<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF l934
for the fiscal year ended December 31, 1996
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)
Securities registered pursuant to Section 12(b) or 12(g) of the Act: None.
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
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:
<PAGE> 2
The number of shares outstanding of the issuer's sole class of common
stock, as of December 31, 1996 is 4,501,860
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part K, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
<PAGE> 3
PART I
Item 1. - BUSINESS
The Registrant is an indirect wholly-owned subsidiary of The Manufacturers
Life Insurance Company, a mutual insurance company organized under laws of
Canada. The Registrant's primary purpose is to issue and sell variable
universal life and variable annuity products in the United States. However,
the Registrant also commenced establishment of branch operations in Taiwan to
develop and market traditional insurance for the Taiwanese market. The
Registrant began capitalizing these operations in 1993 and commenced full
operations in 1995.
Item 2. - PROPERTIES
The Registrant owns no property.
Item 3. - LEGAL PROCEEDINGS
Nothing to report.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing to report.
PART II
Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Registrant is a wholly-owned subsidiary of The Manufacturers Life
Insurance Company (U.S.A.), which is the sole record holder of Registrant's
shares. Therefore, there is no public trading market for Registrant's common
stock. The Registrant has declared no cash dividends on its common stock at
any time during the two most recent fiscal years.
<PAGE> 4
<TABLE>
<CAPTION>
ITEM 6 SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994 1993* 1992*
--------- -------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Total Revenues $73,532 $62,174 $60,322
Net loss (8,407) (6,846) (6,726)
Total Assets 1,062,603 854,814 654,968
Long Term Obligations 8,500 167,390 159,019
Capital and Surplus 116,630 110,520 101,839
</TABLE>
* selected financial data under generally accepted accounting principles is not
available for the 1993 and 1992 fiscal years. See Management's Discussion and
Analysis and Notes to the Consolidated Financial Statements for additional
information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
ON STATUTORY BASIS**:
Total Revenues $202,666 $165,756 $197,426 $129,272 $41,316
Net loss (15,961) (13,705) (19,661) (13,277) (5,307)
Total Assets 795,083 588,742 403,086 253,392 136,065
Long Term Obligations 8,500 8,500 - - -
Capital and Surplus 76,202 56,298 49,396 50,656 55,544
</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.
All information presented elsewhere in this document is
presented under generally accepted accounting principles.
<PAGE> 5
Item 7. 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
Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements.
CORPORATE STRUCTURE
The Company is a U.S. direct wholly-owned 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
("Manufacturers Life"), a Canadian mutual insurance company. Manufacturers
Life, with consolidated assets of $68.6 billion ($Can), actively operates in
fourteen countries worldwide. Manufacturers Life has been doing business in the
United States since 1903.
Manufacturers Life and its subsidiaries have consistently received
excellent ratings from Standard & Poor's Insurance Rating Service, A. M. Best
Company, Moody's Investors Service Inc. and Duff & Phelps Credit Rating Co.
RECENT DEVELOPMENTS
REORGANIZATION
In 1996, the ownership of the Company was transferred from MRC, to The
Manufacturers Life Insurance Company (U.S.A.) ("ManUSA").
This was part of a more general corporate reorganization of Manufacturers
Life's U.S. operations. This transfer of ownership had no material effect
on the operations or consolidated financial statements of the Company.
Also in 1996, the ownership of Manulife Holding Corporation was transferred
from MRC to the Company. Manulife Holding Corporation is a holding company for
a number of U.S. non-insurance subsidiaries primarily supporting variable
products, as well as for Manufacturers Life Mortgage Securities Corporation
(hereafter referred to as MLMSC), which is an issuer of $159 million of mortgage
backed U.S. dollar bonds. See note 2 to the consolidated financial statements
for additional information.
1
<PAGE> 6
ADOPTION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
During 1996, the Company adopted generally accepted accounting principles
("GAAP") in conformity with the requirements of the Financial Accounting
Standards Board. Prior to 1996, the Company prepared its financial statements in
conformity with statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Michigan which were considered GAAP for
mutual life insurance companies and their wholly-owned direct and indirect
subsidiaries. As discussed in note 2 to the consolidated financial statements,
the effect of the adoption of GAAP has been reflected retroactively and the
previously issued 1995 and 1994 financial statements have been restated for the
change. A description of the accounting policies can be found in note 3 to the
consolidated financial statements. Selected financial data presented in this
annual report has been presented on a GAAP basis and also on a statutory basis
for the most recent five years. GAAP information was not available prior to
1994, and is not comparable to statutory basis information presented for 1993
and 1992.
MARKETING AND PRODUCT DISTRIBUTION
The Company focuses on two major businesses:
VARIABLE PRODUCTS IN THE U.S.: Products sold include both Variable
Universal Life and Variable Annuities. In recent years the Company has
experienced significant growth in the sale of its variable products due to
increasing estate planning needs from aging baby-boomers as estates are
passed from generation to generation.
TAIWAN: In 1993 the Company entered the Taiwan market as a startup venture
to sell traditional insurance products. The Company anticipates a large
potential for this market. The Company operates in Taiwan using a branch of
the Company. During 1995 the Company commenced full operations which have
resulted in significant recruitment and training expenditures. These
expenditures are expected to positively impact future operations as market
share increases. The business written in Taiwan consists of traditional
individual life insurance, such as whole life and endowment contracts, and
is marketed by the Company's own agency force.
In addition, the Company has assumed reinsurance from its parent company,
ManUSA. The Company reinsures an in force individual participating life
insurance block of business which does not include any new business.
