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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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Securities and Exchange Commission File No. 333-31491
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
22-2265014
(I.R.S. Employer Identification No.)
Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
(Address of principal executive offices)
(914) 921-1020
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act: None
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Indicated by check mark whether the registrant (1) has filed 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.
__x_Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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 II of this
Form 10-K or any amendment to this form 10-K [ x ]
No shares of voting stock are held by nonaffiliates of the Registrant.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's sole class of common stock, as
of March 1, 1999 was 2,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART 1
Item 1 - Business
Description of Company, Reportable Segments and Products
The Registrant, also referred to as the "Company" or "MNY", is a stock life
insurance company organized under the laws of New York in 1992. The Company's
principal office is located at Corporate Center at Rye, 555 Theodore Fremd
Avenue, Rye, New York 10580. The Company is a wholly-owned subsidiary of The
Manufacturers Life Insurance Company of North America ("MNA"), a stock life
insurance company organized under the laws of Delaware in 1979, which is in turn
a wholly-owned subsidiary of Manulife-Wood Logan Holding Co., Inc. ("MWL"). MWL
is 62.5% owned by The Manufacturers Life Insurance Company (USA) ("ManUSA"),
22.5% by MRL Holding, LLC ("MRL") and 15% by minority interest shareholders.
ManUSA and MRL are indirectly wholly-owned subsidiaries of The Manufacturers
Life Insurance Company ("Manulife Financial"), a federally chartered Canadian
mutual life insurance company. The Company is licensed to sell fixed and
variable annuities, life insurance and accident and health insurance in New York
only.
Manufacturers Securities Services, LLC ("MSS"), a majority-owned subsidiary of
MNA, acts as investment adviser to the Manufacturers Investment Trust ("MIT"), a
no-load, open-end management investment company organized as a Massachusetts
business trust and is the principal underwriter of the Company's variable
insurance products and the exclusive distributor of the Company's insurance
products. MSS is a broker-dealer registered under the Securities Exchange Act of
1934 and a member of the National Association of Securities Dealers, Inc. MSS is
the successor to NASL Financial Services, Inc. ("NASL Financial"), a broker
dealer that conducted operations until September 30, 1997, when it was
reorganized into MSS. Prior to October 1, 1997, NASL Financial also acted as
investment adviser to North American Funds (NAF), a no-load, open-end management
investment company organized as a Massachusetts business trust.
Prior to 1998, the Company reported one segment, Annuities. In 1997 and 1998,
pursuant to a revised plan of operations, submitted to and approved by the New
York Insurance Department, the Company entered the Savings and Retirement
Services and Life Insurance businesses in the state of New York. As a result,
the Company now reports three segments: Annuities, Savings and Retirement
Services, and Life Insurance. The Company's reportable segments have been
determined based on differences in product features and distribution; the
segment definitions are also consistent with the Company's management structure.
No significant assets or revenues have been generated to date in the Savings and
Retirement Services and Life Insurance segments. Start-up costs reported for
these two segments contributed to lower net income levels during 1998 and 1997.
Through its three segments, the Company issues individual and group annuity
contracts and life insurance products. Amounts invested in the fixed portion of
the Company's contracts are allocated to the general account of the Company or,
in the case of the market value adjusted annuity contract, to a non-insulated
separate account of the Company. Amounts invested in the variable portion of the
contracts are allocated to separate accounts of the Company, each subaccount of
which invests in shares of one of the portfolios of MIT or in open-end
management investment companies offered and managed by unaffiliated third
parties. As a result, the variable annuity products provide returns based upon
the returns of the underlying mutual funds. Those returns will fluctuate based
on market performance and are not guaranteed.
The segment discussion below focuses solely on the Annuities segment due to the
limited assets and revenues associated with the start-up nature of the Savings
and Retirement Services and Life Insurance segments.
ANNUITIES SEGMENT
Within its Annuities segment, the Company issues fixed and variable annuities.
Annuities provide insurance protection against the risk of outliving an
individual's income during his or her lifetime. Annuities also provide
tax-deferred savings during the accumulation savings phase and tax-favored
retirement income during the income phase. The Company's variable annuity sales
occur via its Venture and Venture Vision Annuity products. Both products offer
multiple variable investment options and one or more fixed investment options as
well as competitive minimum death benefit guarantees. In addition to the
variable investment options, the Venture series products offer multiple fixed
investment options that guarantee the interest rate return for the stated
guaranteed duration. However, the Venture Annuity product imposes a market value
charge for premature withdrawals or transfers from the fixed investment options
occurring prior to the end of the guaranteed duration. Both the Venture and
Venture Vision Annuity products impose an annual asset based fee on amounts held
in variable investment options, and the Venture Annuity imposes a graded
contingent deferred sales charge. In addition to the Venture and Venture Vision
products, the Company also intends to sell the Venture Market Value Annuity
which will offer only fixed investment options and will impose a market value
adjustment upon surrender.
Under current law, returns credited on annuities during the accumulation phase
(the period during which interest is credited and annuity payments have not yet
begun) are not subject to federal or state income tax. At maturity or payment
date of an annuity policy, the policyholder is entitled to receive the original
deposit plus accumulated returns. The policyholder may elect to take this amount
in either a
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lump sum or receive a series of payments over a stated period of
time. The return component of such payments is taxed at the time of receipt as
ordinary income.
Sales and Asset Retention
Annuity sales are primarily driven by the U.S. domestic and international equity
markets, distribution capabilities, attractive policy features and client
servicing capabilities. The variable options tend to be more attractive in low
interest rate environments as they provide potential for higher returns through
equity investments. For this potential higher return, the policyholder assumes
directly the investment risk of the underlying mutual funds. Higher interest
rate environments tend to favor the fixed investment options as the policyholder
may lock in guaranteed interest rates without assuming the investment risk
associated with variable investment options.
The Venture annuity series products offer a variety of investment options, death
benefit options, administrative features and customer services that enhance both
sales and asset retention. The variable investment options offered by the
Company employ a multi-manager approach through the use of subadvisers to the
underlying mutual funds. Currently fifteen investment management firms provide
investment management expertise to the thirty-five variable investment options.
The Company also offers five Lifestyle portfolios which are "funds of funds".
These variable investment options strategically allocate deposits over various
investment disciplines with the long-term goal of matching return to the risk
profile of the policyholder. The ability to provide superior investment returns
under the variable options is essential to the retention of assets.
Policyholders are permitted to withdraw all or part of their account value at
any time subject to possible contingent deferred sales charges and/or market
value charges. Such premature terminations result in a loss of the Company's
anticipated future earnings related to the annuity deposit and accelerated
recognition of expenses related to policy acquisition, principally commissions,
which are otherwise deferred and amortized over the life of the policy.
Contingent deferred sales charges, if imposed by the product, are designed to
compensate the Company for the accelerated recognition of those expense and act
as a deterrent against policyholders surrendering their policies prematurely.
Generally, contingent deferred sales charges do not apply to withdrawals up to
the higher of 10% of payments or accumulated earnings. Market value charges are
imposed to offset the cost of selling depressed asset values in increasing
interest rate environments.
The Venture and Venture Vision annuities provide innovative minimum death
benefits to policyholders. For issue ages 80 and younger, the products guarantee
a death benefit equal to the greater of deposits net of withdrawals or the
highest account value on any contract anniversary increased by subsequent
deposits net of withdrawals, up to attained age 80. The minimum death benefits
are designed to act as a deterrent to policyholders moving their policy after
the contingent deferred sales charge period has expired.
The Company, along with its ultimate parent company Manulife Financial, enjoys
strong financial ratings that enhance its ability to attract new sales and
retain assets. Distributors and consumers of variable and fixed annuity products
have begun to utilize the relative financial strength ratings as a criteria in
choosing an annuity carrier. The Company has received financial strength ratings
of A++ (Superior) by A.M. Best and AA+ (Very Strong) by Standards and Poor's
("S&P"). The Company is rated AAA (Highest) by Duff & Phelps in terms of the
Company's ability to meet its contractual obligations to its policyholders.
The ability to service policyholders in an effective, efficient and courteous
manner is an important success factor for sales and asset retention. The Company
has received high service ratings through independent surveys. To maintain this
level of service the Company has and will continue to make significant
investments in its infrastructure.
Marketing and Distribution
The variable annuity market in the United States is relatively young and has
realized significant growth in the past few years. According to the Value Survey
conducted by Tillinghast, sales grew 16% in 1998 over 1997 with total 1998 sales
of $96.2 billion. The Company, together with MNA, recorded 1998 total sales of
$2.4 billion and captured market share of 2.44%, ranking it 16th for variable
annuity products issued in the United States. Wood Logan Associates, Inc.
("WLA"), a registered broker dealer and an affiliate of the Company, provides
sales and marketing services through a team of wholesalers soliciting
broker-dealer firms across the United States through wirehouses, regional
brokerage firms, financial planners and banks.
REGULATION
The Company is subject to the laws of the State of New York governing insurance
companies and to the regulation of the New York Insurance Department. Regulation
by the New York Insurance Department includes periodic examination of the
Company's financial position and operations, including contract liabilities and
reserves. Regulation by supervisory agencies includes licensing to transact
business, overseeing trade practices, licensing agents, approving policy forms,
establishing reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for accumulation of surrender values,
prescribing the form and content of required financial statements and regulation
of the type and amounts of permitted investments. The Company's books and
accounts are subject to
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review by the New York Insurance Department and other
supervisory agencies at all times, and the Company files annual statements with
these agencies.
Several insurers affiliated with the Company, including ManUSA, are domiciled in
Michigan and therefore are subject to Michigan regulation. Consequently, the
Michigan Insurance Bureau has jurisdiction in applying its laws and regulations
to transactions which may occur between the Company and any of Manulife
Financial's United States subsidiaries. Under Michigan holding company laws and
other laws and regulations, intercompany transactions, transfers of assets and
dividend payments may be subject to prior notification or approval depending
upon the size of such transfers and payments in relation to the financial
positions of the companies. Transactions between the Company and Manulife
Financial or any of its subsidiaries are primarily regulated by New York but may
also be subject to Delaware or Michigan regulation.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments on the
Company under these laws cannot be reasonably estimated. Most of these laws do
provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal legislation that removed barriers preventing banks
from engaging in the insurance business or that changed the Federal income tax
treatment of insurance companies, insurance company products, or employee
benefit plans could significantly affect the insurance business.
On January 20, 1998, the Board of Directors of Manulife Financial announced that
it had asked the management of Manulife Financial to prepare a plan for
conversion from a mutual life insurance company to an investor-owned,
publicly-traded stock company. Any demutualization plan for Manulife Financial
is subject to the approval of its Board of Directors and policyholders, as well
as regulatory approval.
Item 2 - Properties
The Registrant owns no property.
