<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number: 33-57020
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other jurisdiction of incorporation or organization)
23-2030787
(I.R.S. Employer Identification No.)
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of principal executive offices)
(416) 926-6700
(Registrant's telephone number, including area code)
Indicate 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's sole class of common
stock, as of November 1, 1997 is 4,501,860.
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Quarterly Report on Form 10-Q
For the period ended September 30, 1997
Table of Contents
<TABLE>
Page
Part I Financial Information ----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 and December 31, 1996 3
Statements of Income for the three and nine month period ended September 30, 1997 and 1996 4
Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management Discussion and Analysis of Results of Operations and Financial Condition 7
Part II Other Information
Item 1 Legal Proceedings 8
Item 2 Change in Securities 8
Item 3 Default upon Senior Securities 8
Item 4 Submission of Matters to a vote of Security Holders 8
Item 5 Other Information 8
Item 6A Exhibits 9
Item 6B Reports on Form 8-K 12
</TABLE>
2
<PAGE> 3
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at As at
September 30 December 31
ASSETS ($ thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments: (Unaudited)
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1997 $32,191; 1996 $50,456) $ 33,481 $ 51,708
Equity (cost: 1997 $18,430; 1996 $19,450) 20,851 21,572
Mortgage loans 132 645
Policy loans 13,518 9,822
Cash and short-term investments 35,762 17,493
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $103,744 $101,240
- -------------------------------------------------------------------------------------------------------------------
Guaranteed annuity contracts - 171,691
Deferred acquisition costs 113,271 102,610
Income taxes recoverable - 10,549
Deferred income taxes 3,258 1,041
Other assets 9,181 7,378
Separate account assets 861,627 668,094
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,091,081 $1,062,603
===================================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Liabilities:
Policyholder liabilities and accruals $ 90,979 $ 91,915
Bonds payable - 158,760
Surplus note 8,500 8,500
Due to affiliates 4,751 11,122
Other liabilities 11,188 7,582
Separate account liabilities 861,627 668,094
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $977,045 $945,973
===================================================================================================================
Capital and Surplus:
Common shares 4,502 4,502
Preferred shares 10,500 10,500
Contributed surplus 98,569 98,569
Retained earnings (deficit) (1,540) 1,726
Net unrealized gain on securities
available-for-sale 2,005 1,333
- -------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 114,036 116,630
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,091,081 $1,062,603
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
($ thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 998 $ 1,964 $ 3,645 $ 10,707
Fee income 11,168 8,531 34,045 23,854
Net investment income (387) 4,287 6,301 13,408
Realized investment gains (losses) 117 (30) (88) (514)
Other 367 1,041 1,033 3,163
- -----------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 12,263 $ 15,793 $ 44,936 $ 50,618
- -----------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 5,357 $ (1,812) $ 7,050 $ 7,922
Operating costs and expenses 9,457 8,065 25,521 24,288
Commissions 609 1,626 2,955 5,083
Amortization of deferred acquisition costs 2,890 2,353 10,214 7,408
Interest expense - 3,248 2,156 9,625
Policyholder dividends 49 56 1,282 763
- -----------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 18,362 $ 13,536 $ 49,178 $ 55,089
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (6,099) 2,257 (4,242) (4,471)
- -----------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (EXPENSE) 2,036 (751) 976 1,895
- -----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (4,063) $ 1,506 $ (3,266) $ (2,576)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
($ thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss $ (3,266) $ (2,576)
Adjustments to reconcile net income to net cash used in operating activities:
Additions (decreases) to policy liabilities (2,213) 4,013
Deferred acquisition costs (20,267) (27,425)
Amortization of deferred acquisition costs 10,214 7,408
Realized losses on investments 88 514
Decreases (additions) to deferred income taxes (2,577) 3,835
Other 3,020 940
- -------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (15,001) (13,291)
- -------------------------------------------------------------------------------------------------------------
Investing Activities:
Fixed maturity securities sold 67,003 80,267