2
<PAGE> 7
REVIEW OF CONSOLIDATED OPERATING RESULTS
<TABLE>
<CAPTION>
FINANCIAL SUMMARY (In '000's) 1996 1995 1994
- ------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Premiums $ 12,898 $ 15,293 $ 27,578
Fee Income 40,434 24,986 18,259
Net Investment Income 19,651 18,729 17,691
Other Revenues 668 82 361
Realized Capital Gains (Losses) (119) 3,084 (3,567)
- ------------------------------- ---------- --------- ---------
Total Revenues 73,532 62,174 60,322
Policyholder Benefits 14,473 16,905 28,768
Policyholder Dividends 872 1,886 965
- ------------------------------- ---------- --------- ---------
Loss Before Taxes (12,316) (10,806) (10,269)
Income Tax Benefit 3,909 3,960 3,543
Net Loss $ (8,407) $ (6,846) $ (6,726)
- ------------------------------- ---------- --------- ---------
General Account Assets 394,509 374,409 352,232
Separate Account Assets 668,094 480,405 302,736
- ------------------------------- ---------- --------- ---------
Total Assets $1,062,603 $ 854,814 $ 654,968
General Account Liabilities $ 277,879 $ 263,889 $ 250,394
Separate Account Liabilities 668,094 480,405 302,736
- ------------------------------- ---------- --------- ---------
Capital and Surplus 116,630 110,520 101,839
- ------------------------------- ---------- --------- ---------
</TABLE>
NET LOSS
The Company reported a consolidated net loss in 1996 of $8.4 million,
compared to the 1995 net loss of $6.8 million ($6.7 million net loss in 1994).
The main contributors to these losses were as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ----------------- ------- ------ ------
<S> <C> <C> <C>
US Operations $ 9.1 $ 2.5 $(3.0)
Taiwan Operations (17.5) (9.3) (3.7)
- ----------------- ------- ------ ------
Net Loss $ 8.4 $ 6.8 $ 6.7
- ----------------- ------- ------ ------
</TABLE>
Net income from US operations improved to $9.1 million in 1996 from $2.5
million in 1995 (a $3.0 million net loss in 1994). This improvement in both 1996
and 1995 is a result of increased policy fees which more than offset costs
associated with increased sales. The net loss from Taiwan operations increased
to $17.5 million in 1996 from $9.3 million in 1995 (a $3.7 million net loss in
1994). The increased net loss in 1996 and 1995 was a result of significant
start-up costs incurred in Taiwan, particularly associated with producer
recruitment.
3
<PAGE> 8
PREMIUMS
Premium revenue for 1996 was $12.9 million compared to $15.3 million in
1995 ($27.6 million in 1994). Of the total, premiums related to sales of
traditional life insurance contracts in Taiwan in 1996, 1995 and 1994 were $12.2
million, $9.3 million and $2.2 million respectively. The increase in premiums in
Taiwan are a result of the growing operation discussed previously. Premiums
related to US operations decreased to $0.7 million in 1996 from $6.0 million in
1995 and $25.4 million in 1994. The US premiums relate solely to a block of
Corporate-owned life insurance business assumed from ManUSA for which the
initial premium assumed of $25.4 million was received in 1994, with very little
renewal premium received thereafter.
Total general account and separate account deposits not included in
premiums above were as follows:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- ----------------------- ------- -------- --------
<S> <C> <C> <C>
Variable Life Insurance $144,438 $108,323 $ 93,492
Variable Annuities 36,130 37,834 73,586
- ----------------------- -------- -------- --------
TOTAL $180,568 $146,157 $167,078
- ----------------------- -------- -------- --------
</TABLE>
The growth in variable life insurance deposits continued while single
premium variable annuity premiums continued to decrease in 1996 and 1995. The
deposit growth for variable life is consistent with the Company's commitment to
develop variable core "estate/business planning products". A survivorship
variable universal life product launched in late 1995 showed significant growth
in 1996. With the merger of Manufacturers Life and North American Life
Assurance Company in 1996, the sale of variable annuities in the Company will
be de-emphasized and the majority of variable annuity sales will be made
through an affiliated company, North American Security Life Insurance Company.
FEE INCOME
Fee income for 1996 was $40.4 million, compared to $25 million in 1995
($18.3 million in 1994). Strong investment performance in 1996 and a growing
maturing block of in-force business resulted in higher separate account values
and, therefore, higher fee income, which is earned on a percentage of the net
value of invested assets in the separate account portfolios. The variable
universal life and annuity business accounted for 85% of the fee income earned
by the Company in 1996 compared to 94% in 1995 and 89.6% in 1994. Fee income
from investment advisory subsidiaries increased at a somewhat greater rate than
that from the variable universal life and annuity business.
NET INVESTMENT INCOME
Net investment income was $19.7 million in 1996 compared to $18.7 million
in 1995 ($17.7 million in 1994). The Company's performance in 1996 reflects
similar investment income results compared to 1995. The increase in 1995
compared to 1994 is due to the strengthening of the stock market in 1995.
4
<PAGE> 9
REALIZED CAPITAL GAINS
In 1996, the Company had realized capital losses of $0.1 million, compared
to gains of $3.1 million in 1995 ($3.6 million realized losses in 1994). The
Company occasionally sells bonds to provide cash flow and the realized gains or
losses are a result of this activity and will vary as interest rates fluctuate
from year to year.
POLICYHOLDER BENEFITS
Policyholder benefits decreased to $14.5 million in 1996, compared to
$16.9 million in 1995 ($28.8 million in 1994). Death claims experience in 1996
was favorable compared to expected levels and to prior years.
5
<PAGE> 10
REVIEW OF CONSOLIDATED
FINANCIAL CONDITION
The Company had total consolidated assets of $1,063 million at December
31, 1996, an increase of $208 million or 24.3% from 1995. This change is
principally a result of separate account asset growth of $187.7 million due to
strong investment performance of the underlying investment funds and consumer
preference for participation in the stock market through separate accounts.
