<PAGE> 1
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, 1999
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
- ------------------------------- ----------------------------------
(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
--------------------------------------
(Address of Principal Executive Offices)
1-800-333-6524
----------------------------------------------
(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.
<PAGE> 2
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 markets its annuity products and
variable life insurance products only in the state of New York. During 1999,
annuity and life insurance sales were made principally in New York (94%, 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,
1999, approximately 2,176 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.
The Registrant has declared no cash dividends on its common stock at
any 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.
In addition to providing historical information, the Registrant (also
referred to as "ML of New York") may make or publish forward-looking statements
about management expectations, strategic objectives, business prospects,
anticipated financial performance, and other similar matters. A variety of
factors, many of which are beyond ML of New York's control, affect the
operations, performance, business strategy, and results of ML of New York and
could cause actual results and experience to differ materially from the
expectations expressed in these statements. These factors include, but are not
limited to, the factors listed in the Business Environment and Economic
Environment sections listed below, as well as actions and initiatives taken by
both current and potential competitors and the effect of current, pending, and
future legislation and regulation. ML OF NEW YORK UNDERTAKES NO RESPONSIBILITY
TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
BUSINESS ENVIRONMENT
ML of New York conducts its business in the life insurance and annuity markets
of the financial services industry. These markets are highly regulated with
particular emphasis on company solvency and sales practice monitoring.
The financial services industry continues to be affected by the intensifying
competitive environment as demonstrated by the following factors: consolidation
through mergers and acquisition, competition from new entrants, and traditional
competitors using the internet to establish or expand their businesses. In
addition, the passage of the Gramm-Leach-Bliley Act in November 1999 represented
a significant accomplishment in the effort to modernize the financial services
industry in the U.S. by substantially eliminating barriers between banking,
securities and insurance industries. This legislation, together with other
changes in the financial services industry made possible by previous reforms,
has increased the number of companies competing for a similar customer base.
Demographically, the population is aging, which favors life insurance and
annuity products. However, 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 the competitiveness of certain products or by
reducing or eliminating the tax advantages on certain products.
ECONOMIC ENVIRONMENT
ML of New York's financial position and/or results of operations are primarily
impacted by the following economic factors:
- - fluctuations in medium term interest rates
- - fluctuations in credit spreads
- - equity market performance
ML of New York defines medium term interest rates as the average interest rate
on U.S. Treasury securities with terms of 1 to 10 years. During 1999, medium
term interest rates increased approximately 168 basis points to yield, on
average, 6.24% at December 31, 1999.
ML of New York defines credit spreads as the interest rate spread between the
5-year U.S Treasury Bond Index and the 5-year Corporate Financial Bond Index.
During 1999, credit spreads contracted approximately 65 basis points from the
historically high levels experienced during 1998, and ended the year with a
spread of 103 basis points. During 1998, global economic instability contributed
to a significant widening of credit spreads.
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There are several standard indices published on a daily basis that measure
performance of selected components of the U.S. equity market. Examples include
the Dow Jones Industrial Average ("Dow"), NASDAQ Composite Index ("NASDAQ") and
the Standard & Poor's 500 Composite Stock Price Index ("S&P Index"). During
1999, the Dow, NASDAQ and S&P Index increased 25%, 86% and 20%, respectively,
with all three indices closing the year at historical highs. The investment
performance in the underlying mutual funds supporting ML of New York's variable
products do not replicate the returns on any specific U.S. equity market index,
however investment performance will generally increase or decrease with
corresponding increases or decreases in the overall U.S. equity market.
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 conservative 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 contract owner 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, 1999:
<TABLE>
<CAPTION>
(In Millions) % Change
--------------------------------------------- ----------------------------------------
1999 1998 1997 1999 - 1998 1998 - 1997
-------------- -------------- -------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Variable Annuities $ 78 $ 97 $ 101 (20%) (4%)
Modified Guaranteed Annuities 2 2 5 0% (60%)
Variable Life Insurance 8 10 11 (20%) (9%)
-------------- -------------- -------------- ------------------- ------------------
Total Premiums Collected $ 88 $ 109 $ 117 (19%) (7%)
============== ============== ============== =================== ==================
</TABLE>
ML of New York's total sales decreased 19% during 1999 as compared to 1998 and
7% during 1998 as compared to 1997, primarily due to reductions in variable
annuity sales. Variable annuity sales, however, continued to dominate overall
sales by comprising 89%, 89% and 86% of total sales volume for the years ended
1999, 1998 and 1997, respectively.
