<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBERS 33-34562; 33-60288; 333-48983
ML LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 16-1020455
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
100 CHURCH STREET
NEW YORK, NEW YORK 10080-6511
(Address of Principal Executive Offices)
(800) 333-6524
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 220,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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<PAGE> 2
PART I Financial Information
Item 1. Financial Statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $180,753; 1998 - $197,588) $ 177,431 $ 200,681
Equity securities, at estimated fair value
(cost: 1999 - $21,899; 1998 - $14,684) 20,542 13,718
Policy loans on insurance contracts 89,342 88,083
------------- ------------
Total Investments 287,315 302,482
CASH AND CASH EQUIVALENTS 17,294 18,707
ACCRUED INVESTMENT INCOME 6,321 4,968
DEFERRED POLICY ACQUISITION COSTS 30,132 29,742
FEDERAL INCOME TAXES - DEFERRED 2,343 -
REINSURANCE RECEIVABLES 175 652
AFFILIATED RECEIVABLES - NET 380 -
OTHER ASSETS 3,553 4,261
SEPARATE ACCOUNTS ASSETS 946,023 887,170
------------- ------------
TOTAL ASSETS $ 1,293,536 $ 1,247,982
============= ============
</TABLE>
See notes to financial statements. (continued)
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Continued) (Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 254,513 $ 269,246
Claims and claims settlement expenses 3,362 2,986
------------- ------------
Total policyholder liabilities and accruals 257,875 272,232
OTHER POLICYHOLDER FUNDS 2,520 1,783
FEDERAL INCOME TAXES - DEFERRED - 119
FEDERAL INCOME TAXES - CURRENT 1,125 1,347
AFFILIATED PAYABLES - NET - 1,253
OTHER LIABILITIES 2,324 2,124
SEPARATE ACCOUNTS LIABILITIES 946,023 887,170
------------- ------------
Total Liabilities 1,209,867 1,166,028
------------- ------------
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 18,934 14,462
Accumulated other comprehensive loss (3,724) (967)
------------- ------------
Total Stockholder's Equity 83,669 81,954
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,293,536 $ 1,247,982
============= ============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 14,694 $ 16,430
Net realized investment losses (2,805) (283)
Policy charge revenue 12,837 11,521
------------ ------------
Total Revenues 24,726 27,668
------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 9,306 10,424
Market value adjustment expense 243 480
Policy benefits (net of reinsurance recoveries: 1999 - $458;
1998 - $751) 520 1,169
Reinsurance premium ceded 1,358 1,262
Amortization of deferred policy acquisition costs 3,383 3,180
Insurance expenses and taxes 3,036 3,967
------------ ------------
Total Benefits and Expenses 17,846 20,482
------------ ------------
Earnings Before Federal Income Tax Provision 6,880 7,186
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 3,386 1,990
Deferred (978) 228
------------ ------------
Total Federal Income Tax Provision 2,408 2,218
------------ ------------
NET EARNINGS $ 4,472 $ 4,968
============ ============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 4,801 $ 5,293
Net realized investment losses (26) (221)
Policy charge revenue 4,470 3,932
------------ ------------
Total Revenues 9,245 9,004
------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 3,073 3,525
Market value adjustment expense 82 285
Policy benefits (net of reinsurance recoveries: 1999 - $98;
1998 - $376) 234 476
Reinsurance premium ceded 460 448
Amortization of deferred policy acquisition costs 1,081 1,024
Insurance expenses and taxes 1,129 1,595
------------ ------------
Total Benefits and Expenses 6,059 7,353
------------ ------------
Earnings Before Federal Income Tax Provision 3,186 1,651
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,125 328
Deferred (10) 475
------------ ------------
Total Federal Income Tax Provision 1,115 803
------------ ------------
NET EARNINGS $ 2,071 $ 848
============ ============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET EARNINGS $ 4,472 $ 4,968
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized losses on investment securities:
Net unrealized holding gains (losses) arising during the period (10,219) 102
Reclassification adjustment for (gains) losses included in net 3,413 (122)
earnings ------------ ------------
Net unrealized losses on investment securities (6,806) (20)
Adjustments for:
Policyholder liabilities 2,565 154
Deferred federal income taxes 1,484 (47)
------------ ------------
Total other comprehensive income (loss) (2,757) 87
------------ ------------
COMPREHENSIVE INCOME $ 1,715 $ 5,055
============ ============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET EARNINGS $ 2,071 $ 848
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (2,473) 1,115
Reclassification adjustment for (gains) losses included in net 290 (226)
earnings ------------ ------------
Net unrealized gains (losses) on investment securities (2,183) 889
Adjustments for:
Policyholder liabilities (84) (126)
Deferred federal income taxes 793 (267)
------------ ------------
Total other comprehensive income (loss) (1,474) 496
------------ ------------
COMPREHENSIVE INCOME $ 597 $ 1,344