INVESTMENTS
The following table outlines by type of investment the carrying value of
the general account investment portfolio of the Company:
<TABLE>
<CAPTION>
INVESTMENT TYPE (In 'ooo's) 1996 1995
- ------------------------------- -------- --------
<S> <C> <C>
Fixed maturities $ 51,708 $ 66,968
Equities 21,572 23,345
Mortgage loans 645 7,314
Policy Loans 9,822 6,955
Cash and Short-Term Investments 17,493 17,881
- ------------------------------- -------- --------
TOTAL INVESTMENTS $101,240 $122,463
- ------------------------------- -------- --------
</TABLE>
General account investments decreased by $21.3 million or 17% from 1995.
This change is due to a decrease in fixed maturities of $15.3 million in order
to pay operating costs relating to the Taiwan operation and to meet costs of
new business strain, as well as a decrease in mortgage loans of $6.7 million
due to principal repayments.
6
<PAGE> 11
FIXED MATURITES
The Company's fixed maturity bond portfolio of $51.7 million represents
51% of investments at the end of 1996, compared to 55% at the end of 1995.
At December 31, 1996, 85.9% of the bond portfolio was rated "A" or higher,
and 97.5% was rated investment grade, "BBB" or higher. The corresponding
percentages at the end of 1995 were 80.1% and 92.8%.
<TABLE>
<CAPTION>
FIXED MATURITIES BY INVESTMENT GRADE
(IN '000'S) 1996 1995
- ------------------------------------ -------------- --------------
<S> <C> <C> <C> <C>
AAA $16,953 32.7% $31,268 46.7%
AA 5,483 10.6% 4,017 6.0%
A 21,973 42.5% 18,362 27.4%
BBB 6,032 11.7% 8,528 12.7%
BB & lower, and unrated 1,267 2.5% 4,793 7.2%
- ------------------------------------ ------- -------
TOTAL FIXED MATURITIES $51,708 $66,968
- ------------------------------------ ------- -------
</TABLE>
EQUITY SECURITIES
The Company's equity portfolio of $21.6 million represents 21% of
investments at the end of 1996, compared to 19% at the end of 1995. The
equities consist entirely of investments in mutual funds sponsored by an
affiliate.
MORTGAGE LOANS
The Company's mortgage loans have decreased from $7.3 million in 1995 to
$0.6 million in 1996. This reflects the maturities of the MLMSC mortgages and
the reinvestment in the Guaranteed Annuity Contract asset described below.
POLICY LOANS
Policy loans represented 10% of investments at December 31, 1996, compared
to 6% in 1995. Most individual life insurance policies provide the individual
policyholder with the right to obtain a policy loan from the Company. Such
loans are made in accordance with the terms of the respective policies, are
carried at the unpaid balance, and are fully secured by the cash surrender
value of the policies on which the respective loans are made.
IMPAIRED ASSETS
Allowances for losses on investments are established when an asset or
portfolio of assets becomes impaired as a result of deterioration in credit
quality to the extent that there is no longer assurance of timely realization
of the carrying value of assets and related investment income. The carrying
value of an impaired asset is reduced to the net realizable value of the asset
at the time of recognition of impairment.
The Company had no provisions for impairments as at December 31, 1996 and 1995.
7
<PAGE> 12
GUARANTEED ANNUITY CONTRACTS
As the mortgages in MLMSC have matured, the funds have been invested in a
Guaranteed Annuity Contract with the Company's parent, ManUSA. An interest
rate of 8% is credited to the GAC asset. This GAC asset will mature on March
1, 1997, the same date that the mortgage backed security issued by MLMSC
matures.
DERIVATIVES
The Company did not enter into any derivative transactions during 1996 or
1995.
POLICYHOLDER LIABILITIES
The following table shows the distribution of Policyholder Liabilities and
Separate Account Liabilities by line of business at December 31:
<TABLE>
<CAPTION>
POLICYHOLDER LIABILITIES (In '000's) 1996 1995
---------------------------------------- -------- --------
<S> <C> <C>
Life Insurance:
Taiwan $ 15,305 $ 8,549
Reinsurance 44,497 47,386
Variable Life 32,113 30,194
---------------------------------------- -------- --------
TOTAL $ 91,915 $ 86,129
---------------------------------------- -------- --------
SEPARATE ACCOUNT LIABILITIES (In '000's) 1996 1995
---------------------------------------- -------- --------
Variable Life Insurance $399,403 $257,412
Variable Annuities 268,691 222,993
---------------------------------------- -------- --------
TOTAL $668,094 $480,405
---------------------------------------- -------- --------
</TABLE>
Separate account liabilities are $668 million, an increase of 39% over
1995. This reflects the growing popularity of variable products in the
marketplace and the increase in existing fund values due to the increase in the
stock market in 1996.
Taiwan reserves, although still small, have shown a rapid increase in
1996. This reflects the start-up operation in Taiwan. Taiwan reserves are
expected to continue to rise rapidly in the near future.
ASSET/LIABILITY MANAGEMENT
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.
8
<PAGE> 13
LIQUIDITY AND CAPITAL REQUIREMENTS
The General account liabilities consist of traditional insurance whose
liquidity requirements do not fluctuate significantly from one year to the
next. The majority of the Company's cash flows arise from policyholder
transactions related to the Separate account, and, as such, the assets and
liabilities of these products are exactly matched.