Fixed maturity securities purchased (46,244) (73,726)
Equities sold 6,671 6,472
Equities purchased (6,752) (2,443)
Mortgage loans repaid 513 5,733
Policy loans advanced, net (3,696) (1,679)
Guaranteed annuity contracts 171,691 (9,375)
- -------------------------------------------------------------------------------------------------------------
Cash provided by investing activities 189,186 5,249
- -------------------------------------------------------------------------------------------------------------
Financing Activities:
Receipts from variable life and annuity policies
credited to policyholder account balances 5,735 3,547
Withdrawals of policyholder account balances on
variable life and annuity policies (2,891) (1,745)
Issuance of shares - 15,000
Repayment of bonds payable (158,760) (10,336)
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (155,916) 6,466
- -------------------------------------------------------------------------------------------------------------
Cash and Short-Term Investments:
Increase (decrease) during the period 18,269 (1,576)
Balance, beginning of year 17,493 17,881
- -------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 35,762 $ 16,305
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America ("ManAmerica" or
the "Company") is a wholly-owned subsidiary of The Manufacturers Life
Insurance Company (U.S.A.) ("ManUSA" or the "Parent"), which is in turn
an indirect wholly-owned subsidiary of The Manufacturers Life Insurance
Company ("Manulife Financial"), a Canadian-based mutual life insurance
company. The Company markets variable annuity and variable life
products in the United States and traditional insurance products in
Taiwan.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Manufacturers Life Insurance Company of America and its wholly-owned
subsidiaries have been prepared in accordance with generally accepted
accounting principles ("GAAP"), except that they do not contain
complete notes. However, in the opinion of management, these statements
include all normal recurring adjustments necessary for a fair
presentation of the results. These financial statements should be read
in conjunction with the financial statements and the related notes
included in ManAmerica's annual report on Form 10-K for the year ended
December 31, 1996. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 1997.
3. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage
Securities Corporation, has historically invested amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities were collateral for the 8 1/4 % mortgage-backed bonds
payable. On March 1, 1997 the annuities matured and the proceeds were
used to repay the bonds payable.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following analysis of the consolidated results of operations and financial
condition of the Manufacturers Life Insurance Company of America, (hereafter
referred to as the Company) should be read in conjunction with the accompanying
September 30, 1997 Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements.
CORPORATE STRUCTURE
The Company is a direct wholly-owned U.S. subsidiary of The Manufacturers Life
Insurance Company (U.S.A.), which in turn is a direct wholly-owned subsidiary of
the Manulife Reinsurance Corporation (U.S.A.) ("MRC"). MRC is an indirectly
wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian mutual insurance company. Manulife Financial, with
consolidated assets under management at December 31, 1996 of $68.6 billion
($Can), actively operates in thirteen countries worldwide. Manulife Financial
has been doing business in the United States since 1903.
REVIEW OF CONSOLIDATED OPERATING RESULTS AND CONSOLIDATED FINANCIAL CONDITION
The discussion that follows focuses on the results for the nine months ended
September 30, 1997 compared to the results for the nine months ended September
30, 1996.
PREMIUMS
Premiums decreased to $3.6 million in the first nine months of 1997, compared to
$10.7 million in the previous year. This is due to slower sales and higher
lapses of individual insurance in the Taiwan branch operations. Also, sales of
variable annuity products have been shifted to a sister company.
FEE INCOME
Fee income increased to $34.0 million in the first nine months of 1997, compared
to $23.9 million in the previous year. This reflects higher fees on the growing
block of variable universal life business.
NET INVESTMENT INCOME
Net investment income was $6.3 million in the first nine months of 1997,
compared to $13.4 million in the same period of 1996. This is a result of the
repayment of the Manufacturers Life Mortgage Securities Corporation ("MLMSC")
bonds on March 1, 1997, which resulted in lower assets and therefore lower
investment income.
REALIZED CAPITAL GAINS
Realized losses in the first nine months of 1997 were $0.09 million compared to
losses of $0.5 million in the same period of 1996. The Company does not actively
trade assets for capital gains.