Item 3. Legal Proceedings
None.
Item 4 - Submission of Matters to a Vote of Security Holders
Nothing to report.
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Part II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
MNA is the sole record holder of the 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.
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------- --------------- --------------- --------------- ---------------
1998 1997 1996 1995 1994*
---- ---- ---- ---- -----
(in thousands)
Under Generally Accepted Accounting Principles:
<S> <C> <C> <C> <C>
Total Revenues $21,460 $14,881 $ 10,075 $8,373
Net Income 1,073 586 1,542 833
Total Separate Account Assets 833,693 597,193 361,310 216,808
Total Assets 1,017,224 769,167 474,936 320,716
Shareholder's Equity 79,367 77,762 28,769 15,212
</TABLE>
* Selected financial data under generally accepted accounting principles is not
available for 1994. Prior to 1996, the Company prepared its financial statements
in conformity with accounting practices prescribed or permitted by the New York
Insurance Department which practices were considered GAAP for mutual life
insurance companies. FASB Interpretation 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and other Enterprises (FIN 40),
as amended, which was effective for 1996 annual financial statements, no longer
permitted statutory-basis financial statements to be described as being prepared
in conformity with GAAP. Accordingly, the Company has adopted various accounting
pronouncements, principally Statement of Financial Accounting Standards No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts (SFAS No. 120),
which addresses the accounting for long-duration insurance contracts.
Pursuant to the requirements of the above pronouncements, the effect of the
changes in accounting have been applied retroactively and the previously issued
1995 financial statements have been restated for the change.
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------- --------------- --------------- --------------- ---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
On Statutory Basis **:
<S> <C> <C> <C> <C> <C>
Total Revenues $ 217,054 $ 204,226 $ 130,585 $99,077 $ 112,424
Net Income (Loss) (5,678) (1,562) 231 (579) (867)
Total Separate Account Assets 833,693 597,193 361,310 216,808 147,614
Total Assets 976,152 738,195 453,333 301,997 187,010
Capital and Surplus 62,881 68,336 22,265 8,822 8,104
</TABLE>
** Statutory accounting practices differ in certain respects from generally
accepted accounting principles. The significant differences relate to
consolidation accounting, investments, deferred acquisition costs, deferred
income taxes, non-admitted asset balances and reserve calculation
assumptions. Charges for investment management, administration and contract
guarantees have been reclassified from net transfers to total revenues for
1994-1997 to conform to the current year statutory presentation.
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All information presented elsewhere in this document is presented under
generally accepted accounting principles.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the financial statements and the
related notes to financial statements.
In 1998 and 1997, pursuant to an expanded plan of operations, the Company
entered the Savings and Retirement Services and Life Insurance segments. As a
result, the Company now reports three segments: Annuities; Savings and
Retirement Services; and Life Insurance. Because two of the Company's segments
were recently introduced, the assets, revenues and operations of those segments
are not material to the Company's 1998 financial position or, aside from the
effect of start up expenses, results of operations. As a result, the remainder
of this discussion will be limited to the Annuities segment except as noted.
The Company's primary source of earnings from the annuities segment are fees
assessed against policyholder account balances held in the Company's separate
accounts including: mortality and expense risk charges, surrender charges and an
annual administrative charge. In addition, the segment earns a spread between
the advisory fees charged to manage the separate account assets invested in MIT
and the subadvisory fees paid to external managers of those assets. A key factor
in the Company's profitability is sustained growth in the underlying assets
through market performance coupled with the ability to acquire and retain
variable annuity deposits.
BASIS OF PRESENTATION
During 1996, the Company adopted generally accepted accounting principles
("GAAP") in conformity with the requirements of the Financial Accounting
Standards Board. A description of accounting policies can be found in Note 2 to
the financial statements.
REVIEW OF OPERATING RESULTS
1998 Compared to 1997
The Company recorded net income of $1.1 million in 1998 versus net income of
$0.6 million in 1997, an increase of $0.5 million or 83%. Revenues grew by 44%
to $21.5 million as a result of growth in fee income earned on additional
separate account assets and in investment income from higher general account
assets. Separate account assets grew by 40% while total assets increased by 32%
during 1998. This growth is attributed to consistent annuity sales of $191.6
million for 1998 compared to 1997 annuity sales of $190.7 million, strong equity
market performance since mid-1997, favorable contract persistency and $5.5
million of Savings and Retirement Services assets associated with sales in the
4th quarter of 1998. Total fees generated from separate accounts and
policyholder liabilities increased by $3.6 million or 48% in 1998. Net
investment income grew by $3.1 million or 46% due to additional fixed account
sales. In addition, the Company recognized additional net investment income for
the full year of 1998 associated with the $47.7 million capital infusion
received in the fourth quarter of 1997 to support expanded operations in New
York.
The Company incurred total benefits and expenses in 1998 of $19.8 million, an
increase of $5.8 million, or 42% compared to 1997. The additional expenses
reflect an increase in non-capitalized acquisition expenses and other costs
associated with growth in the Company's business, and additional start-up
expenses in 1998 of $1.4 million associated with expanding the Company's
operations in New York.
1997 Compared to 1996
The Company recorded net income of $0.6 million in 1997 versus net income of
$1.5 million in 1996, a decrease of $0.9 million. The Company, however, recorded
an increase in revenues as a result of fee income earned on additional separate
account assets and higher investment income from growth in general account
assets. Separate account assets grew by 65% while total assets increased by 62%
during 1997. This growth is attributed to record sales of $190.7 million for
1997 compared to 1996 sales of $116.7 million, strong equity market performance
during 1997 and favorable contract persistency. The record sales for 1997 were
attributable to the Company's implementation of the Efficient Frontier
Investment model in early 1997 and the addition of competitively performing
funds, including additional investment options. The latter includes five
Lifestyle funds which offer the buyer the opportunity to invest in a
pre-determined "fund of funds". Total fees generated by Separate accounts and
policyholder funds increased by $2.6 million or 55% in 1997. Net investment
income grew by $1.5 million or 29% due to higher fixed account sales and a $47.7
million capital infusion received in the fourth quarter of 1997 to support
expanded operations in New York.
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The Company incurred total benefits and expenses in 1997 of $14.0 million and
$7.7 million in 1996, an increase of $6.3 million, or 82% compared to 1996. The
additional expenses reflect an increase in non-capitalized acquisition expenses
and other costs associated with growth in the Company's business, and additional
operating expenses of $1.6 million associated with expanding the Company's
operations in New York. The increase in expense levels had a direct impact on
the lower net income for 1997.
FINANCIAL POSITION
1998 Compared to 1997
Total assets increased from $769 million at December 31, 1997 to $1,017 million
at December 31, 1998, an increase of $248 million or 32%. Separate account
assets increased by 40% in 1998 compared to 1997 and represent 82% of total
assets as the Company continues to focus on its variable option annuity
products. The Company continues to own high quality investment grade fixed
maturity investments to support its general account liabilities and
shareholder's equity. The Company's deferred acquisition costs (DAC) asset grew
by 30% as the Company experienced consistent annuity sales volumes during 1998
and 1997 and deferred the related costs, net of current amortization, associated
with those sales.
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the Company's Separate accounts.
The growth in retained earnings is primarily due to net income from operations
of $1.1 million. In addition, shareholder's equity increased $0.4 million due to
higher market values associated with invested assets at December 31, 1998.
1997 Compared to 1996
Total assets increased from $475 million at December 31, 1996 to $769 million at
December 31, 1997, an increase of $294 million or 62%. Separate account assets
increased by 65% in 1997 compared to 1996 and represented 78% of total assets as
the Company continued to focus on its variable option insurance products. Fixed
maturity and short-term investments increased by 59% during 1997. This increase
is a result of a $47.7 million capital infusion in the fourth quarter of 1997 to
support the expansion of operations to include individual life insurance and
pension products in the state of New York. The Company continues to own high
quality investment grade fixed maturity investments to support its General
Account. The Company's deferred acquisition costs (DAC) asset grew by 40% as the
Company experienced record sales volumes during 1997 and deferred the related
costs, net of current amortization, associated with the sales.
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the company's Separate accounts.
The Company received $47.7 million of additional capital to support expansion of
its operations during 1997. The growth in retained earnings is due to net income
from operations of $0.6 million. In addition, shareholders equity increased $0.6
million due to higher market values associated with invested assets at December
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity describes the ability of a company to generate sufficient cash flows
to meet the cash requirements of business operations. Historically, the
Company's principal cash flow sources have been deposits and charges on
contracts, investment income, maturing investments, and proceeds from sales of
investment assets. In addition to the need for cash flow to meet operating
expenses, the liquidity requirements of the Company relate principally to its
annuity liabilities and to the funding of investments in new products, processes
and technologies. The liabilities mentioned above include the payment of
benefits under its annuity contracts along with contract withdrawals and policy
loans.
The general account liabilities consist of policyholder funds whose liquidity
requirements do not fluctuate significantly from one year to the next.
Policyholder transactions related to separate accounts do not materially impact
the cash flow of the Company.
The Company maintains a prudent amount invested in cash and short term
investments. At the end of 1998, this amounted to $16.0 million or 12% of total
investments compared to $ 11.4 million in 1997 or 8%. In addition, the Company's
liquidity is managed by maintaining through a highly liquid portfolio of fixed
maturity securities. The Company looks to MNA for the necessary capital and cash
financing to support its operations. In 1997 the Company received $47.7 million
to support the growth of the Company over several years and to enable the
Company to expand operations. In 1996 the Company received $13.3 million to
support its growth for that year.
The Company's net cash flows from operating activities were ($4.7) million,
($1.9) million and $2.0 million for the years ended December 31, 1998, 1997 and
1996, respectively. The negative cash flows from operations for 1998 and 1997
are primarily related to
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increased commissions and acquisition expenses
associated with sales volumes and additional start-up costs associated with
expanded operations in New York. During 1996, the Company's sales volumes were
significantly lower (39%) than 1997 levels which results in a lower cash strain
related to new business. In addition, the Company did not incur any start-up
costs associated with expanded operations in New York.
The Company's net cash flows from investing activities were $5.9 million,
($50.3) million and ($13.9) million for the years ended December 31, 1998, 1997
and 1996, respectively. The increase in cash flows for 1998 resulted primarily
from fixed maturity securities maturing or sold offset by an increase in
purchases of fixed maturity securities. The negative cash flows in 1997 and 1996
were attributable to purchases of fixed maturity securities associated with
capital infusions of $47.7 million and $13.3 million in 1997 and 1996,
respectively.
Net cash provided by financing activities was $3.3 million, $49.6 million, and
$5.0 million, for the years ended December 31, 1998, 1997 and 1996,
respectively. The increases in net cash provided resulted primarily from net
deposits to policyholder funds for 1998 and 1997 and capital contributions in
1997 and 1996. Offsetting the 1996 capital contributions were net redemptions
from policyholder funds and the repayment in 1996 of the Company's line of
credit.
