162,828)
Mortgage loans principal payments received - 2,057 1,975
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 42,517 21,034 29,247
------------ ------------ ------------
</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
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (15,000) $ (35,000)
Policyholders' account balances:
Deposits 94,226 106,983 32,158
Withdrawals (including transfers to/from Separate Accounts) (144,728) (132,819) (61,934)
------------- ------------- -------------
Net cash and cash equivalents used by financing activites (50,502) (40,836) (64,776)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,644 2,235 (9,559)
CASH AND CASH EQUIVALENTS:
Beginning of year 10,063 7,828 17,387
------------- ------------- -------------
End of year $ 18,707 $ 10,063 $ 7,828
============= ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 4,245 $ 2,749 $ (1,812)
Interest 148 494 440
</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
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: 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 non-participating life insurance and annuity
products primarily variable life insurance, variable annuities,
market value adjusted annuities and immediate annuities. The
Company is licensed to sell insurance in nine states; however,
it currently limits its marketing activities to the State of
New York. The Company markets its products solely through the
retail network of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated ("MLPF&S"), a wholly-owned broker-dealer
subsidiary of Merrill Lynch & Co.
Basis of Reporting: The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles and prevailing industry practices, both of which
require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial
statements. Actual results could differ from those estimates.
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
mortality risk and cost of insurance, deferred sales charges,
policy administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Investments: The Company's investments in fixed maturity and
equity securities are classified as available-for-sale and are
carried at estimated fair value with unrealized gains and
losses included in stockholder's equity as a component of
accumulated other comprehensive loss, net of tax. If a decline
in value of a security is determined by management to be other-
than-temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded as
net realized investment gains (losses).
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a rating
equivalent to Standard and Poor's (or similar rating agency)
BBB- or higher.
<PAGE>
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain mortgage loans. The Company recognized a realized gain
at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans, the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments
of mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying
amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance that are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed. The deferred costs are amortized in
proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 7.5%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions will be capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1998 1997 1996
------------ ------------ ------------
Beginning balance $ 16,550 $ 17,151 $ 17,654
Capitalized amounts 691 577 577
Interest accrued 1,241 1,651 1,566
Amortization (5,698) (2,829) (2,646)
------------ ------------ ------------
Ending balance $ 12,784 $ 16,550 $ 17,151
============ ============ ============
<PAGE>
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1999 $905
2000 $785
2001 $747
2002 $712
2003 $700
Separate Accounts: Separate Accounts are established in
conformity with New York State Insurance Law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of
the Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for the
Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.00%
Interest-sensitive deferred annuities 3.70% - 8.23%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current federal tax liability.
<PAGE>
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
1998 1997
------------ ------------
Assets:
Fixed maturity securities (1) $ 200,681 $ 255,958
Equity securities (1) 13,718 5,029
Policy loans on insurance contracts (2) 88,083 88,163
Cash and cash equivalents (3) 18,707 10,063
Separate Accounts assets (4) 887,170 739,712
------------ ------------
Total financial instruments $ 1,208,359 $ 1,098,925
============ ============
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value, having an
amortized cost of $33,427 and $47,064, had an estimated
fair value of $33,879 and $48,188, respectively.
<PAGE>
(2) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are
fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(3) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(4) Assets held in Separate Accounts are carried at quoted
market values.