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<PAGE> 5
Variable annuity sales decreased 20% during 1999 as compared to 1998 and 4%
during 1998 as compared to 1997. 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. 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 sales received by the source of funds:
<TABLE>
<CAPTION>
($ In Millions) % Change
---------------------------------------------------- -------------------------------
1999 1998 1997 1999 - 1998 1998 - 1997
--------------- --------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Internal Replacement Policies $ 7 $ 14 $ 10 (50%) 40%
External Replacement Policies 22 33 29 (33%) 14%
-------------- -------------- -------------- ------------- -------------
Total Replacement Policies 29 47 39 (38%) 21%
New Business 49 50 62 (2%) (19%)
-------------- -------------- -------------- ------------- -------------
Total Variable Annuity Deposits $ 78 $ 97 $ 101 (20%) (4%)
============== ============== ============== ============= =============
</TABLE>
Merrill Lynch & Co. offers an optional 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.
During 1999, policy and contract surrenders decreased $8.5 million (or 13%) to
$59.5 million as compared to 1998 primarily due to a decrease in modified
guaranteed annuity surrenders. During 1999, modified guaranteed annuity
surrenders decreased $9.7 million (or 35%) to $18.1. The decrease in modified
guaranteed annuity surrender activity is primarily attributable to increases in
medium term interest rates during the current year. The market value adjustment
provision on these contracts has an inverse relationship to changes in interest
rates.
FINANCIAL CONDITION
At December 31, 1999, ML of New York's assets were $1.4 billion, or $181 million
higher than the $1.2 billion in assets at December 31, 1998. The increase in
assets is attributable to the growth in separate accounts assets, which
increased $200 million (or 23%) to $1.1 billion. ML of New York's separate
accounts assets benefited from strong investment performance associated with the
generally rising equity markets. During 1999, separate accounts assets increased
$183 million due to price appreciation in the underlying mutual funds supporting
the variable products. Second, net cash inflow to the variable products
contributed $17 million to the growth in separate accounts assets.
Assets excluding separate accounts assets ("general account assets") decreased
$19 million primarily due to the declining number of fixed-rate contracts
inforce. Also contributing to the decline in general account assets was the
decrease in market values of investment securities associated with the rising
interest rate environment. During 1999, market values on invested assets
decreased $10.5 million. After adjusting for deferred federal income taxes,
total general account assets decreased $8.1 million as a result of the rising
interest rate environment.
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<PAGE> 6
During 1999, ML of New York experienced contract owner deposits that exceeded
withdrawals by $4 million. The components of contract owner transactions are as
follows:
<TABLE>
<CAPTION>
(In Millions) 1999
--------------
<S> <C>
Premiums collected $ 88
Internal tax-free exchanges (8)
--------------
Net contract owner deposits 80
Contract owner withdrawals 110
Net transfers to/from separate accounts (34)
--------------
Net contract owner withdrawals 76
--------------
Net contract owner activity $ 4
==============
</TABLE>
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 (Rated A or higher)....................... 41%
Policy Loans......................................................................... 33%
Investment Grade Fixed Maturity Securities (Rated BBB)............................... 17%
Equity Securities.................................................................... 7%
Non-Investment Grade Fixed Maturity Securities....................................... 2%
-----------
100%
===========
</TABLE>
ML of New York's investment in collateralized mortgage obligations ("CMO") and
mortgage backed securities ("MBS") had a carrying value of $9 million as of
December 31, 1999. At December 31, 1999, all 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, 1999, ML of New York had 2,776 life insurance and annuity
contracts inforce with interest rate guarantees. The estimated average rate of
interest credited on behalf of contract owners was 5.13% during 1999. Invested
assets supporting liabilities with interest rate guarantees had an estimated
effective yield of 6.83% during 1999. The number of life insurance and annuity
contracts inforce with interest rate guarantees decreased 13% as compared to
1998.
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<PAGE> 7
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 inforce. 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, 1999, ML
of New York's assets included $185 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 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, 1999 and 1998, 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: A.M. Best - "A+" and Standard and Poors -
"AA-".
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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 $15 million in dividends
to MLIG during 1997. No dividends were paid during 1999 and 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 INITIATIVE
In 1999 ML of New York completed its efforts to address the Year 2000 problem
(the "Y2K problem") in conjunction with the Merrill Lynch & Co. Year 2000
Compliance Initiative (the "Y2K Initiative"). The Y2K problem was the result of
a widespread programming technique that caused 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 have caused serious failures in information
technology systems and other systems.
In 1995 Merrill Lynch & Co. established the Y2K Initiative to address the
internal and external risks associated with the Y2K problem. The Y2K Initiative
consisted of six phases, completed by the millennium: planning, pre-renovation,
renovation, production testing, certification, and integration testing.
Contingency plans were established in the event of any failures or disruptions.