============ ============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings loss equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 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
Net earnings 4,472 4,472
Other comprehensive loss, net of tax (2,757) (2,757)
----------- ----------- ----------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 $ 2,200 $ 66,259 $ 18,934 $ (3,724) $ 83,669
=========== =========== =========== ============= =============
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 4,472 $ 4,968
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 3,383 3,180
Capitalization of policy acquisition costs (3,773) (3,885)
Amortization (accretion) of investments 294 (262)
Interest credited to policyholders' account balances 9,306 10,424
Provision (benefit) for deferred Federal income tax (978) 228
(Increase) decrease in operating assets:
Accrued investment income (1,353) (1,189)
Affiliated receivables (380) -
Other 1,185 (759)
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 376 3,785
Other policyholder funds 737 (330)
Federal income taxes - current (222) (1,927)
Affiliated payables (1,253) (1,280)
Other 200 (279)
Other operating activities:
Net realized investment losses 2,805 283
Policy loans on insurance contracts (1,259) 914
------------ ------------
Net cash and cash equivalents provided by operating activities 13,540 13,871
------------ ------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 164,623 66,613
Maturities of available-for-sale securities 29,744 44,348
Purchases of available-for-sale securities (187,846) (80,077)
------------ ------------
Net cash and cash equivalents provided by investing activities $ 6,521 $ 30,884
------------ ------------
</TABLE>
See notes to financial statements. (continued)
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from (payments for):
Policyholder deposits (excludes internal policy replacement $ 59,172 $ 75,141
deposits)
Policyholder withdrawals (including transfers to/from separate (80,646) (119,510)
accounts) ------------ ------------
Net cash and cash equivalents used by financing activities (21,474) (44,369)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,413) 386
CASH AND CASH EQUIVALENTS:
Beginning of year 18,707 10,063
------------ ------------
End of period $ 17,294 $ 10,449
============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 3,607 $ 3,916
Intercompany interest 59 119
</TABLE>
See notes to financial statements.
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION:
ML Life Insurance Company of New York (the "Company") is a
wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.
("MLIG"). The Company is an indirect wholly owned subsidiary of
Merrill Lynch & Co., Inc. ("Merrill Lynch & Co."). The Company
sells life insurance and annuity products, including variable
life insurance and variable annuities.
The interim financial statements for the three and nine month
periods are unaudited. In the opinion of management, these
unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) necessary for a
fair presentation of the financial position and the results of
operations in accordance with generally accepted acounting
principles. These unaudited financial statements should be read
in conjunction with the audited financial statements included in
the Company's Annual Report on Form 10-K ("1998 10K")
for the year ended December 31, 1998. The nature of the
Company's business is such that the results of any interim
period are not necessarily indicative of results for a full
year. Certain reclassifications have also been made to prior
period financial statements, where appropriate, to conform to
the current period presentation.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in
conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of New York and the
National Association of Insurance Commissioners. Statutory
capital and surplus at September 30, 1999 and December 31, 1998,
was $61.3 million and $55.9 million, respectively. For the nine
month periods ended September 30, 1999 and 1998, statutory net
income was $5.6 million and $4.1 million, respectively.
NOTE 3. INVESTMENTS:
The Company's investments in debt and equity securities are
classified as available-for-sale and are recorded at fair value.
For certain products, policyholders' account balances are
adjusted for the impact of unrealized gains or losses on
investments as if these gains or losses had been realized, with
corresponding credits or charges included in accumulated other
comprehensive loss, net of taxes. The following reconciles net
unrealized investment gains (losses) on available-for-sale
investments:
September 30, December 31,
1999 1998
------------- ------------
Assets:
Fixed maturity securities $ (3,322) $ 3,093
Equity securities (1,357) (966)
Federal income taxes - deferred 2,005 -
------------- ------------
(2,674) 2,127
Liabilities:
Policyholders' account balances 1,050 3,615
Federal income taxes - deferred - (521)
------------- ------------
1,050 3,094
Stockholder's equity:
Accumulated other comprehensive loss $ (3,724) $ (967)
============= ============
NOTE 4. ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 defers the effective date of
SFAS No. 133 for one year to fiscal years beginning after June
15, 2000. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results
of operations.