Aside from the financing required to partially fund acquisition costs, the
Company's cash flows are adequate to meet the general obligations on all annuity
contracts.
CAPITAL REQUIREMENTS AND SOLVENCY PROTECTION
In order to enhance the regulation of insurer solvency, the NAIC has established
minimum Risk Based Capital (RBC) requirements. The requirements are designed to
monitor capital adequacy and to raise the level of protection that statutory
surplus provides for policyholders. The RBC model law requires that life
insurance companies report on a formula-based RBC standard which is calculated
by applying various factors to asset, premium and reserve items. The formula
takes into account risk characteristics of the life insurer, including asset
risk, insurance risk, interest rate risk and business risk. If an insurer's
ratio falls below certain thresholds, regulators will be authorized, and in some
circumstance required, to take regulatory action.
The Company's policy is to maintain capital and surplus balances well in excess
of the minimums required under government regulations in all jurisdictions in
which the Company does business. At December 31, 1998 the Company's capital and
surplus balances exceeded all such required minimums.
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by the Company's ultimate parent company, The
Manufacturers Life Insurance Company (collectively with its subsidiaries
"Manulife Financial"), to ensure that computer systems and processes of Manulife
Financial will continue to perform through the end of this century and into the
next.
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this program include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification. For most IT and non-IT systems identified as critical, the
Company has completed certification. Of those systems classified as critical,
management believes that over 99% were Year 2000 compliant at the end of 1998.
Management continues to focus attention on the remaining 1% of critical systems.
Those that affect the Company are expected to be compliant by the end of the
second quarter in 1999. Management believes that the Company's non-critical
systems will be Year 2000 compliant by the end of the first quarter 1999.
In addition to efforts directed at Manulife Financial's own systems, Manulife
Financial is presently consulting vendors, customers, and other third parties
with which it deals in an effort to ensure that no material aspect of Manulife
Financial's operations will be hindered by
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Year 2000 problems of these third parties. This process includes providing
third parties with questionnaires regarding the state of their Year 2000
readiness and, where possible or where appropriate, conducting further due
diligence activities.
Manulife Financial recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife Financial's Year 2000 program has not fully resolved its
Year 2000 issues. The Year 2000 Project Management Office for Manulife
Financial's U.S. Division is coordinating the preparation of the Year 2000
contingency plan on behalf of U.S. Division affiliates and subsidiaries,
including the Company. A contingency plan concerning the Company is targeted for
completion by the end of the first quarter of 1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operational problems for Manulife Financial's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the Year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife Financial's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on the
Company's operations, customer relations or financial condition. Manulife
Financial estimates the total cost of its Year 2000 program will be
approximately $59 million, of which $49.5 million has been incurred through
December 31, 1998; however, there can be no assurance that the actual cost
incurred will not be materially higher than such estimate. Most costs will be
expensed as incurred; however, those costs attributed to the purchase of new
software and hardware will generally be capitalized. A proportional amount of
the total cost will be allocated to the Company and is not expected to have a
material effect on the Company's net operating income.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The primary market risk exposure for the
Company is the impact of lower than expected equity market performance on its
asset-related fee revenue. The Company also has certain exposures to changes in
interest rates.
Equity Risk
The Company earns asset based fees based on the asset levels invested in the
separate accounts. As a result, the Company is subject to equity risk and the
effect changes in equity market levels will have on the amounts invested in the
separate accounts. The Company estimates that the effect of a 10% decline in
equity fair values in force at December 31, 1998, if the decline existed
throughout 1999, would adversely affect the Company's asset based fees for 1999
by $2.0 million.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due
to adverse changes in interest rates. This risk arises from the issuance of
certain interest sensitive annuity products and the investing of those proceeds
in fixed rate investments. The Company manages its interest rate risk through an
asset/liability management program. The Company has established a target
portfolio mix which takes into account the risk attributes of the liabilities
supported by the assets, expectations of market performance, and a generally
conservative investment philosophy. Preservation of capital and maintenance of
income flows are key objectives of this program. In addition, the Company has
diversified its product portfolio offerings to include products that contain
features that will protect it against fluctuations in interest rates. Those
features include adjustable crediting rates, policy surrender charges, and
market value adjustments on liquidations.
Based upon the Company's investment strategy, asset-liability management
process, and the calculated durations of its assets and liabilities at December
31, 1998, management estimates that a 100 basis point immediate, parallel
increase in interest rates for the entire year of 1999 would decrease the fair
value of its duration managed assets by approximately $1.2 million. There would
be no effect on the fair value of the Company's liabilities because of the
features inherent in the Company's products.
9
<PAGE> 10
Item 8 - Financial Statements and Supplementary Data
The Reports of Independent Auditors and the Company's financial statements
attached hereto are incorporated herein. See following page.
10
<PAGE> 11
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors...............................................12
Audited Financial Statements.................................................13
Balance Sheets..........................................................13
Statements of Income....................................................14
Statements of Changes in Shareholder's Equity...........................15
Statements of Cash Flows................................................16
Notes to Financial Statements................................................17
11
<PAGE> 12
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of New York
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of New York (formerly First North American Life Assurance
Company and hereinafter referred to as the Company) as of December 31, 1998 and
1997, and the related statements of income, changes in shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audit also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of New York at December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Boston, Massachusetts
February 22, 1999
Ernst & Young LLP
12
<PAGE> 13
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Investments
Fixed maturity securities available-for-sale, at fair value
<S> <C> <C>
(note 3) $ 125,088 $ 129,151
(amortized cost: 1998 $120,902; 1997 $126,714)
Investment in unconsolidated affiliate 175 -
Policy loans 552 398
Short-term investments 10,032 9,998
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 135,847 $ 139,547
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 5,946 $ 1,431
Accrued investment income 3,073 2,401
Deferred acquisition costs (note 4) 36,831 28,364
Other assets 1,834 231
Separate account assets 833,693 597,193
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,017,224 $ 769,167
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- --------------------------------------------------------------------------------------------------------------------
Liabilities:
Policyholder liabilities and accruals $ 94,492 $ 86,611
Payable to affiliates 4,114 4,345
Deferred income taxes (note 5) 3,615 2,269
Other liabilities 1,943 987
Separate account liabilities 833,693 597,193
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 937,857 $ 691,405
- --------------------------------------------------------------------------------------------------------------------
Shareholder's equity:
Common stock (note 6) $ 2,000 $ 2,000
Additional paid-in capital 72,706 72,531
Retained earnings 3,209 2,136
Accumulated other comprehensive income 1,452 1,095
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $ 79,367 $ 77,762
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,017,224 $ 769,167
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
13
<PAGE> 14
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1998 1997 1996
- --------------------------------------------------------------- ------------------- ---------------- ----------------
REVENUES:
<S> <C> <C> <C>
Fees from separate accounts and policyholder liabilities $ 10,961 $ 7,395 $ 4,762
Net investment income (note 3) 9,786 6,717 5,224
Net realized investment gains 713 769 89
- --------------------------------------------------------------- ------------------- ---------------- ----------------
TOTAL REVENUE $ 21,460 $ 14,881 $ 10,075
- --------------------------------------------------------------- ------------------- ---------------- ----------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 4,603 $ 4,747 $ 4,189
Amortization of deferred acquisition costs (note 4) 4,849 3,393 2,319
Other insurance expenses 10,359 5,845 1,192
- --------------------------------------------------------------- ------------------- ---------------- ----------------
TOTAL BENEFITS AND EXPENSES $ 19,811 $ 13,985 $ 7,700
- --------------------------------------------------------------- ------------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES $ 1,649 $ 896 $ 2,375
- --------------------------------------------------------------- ------------------- ---------------- ----------------
INCOME TAXES (note 5) $ 576 $ 310 $ 833
- --------------------------------------------------------------- ------------------- ---------------- ----------------
NET INCOME $ 1,073 $ 586 $ 1,542
- --------------------------------------------------------------- ------------------- ---------------- ----------------
</TABLE>
See accompanying notes.
14
<PAGE> 15
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Additional Retained Comprehensive Shareholder's
($ thousands) Stock Paid-in Capital Earnings Income Equity
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,000 $ 11,500 $ 8 $ 1,704 $ 15,212
Capital contribution 13,300 13,300
Comprehensive income (note 2) 1,542 (1,285) 257
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $2,000 $ 24,800 $ 1,550 $ 419 $ 28,769
Capital contribution 47,731 47,731
Comprehensive income (note 2) 586 676 1,262
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $2,000 $ 72,531 $ 2,136 $ 1,095 $ 77,762
Capital contribution 175 175
Comprehensive income (note 2) 1,073 357 1,430
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $2,000 $ 72,706 $ 3,209 $ 1,452 $ 79,367
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
15
<PAGE> 16
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1998 1997 1996
- ---------------------------------------------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,073 $ 586 $ 1,542
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Amortization of bond discount and premium 434 333 141
Net realized investment gains (713) (769) (89)
Provision for deferred income tax 1,153 (29) 220
Amortization of deferred acquisition costs 4,849 3,393 2,319
Policy acquisition costs deferred (14,515) (11,684) (7,224)
Return credited to policyholders and other benefits 4,603 4,747 4,189
Changes in assets and liabilities:
Accrued investment income (672) (873) (7)
Other assets (1,603) (80) 196
Payable to affiliates (231) 2,328 865
Other liabilities 956 115 (153)
- ---------------------------------------------------------------------------- --------------- ------------ ------------
Net cash (used in) provided by operating activities $ (4,666) $ (1,933) $ 1,999
- ---------------------------------------------------------------------------- --------------- ------------ ------------
INVESTING ACTIVITIES:
Fixed maturity securities sold, matured or repaid $ 30,591 $ 59,307 $ 31,659
Fixed maturity securities purchased (24,500) (103,383) (41,409)
Net change in short-term investments (34) (6,011) (3,985)
Policy loans advanced, net (154) (215) (116)
- ---------------------------------------------------------------------------- --------------- ------------ ------------
Cash provided by (used in) investing activities $ 5,903 $ (50,302) $ (13,851)
- ---------------------------------------------------------------------------- --------------- ------------ ------------
FINANCING ACTIVITIES:
Deposits and interest credited to policyholder funds 14,212 17,212 18,408
Return of policyholder funds (10,934) (15,382) (24,676)
Change in notes payable - - (2,000)
Capital contribution by parent - 47,731 13,300
- ---------------------------------------------------------------------------- --------------- ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES $ 3,278 $ 49,561 $ 5,032
- ---------------------------------------------------------------------------- --------------- ------------ ------------
Cash and cash equivalents:
Increase (decrease) during the year 4,515 (2,674) (6,820)
Balance, beginning of year 1,431 4,105 10,925
- ---------------------------------------------------------------------------- --------------- ------------ ------------
BALANCE, END OF YEAR $ 5,946 $ 1,431 $ 4,105
- ---------------------------------------------------------------------------- --------------- ------------ ------------
</TABLE>
See accompanying notes
16
<PAGE> 17
The Manufacturers Life Insurance Company of New York
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(In Thousands of Dollars)
1. ORGANIZATION
The Manufacturers Life Insurance Company of New York (First North
American Life Assurance Company prior to October 1, 1997, and
hereinafter referred to as "the Company"), is a stock life insurance
company which was organized on February 10, 1992 under the laws of the
State of New York. The New York Insurance Department ("the Department")
granted the Company a license to operate on July 22, 1992. The Company
is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company of North America (formerly North American Security Life
Insurance Company and hereinafter referred to as "MNA"), which is in
turn a wholly-owned subsidiary of Manulife-Wood Logan Holding Co., Inc.