Through the date of this filing, there have been no material failures or
disruptions of systems or services at ML of New York attributable to the Y2K
problem. Similarly we have not been notified of any material failure or
disruption of systems or services affecting third parties in their capacity to
transact business with ML of New York or in ML of New York's capacity to
transact business with others. ML of New York continues to monitor the
performance of its systems for any possible future failures or disruptions
attributable to the Y2K problem. In light of the dependency of the parties in or
serving the financial markets, the failure or disruption of systems or services
of exchanges, clearing organizations, vendors, service providers,
counterparties, regulators or others 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 Y2K Initiative were incurred by Merrill
Lynch & Co. and were not directly allocated to the various business units.
Merrill Lynch & Co.'s total expenditures for the entire Y2K Initiative were
approximately $512 million, including approximately $102 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 $12 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.
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<PAGE> 9
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 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 ML of New York anticipates holding those funds. In addition,
ML of New York incurs expenses associated with the maintenance of inforce
contracts.
1999 compared to 1998
ML of New York recorded net earnings of $6.6 million and $4.8 million for 1999
and 1998, respectively.
Net earnings derived from interest spread decreased $0.3 million during 1999 as
compared to 1998. The reduction in interest spread is primarily a result of the
declining number of fixed rate contracts inforce.
Net realized investment losses increased $1.1 million (or 55%) to $3.1 million
during 1999 primarily due to two factors. First, there was a $0.8 million
decrease in interest related realized gains as compared to 1998. This decrease
is primarily attributable to reduced sales of investments supporting the
modified guaranteed annuity product. The reduction in investment sales is
attributable to lower surrender activity during 1999 as compared to 1998.
Second, credit related losses increased $0.3 million during 1999 as compared to
1998.
Policy charge revenue increased $1.8 million (or 12%) during 1999 as compared to
1998. The increase in policy charge revenue is primarily attributable to the
increase in contract owners' variable account balances. During 1999, average
variable account balances increased $142 million (or 18%) as compared to 1998.
During the same time period, asset based policy charges increased $1.8 million
(or 20%) consistent with the growth in the average variable account balances.
The market value adjustment expense is attributable to ML of New York's modified
guaranteed annuity contracts. 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 1999, the
market value adjustment expense decreased $0.3 million (or 54%) as compared to
1998 consistent with the decrease in surrender activity resulting from the
higher interest rate environment in 1999.
Policy benefits decreased $1.0 million (or 61%) during 1999 as compared to 1998
due to decreased mortality for variable life insurance products.
Reinsurance premium ceded increased $0.1 million (or 7%) to $1.8 million during
1999. This increase is attributable to the combined effect of the increasing age
of contract owners and increased insurance inforce.
Amortization of deferred policy acquisition costs decreased $0.9 million (or
16%) to $4.8 million in 1999. The retrospective adjustment of deferred policy
acquisition costs that occurred during 1998 resulted in a $1.5 million increase
in amortization of deferred policy acquisition costs. Excluding this adjustment,
amortization of deferred policy acquisition costs increased $0.6 million as
compared to 1998 primarily due to the growth in policy fee income.
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<PAGE> 10
Insurance expenses and taxes decreased $0.7 million (or 14%) during 1999 as
compared to 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.
ML of New York's effective federal income tax rate increased to 33% for 1999
from 28% for 1998 principally due to a reduction of certain permanent
differences recorded during 1999 as compared to 1998.
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, ML of New York determined that certain contract
owner 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
inforce.
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 contract owners' 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 contract owners and increased insurance inforce.
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.
ML of New York's effective federal income tax rate decreased to 28% for 1998
from 34% for 1997 primarily due to adjustments for foreign tax credits recorded
during 1998.
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<PAGE> 11
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. Other earnings represent earnings on assets that do not support
contract owner liabilities. Net earnings by segment were as follows:
<TABLE>
<CAPTION>
Segment 1999 1998 1997
------- ---- ---- ----
<S> <C> <C> <C>
Life Insurance $2.6 $0.5 $2.1
Annuities 2.4 2.6 5.3
Other 1.6 1.7 2.3
</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 ML
of New York'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 1999.
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.
A number of assumptions must be made to obtain the expected fair value changes
illustrated below. 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 volatility experienced during recent years demonstrates
the limitations of these models.
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 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 Fair Value
(In Millions)
---------------------------------
Change in Interest Rates 1999 1998
- ------------------------------------- ------------- --------------
<S> <C> <C>
+ 100 basis points ($3.5) ($2.6)
+ 50 basis points ($1.7) ($1.4)
- - 50 basis points $1.5 $1.5
- - 100 basis points $2.9 $3.0
</TABLE>
- 11 -
<PAGE> 12
ML of New York's model is based on existing business inforce as of year-end 1999
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 resetting 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 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:
<TABLE>
<CAPTION>
Change in Fair Value
(In Millions)
---------------------------------
Change in Credit Spreads 1999 1998
- ---------------------------------------- -------------- --------------
<S> <C> <C>
+ 50 basis points ($3.2) ($2.9)
+ 10 basis points ($0.9) ($0.6)
- - 10 basis points $0.3 $0.6
- - 50 basis points $2.5 $3.0
</TABLE>
ML of New York's model is based on existing business inforce as of year-end 1999
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. Contract owner 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.