The Company maintains a prudent amount invested in cash and short term
investments. At the end of 1996, this amounted to $17.5 million or 17.3% of
total investments compared to $17.9 million in 1995 or 14.6%. In addition, the
Company's liquidity is managed by maintaining an easily marketable portfolio of
fixed maturities. Because of the excess of expense over income, which arises
from the costs of new policy issues, the continued success in generating sales
will not only result in losses in the results from operations, but will create a
cash flow strain as well. The Company's consolidated statements of cash flows
indicate this in that operating activities used cash of $20.5 million and $29.6
million in 1996 and 1995 respectively compared to providing cash of $10 million
in 1994. As a result, the Company looks to its parent, ManUSA, for the necessary
capital to support its operations. In 1995 a surplus note for $8.5 million was
issued to the Company from ManUSA. In 1996, a $15 million contribution of
capital was made to the Company by its Parent to provide further liquidity.
Manufacturers Life has entered into a claims paying guarantee with the Company.
On March 1, 1997, the bonds payable of $159 million issued by MLMSC
matured. The Company's Parent, ManUSA, transferred an amount equal to the
Guaranteed Annuity Contract value to the Company to repay the bonds.
The Company has no material commitments for capital expenditures.
CAPITAL REQUIREMENTS AND SOLVENCY PROTECTION
In order to enhance the regulation of insurer solvency, the NAIC enforces
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 required that life
insurance companies report on a formula-based RBC standard which is calculated
by applying factors to various assets, premium and reserve items. The formula
takes into account risk characteristics of the life insurer, including asset
risk, insurance risk, interest 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.
9
<PAGE> 14
RISK MANAGEMENT PRACTICES AND PROCEDURES
Risk management is a fundamental element of the Company's financial
strength and profitability, and is essential to its continuing success. The
Company is committed to comprehensive risk management policies and procedures
which measure and control risk in all of its business activities and allow for
periodic by internal and external auditors and regulators.
The key risk faced by the Company are credit, claims, pricing and
business risk. The nature of these risks and how they are managed is explained
in the following sections.
CREDIT RISK
Credit risk is the risk that a party to a financial instrument will fail
to fully honor its financial obligations to the Company. Senior management
within the Investments operations establishes policies and procedures for the
management of credit risk which limits concentration by issuer, connections,
rating sector and geographic region. Limits are placed on all personnel in
terms of ability to commit the Company to credit instruments. Credit and
commitment exposures are monitored using a rigorous reporting process and are
subject to a formal quarterly review.
CLAIMS RISK
The Company is always subject to the risk of change in the life expectancy
of the population. Claims trends are therefore monitored on an ongoing basis.
The Company uses both its own and industry experience to develop estimates of
future claims.
The management of ongoing claims risk for an insurer includes establishing
appropriate criteria to determine the insurability of applicants as well as
managing the exposure to large dollar claims. Underwriting standards have been
established to manage the insurability of applicants. Renewal underwriting
standards are also in place for business that renews on a periodic basis
(primarily group life and health insurance). Management performs periodic
reviews to ensure compliance with standards.
Exposure to large claims is managed by establishing policy retention
limits. Policies in excess of the limits are reinsured with MRC. Underwriting
standards and policy retention limits are reviewed on a periodic basis.
10
<PAGE> 15
PRICING RISK
The process of pricing products includes the estimation of many factors
including future investment yields, mortality and morbidity experience,
expenses, rates of policy surrender, and taxes. Pricing risk is the risk that
actual experience in the future will not develop as estimated in pricing. Some
products are designed such that adjustments to premiums or benefits can be made
for experience variations, while for other products no such changes are
possible.
The Company manages pricing risks by setting standards and guidelines for
pricing. These standards and guidelines cover pricing methods and assumption
setting, profit margin objectives, required scenario analysis, and
documentation. They also address the areas of pricing software, approved
pricing personnel, and pricing approvals. These standards and guidelines
ensure that an appropriate level of risk is borne by the Company and that an
appropriate return is provided to the policyholders.
BUSINESS RISK
Business risk comprises operating risk as well as other risks. Operating
risk is the exposure to inadequate internal controls, including inadequate
control of risk management. Other risks include legal, political, competitive
and environmental risks. Business risks expose the Company to potential loss
of earnings.
The Company manages operating risks by establishing appropriate internal
control policies and procedures. The Company centrally manages business risk
using risk identification and compliance monitoring processes. Diversification
of businesses is an integral part of the Company's business risk management
strategy.
A controllership function has been established in each operation and is
responsible for day-to-day management of operating risk including compliance
with Company control policies.
Internal and external auditors review the adequacy of internal controls
and report to senior management and the Board of Directors on a quarterly and
an annual basis, respectively.
The Company has coordinated its operational compliance departments under
the supervision of its corporate legal function. This structure ensures
compliance with all legal and regulatory requirements in all jurisdictions in
which the Company does business. All customer-related communications, product
brochures and selling tools, and procedures for compliance therewith, are
subject to review by the compliance function. Compliance is monitored on an
ongoing basis.
Item 8. Financial Statements and Supplementary Data
See Following Page
11
<PAGE> 16
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 17
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ....................................... 3
Audited Consolidated Financial Statements
Consolidated Balance Sheets .......................................... 4
Consolidated Statements of Income .................................... 5
Consolidated Statements of Changes in Capital and Surplus ............ 6
Consolidated Statements of Cash Flow ................................. 7
Notes to Consolidated Financial Statements ........................... 8
Consolidated Financial Statement Schedules
Report of Independent Auditors on Financial Statement Schedules ...... 22
Schedule I -- Summary of Investments Other Than Investments
in Related Parties ................................................ 23
Schedule III -- Supplementary Insurance Information .................. 24
Schedule IV -- Reinsurance ........................................... 25
</TABLE>
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in 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 consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1996 the Company adopted
certain accounting changes to conform with generally accepted accounting
principles for mutual life insurance enterprises, and retroactively restated
the 1995 and 1994 financial statements for the change.