("MWL"). MWL is 62.5% owned by The Manufacturers Life Insurance Company
(USA) (ManUSA), 22.5% by MRL Holding, LLC, ("MRL") and 15% by minority
interest shareholders. ManUSA and MRL are indirectly wholly-owned
subsidiaries of The Manufacturers Life Insurance Company ("Manulife
Financial"), a federally chartered Canadian mutual life insurance
company.
The Company issues individual and group annuity and individual life
insurance contracts (collectively, the contracts) in the State of New
York. Amounts invested in the fixed portion of the contracts are
allocated to the general account or a non-insulated separate account of
the Company. Amounts invested in the variable portion of the contracts
are allocated to the separate accounts of the Company. Each of these
separate accounts invests in shares of the various portfolios of the
Manufacturers Investment Trust (formerly NASL Series Trust and
hereinafter referred to as "MIT"), a no-load, open-end investment
management company organized as a Massachusetts business trust, or in
open-end investment management companies offered and managed by
unaffiliated third parties.
Prior to October 1, 1997, the Company sold and administered only
combination fixed and variable annuity products. On October 21, 1997,
the Company received approval from the Department for a revised plan of
operations which expanded its product offerings. MNA contributed
$47,731 to the Company in support of the revised plan of operations.
Prior to October 1, 1997, NASL Financial Services Inc. ("NASL
Financial"), an affiliate of the Company, acted as investment adviser
to MIT and as principal underwriter of the annuity contracts issued by
the Company. Effective October 1, 1997, Manufacturers Securities
Services, LLC ("MSS"), the successor to NASL Financial and an affiliate
of the Company, replaced NASL Financial as the investment advisor to
MIT and as the principal underwriter for the variable contracts and
exclusive distributor of all contracts issued by the Company.
17
<PAGE> 18
1. ORGANIZATION (CONTINUED)
Prior to October 1, 1997, Wood Logan Associates Inc. ("WLA"), a
subsidiary of MWL, acted as the promotional agent for the sale of the
Company's contracts. Since October 1, 1997, marketing services for the
sale of all contracts issued by the Company and other services are
provided by certain affiliates of the Company pursuant to an
Administrative Services Agreement and an Investment Services Agreement
between the Company and Manulife Financial. Currently, services are
provided by Manulife Financial, WLA, MNA, and ManUSA.
On October 31, 1998, the Company received a 10% interest in the
members' equity of MSS from MNA, the managing member of MSS. The
Company treated the receipt of its equity interest as a contribution to
paid-in capital of $175.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared
in conformity with generally accepted accounting principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set
of general-purpose annual financial statements. Comprehensive
income includes all changes in shareholder's equity during a
period except those resulting from investments by and
distributions to shareholders. The adoption of SFAS No. 130
resulted in revised and additional disclosures but had no effect
on the financial position, results of operations, or liquidity of
the Company.
18
<PAGE> 19
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
NET INCOME $ 1,073 $ 586 $ 1,542
---------------------------------------------------------------- -------------- ------------ -------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the year 820 1,176 (1,227)
Less:
Reclassification adjustment for realized gains included in
net Income 463 500 58
---------------------------------------------------------------- -------------- ------------ -------------
Other comprehensive income (loss) 357 676 (1,285)
---------------------------------------------------------------- -------------- ------------ -------------
COMPREHENSIVE INCOME $ 1,430 $ 1,262 $ 257
---------------------------------------------------------------- -------------- ------------ -------------
</TABLE>
Other comprehensive income (loss) is reported net of taxes of $192,
$364, and ($692) for 1998, 1997, and 1996, respectively.
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products
and services, geographic areas, and major customers. The adoption
of SFAS No. 131 did not affect results of operations or financial
position, nor did it affect the manner in which the Company defines
its operating segments. The Company reports three business segments:
Annuities, Savings and Retirement Services, and Life Insurance. The
Annuities segment consists of annuity contracts that provide the
customer with the opportunity to invest in mutual funds managed by
independent investment managers and the Company or in the general
account of the Company, with investment returns accumulating on a
tax-deferred basis. The Savings and Retirement Services segment
offers 401(k) products to customers in the State of New York. The
Individual Life Insurance segment offers traditional non-
participating life insurance to the New York market. The Savings
and Retirement Services segment was launched in mid - 1998 and
the Individual Life Insurance segment was launched in late 1997.
Both these segments are considered to be in the start-up phase.
No significant assets or revenues have been generated to date in
these two segments. Start-up costs, on a pre-tax basis, reported
for these two segments totaled approximately $534 and $2,399,
respectively in 1998 and $1,551 for the Individual Life Insurance
segment in 1997. The following is a summary of the contribution
to net income of the three business segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------------------------------------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Annuities $ 2,623 $ 1,594 $ 1,542
Savings and Retirement Services - -
(318)
Life Insurance (1,008) -
(1,232)
-------------------------------------------------------- ----------------- --------------- ---------------
NET INCOME (LOSS) $ 1,073 $ 586 $ 1,542
-------------------------------------------------------- ----------------- --------------- ---------------
</TABLE>
19
<PAGE> 20
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) INVESTMENTS
The Company classifies all of its fixed maturity securities as
available-for-sale and records these securities at fair value. Realized
gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the specific
identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
The cost of fixed maturity securities is adjusted for the amortization
of premiums and accretion of discounts using the interest method. This
amortization or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed maturity securities
portfolio, the Company recognizes amortization using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount
that would have existed had the new effective yield been applied since
the acquisition of the security. That adjustment is included in net
investment income.
Policy loans are reported at aggregate unpaid balances which
approximate fair value.
Short-term investments which include investments with maturities of
less than one year and greater than 90 days at the date of acquisition,
are reported at amortized cost which approximates fair value.
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
20
<PAGE> 21
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily
related to the production of new business are deferred to the extent
recoverable and included as an asset. Acquisition costs associated with
annuity contracts and investment pension contracts are being amortized
generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins.
The amortization is adjusted retrospectively when estimates of current
or future gross profits are revised. DAC associated with traditional
non-participating individual insurance policies is charged to expense
over the premium paying period of the related policies. DAC is adjusted
for the impact on estimated future gross profits assuming the
unrealized gains or losses on securities had been realized at year-end.
The impact of any such adjustments is included in net unrealized gains
(losses) in accumulated other comprehensive income. DAC is reviewed
annually to determine recoverability from future income and, if not
recoverable, it is immediately expensed.
f) POLICYHOLDER LIABILITIES AND ACCRUALS
Policyholder liabilities equal the policyholder account value for the
fixed portion of annuity contracts and for investment pension contracts
with no substantial mortality risk. Account values are increased for
deposits received and interest credited and are reduced by withdrawals.
For traditional non-participating life insurance policies, policyholder
liabilities are computed using the net level premium method and are
based upon estimates as to future mortality, persistency, maintenance
expenses and interest rate yields that are applicable in the year of
issue. The assumptions include a provision for the risk of adverse
deviation.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in MIT, which are
mutual funds that are separately administered for the exclusive benefit
of the policyholders of the Company and its affiliates, or open-end
investment management companies offered and managed by unaffiliated
third parties, which are mutual funds that are separately administered
for the benefit of the Company's policyholders and other shareholders.
These assets and liabilities are reported at fair value. The
policyholders, rather than the Company, bear the investment risk. The
operations of the separate accounts are not included in the
accompanying financial statements. Fees charged on separate account
policyholder funds are included in revenues.
21
<PAGE> 22
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) REVENUE RECOGNITION
Fee income from separate accounts, annuity contracts and investment
pension contracts consists of charges for mortality, expenses and
surrender and administration charges that have been assessed against
the policyholder account balances. Premiums on traditional
non-participating life insurance policies are recognized as revenue
when due and currently are included in Fees from Separate Accounts and
Policyholder Liabilities in the statements of income. Investment income
is recorded as revenue when due.
i) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for annuity contracts and investment pension contracts include
interest credited to policyholder account balances and benefit claims
incurred during the period in excess of policyholder account balances.
j) INCOME TAXES
Income taxes have been provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
likely will be in effect when the differences are expected to reverse.
The measurement of deferred tax assets is reduced by a valuation
allowance if, based upon the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED MATURITY SECURITIES
At December 31, 1998 and 1997, all fixed maturity securities have been
classified as available-for-sale and reported at fair value. The
amortized cost and fair value are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE
AS AT DECEMBER 31, GAINS LOSSES
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
------------------------------- ----------- ---------- -------- ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 11,018 $ 7,422 $ 591 $ 284 ($15) $ $ 11,594 $ 7,706
-
Corporate securities 99,696 108,682 3,321 1,879 (35) (23) 102,982 110,538
Mortgage-backed securities 6,680 5,016 125 69 (21) - 6,784 5,085
Foreign governments 2,449 - 111 - - - 2,560 -
States/political subdivisions 1,059 5,594 109 228 - - 1,168 5,822
------------------------------- ----------- ---------- -------- ------- ------- ------- ---------- ---------
Total fixed maturity securities $ 120,902 $126,714 $ 4,257 $2,460 ($71) ($23) $ 125,088 $129,151
------------------------------- ----------- ---------- -------- ------- ------- ------- ---------- ---------
</TABLE>
22
<PAGE> 23
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Proceeds from sales of fixed maturity securities during 1998 were
$17,985 (1997 $45,217; 1996 $6,559). Gross gains of $715 and gross
losses of $2 were realized on those sales (1997 $772 and $6; 1996 $91
and $2 respectively).