- 12 -
<PAGE> 13
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.
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
28, 2000.
b. Balance Sheets at December 31, 1999 and
1998.
c. Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997.
d. Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and
1997.
e. Statements of Stockholder's Equity for the
Years Ended December 31, 1999, 1998 and
1997.
f. Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.
g. Notes to Financial Statements for the Years
Ended December 31, 1999, 1998 and 1997.
(2) Not applicable.
(3) The following exhibits are filed as part of
this report as indicated below:
- 13 -
<PAGE> 14
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).
- 14 -
<PAGE> 15
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.)
- 15 -
<PAGE> 16
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.)
- 16 -
<PAGE> 17
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
- 17 -
<PAGE> 18
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.)
24.14 Power of attorney of Richard M. Drew is filed herewith.
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, 1999.
- 18 -
<PAGE> 19
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report...............................................................................
Balance Sheets at December 31, 1999 and 1998...............................................................
Statements of Earnings for the Years Ended December 31, 1999, 1998 and 1997 ...............................
Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997....................
Statements of Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997....................
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997..............................
Notes to Financial Statements for the Years Ended December 31, 1999, 1998 and 1997.........................
</TABLE>
<PAGE> 20
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, 1999 and 1998, 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,
1999. 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, 1999 and
1998, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1999 in conformity with generally
accepted accounting principles.
February 28, 2000
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except common stock par value and shares)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $166,016; 1998 - $197,588) $ 160,437 $ 200,681
Equity securities, at estimated fair value
(cost: 1999 - $19,782; 1998 - $14,684) 16,992 13,718
Policy loans on insurance contracts 88,165 88,083
------------ ------------
Total Investments 265,594 302,482
CASH AND CASH EQUIVALENTS 34,195 18,707
ACCRUED INVESTMENT INCOME 4,990 4,968
DEFERRED POLICY ACQUISITION COSTS 29,703 29,742
FEDERAL INCOME TAXES - DEFERRED 3,892 -
REINSURANCE RECEIVABLES 153 652
OTHER ASSETS 3,292 4,261
SEPARATE ACCOUNTS ASSETS 1,086,875 887,170
------------ ------------
TOTAL ASSETS $ 1,428,694 $ 1,247,982
============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 248,016 $ 269,246
Claims and claims settlement expenses 3,762 2,986
------------ ------------
Total policyholder liabilities and accruals 251,778 272,232
OTHER POLICYHOLDER FUNDS 1,195 1,783
FEDERAL INCOME TAXES - DEFERRED - 119
FEDERAL INCOME TAXES - CURRENT 1,420 1,347
AFFILIATED PAYABLES - NET 1,030 1,253
OTHER LIABILITIES 2,414 2,124
SEPARATE ACCOUNTS LIABILITIES 1,086,875 887,170
------------ ------------
Total Liabilities 1,344,712 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 21,051 14,462
Accumulated other comprehensive loss (5,528) (967)
------------ ------------
Total Stockholder's Equity 83,982 81,954
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,428,694 $ 1,247,982
============ ============
</TABLE>
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, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 19,400 $ 21,549 $ 25,465
Net realized investment gains (losses) (3,100) (1,998) 1,947
Policy charge revenue 17,307 15,484 13,064
------------ ------------ ------------
Total Revenues 33,607 35,035 40,476
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 12,013 13,832 14,532
Market value adjustment expense 261 567 232
Policy benefits (net of reinsurance recoveries: 1999 - $542
1998 - $1,191; 1997 - $690) 632 1,630 781
Reinsurance premium ceded 1,822 1,705 1,584
Amortization of deferred policy acquisition costs 4,845 5,759 4,119
Insurance expenses and taxes 4,195 4,900 4,563
------------ ------------ ------------
Total Benefits and Expenses 23,768 28,393 25,811
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 9,839 6,642 14,665
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 4,805 3,337 2,905
Deferred (1,555) (1,465) 2,068
------------ ------------ ------------
Total Federal Income Tax Provision 3,250 1,872 4,973
------------ ------------ ------------
NET EARNINGS $ 6,589 $ 4,770 $ 9,692
============ ============ ============
</TABLE>
See accompanying 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
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 6,589 $ 4,770 $ 9,692
------------ ------------ ------------
OTHER COMPREHENSIVE LOSS
Net unrealized losses on available-for-sale securities:
Net unrealized holding losses arising during the period (14,221) (4,329) (413)
Reclassification adjustment for (gains) losses included
in net earnings 3,708 1,994 (1,771)
------------ ------------ ------------
Net unrealized losses on investment securities (10,513) (2,335) (2,184)
Adjustments for:
Policyholder liabilities 3,496 1,417 (70)
Deferred federal income taxes 2,456 321 789
------------ ------------ ------------
Total other comprehensive loss, net of tax (4,561) (597) (1,465)
------------ ------------ ------------