NOTE 3: INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity and equity securities as of December 31 were:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 159,421 $ 3,404 $ 1,224 $ 161,601
Mortgage-backed securities 13,258 443 54 13,646
U.S. government and agencies 22,912 869 48 23,734
Foreign governments 1,997 - 297 1,700
------------ ------------ ------------ ------------
Total fixed maturity securities $ 197,588 $ 4,716 $ 1,623 $ 200,681
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 13,361 $ 58 $ 257 $ 13,162
Common stocks 1,323 - 767 556
------------ ------------ ------------ ------------
Total equity securities $ 14,684 $ 58 $ 1,024 $ 13,718
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 198,266 $ 4,595 $ 777 $ 202,084
Mortgage-backed securities 34,726 1,135 5 35,856
U.S. government and agencies 13,593 268 11 13,850
Municipals 2,090 90 - 2,180
Foreign governments 2,020 - 32 1,988
------------ ------------ ------------ ------------
Total fixed maturity securities $ 250,695 $ 6,088 $ 825 $ 255,958
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 4,507 $ - $ 34 $ 4,473
Common stocks 1,323 - 767 556
------------ ------------ ------------ ------------
Total equity securities $ 5,830 $ - $ 801 $ 5,029
============ ============ ============ ============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 30,410 $ 29,997
Due after one year through five years 79,961 81,584
Due after five years through ten years 47,930 48,689
Due after ten years 26,029 26,765
----------- -----------
184,330 187,035
Mortgage-backed securities 13,258 13,646
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penelties.
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by rating agency equivalent were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 53,959 $ 55,431
AA 5,484 5,515
A 53,720 54,593
BBB 74,577 76,069
Non-investment grade 9,848 9,073
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with investments classified as available-for-sale.
The Company adjusts those assets and liabilities as if the
unrealized investment gains or losses from available-for-sale
investments had actually been realized, with corresponding
credits or charges reported in stockholder's equity as a
component of accumulated other comprehensive loss, net of
taxes. The following reconciles net unrealized investment gains
(losses) on available-for-sale investments as of December 31:
1998 1997
----------- -----------
Assets:
Fixed maturity securities $ 3,093 $ 5,263
Equity securities (966) (801)
----------- -----------
2,127 4,462
----------- -----------
Liabilities:
Policyholders' account balances 3,615 5,032
Federal income taxes - deferred (521) (200)
----------- -----------
3,094 4,832
----------- -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (967) $ (370)
=========== ===========
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
----------- ----------- -----------
Proceeds $ 102,967 $ 88,882 $ 155,645
Gross realized investment gains 2,096 4,077 2,677
Gross realized investment losses 4,094 2,130 508
The company owned investment securities of $1,104 and $1,076
that were deposited with insurance regulatory authorities at
December 31, 1998 and 1997, respectively.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ 16,244 $ 19,815 $ 22,153
Equity securities 734 761 183
Mortgage loans - 81 388
Policy loans on insurance contracts 4,316 4,333 4,133
Cash and cash equivalents 761 1,293 1,559
Other 29 65 -
----------- ----------- -----------
Gross investment income 22,084 26,348 28,416
Less investment expenses (535) (883) (896)
----------- ----------- -----------
Net investment income $ 21,549 $ 25,465 $ 27,520
=========== =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ (1,944) $ (1,268) $ 657
Equity securities (54) 3,215 1,512
----------- ----------- -----------
Net realized investment gains (losses) $ (1,998) $ 1,947 $ 2,169
=========== =========== ===========
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before federal income taxes, computed
using the Federal statutory tax rate, with the provision for
income taxes for the years ended December 31:
1998 1997 1996
----------- ----------- -----------
Provision for income taxes computed at
Federal statutory rate $ 2,325 $ 5,133 $ 4,833
State corporate income taxes - - (10)
Decrease in income taxes resulting from:
Dividend received deduction (300) (160) (235)
Foreign tax credit (153) - -
Other - - 2
----------- ----------- -----------
Federal income tax provision $ 1,872 $ 4,973 $ 4,590
=========== =========== ===========
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (158) $ 315 $ (259)
Policyholders' account balances (659) (140) 4,053
Liability for guaranty fund assessments - (50) 50
Investment adjustments (629) 1,943 642
Other (19) - 2
----------- ----------- -----------
Deferred Federal income tax provision (benefit) $ (1,465) $ 2,068 $ 4,488
=========== =========== ===========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1998 1997
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 5,023 $ 4,364
Investment adjustments 625 (4)
Net unrealized investment loss 521 200
Other 19 -
----------- -----------
Total deferred tax assets 6,188 4,560
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 6,307 6,465
----------- -----------
Net deferred tax liability $ 119 $ 1,905
=========== ===========
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5: REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. The maximum amount of mortality risk retained by
the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the Company.
The Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $154 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $ 900,964 $ 159,582 $ 1,116,951 $ 1,858,333 60%
</TABLE>
NOTE 6: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG, in relation to this
service agreement, are reimbursed by the Company on an
allocated cost basis. Charges billed to the Company by MLIG
pursuant to the agreement were $4,767, $4,305 and $4,258 for
1998, 1997 and 1996 respectively. The Company is allocated
interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany
interest paid was $69, $64 and $74 for 1998, 1997 and 1996,
respectively.
The Company and Merrill Lynch Asset Management, LP ("MLAM") are
parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were $157,
$159 and $186 for 1998, 1997 and 1996, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $3,798, $4,130 and $1,334 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
<PAGE>
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1998 and 1997, the outstanding loan balance was $434 and
$1,156, respectively. Repayments made on this loan during 1998
and 1997 were $722 and $1,919, respectively. There were no
repayments made during 1996. Loan interest was calculated at
LIBOR plus 150 basis points. Intercompany interest paid during
1998, 1997 and 1996 was $79, $359 and $366, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 7: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
Notice of intention to declare a dividend must be filed with
the New York Superintendent of Insurance who may disallow the
payment. During 1998, no dividend request was filed. During
1997 and 1996, the Company paid dividends of $15,000 and
$35,000, respectively, to MLIG. Statutory capital and surplus
at December 31, 1998 and 1997, was $55,851 and $51,080,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principals utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes and valuing securities on a different basis. The
Company's statutory net income for 1998, 1997 and 1996 was
$5,405, $9,888 and $12,884, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998, and 1997, based on the
RBC formula, the Company's total adjusted capital level was
761% and 649%, respectively, of the minimum amount of capital
required to avoid regulatory action.
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of New York will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
<PAGE>
NOTE 8: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). Based upon the public information available at this
time, management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
insurance products. The Company's Annuity segment consists of
variable annuities and interest-sensitive annuities.
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, the marketing and sales management functions,
within MLIG, are organized according to these two business
segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
<PAGE>
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 789 $ 3,876 $ 3,052 $ 7,717
Other revenues 8,472 5,377 (363) 13,486
----------- ----------- ----------- -----------
Net revenues 9,261 9,253 2,689 21,203
----------- ----------- ----------- -----------
Policy benefits 1,570 60 - 1,630
Reinsurance premium ceded 1,705 - - 1,705
DAC amortization 3,571 2,188 - 5,759
Other non-interest expenses 1,973 3,494 - 5,467
----------- ----------- ----------- -----------
Total non-interest expenses 8,819 5,742 - 14,561
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision (benefit) 442 3,511 2,689 6,642
Income tax expense (benefit) (7) 938 941 1,872
----------- ----------- ----------- -----------
Net earnings $ 449 $ 2,573 $ 1,748 $ 4,770
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 481,305 $ 720,478 $ 46,182 $1,247,965
Deferred policy acquisition costs $ 15,325 $ 14,417 $ - $ 29,742
Policy liabilities and accruals $ 103,926 $ 168,306 $ - $ 272,232
Other policyholder funds $ 1,319 $ - $ 464 $ 1,783
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,399 $ 6,060 $ 3,474 $ 10,933
Other revenues 7,759 7,172 80 15,011
----------- ----------- ----------- -----------
Net revenues 9,158 13,232 3,554 25,944
----------- ----------- ----------- -----------
Policy benefits 781 - - 781
Reinsurance premium ceded 1,584 - - 1,584
DAC amortization 1,992 2,127 - 4,119
Other non-interest expenses 1,747 3,048 - 4,795