The contractual maturities of fixed maturity securities at December 31,
1998 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES
<S> <C> <C>
One year or less $ 13,083 $13,117
Greater than 1; up to 5 years 61,861 63,525
Greater than 5; up to 10 years 21,812 22,807
Due after 10 years 17,466 18,855
Mortgage-backed securities 6,680 6,784
-----------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $120,902 $125,088
-----------------------------------------------------------------------------------------------------------
</TABLE>
Fixed maturity securities with a fair value of $410 and $414 at December
31, 1998 and 1997, respectively, were on deposit with, or in custody
accounts on behalf of, New York State Insurance Department to satisfy
regulatory requirements.
b) Investment Income
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $8,338 $ 6,343 $4,476
Other invested assets 830
Short-term investments 762 477 873
-----------------------------------------------------------------------------------------------------------
Gross investment income 9,930 6,819 5,349
-----------------------------------------------------------------------------------------------------------
Investment expenses (144) (102) (125)
-----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $9,786 $ 6,717 $5,224
-----------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
4. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
($ thousands) 1998 1997 1996
----------------------------------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance at January 1, $ 28,364 $ 20,208 $ 15,919
Capitalization 14,515 11,684 7,224
Amortization (4,849) (3,393) (2,319)
Effect of net unrealized gains
on securities available for sale (1,199) (135) (616)
----------------------------------------------- -------------------- ------------------- ------------------
BALANCE AT DECEMBER 31 $ 36,831 $ 28,364 $ 20,208
----------------------------------------------- -------------------- ------------------- ------------------
</TABLE>
To date, the DAC balance is primarily attributable to the Annuities
segment.
5. INCOME TAXES
<TABLE>
<CAPTION>
The components of income tax expense were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Current expense (benefit) $ (577) $339 $613
Deferred expense (benefit) 1,153 (29) 220
----------------------------------------------------- ----------------- ----------------- -----------------
TOTAL EXPENSE $ 576 $310 $833
----------------------------------------------------- ----------------- ----------------- -----------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
AS AT DECEMBER 31
($ thousands) 1998 1997
-----------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
<S> <C> <C>
Asset reserves $ 389 $ 92
-----------------------------------------------------------------------------------------------------------
Total deferred tax assets 389 92
-----------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs (2,203) (1,135)
Reserves (4)
Unrealized gains on securities available-for-sale (784) (589)
Other (1,017) (633)
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (4,004) (2,361)
-----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $ (3,615) $ (2,269)
-----------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
5. INCOME TAXES (CONTINUED)
The Company participates as a member of the MWL affiliated group,
filing a consolidated federal income tax return. The Company files a
separate New York State return.
The method of allocation between the companies is subject to a tax
sharing agreement under which the tax liability is allocated to each
member of the group on a pro-rata basis based on the relationship that
the member's tax liability (computed on a separate return basis) bears
to the tax liability of the consolidated group. The tax charge to the
Company will not be more than the Company would have paid on a separate
return basis. Settlement of taxes are made through an increase or
reduction to the payable to parent, subsidiaries and affiliates which
is settled periodically.
The Company made estimated tax payments of $1,121 in 1998 and $531 and
$0 in 1997 and 1996, respectively.
6. Shareholder's Equity
The Company has one class of common stock:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1998 1997
--------------------------------------------------------------------- ------------------- -----------------
Authorized, issued and outstanding:
<S> <C> <C> <C>
2,000,000 Common shares, Par value $1 $2,000 $2,000
--------------------------------------------------------------------- ------------------- -----------------
</TABLE>
The net assets of the Company available for the Parent as dividends are
generally limited to and cannot be made except from earned
statutory-basis profits. The maximum amount of dividends that may be
paid by life insurance companies without prior approval of the New York
Insurance Commissioner is subject to restrictions relating to statutory
surplus and net gain from operations on a statutory basis.
The aggregate statutory capital and surplus of the Company at December
31, 1998 was $62,881 (1997 $68,336). The aggregate statutory net income
(loss) of the Company for the year ended 1998 was ($5,678) (1997
($1,562); 1996 $231). State regulatory authorities prescribe statutory
accounting practices that differ in certain respects from generally
accepted accounting principles followed by stock life insurance
companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, non-admitted asset balances
and reserves.
25
<PAGE> 26
7. REINSURANCE
The Company has entered into reinsurance agreements with various
reinsurers to reinsure any face amounts in excess of $100 for its
traditional non-participating insurance products. The Company remains
liable for amounts ceded in the event that reinsurers do not meet their
obligations. To date, there have been no reinsurance recoveries under
these agreements.
8. RELATED-PARTY TRANSACTIONS
The Company utilizes various services administered by Manulife
Financial and affiliates such as legal, personnel, investment
accounting and other corporate services. Prior to October 1, 1997,
Manulife Financial and MNA charged the Company for those services. In
the first nine months of 1997 and for the full year 1996, Manulife
Financial and MNA charged the Company approximately $623 and $661,
respectively. Effective October 1, 1997, pursuant to a revised plan of
operations, all intercompany expenses were billed through Manulife
Financial. For the year ended December 31, 1998 and for the fourth
quarter of 1997, Manulife Financial billed the Company expenses of
$4,685 and $869, respectively. At December 31, 1998 and 1997, the
Company had a net liability to Manulife Financial of $2,372 and $2,977,
respectively, for those services.
For the nine months ended September 30, 1997 and for the full year
1996, the Company paid underwriting commissions to NASL Financial of
$8,421 and $7,050, respectively. NASL Financial then reimbursed WLA for
promotional agent services. Effective October 1, 1997, MSS replaced
NASL Financial as underwriter. Thereafter, all commissions were paid to
MSS by the Company, and WLA marketing services expenses were paid by
Manulife Financial who was then reimbursed by the Company. Underwriting
commissions and marketing services expense of $17,838 and $4,431,
respectively, were incurred during the year ended December 31, 1998 and
the fourth quarter of 1997. At December 31, 1998 and 1997, the Company
had a net liability of $799 and $1,368, respectively, for these
services.
The financial statements have been prepared from the records maintained
by the Company and may not necessarily be indicative of the financial
conditions or results of operations that would have occurred if the
Company had been operated as an unaffiliated corporation (see also
Notes 1, 5, 10 and 13 for additional related-party transactions).
9. BORROWED MONEY
The Company has an unsecured line of credit with State Street Bank and
Trust in the amount of $5,000, bearing interest at the bank's money
market rate plus 50 basis points. There were no outstanding
advancements under the line of credit at December 31, 1998 and 1997.
26
<PAGE> 27
10. EMPLOYEE BENEFITS
a) RETIREMENT PLAN
Prior to July 1, 1998, the Company and MNA participated in a
non-contributory defined benefit pension plan (the " Nalaco Plan")
sponsored by Manulife Financial, covering its employees. A similar plan
(the "Manulife Plan") also existed for ManUSA. Both plans provided
pension benefits based on length of service and final average earnings.
Vested benefits are fully funded; current pension costs are funded as
they accrue.
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife
Plan as approved by the Board of Directors of Manulife Financial. The
merged plan was then restated as a cash balance pension plan entitled,
"The Manulife Financial U.S. Cash Balance Pension Plan" ("Cash Balance
Plan"). Participants in the two prior plans ceased accruing benefits
under the old plan effective June 30, 1998, and became participants in
the Cash Balance Plan on July 1, 1998. Also effective July 1, ManUSA
became the sponsor of the Cash Balance Plan. Each participant who was a
participant in one of the prior plans received an opening account
balance equal to the present value of their June 30, 1998 accrued
benefit under the prior plan, using Pension Benefit Guaranty
Corporation rates. Future contribution credits under the Cash Balance
Plan vary by service, and interest credits are a function of interest
rate levels. Pension benefits are provided to participants after three
years of vesting service, and the normal retirement benefit is
actuarially equivalent to the cash balance account at normal retirement
date. The normal form of payment under the Cash Balance Plan is a life
annuity with various optional forms available.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets,
mortality of participants, employee termination and ages at retirement.
Pension costs relating to current service and amortization of
experience gains and losses are amortized to income over the estimated
average remaining service lives of the participants. No pension expense
was recognized by the sponsor in 1998, 1997, or 1996 because the plan
was subject to the full funding limitation under the Internal Revenue
Code.
At December 31, 1998, the projected benefit obligation based on an
assumed interest rate of 6.5% was $51,757. The fair value of plan
assets invested in ManUSA's general fund deposit administration
insurance contracts and in an investment portfolio of equities and
fixed income securities managed by an affiliate were $52,541 and
$32,145, respectively.
27
<PAGE> 28
10. EMPLOYEE BENEFITS (CONTINUED)
b) 401(k) PLAN
Prior to July 1, 1998, the Company also participated in a defined
contribution plan sponsored by MNA, the North American Security Life
401(k) Savings Plan, which was subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"). A similar
plan, the Manulife Financial 401k Savings Plan, also existed for
employees of ManUSA. These two plans were effectively merged on July 1,
1998 into one defined contribution plan sponsored by ManUSA, as
approved by the Board of Directors on March 26, 1998. The Company's
costs associated with the plan were charged to the Company and were not
material.
c) POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
postretirement benefit plan of ManUSA which provides retiree medical
and life insurance benefits to those who have attained age 55 with 10
or more years of service. The plan provides the medical coverage for
retirees and spouses under age 65. When the retirees or the covered
dependents reach age 65, Medicare provides primary coverage and the
plan provides secondary coverage. There is no contribution for post-age
65 coverage, and no contributions are required for retirees for life
insurance coverage. The plan is unfunded.
The postretirement benefit cost to the Company, which includes the
expected cost of postretirement benefits for newly eligible employees
and for vested employees, interest cost, and gains and losses arising
from differences between actuarial assumptions and actual experience,
is accounted for by the plan sponsor, ManUSA.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C>
Fixed maturity securities $125,088 $125,088 $129,151 $129,151
Short-term investments 10,032 10,032 9,998 9,998
Policy loans 552 552 398 398
Cash and cash equivalents 5,946 5,946 1,431 1,431
Liabilities:
Policyholder liabilities and
accruals 94,492 91,113 86,611 81,715
</TABLE>
28
<PAGE> 29
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities
are obtained from an independent pricing service.
Short-Term Investment and Cash and Cash Equivalents: Carrying values
approximate fair values.
Policy Loans: Carrying values approximate fair values.
Policyholder Liabilities and Accruals: Fair values of the Company's
liabilities under contracts not involving significant mortality risk
(deferred annuities) are estimated to be the cash surrender value, or
the cost the Company would incur to extinguish the liability.
12. LEASES
The Company leases office space under an operating lease agreement
which expires in 1999 and is subject to a renewal option at market
rates prevailing at the time of renewal. For the years ended December
31, 1998 and 1997, the Company incurred rent expense of $95 and $84,
respectively. The minimum lease payments associated with the office
space are $61 in 1999.