COMPREHENSIVE INCOME $ 2,028 $ 4,173 $ 8,227
============ ============ ============
</TABLE>
See accompanying 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
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(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, 1997 $ 2,200 $ 72,040 $ 9,219 $ 1,095 $ 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive 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
Net earnings 6,589 6,589
Other comprehensive loss, net of tax (4,561) (4,561)
------------ ----------- ----------- ------------- ------------
BALANCE, DECEMBER 31, 1999 $ 2,200 $ 66,259 $ 21,051 $ (5,528) $ 83,982
============ =========== =========== ============= ============
</TABLE>
See accompanying 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
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 6,589 $ 4,770 $ 9,692
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 4,845 5,759 4,119
Capitalization of policy acquisition costs (4,806) (5,095) (5,253)
Amortization (accretion) of investments 429 (262) (239)
Interest credited to policyholders' account balances 12,013 13,832 14,532
Benefit for deferred Federal income tax (1,555) (1,465) 2,068
(Increase) decrease in operating assets:
Accrued investment income (22) 448 536
Other 1,451 (1,079) 1,800
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 776 979 (565)
Other policyholder funds (588) (158) 781
Federal income taxes - current 73 (908) 156
Affiliated payables (223) (2,239) (1,534)
Other 290 (31) 506
Other operating activities:
Net realized investment (gains) losses 3,100 1,998 (1,947)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activities 22,372 16,549 24,652
------------ ------------ ------------
Cash Flow From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 171,785 102,967 88,882
Maturities of available-for-sale securities 40,227 59,161 51,060
Purchases of available-for-sale securities (189,067) (119,611) (120,965)
Mortgage loans principal payments received - - 2,057
Policy loans on insurance contracts (82) 80 (2,615)
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 22,863 42,597 18,419
------------ ------------ ------------
See accompanying notes to financial statements. (Continued)
</TABLE>
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, 1999, 1998 AND 1997
(Continued) (Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from (payments for):
Dividends paid to parent $ - $ - $ (15,000)
Policyholder deposits 79,889 94,226 106,983
Policyholder withdrawals (including transfers to/from
separate accounts) (109,636) (144,728) (132,819)
------------ ------------ ------------
Net cash and cash equivalents used by financing activites (29,747) (50,502) (40,836)
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,488 8,644 2,235
CASH AND CASH EQUIVALENTS:
Beginning of year 18,707 10,063 7,828
------------ ------------ ------------
End of year $ 34,195 $ 18,707 $ 10,063
============ ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 4,732 $ 4,245 $ 2,749
Interest 85 148 494
</TABLE>
See accompanying 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
(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 including 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 cashflows, cash and cash
equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
To facilitate comparisons with the current year, certain amounts
in the prior years have been reclassified.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for
mortality risks and the 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 management determines
that a decline in the value of a security is other-than-
temporary, the carrying value is adjusted to estimated fair
value and the decline in value is recorded as a net realized
investment loss.
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. Investment transactions are recorded on the
trade date.
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.
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 as a net
realized investment loss.
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. The impact of these revisions on
cumulative amortization is recorded as a charge or credit to
current operations. 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.
Insurance expenses and taxes reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
inforce 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.
During 1990, the Company entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
five 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:
1999 1998 1997
---------- ---------- ----------
Beginning balance $ 12,784 $ 16,550 $ 17,151
Capitalized amounts 1,336 691 577
Interest accrued 959 1,241 1,651
Amortization (2,683) (5,698) (2,829)
---------- ---------- ----------
Ending balance $ 12,396 $ 12,784 $ 16,550
========== ========== ==========
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.
2000 $ 785
2001 $ 747
2002 $ 712
2003 $ 700
2004 $ 715
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%
Interest-sensitive deferred annuities 3.60% - 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: Liabilities for claims
and claims settlement expenses equal the death benefit for
claims that have been reported to the Company and an estimate
based upon prior experience for unreported claims.
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.
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: In June 1999, the Financial
Accounting Standards Board deferred for one year the effective
date of the accounting and reporting requirements of SFAS No.
133, Accounting for Derivative Instruments and Hedging
Activities. The Company will adopt the provisions of SFAS No.