----------- ----------- ----------- -----------
Total non-interest expenses 6,104 5,175 - 11,279
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision 3,054 8,057 3,554 14,665
Income tax expense 987 2,742 1,244 4,973
----------- ----------- ----------- -----------
Net earnings $ 2,067 $ 5,315 $ 2,310 $ 9,692
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 456,240 $ 635,673 $ 46,668 $1,138,581
Deferred policy acquisition costs $ 17,506 $ 12,900 $ - $ 30,406
Policy liabilities and accruals $ 103,677 $ 205,663 $ - $ 309,340
Other policyholder funds $ 974 $ - $ 967 $ 1,941
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,400 $ 5,721 $ 3,813 $ 10,934
Other revenues 7,680 6,431 17 14,128
----------- ----------- ----------- ------------
Net revenues 9,080 12,152 3,830 25,062
----------- ----------- ----------- ------------
Policy benefits 1,311 - - 1,311
Reinsurance premium ceded 1,262 - - 1,262
DAC amortization 1,736 2,048 - 3,784
Other non-interest expenses 1,755 3,141 - 4,896
----------- ----------- ----------- ------------
Total non-interest expenses 6,064 5,189 - 11,253
----------- ----------- ----------- ------------
Net earnings before Federal income
tax provision 3,016 6,963 3,830 13,809
Income tax expense 923 2,335 1,332 4,590
----------- ----------- ----------- ------------
Net earnings $ 2,093 $ 4,628 $ 2,498 $ 9,219
=========== =========== =========== ============
Balance Sheet Information:
Total assets $ 429,330 $ 534,376 $ 44,361 $ 1,008,067
Deferred policy acquisition costs $ 18,213 $ 11,059 $ - $ 29,272
Policy liabilities and accruals $ 101,689 $ 219,450 $ - $ 321,139
Other policyholder funds $ 994 $ - $ 166 $ 1,160
</TABLE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Life Insurance
Variable Life $ 9,045 $ 8,828 $ 8,790
Interest-sensitive whole life 216 330 290
----------- ----------- ----------
Total Life Insurance 9,261 9,158 9,080
----------- ----------- ----------
Annuities
Variable annuities 6,240 4,673 3,602
Interest-sensitive annuities 3,013 8,559 8,550
----------- ----------- ----------
Total Annuities 9,253 13,232 12,152
----------- ----------- ----------
Other 2,689 3,554 3,830
----------- ----------- ----------
Total $ 21,203 $ 25,944 $ 25,062
=========== =========== ==========
</TABLE>
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 15(d) 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
-------------------------------------
(Registrant)
Date: March 26, 1999 By: /s/ Joseph E. Crowne, Jr.
--------------------------
Joseph E. Crowne, Jr.
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*
Chairman of the Board, March 26, 1999
- ------------------------- President and Chief Executive --------------
Anthony J. Vespa Officer
/s/ Joseph E. Crowne, Jr. Director, Senior Vice President, March 26, 1999
- ------------------------- Chief Financial Officer, Chief --------------
Joseph E. Crowne, Jr. Actuary and Treasurer
/s/ Barry G. Skolnick Director, Senior Vice President and March 26, 1999
- ------------------------- General Counsel* --------------
Barry G. Skolnick
*
Director, Senior Vice President and March 26, 1999
- ------------------------- Chief Investment Officer --------------
David M. Dunford
*
Director and Senior Vice President March 26, 1999
- ------------------------- --------------
Gail R. Farkas
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C>
*
Director, Vice President and Senior March 26, 1999
- ------------------------- Counsel --------------
Michael P. Cogswell
*
Director March 26, 1999
- ------------------------- --------------
Frederick J. C. Butler
*
Director March 26, 1999
- ------------------------- --------------
Robert L. Israeloff
*
Director March 26, 1999
- ------------------------- --------------
Allen N. Jones
*
Director March 26, 1999
- ------------------------- --------------
Cynthia L. Kahn
*
Director March 26, 1999
- ------------------------- --------------
Robert A. King
*
Director March 26, 1999
- ------------------------- --------------
Stanley C. Peterson
*
Director March 26, 1999
- ------------------------- --------------
Irving M. Pollack
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
<PAGE> 27
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report covering the Registrant's last fiscal year or proxy
material has been or will be sent to Registrant's security holder.