13. CAPITAL MAINTENANCE AGREEMENT
Pursuant to a capital maintenance agreement and subject to regulatory
approval, Manulife Financial has agreed to maintain the Company's
statutory capital and surplus at a specified level and to ensure that
sufficient funds are available for the timely payment of contractual
obligations.
14. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the
course of its business. Contingent liabilities arising from litigation,
income taxes and other matters are not considered material in relation
to the financial position of the Company.
29
<PAGE> 30
15. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED)
The Year 2000 risk is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. The effects of the Year 2000 risk may be experienced before, on,
or after January 1, 2000 and, if not addressed, could result in systems
failures or miscalculations causing disruptions of normal business
operations. It is not possible to be certain that the Company's Year
2000 program will fully resolve all aspects of the Year 2000 risk,
including those related to third parties.
A full discussion of the Company's Year 2000 program and Year 2000
review is contained in the Management's Discussion and Analysis Section
of the Company's Annual Report on Form 10-K.
30
<PAGE> 31
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Nothing to report.
31
<PAGE> 32
PART III
Item 10 - Directors and Executive Officers of the Registrant (also referred to
as the "Company")
The directors and executive officers of the Company, together with their
principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
Position with
Name the Company Principal Occupation
<S> <C> <C>
Bruce Avedon Director* Director, MNY, March 1992 to
Age: 70 present; Consultant (self-
employed) September 1983 to
present.
Thomas Borshoff Director* Director, MNY, February 1999 to
Age: 51 present; Self-employed, Real
Estate Owner/Manager; Chief
Executive Officer and Chairman,
First Federal Savings and Loan
of Rochester, 1983 to 1997.
John D. DesPrez III Director* Executive Vice President, U.S.
Age: 42 Operations, Manulife Financial,
January 1999 to present; Director,
WLA, October 1996 to present;
Director, September 1996 to
present and Chairman of the Board,
January 1999 to present, of MNA;
President, MNA, September 1996 to
December 1998; President, MIT
September 1996 to present; Senior
Vice President, U.S. Annuities,
Manulife Financial, September 1996
to December 1998; Vice President,
Mutual Funds, Manulife Financial,
January 1995 to September 1996;
Director, MWL, December 1995 to
present; Director, Wood Logan
Distributors, March 1993 to
present; President, North American
Funds, March 1993 to September
1996; Director, MNY, March 1992 to
present; Vice President, Secretary
and General Counsel, MNA, January
1991 to June 1994.
Ruth Ann Flemming Director* Director, MNY, March 1992 to
Age: 40 present; Attorney, consulting
services and pro bono activities.
Tracy A. Kane Secretary and Secretary and Counsel, MNY, May
Age: 37 Counsel 1994 to present; Assistant Vice
President and Senior Counsel, MNA,
April 1993 to present; Counsel,
Fidelity Investments, prior to
April 1993.
Theodore F. Kilkuskie Director* Senior Vice President, U.S.
Age: 43 Annuities, Manulife Financial,
January 1999 to present;
President, MNA, January 1999 to
present; Director, MNY, November
1997 to present; Senior Vice
President, U.S. Individual
Insurance, Manulife Financial,
August 1998 to December 1998;
Director, The Manufacturers Life
Insurance Company of America
("ManAmerica"), May 1996 to
present; Director, MWL, April 1996
to present; Vice President, U.S.
Individual Insurance, Manulife
Financial, June 1995 to February
1998; Executive Vice President,
Mutual Fund Sales & Marketing,
State Street Research &
Management, March 1994 to June
1995.
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Position with
Name the Company Principal Occupation
<S> <C> <C>
David W. Libbey Treasurer Vice President, Treasurer and
Age: 52 Chief Financial Officer, MNA,
December 1997 to present;
Treasurer, MNY, November 1997 to
present; Vice President, Finance,
MNA, June 1997 to December 1997;
Vice President,Finance, Annuities,
Manulife Financial, June 1997 to
present; Vice President & Actuary,
Paul Revere Insurance Group, June
1970 to March 1997.
A. Scott Logan Director* and Director and President, MNY,
Age: 59 President February 1998 to present;
Director, MWL, December 1995 to
present; Director, Wood Logan
Distributors, July 1990 to present;
Director and President, WLA, August
1986 to present.
James O'Malley Director* Senior Vice President, U.S.
Age: 52 Pensions, Manulife Financial,
January 1999 to present; Director,
MNY, November 1998 to present;
Director, ManAmerica, November
1998 to present; Vice President,
Systems New Business Pensions,
Manulife Financial, 1984 to
December 1998.
Neil M. Merkl, Esq. Director* Director, MNY, December 1995 to
Age: 67 present; Attorney (self-employed),
April 1994 to present; Attorney,
Wilson Elser, 1979 to 1994.
John Richardson Director and Senior Executive Vice President,
Age: 61 Chairman of Manulife Financial, January 1999
the Board of to present; Executive Vice
Directors* President, U.S. Operations,
Manulife Financial, November 1997
to December 1998; Chairman of the
Board, MWL, April 1997 to present;
Director, March 1997 to present
and Chairman of the Board, March
1997 to December 1998, MNA;
Director and Chairman of the Board,
MNY, November 1996 to present;
Director, MWL, December 1995 to
present; Director and Chairman of
the Board, ManAmerica, January
1995 to present; Senior Vice
President and General Manager,
U.S. Operations, Manulife
Financial, January 1995 to October
1997; Senior Vice President and
General Manager, Canadian
Operations, Manulife Financial,
June 1992 to December 1994.
James K. Robinson Director* Director, MNY, March 1992 to
Age: 71 present; Retired; Attorney and
Assistant Secretary, Eastman Kodak
Company, 1958 to 1991.
John G. Vrysen Vice Chief Financial Officer and
Age: 43 President and Treasurer, MWL, January 1996
Chief Actuary to present; Vice President and
Chief Financial Officer, U.S.
Operations, Manulife Financial,
January 1996 to present; Appointed
Actuary, ManAmerica, May 1996 to
present; Director, MWL, December
1995 to present; Vice President and
Chief Actuary, MNY, March 1992 to
present; Director, MNY, March 1992
to February 1998; Vice President
and Chief Actuary, MNA, January
1986 to present.
</TABLE>
Item 11 - Executive Compensation of the Registrant
The Company's executive officers may also serve as officers of one or more of
Manulife Financial's affiliates. Allocations have been made as to such officers'
time devoted to duties as executive officers of the Company. The following table
shows the allocated compensation paid or awarded to or earned by MNY's Chief
Executive Officer for services provided to MNY. No other executive officer had
allocated cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------- ------- ---------- ---------- -------------- ----------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Position Compensa-tion Stock Underlying Payout Compensa-tion
Award(s) Options/
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
SARs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------- ------- ---------- ---------- -------------- ----------- ------------- --------- --------------
- -------------------- ------- ---------- ---------- -------------- ----------- ------------- --------- --------------
A. Scott Logan, 1998 $95,219 N/A N/A N/A N/A N/A N/A
President1
</TABLE>
1 Mr. Logan is an employee of Wood Logan Associates Inc. which is a partially
owned subsidiary of Manulife Financial and a portion of his salary is allocated
to MNY which is disclosed above. Therefore, Mr. Logan does not participate in
Manulife Financial's compensation programs or The Manufacturers Life Insurance
Company (U.S.A.) retirement plans. Employees of MNY participate in the
compensation programs described below.
The Management Resources and Compensation Committee (the "Committee") of the
Board of Directors is comprised of six external directors. The Committee's
principal mandate is to approve the appointment, succession and remuneration of
Manulife Financial's Executive Vice Presidents and Senior Vice Presidents,
including the Named Executive Officers. For the President and Chief Executive
Officer of Manulife Financial, the Committee makes compensation recommendations
that are then approved by the entire Board. The Committee also approves the
compensation programs for all other officers as well as the annual review of the
Annual Incentive Plan awards and Long-Term Incentive Plan grants for all
officers of Manulife Financial and it's subsidiaries.
In addition to the annual reviews, the Committee approves any major changes to
all policies which are designed to attract, retain, develop and motivate
employees and all pension plans of Manulife Financial and it's subsidiaries.
Manulife Financial's executive compensation policies are designed to recognize
and reward individual performance as well as provide a total compensation
package which is competitive with the median of Manulife Financial's comparator
group, which is comprised of Schedule I banks and major life insurance
companies. Further, Manulife ensures that its compensation levels are
competitive within local markets outside of Canada.
Manulife Financial's executive compensation program is comprised of three key
components; base salary, annual incentives and long-term incentives. Officers of
MNY participate in the following Manulife Financial compensation programs.
SALARY
The Committee approves the salary ranges and salary increase levels for all of
Manulife Financial's Executive and Senior Vice Presidents individually, and all
Vice Presidents as a group, based on competitive industry data for all markets
in which Manulife Financial operates. Salary increases for Manulife Financial's
officers have been consistent with the salary increase programs approved for all
employees.
In establishing Manulife Financial's competitive position and developing annual
salary increase programs, Manulife uses several annual surveys as prepared by
independent compensation consulting firms with reference to publicly disclosed
information.
ANNUAL INCENTIVE PLAN
Manulife Financial's Annual Incentive Plan ("AIP") provides executive officers
of Manulife Financial with the opportunity to earn incentive bonuses based on
the achievement of pre-established corporate and divisional earnings objectives
and divisional and individual performance objectives.
The Committee and management periodically review the design of the incentive
plan to ensure that it: (i) is competitive with Manulife Financial's comparator
groups; (ii) supports, and aligns, with Manulife Financial's strategic
objectives; and (iii) recognizes and rewards individual contributions and value
creation.
In conducting these reviews, Manulife Financial obtains advice from independent,
external consultants.
The AIP uses earnings and performance measures to determine awards with
predetermined thresholds for each component as approved by the Committee
annually. Incentive awards are established for each participant based on
organizational level. Incentive award levels range from 12% to 60% of base
salary assuming achievement of targeted performance objectives. When corporate
and divisional performance objectives are significantly exceeded, a participant
can receive incentive awards ranging from 30% to 150% of base salary. If
corporate and divisional performance objectives are below targeted performance,
the incentive awards are adjusted downward according to plan guidelines. The
Named Executive Officers participate in the AIP on the same basis as all other
officers.
LONG-TERM INCENTIVE PLAN
34
<PAGE> 35
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Securities-Price-Based Plans (US $)
Name Securities Performance or Threshold Target ($ or #) Maximum
Units or Other Other Period ($ or #) ($ or #)
Rights (#) Until
Maturation or
Payout
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Scott Logan N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
</TABLE>
Manulife Financial's Board of Directors approved the implementation of a
Long-Term Incentive Plan ("LTIP") effective April 1, 1994. All employees at the
Vice President level and above are eligible to participate in the LTIP.