POLICYHOLDER BENEFITS
Policyholder benefits were $7.1 million in the first nine months of 1997,
compared to $7.9 million in the first nine months of 1996. The decrease is
primarily due to better death and lapse experience in the U.S. block of
business.
7
<PAGE> 8
NET INCOME
Net loss in the first nine months of 1997 was $3.3 million, compared to a net
loss of $2.6 million in the same period of 1996. This decrease is primarily due
to increased expenses, including amortization of deferred acquisition expenses.
ASSETS
Separate account assets were $862 million at the end of the first nine months of
1997, compared to $668 million at the end of 1996. This growth reflects positive
investment performance of the underlying investment funds and a continuing
policyholder preference for separate account products which permit access to a
broad mix of investment funds and choices consistent with their risk tolerance
levels. General account assets were $229 million at the end of the first nine
months of 1997, compared to $395 million at the end of 1996. This decrease was
primarily due to the repayment on March 1, 1997 of the mortgage backed bonds in
MLMSC in the amount of $159 million.
LIABILITIES
The Company's separate account liabilities increased $193.5 million. Separate
Account liabilities move in tandem with changes in Separate Account assets.
The repayment of the mortgage backed bonds in MLMSC on March 1, 1997 also
decreased general fund liabilities by $159 million.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company maintains a prudent amount invested in cash, bonds and short-term
investments to meet ongoing liquidity requirements. The Company experiences cash
flow strain, because the costs of generating new sales, and resulting new policy
issues, exceeds income. As a result, the Company looks to its parent, ManUSA,
for the necessary capital to support its operations. ManUSA intends to continue
this support to provide further liquidity.
Manulife Financial has entered into a claims paying guarantee with the Company.
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings
Nothing to report.
Item 2 - Changes in Securities
Nothing to report.
Item 3 - Defaults upon Senior Securities
Nothing to report.
Item 4 - Submission of Matters to a Vote
of Security Holders
Nothing to report.
Item 5 - Other Information
Nothing to report.
8
<PAGE> 9
Item 6A - Exhibits
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------------------- ----------------------------- ---------------------------
<S> <C> <C>
(1) Not Applicable
(2) None
(3) (a) (i) Restated Articles of Filed as Exhibit 3
Redomestication of The (A) (i) to Post-
Manufacturers Life Effective Amendment
Insurance Company of No. 6 on Form S-1
America** filed by The
Manufacturers Life
Insurance Company of
America on December
9, 1996 (File No.
33-57020)
(3) (b) (i) By-Laws of The Filed as Exhibit 3
Manufacturers Life (b) (i) to Post-
Insurance Company of Effective Amendment
America** No. 6 on Form S-1
filed by The
Manufacturers Life
Insurance Company of
America on December
9, 1996 (File No.
33-57020)
(4) (a) Form of Multi-Account Incorporated
Flexible Variable reference to Exhibit
(4) (a) to Pre-
Effective Amendment
No. 1 on Form S-1
filed by The
Manufacturers Life
Insurance Company of
America on February
10, 1994 (File No.
33-57020)
(4) (b) (i) Individual Retirement Incorporated by
Annuity Rider reference to Exhibit
(4) (b) (i) to Pre-
Effective Amendment
No. 1 on Form S-1
filed by The
Manufacturers Life
Insurance Company
of America on February
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C>
10, 1994 (File No.
33-57020)
(4) (b) (i) (a) Trustee-Owned Policies Incorporated by
Annuity Rider reference to Exhibit
(4) (b) (i) (a) to Pre-
Effective Amendment
No. 1 on Form S-1
filed by The
Manufacturers Life
Insurance Company of
America on February
10, 1994 (File No.
33-57020)
(4) (b) (ii) Unisex Endorsement Incorporated by
reference to Exhibit
(4) (b) (ii) to the
registration state-
ment on Form N-4
filed by The
Manufacturers Life
Insurance Company of
America on January
13, 1993 (File No.