NOTE 5. 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
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, 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 for the Company's financial statements included herein.
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 earnings from a specific
investment portfolio that does not support policyholder
liabilities.
The following table summarizes each business segment's
contribution to the consolidated net revenues and net earnings
for the three and nine month periods ended September 30:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Revenues (a):
Life Insurance $ 2,505 $ 2,235 $ 7,412 $ 6,822
Annuities 2,787 2,454 5,981 7,989
Other 880 790 2,027 2,433
-------- -------- -------- --------
Total Net Revenues $ 6,172 $ 5,479 $15,420 $17,244
======== ======== ======== ========
Net Earnings:
Life Insurance $ 564 $ 196 $ 1,818 $ 1,158
Annuities 936 139 1,337 2,229
Other 571 513 1,317 1,581
-------- -------- -------- --------
Total Net Earnings $ 2,071 $ 848 $ 4,472 $ 4,968
======== ======== ======== ========
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
Item 2 Management's Narrative Analysis of the Results of
Operations
This Management's Narrative Analysis of the Results of
Operations addresses changes in revenues and expenses for the
three month and nine month periods ended September 30, 1999 and
1998. This discussion should be read in conjunction with the
accompanying unaudited financial statements and notes thereto,
in addition to the 1998 Financial Statements and Notes to
Financial Statements and the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in the 1998 10K.
Business Overview
The Company'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 interest spread, and
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 the Company anticipates
holding those funds. In addition, the Company incurs expenses
associated with the maintenance of in-force contracts.
Life insurance premiums and annuity deposits decreased $6
million (or 19%) to $26 million and $23 million (or 26%) to $66
million in the third quarter and nine month periods ended
September 30, 1999, respectively, as compared to the same
periods in 1998. The decrease in total sales occurred primarily
in the Company's variable annuity product, which decreased $5.0
million and $20.6 million during the current three and nine
month periods, respectively. During the fourth quarter 1998,
the New York Insurance Department promulgated regulations
regarding the replacement of certain life insurance policies and
annuity contracts. The new regulations significantly increase
the complexity and length of time to process most replacements,
making the procedure extremely cumbersome, even for routine
annuity replacements. In management's opinion, sales volumes
have been negatively impacted within its distribution system by
the increase in administrative burden for life insurance and
annuity sales. The following table compares the Company's
variable annuity deposits received by the source of funds:
<TABLE>
<CAPTION>
Variable Annuity
Deposits Collected Change
--------------------------- --------------------------
Three Months Nine Months Three Months Nine Months
1999 1999 1999 - 1998 1999 - 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
($ In Millions) ($ In Millions)
Internal Replacement Policies $ 2 $ 6 $ (1) $ (6)
External Replacement Policies 7 16 (3) (10)
------------ ----------- ------------ -----------
Total Replacement Policies 9 22 (4) (16)
New Business 15 37 (1) (4)
------------ ----------- ------------ -----------
Total Variable Annuity Deposits $ 24 $ 59 $ (5) $ (20)
============ =========== ============ ===========
</TABLE>
Policy and contract surrenders increased $1.1 million (or 7%) to
$16.6 million and decreased $13.3 million (or 23%) to $43.4
million during the three month and nine month periods ended
September 30, 1999, respectively, as compared to the same
periods in 1998. During the current three and nine month
periods, modified guaranteed annuity surrenders decreased $2.0
million (or 31%) and $11.9 million (or 47%), respectively. The
decrease in modified guaranteed annuity surrender activity is
primarily attributable to two factors. First, there was a
reduction in the number of contracts reaching the end of their
interest rate guarantee periods during 1999 as compared to 1998.
Second, increases in medium term interest rates during the current
nine month period resulted in increased persistency. The market
value adjustment provision on these contracts has an inverse
relationship to changes in interest rates. Average interest
rates on 1 to 10 year term U.S. Treasury securities increased
approximately 104 basis points since the end of 1998.
During the first nine months of 1999, separate account assets
increased $59 million (or 6.6%) to $946 million, primarily due
to strong investment performance during the first half of 1999.