PHILADELPHIA, PENNSYLVANIA Ernst & Young LLP
MARCH 21, 1997
3
<PAGE> 19
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($thousands) 1996 1995
--------------------------------------------------------- --------- -------
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1996 $50,456; 1995 $62,757) $ 51,708 $ 66,968
Equity (cost:1996 $19,450; 1995 $22,441) 21,572 23,345
Mortgage loans 645 7,314
Policy loans 9,822 6,955
Cash and short-term investments 17,493 17,881
--------------------------------------------------------- ---------- -------
Total Investments $ 101,240 $122,463
--------------------------------------------------------- ---------- -------
Guaranteed annuity contracts (note 5) 171,691 155,335
Deferred acquisition costs (note 6) 102,610 78,829
Income taxes recoverable 10,549 5,156
Deferred income taxes (note 7) 1,041 1,616
Other assets 7,378 11,010
Separate account assets 668,094 480,405
--------------------------------------------------------- --------- -------
TOTAL ASSETS $1,062,603 $854,814
--------------------------------------------------------- ---------- -------
LIABILITIES, CAPITAL AND SURPLUS ($thousands) 1996 1995
--------------------------------------------------------- ---------- -------
LIABILITIES:
Policyholder Liabilities and accruals $ 91,915 $ 86,129
Bonds payable (note 8) 158,760 158,890
Surplus note (note 9) 8,500 8,500
Due to affiliates 11,122 463
Other liabilities 7,582 9,907
Separate account liabilities 668,094 480,405
--------------------------------------------------------- ---------- -------
TOTAL LIABILITIES $ 945,973 $744,294
--------------------------------------------------------- ---------- -------
CAPITAL AND SURPLUS:
Common shares (note 10) 4,502 4,502
Preferred shares (note 10) 10,500 10,500
Contributed surplus 98,569 83,569
Retained earnings 1,726 10,133
Net unrealized gain on securities
available-for-sale (note 4) 1,333 1,816
--------------------------------------------------------- ---------- -------
TOTAL CAPITAL AND SURPLUS 116,630 110,520
--------------------------------------------------------- ---------- -------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,062,603 $854,814
--------------------------------------------------------- ---------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 20
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- --------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
REVENUE:
Premiums $12,898 $15,293 $ 27,578
Fee income 40,434 24,986 18,259
Net investment income (note 4) 19,651 18,729 17,691
Realized investment gains (losses) (119) 3,084 (3,567)
Other 668 82 361
- --------------------------------------------------- -------- -------- --------
TOTAL REVENUE 73,532 62,174 60,322
- --------------------------------------------------- -------- -------- --------
BENEFITS AND EXPENSES:
Policyholder benefits and claims 14,473 16,905 28,768
Operating costs and expenses 34,581 30,728 16,395
Commissions 10,431 5,859 8,923
Amortization of deferred acquisition costs (note 6) 13,240 5,351 3,289
Interest expense 12,251 12,251 12,251
Policyholder dividends 872 1,886 965
- --------------------------------------------------- -------- -------- --------
TOTAL BENEFITS AND EXPENSES 85,848 72,980 70,591
- --------------------------------------------------- -------- -------- --------
LOSS BEFORE INCOME TAXES (12,316) (10,806) (10,269)
- --------------------------------------------------- -------- -------- --------
INCOME TAX BENEFIT (NOTE 7) 3,909 3,960 3,543
- --------------------------------------------------- -------- -------- --------
NET LOSS $(8,407) $(6,846) $(6,726)
- --------------------------------------------------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 21
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES) ON TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED RETAINED SECURITIES CAPITAL
($thousands) STOCK SURPLUS EARNINGS AVAILABLE-FOR-SALE AND SURPLUS
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
1996
Balance, January 1 $15,002 $83,569 $ 10,133 $ 1,816 $110,520
Net loss during the year (8,407) (8,407)
Change in unrealized gain(loss) ,net of taxes (note 4) (483) (483)
Issuance of shares (note 10) 15,000 15,000
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 (NOTE 10) $15,002 $98,569 $ 1,726 $ 1,333 $116,630
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
1995
Balance, January 1 $15,002 $70,999 $ 16,979 $(1,141) $101,839
Net loss during the year (6,846) (6,846)
Change in unrealized gain(loss) , net of taxes (note 4) 2,957 2,957
Issuance of shares (note 10) 12,570 12,570
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 $15,002 $83,569 $ 10,133 $ 1,816 $110,520
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
1994
Balance, January 1 $35,002 $30,999 $ 7,396 $(1,592) $ 71,805
Cumulative effect of accounting change (note 2) 16,309 1,353 17,662
Net loss during the year (6,726) (6,726)
Change in unrealized gain(loss) , net of taxes (902) (902)
Capital restructuring of preferred shares (20,000) 20,000 0
Issuance of shares (note 10) 20,000 20,000
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 $15,002 $70,999 $ 16,979 $ (1,141) $101,839
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 22
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
- --------------------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (8,407) $ (6,846) $ (6,726)
Adjustments to reconcile net loss to net cash used in operating activities:
Additions to Policy liabilities 3,287 7,329 27,338
Deferred acquisition costs (36,024) (28,147) (31,125)
Amortization of deferred acquisition costs 13,240 5,351 3,289
Realized gain (losses) on investments 119 (3,084) 3,567
Decreases (additions) to deferred income taxes 473 1,168 (4,001)
Other 6,540 (5,336) 17,673
- --------------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) operating activities (20,468) (29,565) 10,015
- --------------------------------------------------------------------------- -------- -------- --------
INVESTING ACTIVITIES:
Fixed maturity securities sold 120,234 67,507 43,176
Fixed maturity securities purchased (108,401) (76,402) (72,819)
Equities sold 25,505 6,500 30,011
Equities purchased (22,203) (1,726) (18,245)
Mortgages purchased - - -
Mortgages sold/principal repayments 6,669 77,086 22,656
Policy loans advanced, net (2,867) (2,461) (1,471)
Guaranteed annuity contracts (16,356) (79,710) (36,236)
- --------------------------------------------------------------------------- -------- ------- --------
Cash provided by (used in) investing activities 2,581 (9,206) (32,928)
- --------------------------------------------------------------------------- -------- ------- --------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances 5,493 9,017 10,533
Withdrawals of policyholder account balances on
variable life and annuity policies (2,994) (3,173) (1,284)
Issuance of shares 15,000 12,570 20,000
Issuance of surplus notes - 8,500 -
- --------------------------------------------------------------------------- -------- -------- ---------
Cash provided by financing activities 17,499 26,914 29,249
- --------------------------------------------------------------------------- -------- -------- ---------
CASH AND SHORT-TERM INVESTMENTS:
Increase (decrease) during the year (388) (11,857) 6,336
Balance, beginning of year 17,881 29,738 23,402
- --------------------------------------------------------------------------- -------- -------- ---------
BALANCE, END OF YEAR $ 17,493 $ 17,881 $ 29,738
- --------------------------------------------------------------------------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 23
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(In Thousands of Dollars)
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 a
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
A) ADOPTION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accompanying 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").