33-57018)
(4) (b) (iii) Endorsement 0646-END.001 Filed as Exhibit (4) (b) (iii) to Form
10Q by The Manufacturers Life Insurance
Company of America on August 14, 1997
(File No. 33-57020)
(5) Not Applicable
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) (a) Reinsurance Agreement Incorporated by
reference
to Exhibit (10) (a)
to Pre-Effective
Amendment No. 1 on
Form S-1 filed by
The Manufacturers
Life Insurance Company
of America on February 10,
1994 (File No. 33-57018)
(10) (b) (i) Service Agreement Incorporated by
between The Manufacturers reference to Exhibit
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
Life of America and 8 (a) to the registration
The Manufacturers statement on Form N-4
Life Insurance filed by The Manufacturers
Company Life Insurance Company of
America on January 13, 1993
(File No. 33-57018)
(10) (b) (ii) Amendment to Service Incorporated by
Agreement reference to Exhibit (8) (b)
to the registration state-
ment on Form N-4 filed by The
Manufacturers Life Insurance
Company of America on
January 13, 1993
(File No. 33-57018)
(10) (b) (iii) Second Amendment to Incorporated by
Service Agreement reference to Exhibit
(10) (b) (iii) to the
registration state-
ment on Form N-4
filed by The
Manufacturers Life
Insurance Company of
America on April 29,
1994 (File No. 33-
57018)
(10) (b) (iv) Service Agreement between Incorporated by
The Manufacturers Life reference to Exhibit
Insurance Company and (8) (d) to Post-
ManEquity, Inc. dated Effective Amendment
January 2, 1991 as amended No. 1 statement on
March 1, 1994 Form N-4 filed by
The Manufacturers
Life Insurance
Company of America
on May 2, 1994 (File No. 33-57018)
(10) (c) Specimen Agreement between Incorporated by
ManEquity, Inc. and reference to Exhibit
registered representatives (3) (b) (i) to the
registration state-
ment on Form N-4
filed by The
Manufacturers Life
Insurance Company of
America on January
13, 1993 (File No. 33-57018)
(10) (d) Specimen Agreement between Incorporated by
Incorporated by ManEquity, reference to
and Dealers Exhibit (3) (B) (ii) TO
the registration state-
ment on Form N-4
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
filed by The
Manufacturers Life
Insurance Company of
America on January
13, 1993 (File No. 33-57018)
(11) None
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) None
(16) Not Applicable
(17) Not Applicable
(18) None
(19) None
(20) Not Applicable
(21) Not Applicable
(22) None
(23) None
(24) Power of Attorney** Filed as Exhibit
(12) to Post-
Effective Amendment
No. 10 on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on February
28, 1997 (File No.33-52310)
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule Filed Herewith
(28) Not Applicable
</TABLE>
** Filed Electronically
<TABLE>
<S> <C>
Item 6B - Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
(Registrant)
November 11, 1997 By: /s/ Douglas H. Myers
- --------------------------- ------------------------------------------
Date DOUGLAS H. MYERS
Vice-President, Finance
(Principal Financial Officer)
November 11, 1997 By: /s/ Donald A. Guloien
- --------------------------- ------------------------------------------
Date DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial data schedule for quarter ended September 30, 1997
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 33,481
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 20,851
<MORTGAGE> 132
<REAL-ESTATE> 0
<TOTAL-INVEST> 103,744
<CASH> 35,762
<RECOVER-REINSURE> 3,178
<DEFERRED-ACQUISITION> 113,271
<TOTAL-ASSETS> 1,091,081
<POLICY-LOSSES> 80,979
<UNEARNED-PREMIUMS> 2,449
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 861,627
<NOTES-PAYABLE> 0
0
10,500
<COMMON> 4,502
<OTHER-SE> 99,034
<TOTAL-LIABILITY-AND-EQUITY> 1,091,081
3,645
<INVESTMENT-INCOME> 6,301
<INVESTMENT-GAINS> (88)
<OTHER-INCOME> 1,033
<BENEFITS> 7,050
<UNDERWRITING-AMORTIZATION> 10,214
<UNDERWRITING-OTHER> 28,476
<INCOME-PRETAX> (4,242)
<INCOME-TAX> (976)
<INCOME-CONTINUING> (3,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,266)
<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>