The following table compares the changes in separate account
assets during the first three quarters of 1999:
<TABLE>
<CAPTION>
Year-
(In Millions) 1st Qtr 2nd Qtr 3rd Qtr to-date
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Variable product investment performance $23 $50 ($25) $48
Variable product net cash inflow 1 4 6 11
------- ------- ------- -------
Total increase (decrease) in seaparate account assets $24 $54 ($19) $59
Percentage increase (decrease) 2.7% 6.0% (2.0%) 6.6%
</TABLE>
During the first nine months of 1999, the approximately 104
basis point increase in medium term interest rates, combined
with increased credit exposure on certain domestic security
holdings resulted in a net decline in fair value of the
Company's investments of $6.8 million. After adjusting
policyholder liabilities and deferred federal income taxes for
the impact of portfolio market value losses, other comprehensive
losses were $2.8 million during the current nine month period.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of September 30,
1999, the Company's assets included $188 million of cash, short-
term investments and investment grade publicly traded available-
for-sale securities that could be liquidated if funds were
required.
As of September 30, 1999, approximately $4.4 million (or 2.5%)
of the Company's fixed maturity securities were considered non-
investment grade. The Company defines non-investment grade as
unsecured debt obligations that do not have a rating equivalent
to Standard and Poor's BBB- or higher (or similar rating
agency). Non-investment grade securities are speculative and
are subject to significantly greater risks related to the
creditworthiness of the issuers and the liquidity of the market
for such securities. The Company carefully selects, and closely
monitors, such investments.
Year 2000 Compliance
As the Year 2000 approaches, the Company has undertaken
initiatives to address the Year 2000 problem (the "Y2K problem")
in conjunction with the Merrill Lynch & Co. Year 2000 Compliance
Initiative. Refer to the 1998 10K for a full description. The
failure of the Company's technology systems relating to a Y2K
problem would likely have a material adverse effect on the
company's business, results of operations, and financial
condition. This effect could include disruption of normal
business transactions, such as the processing of policyholder
transactions, the valuation of policyholder liabilities, and the
recording and valuation of assets. The Y2K problem could also
increase the Company's exposure to risk and legal liability and
its need for liquidity.
The renovation and production testing phases of the Company's
Year 2000 efforts, as described in the 1998 10K, were completed
as of June 30, 1999.
In light of the interdependency of the parties in or serving the
financial markets, there can be no assurance that all Y2K
problems will be identified and remedied on a timely basis or
that all remediation will be successful. Public uncertainty
regarding successful remediation of the Y2K problem may cause a
reduction in activity in the financial markets. This could
result in reduced liquidity as well as increased volatility.
Disruption or suspension of activity in the world's financial
markets is also possible. Management is unable at this point to
ascertain whether all significant third parties will
successfully address the Y2K problem. The Company will continue
to monitor third parties' Year 2000 readiness to determine if
additional or alternative measures are necessary. The failure
of exchanges, clearing organizations, vendors, service
providers, clients and counterparties, regulators, or others to
resolve their own processing issues in a timely manner could
have a material adverse effect on the Company's business,
results of operations, and financial condition.
The Company continues to develop and review its contingency
plans in order to meet three objectives: minimize disruptions of
services to the Company and its customers, provide an effective
mechanism for resumption of operations in a timely manner, and
minimize potential earnings and capital losses. 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
addition, all technology systems have been fully documented,
those individuals responsible for responding to a failure have
been identified, and a Year 2000 command center is in the
process of being established.
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. As of
September 30, 1999, Merrill Lynch & Co.'s total estimated
expenditures of existing and incremental resources for the Year
2000 Compliance Initiative were approximately $520 million. This
estimate includes $104 million of occupancy, communications, and
other related overhead expenditures, as Merrill Lynch & Co. is
applying a fully costed pricing methodology for this project.
Of the total estimated expenditures, approximately $40 million,
related to continued testing, contingency planning, risk
management and the wind down of the efforts, has not yet been
spent. Included in the overall Merrill Lynch & Co. expenditures
were estimated total Year 2000 expenditures for Information
Systems personnel responsible for the ongoing maintenance and
support of the Company's information technology of approximately
$0.3 million, of which less than $0.1 million was remaining.