133 on January 1, 2001. The adoption of the standard 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:
1999 1998
----------- -----------
Assets:
Fixed maturity securities (1) $ 160,437 $ 200,681
Equity securities (1) 16,992 13,718
Policy loans on insurance contracts (2) 88,165 88,083
Cash and cash equivalents (3) 34,195 18,707
Separate Accounts assets (4) 1,086,875 887,170
----------- -----------
Total financial instruments $1,386,664 $1,208,359
=========== ===========
(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
utilizes pricing services and broker quotes. 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, 1999 and 1998,
securities without a readily ascertainable market value,
having an amortized cost of $19,734 and $33,427, had an
estimated fair value of $18,876 and $33,879, respectively.
(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 the net
asset value provided by the fund managers.
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>
1999
-----------------------------------------------------------------
Cost/ Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 128,239 $ 600 $ 4,558 $ 124,281
Mortgage-backed securities 8,488 210 68 8,630
U.S. government and agencies 27,291 160 1,681 25,770
Foreign governments 1,998 - 242 1,756
----------- ----------- ----------- -----------
Total fixed maturity securities $ 166,016 $ 970 $ 6,549 $ 160,437
=========== =========== =========== ===========
Equity securities:
Non-redeemable preferred stocks $ 19,610 $ 25 $ 2,788 $ 16,847
Common stocks 172 - 27 145
----------- ----------- ----------- -----------
Total equity securities $ 19,782 $ 25 $ 2,815 $ 16,992
=========== =========== =========== ===========
</TABLE>
<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>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1999 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 25,889 $ 25,604
Due after one year through five years 84,457 81,926
Due after five years through ten years 23,956 22,216
Due after ten years 23,226 22,061
----------- -----------
157,528 151,807
Mortgage-backed securities 8,488 8,630
----------- -----------
Total fixed maturity securities $ 166,016 $ 160,437
=========== ===========
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
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1999 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 51,304 $ 49,205
AA 9,173 8,982
A 53,218 51,402
BBB 46,788 45,403
Non-investment grade 5,533 5,445
----------- -----------
Total fixed maturity securities $ 166,016 $ 160,437
=========== ===========
The Company has recorded certain adjustments to policyholders'
account balances in conjunction with unrealized holding gains
or losses on investments classified as available-for-sale. The
Company adjusts those liabilities as if the unrealized holding
gains or losses had actually been realized, with corresponding
credits or charges reported in accumulated other comprehensive
loss, net of taxes. The components of net unrealized gains
(losses) included in accumulated other comprehensive loss as of
December 31 were as follows:
1999 1998
----------- -----------
Assets:
Fixed maturity securities $ (5,579) $ 3,093
Equity securities (2,790) (966)
Other assets (17) -
Federal income taxes - deferred 2,977 -
----------- -----------
(5,409) 2,127
----------- -----------
Liabilities:
Policyholders' account balances 119 3,615
Federal income taxes - deferred - (521)
----------- -----------
119 3,094
----------- -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (5,528) $ (967)
=========== ===========
Proceeds and gross realized investment gains and losses from the
sale of available-for-sale securities for the years ended
December 31 were:
1999 1998 1997
-------- -------- --------
Proceeds $171,785 $102,967 $ 88,882
Gross realized investment gains 1,357 2,096 4,077
Gross realized investment lossess 4,457 4,094 2,130
The company owned investment securities of $989 and $1,104 that
were deposited with insurance regulatory authorities at December
31, 1999 and 1998, respectively.
Excluding investments in U.S. Government and Agencies, the
Company is not exposed to any significant concentration of
credit risk in its fixed maturity securities portfolio.
Net investment income arose from the following sources for the
years ended December 31:
1999 1998 1997
----------- ----------- -----------
Fixed maturity securities $ 12,921 $ 16,244 $ 19,815
Equity securities 1,637 734 761
Mortgage loans - - 81
Policy loans on insurance contracts 4,362 4,316 4,333
Cash and cash equivalents 932 761 1,293
Other 29 29 65
----------- ----------- -----------
Gross investment income 19,881 22,084 26,348
Less investment expenses (481) (535) (883)
----------- ----------- -----------
Net investment income $ 19,400 $ 21,549 $ 25,465
=========== =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31:
1999 1998 1997
---------- ---------- ----------
Fixed maturity securities $ (1,938) $ (1,944) $ (1,268)
Equity securities (1,162) (54) 3,215
---------- ---------- ----------
Net realized investment gains (losses) $ (3,100) $ (1,998) $ (1,947)
========== ========== ==========
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:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 3,444 $ 2,325 $ 5,133
Decrease in income taxes resulting from:
Dividend received deduction (129) (300) (160)
Foreign tax credit (65) (153) -
----------- ----------- -----------
Federal income tax provision $ 3,250 $ 1,872 $ 4,973
=========== =========== ===========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1999 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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 332 $ (158) $ 315
Policyholders' account balances (793) (659) (140)
Liability for guaranty fund assessments - - (50)
Investment adjustments (1,113) (629) 1,943
Other 19 (19) -
----------- ----------- -----------
Deferred Federal income tax provision (benefit) $ (1,555) $ (1,465) $ 2,068
=========== =========== ===========
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1999 1998
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 5,816 $ 5,023
Investment adjustments 1,738 625
Net unrealized investment loss 2,977 521
Other - 19
----------- -----------
Total deferred tax assets 10,531 6,188
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 6,639 6,307
----------- -----------
Net deferred tax asset (liability) $ 3,892 $ (119)
=========== ===========
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 $300 on single life policies and
$500 on joint life policies.