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Amendment of the Charter of Incorporated by reference to Exhibit
ML Life Insurance Company of New York 6(a)(ii) to Post-Effective Amendment No.
10 to ML of New York Variable Annuity
Account A's registration statement on Form
N-4, File No. 33-43654, filed December 9,
1996.
3.2 By-Laws of ML Life Insurance Company of Incorporated by reference to Exhibit 6(b)
New York to Post-Effective Amendment No. 10 to ML
of New York Variable Annuity Account A's
registration statement on Form N-4, File
No. 33-43654, filed December 9, 1996.
4.1 Modified Guaranteed Annuity Contract Incorporated by reference to Exhibit 4(a)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
4.2 Modified Guaranteed Annuity Contract Incorporated by reference to Exhibit 4(b)
Application to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
4.3 Qualified Retirement Plan Endorsement Incorporated by reference to Exhibit 4(c)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed
October 16, 1990.
4.4 IRA Endorsement Incorporated by reference to Exhibit 4(d)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
</TABLE>
E-1
<PAGE> 29
<TABLE>
<S> <C> <C>
4.5 Company Name Change Endorsement Incorporated by reference to Exhibit 4(e)
to Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
4.6 IRA Endorsement, MLNY009 Incorporated by reference to Exhibit
4(d)(2) to Post-Effective Amendment No. 1
to the Registrant's registration statement
on Form S-1, File No. 33-60288, filed
March 31, 1994.
4.7 Modified Guaranteed Annuity Contract Incorporated by reference to Exhibit
MLNY-AY-991/94 4(a)(2) to Post-Effective Amendment No. 3
to the Registrant's registration statement
on Form S-1, File No. 33-60288, filed
December 7, 1994.
4.8 Qualified Retirement Plan Endorsement Incorporated by reference to Exhibit
MLNY-AYQ-991/94 4(c)(2) to Post-Effective Amendment No. 3
to the Registrant's registration statement
on Form S-1, File No. 33-60288, filed
December 7, 1994.
10.1 General Agency Agreement between Royal Incorporated by reference to Exhibit
Tandem Life Insurance Company and Merrill 10(a) to Pre-Effective Amendment No. 1 to
Lynch Life Agency Inc. the Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
10.2 Investment Management Agreement by and Incorporated by reference to Exhibit 10(b)
between Royal Tandem Life Insurance to Pre-Effective Amendment No. 1 to the
Company and Equitable Capital Management Registrant's registration statement on
Corporation Form S-1, File No. 33-34562, filed October
16, 1990.
10.3 Shareholders' Agreement by and among The Incorporated by reference to Exhibit 10(c)
Equitable Life Assurance Society of the to Pre- Effective Amendment No. 1 to the
United States and Merrill Lynch & Co., Registrant's registration statement on
Inc. and Tandem Financial Group, Inc. Form S-1, File No. 33-34562, filed October
16, 1990.
</TABLE>
E-2
<PAGE> 30
<TABLE>
<S> <C> <C>
10.4 Service Agreement by and between Royal Incorporated by reference to Exhibit 10(d)
Tandem Life Insurance Company and Tandem to Pre-Effective Amendment No. 1 to the
Financial Group, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
10.5 Service Agreement by and between Tandem Incorporated by reference to Exhibit 10(e)
Financial Group, Inc. and Merrill Lynch & to Pre-Effective Amendment No. 1 to the
Co., Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
10.6 Form of Investment Management Agreement by Incorporated by reference to Exhibit 10(f)
and between Royal Tandem Life Insurance to Post-Effective Amendment No. 1 to the
Company and Merrill Lynch Asset Registrant's registration statement on
Management, Inc. Form S-1, File No. 33-34562, filed March
7, 1991.