There can be no assurance that the costs associated with such
efforts will not exceed those currently anticipated, or that the
possible failure of such efforts will not have a material
adverse effect on the Company's business, results of operations,
or financial condition.
Results of Operations
For the nine month periods ended September 30, 1999 and 1998,
the Company reported net earnings of $4.5 million and $5.0
million, respectively. For the three month periods ended
September 30, 1999 and 1998, the Company reported net earnings
of $2.1 million and $0.8 million, respectively.
Net earnings derived from interest spread decreased $0.6 million
(or 10%) for the nine month period ended September 30, 1999, as
compared to the same period during 1998, primarily due to the
decline in fixed rate contracts in-force. During the current
three month period, net earnings derived from interest spread
were flat as compared to 1998.
Net realized investment losses decreased $0.2 million and
increased $2.5 million for the three month and nine month
periods ended September 30, 1999, respectively, compared to the
equivalent periods in 1998. The increase in year-to-date net
realized investment losses is primarily due to increased credit
related losses, which increased $2.0 million as compared to the
same period 1998.
Policy charge revenue increased $0.5 million (or 14%) and $1.3
million (or 11%) during the third quarter and nine month periods
ended September 30, 1999, respectively, compared to the same
periods in 1998. The increase in policy charge revenue is
primarily attributable to the increase in policyholders'
variable account balances. Average variable account balances
increased $131 million (or 16%) during the current nine month
period. Asset based policy charges increased $1.2 million (or
18%), consistent with the growth in average variable account
balances. Non-asset based charges were flat as compared to 1998.
The market value adjustment expense is attributable to the
Company'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. The
market value adjustment expense decreased $0.2 million for both
the current three month and nine month periods, consistent with
a decrease in surrender activity resulting from the rising
interest rate enviroment during 1999.
Policy benefits decreased approximately $0.2 million (or 51%)
and $0.6 million (or 56%) during the current three and nine
month periods respectively, as compared to the same periods
during 1998. The decrease is due to decreased mortality for
all life products.
Reinsurance premium ceded increased $0.1 million (or 8%) during
the current nine month period as compared to the same period in
1998. This increase is attributable to the combined effect of
the increasing age of policyholders and increased insurance in-
force. During the current three month period, reinsurance
premium ceded was flat as compared to 1998.
Amortization of deferred policy acquisition costs increased $0.1
million (or 6%) and $0.2 million (or 6%) during the three month
and nine month periods ended September 30, 1999, respectively,
as compared to the same periods in 1998. The three and nine
month period increases are primarily attributable to higher
policy fee income during 1999 as compared to 1998.
Insurance expenses and taxes decreased $0.5 million (or 29%) and
$0.9 million (or 23%) during the three month and nine month
periods ended September 30, 1999, respectively, compared to the
same periods in 1998. The decrease in insurance expenses and
taxes is primarily due to reductions in salary and office rental
expenses associated with the Company's closing of it's New York
service center, as well as expense reduction procedures
implemented by Merrill Lynch & Co. Both of these events
occurred during the third quarter 1998.
The Company's effective federal income tax rate increased to 35%
for 1999 from 31% for 1998 principally as a result of year to
year differences in certain permanent adjustments.
Segment Information
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 the Company's
consolidated financial condition and results of operations
presented herein.
<PAGE> 3
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML LIFE INSURANCE COMPANY OF NEW YORK
/s/ JOSEPH E. CROWNE, JR.
-----------------------------------------
Joseph E. Crowne, Jr.
Senior Vice President and
Chief Financial Officer
Date: November 12, 1999
<PAGE> 5
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 177,431
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 20,542
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 287,315
<CASH> 17,294
<RECOVER-REINSURE> 175
<DEFERRED-ACQUISITION> 30,132
<TOTAL-ASSETS> 1,293,536
<POLICY-LOSSES> 3,362
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 2,520
<POLICY-HOLDER-FUNDS> 254,513
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 81,469
<TOTAL-LIABILITY-AND-EQUITY> 1,293,536
0
<INVESTMENT-INCOME> 14,694
<INVESTMENT-GAINS> (2,805)
<OTHER-INCOME> 12,837
<BENEFITS> 520
<UNDERWRITING-AMORTIZATION> 3,383
<UNDERWRITING-OTHER> 3,036
<INCOME-PRETAX> 6,880
<INCOME-TAX> 2,408
<INCOME-CONTINUING> 4,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,472
<EPS-BASIC> 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>