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, trust
agreements and funds withheld totaling $131 that can be drawn
upon for delinquent reinsurance recoverables.
As of December 31, 1999, the Company had the following life
insurance inforce:
<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 $ 956,359 $ 157,279 $ 938,882 $1,737,962 54%
</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 $4,199, $4,767 and $4,305 for
1999, 1998 and 1997 respectively. Charges attributable to this
agreement are included in insurance expenses and taxes, except
for investment related expenses, which are included in net
investment income. The Company is allocated interest expense on
its accounts payable to MLIG that approximates the daily
Federal funds rate. Total intercompany interest incurred was
$54, $69 and $64 for 1999, 1998 and 1997, respectively.
Intercompany interest is included in net investment income.
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 $149,
$157 and $159 for 1999, 1998 and 1997, 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 $3,069, $3,798 and $4,130 for
1999, 1998 and 1997, 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.
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,
1999 and 1998, the outstanding loan balance was $290 and $434,
respectively. Repayments made on this loan during 1999, 1998
and 1997 were $144, $722 and $1,919, respectively. Loan
interest was calculated at LIBOR plus 150 basis points.
Intercompany interest paid during 1999, 1998 and 1997 was $31,
$79 and $359, 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 1999 and 1998, no dividend request was filed.
During 1997, the Company paid a dividend of $15,000 to MLIG.
Statutory capital and surplus at December 31, 1999 and 1998,
was $61,717 and $55,851, respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices differ
from principles utilized in these financial statements as
follows: policy acquisition costs are expensed as incurred,
future policy benefit reserves are established using different
actuarial assumptions, there is no provision for deferred
income taxes, and securities are valued on a different basis.
The Company's statutory net income for 1999, 1998 and 1997 was
$9,030, $5,405 and $9,888, 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, 1999, and 1998, based on the
RBC formula, the Company's total adjusted capital level was
in excess 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.
The New York Insurance Department has recently concluded the
fieldwork for the Company's normal triennial examination for
the period ended December 31, 1998. At this time, the Company
is awaiting the results of the examination. Management
believes that the results of the examination will not have a
material impact on the Company's statutory financial
statements.
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 the earnings on
those assets that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1999 Insurance Annuities Other Total
------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,640 $ 3,108 $ 2,639 $ 7,387
Other revenues 8,453 5,873 (119) 14,207
----------- ----------- ----------- -----------
Net revenues 10,093 8,981 2,520 21,594
----------- ----------- ----------- -----------
Policy benefits 618 14 - 632
Reinsurance premium ceded 1,822 - - 1,822
Amortization of deferred policy
acquisition costs 2,100 2,745 - 4,845
Other non-interest expenses 1,662 2,794 - 4,456
----------- ----------- ----------- -----------
Total non-interest expenses 6,202 5,553 - 11,755
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision 3,891 3,428 2,520 9,839
Income tax expense 1,332 1,036 882 3,250
----------- ----------- ----------- -----------
Net earnings $ 2,559 $ 2,392 $ 1,638 $ 6,589
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 519,774 $ 862,187 $ 46,733 $1,428,694
Deferred policy acquisition costs 15,082 14,621 - 29,703
Policyholder liabilities and accruals 103,146 148,632 - 251,778
Other policyholder funds 633 562 - 1,195
</TABLE>
<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
Amortization of deferred policy
acquisition costs 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 $ 484,322 $ 720,478 $ 43,182 $1,247,982
Deferred policy acquisition costs 15,325 14,417 - 29,742
Policyholder liabilities and accruals 103,926 168,306 - 272,232
Other policyholder funds 1,319 464 - 1,783
</TABLE>
<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
Amortization of deferred policy
acquisition costs 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
Policyholder liabilities and accruals 103,677 205,663 - 309,340
Other policyholder funds 974 967 - 1,941
</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 1999, 1998 and 1997:
1999 1998 1997
---------- ---------- ----------
Life Insurance
Variable life $ 9,656 $ 9,045 $ 8,828
Interest-sensitive whole life 437 216 330
---------- ---------- ----------
Total Life Insurance 10,093 9,261 9,158
---------- ---------- ----------