Prior to 1996, the Company prepared its financial statements in conformity
with statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Michigan which practices were
considered GAAP for mutual life insurance companies and their wholly-owned
direct and indirect subsidiaries. Financial Accounting Standard Board
Interpretation 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises" ("FIN 40") as
amended, which is effective for 1996 annual financial statements and
thereafter, no longer permits statutory based financial statements to be
described as being prepared in conformity with GAAP. Accordingly, the
Company has adopted GAAP including Statement of Financial Accounting
Standards 120 ("FAS 120"), "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long
Duration Participating Contracts", which addresses the accounting for
long-duration insurance and reinsurance contracts, including all
participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the
changes in accounting have been applied retroactively and the previously
issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1,
1994 has been presented as a restatement of surplus as of that date. As a
result, surplus at January 1, 1994 increased by $17,662 net of applicable
deferred taxes.
The adoption had the effect of increasing net income for 1996, 1995 and
1994 by approximately $7,554, $6,859 and $12,934, respectively.
8
<PAGE> 24
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
B) REORGANIZATION
On December 20, 1995, Manulife Reinsurance Corporation (U.S.A) ("MRC")
transferred to the Company all of the common and preferred shares of
Manufacturers Advisor Corporation ("MAC"), an investment fund management
company.
On December 31, 1996, ManUSA transferred to the Company all of the common
and preferred shares of Manulife Holding Corporation ("Holdco"), an
investment holding company. Holdco has primarily two wholly-owned
subsidiaries, ManEquity Inc., a registered broker/dealer, and the
Manufacturers Life Mortgage Securities Corporation ("MLMSC"), an issuer of
mortgage-backed US Dollar bonds. The Company then transferred all the
common and preferred shares of MAC to Holdco for two shares of $1 common
stock of Holdco.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities, capital
and surplus, revenues and expenses of each separate entity are combined
retroactively at their historical carrying values to form the financial
statements of the Company for all periods presented to give effect to the
reorganization as if the structure in place at December 31, 1996 had been
in place as of the earliest period presented in these consolidated
financial statements. The accounts of all subsidiary companies are
therefore combined and all significant inter-company balances and
transactions are eliminated on combination. In addition, the capital and
surplus of the Company has been restated retroactively to January 1, 1994
to reflect the capital structure in place at December 31, 1996.
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Revenue:
ManAmerica $ 54,404 $ 45,655 $ 44,432
Holdco 15,543 13,828 14,087
MAC 3,585 2,691 1,803
- ------------------------------ -------- -------- --------
TOTAL REVENUE $ 73,532 $ 62,174 $ 60,322
- ------------------------------ -------- -------- --------
Net Income (loss):
ManAmerica $ (8,676) $ (7,402) $ (7,221)
Holdco (670) (10) 257
MAC 939 566 238
- ------------------------------ -------- -------- --------
TOTAL NET LOSS $ (8,407) $ (6,846) $ (6,726)
- ------------------------------ -------- -------- --------
</TABLE>
9
<PAGE> 25
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
3. SIGNIFICANT ACCOUNTING POLICIES
A) PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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) INVESTMENTS
The Company classifies all of its fixed maturity and equity 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 surplus after adjustments for deferred taxes and DAC.
Discounts and premiums on investments are amortized using the effective
interest method.
Mortgage loans are reported at amortized cost, net of a provision for
losses. The provision for losses is established for mortgage loans which
are considered to be impaired when the Company has determined that it is
probable that all amounts due under contractual terms will not be
collected. Impaired loans are reported at the lower of unpaid principal
or fair value of the underlying collateral.
Policy loans are reported at aggregate unpaid balances which approximate
fair value.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
C) 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. DAC associated with variable annuity and
variable life insurance contracts is charged to expense in relation to
the estimated gross profits of those contracts. The amortization is
adjusted retrospectively when estimates of current or future gross
profits are revised. DAC associated with traditional life 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 Capital and Surplus. DAC is
reviewed annually to determine recoverability from future income and, if
not recoverable, it is immediately expensed.
10
<PAGE> 26
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
D) POLICYHOLDER LIABILITIES
For variable annuity and variable life contracts reserves equal the
policyholder account value. Account values are increased for deposits
received and interest credited and are reduced by withdrawals, mortality
charges and administrative expenses charged to the policyholders. Policy
charges which compensate the Company for future services are deferred and
recognized in income over the period earned, using the same assumptions
used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold in
Taiwan are computed using the net level premium method and are based upon
estimates as to future mortality, persistency, maintenance expense and
interest rate yields that were established in the year of issue.
E) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for variable annuity and variable
life contracts, and for which the contract holder, rather than the
Company, bears the investment risk. Separate account contract holders
have no claim against the assets of the general account of the Company.
Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial
statements.
F) REVENUE RECOGNITION
Fee income from variable annuity and variable life insurance policies
consists of policy charges for the cost of insurance, expenses and
surrender charges that have been assessed against the policy account
balances. Policy charges that are designed to compensate the company for
future services are deferred and recognized in income over the period
benefited, using the same assumptions used to amortize DAC. Premiums on
long-duration life insurance contracts are recognized as revenue when
due. Investment income is recorded when due.
G) EXPENSES
Expenses for variable annuity and variable life insurance policies
include interest credited to policy account balances and benefit claims
incurred during the period in excess of policy account balances.
H) REINSURANCE
The Company is routinely involved in reinsurance transactions in order to
minimize exposure to large risks. Life reinsurance is accomplished
through various plans including yearly renewable term, co-insurance and
modified co-insurance. Reinsurance premiums and claims are accounted for
on a basis consistent with that used in accounting for the original
policies issued and the terms of the reinsurance contracts. Premiums and
claims are reported net of reinsured amounts. Amounts paid with respect
to ceded reinsurance contracts are reported as reinsurance receivables
in other assets.
11
<PAGE> 27
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
I) FOREIGN EXCHANGE
The Company's Taiwanese branch balance sheet and statement of income are
translated at the current exchange and average exchange rates for the
year respectively. Translation adjustments for foreign currency
transactions that affect cash flows are reported in earnings.
J) INCOME TAX
Income taxes have been provided for in accordance with Statement of
Financial Accounting Standards 109 ("FAS 109") "Accounting for Income
Taxes." The Company joins ManUSA, MRC and Manulife Reinsurance Limited
("MRL") in filing a U.S. consolidated income tax return as a life
insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income tax
provision (or benefit) is computed as if the Company filed a separate
income tax return. Tax benefits from operating losses are provided at the
U.S. statutory rate plus any tax credits attributable to the Company,
provided the consolidated group utilizes such benefits currently. Deferred
income taxes result from temporary differences between the tax basis of
assets and liabilities and their recorded amounts for financial reporting
purposes. Income taxes recoverable represents amounts due from ManUSA in
connection with the consolidated return.
12
<PAGE> 28
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
4. INVESTMENTS AND INVESTMENT INCOME
A) FIXED MATURITY AND EQUITY SECURITIES
At December 31, 1996, all fixed maturity and equity securities have been
classified as available-for-sale and reported at fair value. The
amortized cost and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AS AT DECEMBER 31, AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
($ thousands) 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
U.S. government $ 9,219 $15,145 $ 386 $ 690 $ (98) $ (98) $ 9,507 $15,737
Foreign governments 9,227 6,071 221 219 (8) - 9,440 6,290
Corporate 32,010 32,018 981 3,147 (230) (13) 32,761 35,152
Mortgage backed - 9,523 - 272 - (6) - 9,789
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
Total fixed maturity securities $50,456 $62,757 $1,588 $4,328 $(336) $(117) $51,708 $66,968
Equity securities $19,450 $22,441 $2,134 $ 923 $ (12) $ (19) $21,572 $23,345
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
</TABLE>
Proceeds from sales of fixed maturity securities during 1996 were
$120,234 (1995 $67,507; 1994 $43,176). Gross gains of $1,858 and gross
losses of $1,837 were realized on those sales (1995 $2,630 and $218; 1994
$168 and $1,007 respectively).
Proceeds from sale of equity securities during 1996 were $26,584 (1995 $
6,500; 1994 $30,011). Gross gains of $NIL and gross losses of $140 were
realized on those sales (1995 $785 and $113; 1994 $48 and $2,776
respectively).
13
<PAGE> 29
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The contractual maturities of fixed maturity securities at December 31,
1996 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate requirements
and investment strategies may result in the sale of investments before
maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
- ----------------------------------- -------------- ----------
<S> <C> <C>
Fixed maturity securities,
including mortgage-backed
securities
One year or less $ 3,356 $ 3,367
Greater than 1; up to 5 years 2,568 2,658
Greater than 5; up to 10 years 19,539 19,959
Due after 10 years 24,993 25,724
- ----------------------------------- -------------- ----------
TOTAL FIXED MATURITY SECURITIES $50,415 $51,708
- ----------------------------------- -------------- ----------
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities
included in capital and surplus were as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1996 1995
- ------------------------------------------- ------- -------
<S> <C> <C>
Gross unrealized gains $ 3,722 $ 5,251
Gross unrealized losses (348) (136)
DAC and other fair value adjustments (1,321) (2,317)
Deferred income taxes (720) (982)
- ------------------------------------------- ------- -------
NET UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE-FOR-SALE $ 1,333 $ 1,816
- ------------------------------------------- ------- -------
</TABLE>
B) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturity securities $ 4,447 $ 4,430 $ 1,712
Mortgage loans 278 3,076 8,844
Equity securities 671 646 1,245
Guaranteed annuity contracts 13,196 9,691 5,040
Other investments 1,419 1,235 957
- ------------------------------- ------- ------- -------
Gross investment income 20,011 19,078 17,798
- ------------------------------- ------ ------- -------
Investment expenses 360 349 107
- ------------------------------- ------ ------- -------
NET INVESTMENT INCOME $19,651 $18,729 $17,691
- ------------------------------- ------ ------- -------
</TABLE>
14
<PAGE> 30
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
5. GUARANTEED ANNUITY CONTRACTS
The Company's wholly-owned subsidiary, MLMSC, invests amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities are collateral for the 8 1/4 % mortgage-backed bonds payable
disclosed in note 8 below.