10.7 Assumption Reinsurance Agreement between Incorporated by reference to Exhibit 10(g)
Merrill Lynch Life Insurance Company, to Post-Effective Amendment No. 3 to the
Tandem Insurance Group, Inc. and Royal Registrant's registration statement on
Tandem Life Insurance Company and Family Form S-1, File No. 33-34562, filed March
Life Insurance Company 30, 1992.
10.8 Indemnity Agreement between ML Life Incorporated by reference to Exhibit 10(h)
Insurance Company of New York and Merrill to Post-Effective Amendment No. 3 to the
Lynch Life Agency, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
10.9 Amended General Agency Agreement between Incorporated by reference to Exhibit 10(i)
ML Life Insurance Company of New York and to Post-Effective Amendment No. 3 to the
Merrill Lynch Life Agency, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
10.10 Amended Management Agreement between ML Incorporated by reference to Exhibit 10(j)
Life Insurance Company of New York and to the Registrant's registration statement
Merrill Lynch Asset Management, Inc. on Form S-1, File No. 33-60288, filed March
30, 1993.
</TABLE>
E-3
<PAGE> 31
<TABLE>
<S> <C> <C>
10.11 Mortgage Loan Servicing Agreement between Incorporated by reference to Exhibit 10(k)
ML Life Insurance Company of New York and to the Registrant's registration statement
Merrill Lynch & Co., Inc. on Form S-1, File No. 33-60288, filed
March 29, 1995.
24.1 Power of attorney of Frederick J. C. Incorporated by reference to Exhibit 24(a)
Butler to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.2 Power of attorney of Michael P. Cogswell Incorporated by reference to Exhibit 24(b)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.3 Power of attorney of Joseph E. Crowne Incorporated by reference to Exhibit 24(d)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.4 Power of attorney of David M. Dunford Incorporated by reference to Exhibit 24(e)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.5 Power of attorney of Robert L. Israeloff Incorporated by reference to Exhibit 24(g)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.6 Power of attorney of Allen N. Jones Incorporated by reference to Exhibit 24(j)
to Post-Effective Amendment No. 6 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
27, 1997.
</TABLE>
E-4
<PAGE> 32
<TABLE>
<S> <C> <C>
24.7 Power of attorney of Cynthia L. Kahn Incorporated by reference to Exhibit 24(i)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.8 Power of attorney of Robert A. King Incorporated by reference to Exhibit 24(j)
to Post-Effective Amendment No. 1 the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.9 Power of attorney of Irving M. Pollack Incorporated by reference to Exhibit 24(k)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.10 Power of attorney of Barry G. Skolnick Incorporated by reference to Exhibit 24(l)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.11 Power of attorney of Anthony J. Vespa Incorporated by reference to Exhibit 24(n)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
24.12 Power of attorney of Gail R. Farkas Incorporated by reference to Exhibit 24(g)
to Post-Effective Amendment No. 5 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
26, 1996.
24.13 Power of attorney of Stanley C. Peterson Incorporated by reference to Exhibit 24.13
to Annual Report on Form 10-K, File Nos.
33-34562 and 33-60288, filed March 30,
1998.
27.1 Financial Date Schedule Exhibit 27.1
</TABLE>
E-5
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 200,681
<EQUITIES> 13,718
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 302,482
<CASH> 18,707
<RECOVER-REINSURE> 652
<DEFERRED-ACQUISITION> 29,742
<TOTAL-ASSETS> 1,247,982
<POLICY-LOSSES> 2,986
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,783
<POLICY-HOLDER-FUNDS> 269,246
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 79,754
<TOTAL-LIABILITY-AND-EQUITY> 1,247,982
0
<INVESTMENT-INCOME> 21,549
<INVESTMENT-GAINS> (1,998)
<OTHER-INCOME> 15,484
<BENEFITS> 1,630
<UNDERWRITING-AMORTIZATION> 5,759
<UNDERWRITING-OTHER> 4,900
<INCOME-PRETAX> 6,642
<INCOME-TAX> 1,872
<INCOME-CONTINUING> 4,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,770
<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>