Annuities
Variable annuities 8,291 6,240 4,673
Interest-sensitive annuities 690 3,013 8,559
---------- ---------- ----------
Total Annuities 8,981 9,253 13,232
---------- ---------- ----------
Other 2,520 2,689 3,554
---------- ---------- ----------
Total $ 21,594 $ 21,203 $ 25,944
========== ========== ==========
* * * * * *
<PAGE> 21
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 30, 2000 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 30, 2000
- ------------------------- President and Chief Executive --------------
Anthony J. Vespa Officer
/s/ Joseph E. Crowne, Jr. Director, Senior Vice President, March 30, 2000
- ------------------------- Chief Financial Officer, Chief --------------
Joseph E. Crowne, Jr. Actuary and Treasurer
/s/ Barry G. Skolnick Director, Senior Vice President and March 30, 2000
- ------------------------- General Counsel* --------------
Barry G. Skolnick
*
Director, Senior Vice President and March 30, 2000
- ------------------------- Chief Investment Officer --------------
David M. Dunford
*
Director and Senior Vice President March 30, 2000
- ------------------------- --------------
Gail R. Farkas
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C>
*
Director, Vice President and Senior March 30, 2000
- ------------------------- Counsel --------------
Michael P. Cogswell
*
Director March 30, 2000
- ------------------------- --------------
Frederick J. C. Butler
*
Director March 30, 2000
- ------------------------- --------------
Richard M. Drew
*
Director March 30, 2000
- ------------------------- --------------
Robert L. Israeloff
*
Director March 30, 2000
- ------------------------- --------------
Allen N. Jones
*
Director March 30, 2000
- ------------------------- --------------
Cynthia Kahn Sherman
*
Director March 30, 2000
- ------------------------- --------------
Robert A. King
*
Director March 30, 2000
- ------------------------- --------------
Stanley C. Peterson
*
Director March 30, 2000
- ------------------------- --------------
Irving M. Pollack
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
<PAGE> 23
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> 24
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> 25
<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> 26
<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> 27
<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> 28
<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.
24.14 Power of attorney of Richard M. Drew Exhibit 24.14
27.1 Financial Data Schedule Exhibit 27.1
</TABLE>
E-5
<PAGE> 1
EXHIBIT 24.14
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Richard M. Drew, a member of the
Board of Directors of ML Life Insurance Company of New York (the "Company"),
whose signature appears below, constitutes and appoints Barry G. Skolnick and
Michael P. Cogswell, respectively, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all Registration Statements and Amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, under
the Investment Company Act of 1940, where applicable, and the Securities Act of
1933, respectively, with the Securities and Exchange Commission, for the purpose
of registering any and all variable life and variable annuity separate accounts
(collectively "Separate Accounts"), of the Company that may be established in
connection with the issuance of any and all variable life and variable annuity
contracts funded by such Separate Accounts, granting unto said attorney-in-fact
and agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done.
Date: MARCH 29, 2000 /s/ RICHARD M. DREW
----------------------------
Richard M. Drew
State of NEW YORK )
County of Queens )
On the 29 day of of MARCH, 2000, before me came Richard M. Drew,
Director of ML Life Insurance Company of New York, to me known to be said person
and he signed the above Power of Attorney on behalf of ML Life Insurance Company
of New York.
/s/ Peter A. Fermoselle
-----------------------------
[SEAL] Notary Public
Peter A. Fermoselle
Notary Public, State of New York
No. 01-4963227
Qualified in Queens County
Cert. filed in Nassau County
Commission Expires 6/10/2000
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 160,437
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 16,992
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 265,594
<CASH> 34,195
<RECOVER-REINSURE> 153
<DEFERRED-ACQUISITION> 29,703
<TOTAL-ASSETS> 1,428,694
<POLICY-LOSSES> 3,762
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,195
<POLICY-HOLDER-FUNDS> 248,016
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,200
<OTHER-SE> 81,782
<TOTAL-LIABILITY-AND-EQUITY> 1,428,694
0
<INVESTMENT-INCOME> 19,400
<INVESTMENT-GAINS> (3,100)
<OTHER-INCOME> 17,307
<BENEFITS> 632
<UNDERWRITING-AMORTIZATION> 4,845
<UNDERWRITING-OTHER> 4,195
<INCOME-PRETAX> 9,839
<INCOME-TAX> 3,250
<INCOME-CONTINUING> 6,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,589
<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>