The purpose of the LTIP is to encourage executive officers to act in the
long-term interests of Manulife Financial and to provide an opportunity to share
in value creation as measured by changes in Manulife Financial's statutory
surplus. The LTIP is an appreciation rights plan which requires that a
substantial portion of any accumulated gain remain invested with Manulife during
the participant's career with Manulife Financial.
The Committee reviews the LTIP on an annual basis having regard to Manulife
Financial's performance, targeted growth and competitive position. The Committee
approves grants on a prospective basis considering management's recommendations
for participation, size and terms of grant.
Grants of appreciation rights are generally made to participants in the LTIP
each year. The number of appreciation rights granted to participants is
determined based on the net present value of the potential payout represented by
the appreciation rights, assuming that Manulife Financial's surplus grows at a
targeted rate. Appreciation rights are granted such that this net present value
represents between 20% and 115% of the participant's salary level on the date of
grant
PERQUISITES
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, dental, basic and dependent life insurance,
long and short-term disability coverage and defined contribution or defined
benefit plan.
US domiciled officers at the Vice President levels and above are provided with
an automobile and parking benefit, cellular telephone and computer. The
automobile benefit covers insurance and maintenance. There are no other benefit
packages which currently enhance overall compensation by more than 10%.
Canadian domiciled officers at the Vice President levels and above are eligible
to receive the Executive Flexible Spending Account. The objective of the program
is to assist and encourage the executive officers to represent the interests and
high standards of Manulife Financial, both from a business and a personal
perspective. The program's flexibility allows use of the allowance for benefit
choices from a comprehensive list of options, including: car, mortgage subsidy
and club memberships.
US RETIREMENT PLANS
With the integration of the Manulife Financial and North American Life
operations, a review of the retirement programs for the employees in the United
States was conducted in 1998. As a result of this review, effective July 1,
1998, (i) the two defined benefit pension plans (The Manulife Financial United
States Salaried Employees Pension Plan and the North American Life Staff Pension
Fund 1948 for United States Members) were merged and converted to a Cash Balance
Plan, entitled "The Manulife Financial U.S. Cash Balance Plan"; (ii) the
Supplemental Pension Plan for United States Salaried Employees of Manufacturers
Life Insurance Company was converted into a Cash Balance Supplemental Plan,
entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan"; and,
(iii) the two 401(k) plans (The Manulife Financial 401(k) Savings Plan and the
North American Security Life 401(k) Savings Plans) were merged and restated into
The Manulife Financial U.S. 401(k) Savings Plan.
The executives of MNY are eligible to participate in the three restated
retirement plans as sponsored by ManUSA.
The Manulife Financial Cash Balance Plan
To implement the conversion to the Cash Balance Plan, participants in the two
former defined benefit plans were provided with opening account balances equal
to the value of their accrued benefit under their respective prior plan
participation as at June 30, 1998, using interest rate assumption equal to the
Pension Benefit Guaranty Corporation (PBGC) rate for 1998.
35
<PAGE> 36
Under this plan, which is a defined benefit plan, a separate account is
established for each participant. The account receives company contribution
credits based on vesting service and earnings as outlined in the table below.
The account earns semi-annual interest credits based on the yield of one-year
Treasury bills plus half a percentage point, subject to a minimum interest
credit of 5.25%. The yearly maximum amount of eligible pay allowed under the
qualified plan is $160,000 for 1998. Employees are vested after 3 years of
vesting service. Normal retirement age is 65. Pension benefits are provided to
those who terminate after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance account at
normal retirement date. Early benefits are actuarially equivalent to the normal
retirement benefits but are subsidized for participants who were age 45 and 5 or
more years of vesting service on July 1, 1998 and who terminate employment after
attaining age 50 and completing 10 years of service. For these grandfathered
participants, the prior early retirement factors under the Manulife Plan apply.
The normal form of payment under the Cash Balance Plan is a life annuity, with
various optional forms available, including a lump sum equal to the cash balance
account.
36
<PAGE> 37
Company Contribution Credits
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE PERCENTAGE OF ELIGIBLE PAY
<S> <C>
Less than 6 4%
6, but less than 11 5%
11, but less than 16 7%
16, but less than 21 9%
21 or more 11%
</TABLE>
Projected Cash Balance Plan pension benefits at age 65 payable as an annual life
annuity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 16,960 30,178 49,664 76,018 111,659
- --------------------------------------------------------------------------------
175,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
200,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
225,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
250,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
300,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
400,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
500,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
</TABLE>
The Manulife Financial U.S. Supplemental Cash Balance Plan
In addition to their pension plan benefits, executives are eligible for benefits
under The Manulife Financial U.S. Supplemental Cash Balance Plan. This is a
non-contributory, non-qualified plan, the purpose of which is to provide the
executives with the same level of retirement benefits they would have been
entitled to but for the limitations prescribed for qualified plans under the
Internal Revenue Code. Opening account balances were established using the same
method as The Manulife Financial U.S. Cash Balance Plan. During the period of an
executive's active participation in the plan, annual company contributions are
made with respect to the portion of the executives earnings which is in excess
of $160,000 for 1998 as outlined below with interest credited under this plan at
the same rate as provided under the Cash Balance Plan. In addition, a one time
contribution may be made for a participant if it is determined at the time of
their termination of employment, that the participant's pension benefit under
the Cash Balance Plan is limited by Internal Revenue Code Section 415. Together,
these contributions serve to restore to the participant the benefit that they
would have been entitled to under the Cash Balance Plan's benefit formula but
for the limitations, in Internal Revenue Code Sections 401(a) (17) and 415.
Benefits are provided to those who terminate after three years. The default form
of payment under the plan is a lump sum, although participants may elect to
receive payment in the form of an annuity provided that such election is made
within the time period prescribed in the plan.
<TABLE>
<CAPTION>
Complete Years of Cash
Balance Service Credits as of Percentage of Eligible Pay Percentage of Eligible Pay
December 31st up to $200,000 over $200,000
<S> <C> <C>
Less than 6 4% 4%
6, but less than 11 5% 5%
11, but less than 16 7% 5%
16, but less than 21 9% 5%
21 or more 11% 5%
</TABLE>
Projected Supplemental pension benefits at age 65 payable as an annual life
annuity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 0 0 0 0 0
- --------------------------------------------------------------------------------
175,000 1,696 3,018 4,966 7,602 11,166
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
200,000 4,523 8,048 13,244 20,271 29,776
- --------------------------------------------------------------------------------
225,000 7,081 12,178 19,501 29,404 42,797
- --------------------------------------------------------------------------------
250,000 9,639 16,309 25,757 38,536 55,818
- --------------------------------------------------------------------------------
300,000 14,756 24,570 38,271 56,801 81,861
- --------------------------------------------------------------------------------
400,000 24,990 41,092 63,298 93,330 133,946
- --------------------------------------------------------------------------------
500,000 35,224 57,615 88,325 129,859 186,031
- --------------------------------------------------------------------------------
</TABLE>
Projected Cash Balance and Supplemental pension benefits at age 65 payable as an
annual annuity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 16,960 30,178 49,664 76,018 111,659
- --------------------------------------------------------------------------------
175,000 19,786 35,208 57,941 88,688 130,269
- --------------------------------------------------------------------------------
200,000 22,613 40,238 66,219 101,357 148,879
- --------------------------------------------------------------------------------
225,000 25,171 44,368 72,476 110,490 161,900
- --------------------------------------------------------------------------------
250,000 27,729 48,499 78,732 119,622 174,921
- --------------------------------------------------------------------------------
300,000 32,846 56,760 91,246 137,887 200,964
- --------------------------------------------------------------------------------
400,000 43,080 73,282 116,273 174,416 253,049
- --------------------------------------------------------------------------------
500,000 53,314 89,805 141,300 210,945 305,134
- --------------------------------------------------------------------------------
</TABLE>
The Manulife Financial U.S. 401(k) Savings Plan
In addition to the above, plans a 401(k) Savings Plan is also offered. The plan
allows employees of MNY to contribute on a pre-tax basis 1% to 15% of their
earnings up to the yearly limit of $160,000 for 1998. The yearly maximum an
employee can contribute is $10,000 for 1998. The company matches 50% of the
first 6% of contributions. Employees become 100% vested in the employer matching
contributions as outlined in the vesting schedule below. Additionally they
become 100% vested if they retire on or after age 65, become disabled or die.
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
<S> <C> <C>
Less than 2 years 0%
2 years but less than 3 50%
3 years and thereafter 100%
</TABLE>
CANADIAN RETIREMENT PLAN
Executive officers domiciled in Canada, and certain executive officers formerly
domiciled in Canada, are eligible to participate in Manulife Financial's
Canadian Staff Pension Plan and to receive supplemental pension benefits under
Manulife Financial's supplemental retirement income program. Under these plans,
income is payable for the life of the executive officer, with a guarantee of a
minimum of 120 monthly payments. If the executive officer is married, the income
is actuarially adjusted to a joint and survivor pension which pays a set amount
during the life of the executive officer. Upon the death of the executive
officer, this amount is reduced by one-third and is payable for the life of the
spouse (provided that in no event is this amount reduced prior to 60 months from
the date of retirement).
Pensionable earnings for this purpose are calculated as the highest average of
the base earnings and bonuses earned over any 36 consecutive months. The pension
benefit is determined by years of service multiplied by the sum of 1.3% of
pensionable earnings up to the average of the last three years maximum
pensionable earnings ("YMPE") plus 2.0% of the excess of pensionable earnings
over the average YMPE, without regard to the maximum pension limit for
registered pension plans imposed by Revenue Canada.
Employees hired after the age of 40 who become executive officers at the vice
president level and above within one year of hire may also receive additional
service credits equal to their actual period of service, to a maximum of 10
years.
The following table sets forth the aggregate standard annual benefits payable to
executive officers under Manulife Financial's Canadian Staff Pension Plan and
supplemental retirement income program.
38
<PAGE> 38
<TABLE>
<CAPTION>
- ------------------------------------------ ===================================================================================
Years of Service
===================================================================================
Remuneration 15 20 25 30 35
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
$ $ $ $ $ $
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
<S> <C> <C> <C> <C> <C> <C>
125,000 34,978 46,637 58,296 69,955 81,615
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
150,000 42,478 56,637 70,796 84,955 99,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
175,000 49,978 66,637 83,296 99,955 116,615
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
200,000 57,478 76,637 95,796 114,955 134,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
225,000 64,978 86,637 108,296 129,955 151,615
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
250,000 72,478 96,637 120,796 144,955 169,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
300,000 87,478 116,637 145,796 174,955 204,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
400,000 117,478 156,637 195,796 234,955 274,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
450,000 132,478 176,637 220,796 264,955 309,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
500,000 147,478 196,637 245,796 294,955 344,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
600,000 177,478 236,637 295,796 354,955 414,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
700,000 207,478 276,637 345,796 414,955 484,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
800,000 237,478 316,637 395,796 474,955 554,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
900,000 267,478 356,637 445,796 534,955 624,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
1,000,000 297,478 396,637 495,796 594,955 694,115
- ------------------------------------------ ------------------ --------------- ---------------- --------------- ===============
</TABLE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
(a)
<TABLE>
<CAPTION>
- --------------------- ---------------------- ----------------------- ---------------
Name & Address of Amount & Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
- --------------------- ---------------------- ----------------------- ---------------
<S> <C> <C> <C>
Common Stock MNA 2,000,000 shares 100%
(b) Nothing to report
(c) Nothing to report
</TABLE>
39
<PAGE> 39
Item 13 - Certain Relationships and Related Transactions
Refer to Item 7 - Liquidity and Capital Resources
40
<PAGE> 40
PART IV
Item 14 - Exhibits, Financial Statements, 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. Report of Independent Auditors of Ernst & Young LLP dated February 22, 1999.
b. Balance Sheets at December 31, 1998 and 1997.
c. Statements of Income for the years ended December 31, 1998, 1997 and 1996.
d. Statements of Changes in Shareholder's Equity for the years ended December
1998, 1997 and 1996.
e. Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996.
f. Notes to Financial Statements - December 31, 1998
(2) Financial Statement Schedules:
a. Schedule I - Summary of Investments - Other than Investments in Related
Parties.
b. Schedule III - Supplemental Insurance Information
c. Schedule IV - Reinsurance
(3) Exhibits (the Registrant is also referred to as the "Company")
<TABLE>
<CAPTION>
- ----------------------------- -------------------------------------------------------------------------------
Exhibit No. Description
- ----------------------------- -------------------------------------------------------------------------------
<S> <C>
1 Not Applicable.
2 Not Applicable.
3(i)(a) Declaration of Intention and Charter of the
Company -- Incorporated by reference to Exhibit
(b)(6)(a)(i) to post effective amendment no. 7 on
Form N-4, file number 33-46217, filed February 25,
1998.
3(i)(b) Certificate of amendment of the Declaration of
Intention and Charter of the Company Incorporated
by reference to Exhibit (b)(6)(a)(ii) to post
effective amendment no. 7 on Form N-4, file number
33-46217, filed February 25, 1998.
3(i)(c) Certificate of amendment of the Declaration of
Intention and Charter of the Company Incorporated
by reference to Exhibit (b)(6)(a)(iii) to post
effective amendment no. 7 on Form N-4, file number
33-46217, filed February 25, 1998.
3(ii) By-laws of the Company Incorporated by reference
to Exhibit (b)(6)(b) to post effective amendment
no. 7 on Form N-4, file number 33-46217, filed
February 25, 1998
</TABLE>
41
<PAGE> 41
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------
Exhibit No. Description
- ----------------------------- --------------------------------------------------
<S> <C>
4(i) Form of Individual Single Payment Deferred Fixed
Annuity Non-Participating Contract -- Previously
filed as Exhibit 4(i) to the initial registration
statement on Form S-1 filed July 17, 1997.
4(ii) Individual Retirement Annuity Endorsement --
Previously filed as Exhibit 4(ii) to the initial
registration statement on Form S-1 filed July 17,
1997.
4(iii) ERISA Tax-Sheltered Annuity Endorsement --
Previously filed as Exhibit 4(iii) to the initial
registration statement on Form S-1 filed July 17,
1997.
4(iv) Tax-Sheltered Annuity Endorsement -- Previously
filed as Exhibit 4(iv) to the initial registration
statement on Form S-1 filed July 17, 1997.
4(v) Section 401 Plans Endorsement - Previously filed
as Exhibit 4(vi) to the initial registration
statement on Form S-1 filed July 17, 1997.
5 Not Applicable
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10(i) Administrative Agreement between The Manufacturers
Life Insurance Company of New York and The
Manufacturers Life Insurance Company --
Incorporated by reference to Exhibit (b)(8)(a) to
post-effective amendment no. 7 to Form N-4, File
No.33-46217, filed February 25, 1998.
10(ii) Investment Services Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of New
York -- Incorporated by reference to Exhibit
1(A)(8)(c) to pre-effective amendment no. 1 to
The Manufacturers Life Insurance Company of
New York Separate Account B Registration
Statement on Form S-6, filed March 16, 1998.
11 Not Applicable
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Not Applicable
</TABLE>
42
<PAGE> 42
<TABLE>
<CAPTION>
- ----------------------------- -------------------------------------------------------------------------------
Exhibit No. Description
- ----------------------------- -------------------------------------------------------------------------------
<S> <C>
17 Not Applicable
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
23 Opinion and Consent of Tracy A. Kane, Esq. --
Previously filed as Exhibit 5 to pre-effective
amendment no. 1 to Form S-1 filed July 27, 1998.
24(i) Power of Attorney -- The Manufacturers Life
Insurance Company of New York Directors --
Incorporated by reference to Exhibit 7 to
pre-effective amendment no. 1 on Form S-6, file
number 333-33351, filed March 16, 1998..
24(ii) Power of Attorney, James O'Malley and Thomas
Borshoff - Incorporated by reference to Exhibit
14 to post-effective amendment no. 6 on Form
N-4, file number 33-79112, filed March 2, 1999
25 Not Applicable
26 Not Applicable
27 Financial Data Schedule - Filed herewith
28 Not Applicable
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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 holders.
43
<PAGE> 43
FINANCIAL STATEMENT SCHEDULES
44
<PAGE> 44
The Manufacturers Life Insurance Company of New York
Schedule I - Summary of Investments
December 31, 1998
($ Thousands)
<TABLE>
<CAPTION>
Amounts At Which
Fair Shown In The Balance
Type of Investment Cost Value Sheet
- ------------------------------------------- ---------------------- ------------------------ ---------------------
<S> <C> <C> <C>
Fixed maturity securities:
United States Government $ 11,018 $ 11,594 $ 11,594
Corporate debt securities 99,696 102,982 102,982
Mortgage-backed securities 6,680 6,784 6,784
Foreign Governments 2,449 2,560 2,560
States / Political subdivisions 1,059 1,168 1,168
====================== ====================== =====================
Total fixed maturity securities $ 120,902 $ 125,088 $ 125,088
====================== ====================== =====================
Investment in unconsolidated affiliate 175 175
Policy loans 552 552
Short-term investments 10,032 10,032
====================== =====================
Total investments $131,661 $135,847
====================== =====================
</TABLE>
45
<PAGE> 45
The Manufacturers Life Insurance Company Of New York
Schedule III - Supplementary Insurance Information
($ Thousands)
<TABLE>
<CAPTION>
Future Policy Benefits, Amortization
Deferred Benefits Other Claims of Deferred
Policy Losses, Claims Policy Net Losses and Policy
Segment Acquisition and Loss Unearned Claims and Premium Investment Settlement Acquisition
Costs Expenses Premiums Benefits Revenue Income Expenses Costs Expenses
Payable
1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 36,780 $ 93,960 - - - $ 9,756 $ 4,595 $ 4,843 $7,426
Savings and
Retirement
Services - 525 - - - 28 8 - 534
Life Insurance 51 7 - - - 2 - 6 2,399
===================================================================================================================
Total $ 36,831 $ 94,492 - - - $ 9,786 $ 4,603 $ 4,849 $ 10,359
===================================================================================================================
1997
Annuities $28,364 $ 86,611 - - - $ 6,717 $ 4,747 $ 3,393 $ 5,845
===================================================================================================================
Total $28,364 $ 86,611 - - - $ 6,717 $ 4,747 $ 3,393 $ 5,845
===================================================================================================================
1996
Annuities $20,208 $ 80,033 - - - $ 5,224 $ 4,189 $ 2,319 $ 1,192
===================================================================================================================
Total $20,208 $ 80,033 - - - $ 5,224 $ 4,189 $ 2,319 $ 1,192
===================================================================================================================
</TABLE>
46
<PAGE> 46
The Manufacturers Life Insurance Company Of New York
Schedule IV -- Reinsurance
($ Thousands)
<TABLE>
<CAPTION>
Assumed Percentage of
Ceded to From Amount
Gross Other Other Net Assumed
Segment Amount Companies Companies Amount to Net
Year ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Life insurance inforce $ 67,955 $ 60,155 - $ 7,800 0%
Premiums-Life Insurance 108 93 - 15 0%
===========================================================================
Total $ 108 $ 93 - $ 15 0%
===========================================================================
Year ended December 31, 1997
Life insurance inforce $ 3,000 $ 2,800 - $ 200 0%
Premiums-Life Insurance - - - - 0%
===========================================================================
Total - - - - 0%
===========================================================================
Year ended December 31, 1996
Life insurance inforce - - - - 0%
Premiums-Life Insurance - - - - 0%
===========================================================================
Total
- - - - 0%
===========================================================================
</TABLE>
47
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report on Form 10-K to be
signed on its behalf by the undersigned thereunto duly authorized.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
(Registrant)
By: /s/ A. SCOTT LOGAN
A. Scott Logan, Principal Executive Officer
By:/s/ DAVID W. LIBBEY
David W. Libbey, Treasurer
Date: March 29, 1999
48
<PAGE> 48
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed by the following persons in the capacities with the
Registrant as indicated on the 29th day of March, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ A. SCOTT LOGAN Director, and President
A. Scott Logan (Principal Executive Officer)
* Chairman of the Board
John D. Richardson of Directors
* Director
Bruce Avedon
* Director
John D. DesPrez, III
* Director
Ruth Ann Flemming
* Director
Theodore Kilkuskie
* Director
Neil M. Merkl
* Director
James K. Robinson
* Director
James O'Malley
* Director
Thomas Borshoff
/s/ DAVID W. LIBBEY Treasurer (Principal
David W. Libbey Financial and Accounting
Officer)
</TABLE>
*By: /s/ TRACY A. KANE
Tracy A. Kane
Attorney-in-Fact Pursuant
to Powers of Attorney
49
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
50
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 125,088
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 135,847
<CASH> 5,946
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 36,831
<TOTAL-ASSETS> 1,017,224
<POLICY-LOSSES> 94,492
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 833,693
<NOTES-PAYABLE> 0
<COMMON> 2,000
0
0
<OTHER-SE> 77,367
<TOTAL-LIABILITY-AND-EQUITY> 1,017,224
0
<INVESTMENT-INCOME> 9,786
<INVESTMENT-GAINS> 713
<OTHER-INCOME> 10,961
<BENEFITS> 4,603
<UNDERWRITING-AMORTIZATION> 4,849
<UNDERWRITING-OTHER> 10,359
<INCOME-PRETAX> 1,649
<INCOME-TAX> 576
<INCOME-CONTINUING> 1,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,073
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