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- --------------------------------------- --------- --------- --------
<S> <C> <C> <C>
Balance at January 1, $ 78,829 $ 60,124 $ 30,887
Capitalization 36,024 28,147 31,125
Accretion of interest 6,344 4,992 3,351
Amortization (19,159) (10,852) (6,295)
Effect of net unrealized gains (losses)
on securities available for sale 996 (4,091) 1,401
Other (424) 509 (345)
- --------------------------------------- --------- --------- --------
BALANCE AT DECEMBER 31 $ 102,610 $ 78,829 $ 60,124
- --------------------------------------- --------- --------- --------
</TABLE>
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Current expense (benefit) $(4,686) $(5,128) $ 458
Deferred expense (benefit) 777 1,168 (4,001)
- ------------------------------- -------- -------- --------
TOTAL BENEFIT $(3,909) $(3,960) $(3,543)
- ------------------------------- -------- -------- --------
</TABLE>
15
<PAGE> 31
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The Company's deferred income tax asset, which results from tax effecting
the differences between financial statement values and tax values of
assets and liabilities at each balance sheet date, relates to the
following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($thousands) 1996 1995
----------------------------------------------------- ------- -------
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves $28,508 $22,503
Policyholder dividends payable 283 411
Other deferred tax assets - 402
Net operating loss carryforwards - 1,061
----------------------------------------------------- ------- -------
DEFERRED TAX ASSETS 28,791 24,377
Deferred tax liabilities:
Deferred acquisition costs 25,522 19,398
Investments 928 1,737
Other deferred tax liabilities 1,300 1,626
----------------------------------------------------- ------- -------
Deferred tax liabilities 27,750 22,761
----------------------------------------------------- ------- -------
NET DEFERRED TAX ASSETS $ 1,041 $ 1,616
----------------------------------------------------- ------- -------
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $83,500 which will expire in 1999.
8. BONDS PAYABLE
Bonds payable represent 8 1/4% Mortgage-backed US Dollar Bonds due March
1, 1997 which are collateralized by annuities disclosed in note 5 above.
The bonds were repaid on March 1, 1997.
9. SURPLUS NOTE
The Company has an outstanding surplus debenture in the amount of $8,500
plus interest at 6.7% issued on December 31, 1995 to ManUSA which matures
on December 31, 2005. Payments of principal and interest cannot be made
without prior approval of the Insurance Commissioner of the State of
Michigan and the Company's Board of Directors, and to the extent the
Company has sufficient unassigned surplus on a statutory basis available
for such payment.
16
<PAGE> 32
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
10. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1996 1995
- ----------------------------------------- ----------- -----------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1.00
5,000,000 Preferred shares, Par value $100.00
ISSUED AND OUTSTANDING:
4,501,860 Common shares $ 4,501,860 $ 4,501,859
105,000 Preferred shares 10,500,000 10,500,000
- ----------------------------------------- ----------- -----------
TOTAL $15,001,860 $15,001,859
- ----------------------------------------- ----------- -----------
</TABLE>
During the year, the Company issued one common share to its Parent Company
in return for a capital contribution of $15,000.
During 1995, the Company issued two common shares to its Parent Company in
return for a capital contribution of $12,570.
During 1994, the Company issued one common share to its Parent Company in
return for a capital contribution of $20,000.
The Company is subject to statutory limitations on the payment of
dividends to its Parent. Under Michigan Insurance Law, the payment of
dividends to shareholders is restricted to the surplus earnings of the
Company, unless prior approval is obtained from the Michigan Insurance
Bureau.
The aggregate statutory capital and surplus of the Company at December
31, 1996 was $76,202 (1995 $56,298). The aggregate statutory net loss of
the Company for the year ended 1996 was $15,961 (1995 $13,705; 1994
$19,660). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
($ thousands) CARRYING VALUE FAIR VALUE
- ------------------------------------ -------------- ----------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities $ 73,280 $ 73,280
Mortgage loans 645 645
Policy loans 9,822 9,822
Guaranteed annuity contract 171,691 171,691
LIABILITIES:
Bond payable 158,760 158,760
Surplus note 8,500 8,266
</TABLE>
17
<PAGE> 33
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and
equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent pricing
services.
MORTGAGE LOANS: Fair value of mortgage loans was estimated using
discounted cash flows using contractual maturities and discount rates
that were based on U.S. Treasury rates for similar maturity ranges,
adjusted for risk, based on property type.
POLICY LOANS: Carrying values approximate fair values.
GUARANTEED ANNUITY CONTRACT. Carrying values approximate fair values.
BOND PAYABLE: Carrying values approximate fair values.
SURPLUS NOTE: Fair value was estimated using current interest rates that
were based on U.S. Treasuries for similar maturity ranges.
18
<PAGE> 34
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
12. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with Manulife Financial which
can be terminated by either party upon two months' notice. Under the
Agreement, the Company will pay direct operating expenses incurred each
year by Manulife Financial on its behalf. Services provided under the
agreement include legal, actuarial, investment, data processing and
certain other administrative services. Costs incurred under this
agreement were $26,982, $23,210 and $21,326 in 1996, 1995 and 1994
respectively. In addition, there were $6,934, $5,052 and $7,795 of agents
bonuses allocated to the Company during 1996, 1995 and 1994, respectively,
which are included in commissions.
The Company has several reinsurance agreements with affiliated companies
which may be terminated upon the specified notice by either party. These
agreements are summarized as follows:
(a) The Company assumes two blocks of insurance from ManUSA under
coinsurance treaties. The Company's risk is limited to $100,000 of
initial face amount per claim plus a pro-rata share of any increase in
face amount.
(b) The Company cedes the risk in excess of $25,000 per life to MRC
under the terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its Flexible
Premium Variable Life policies to MRC under the terms of a stop loss
reinsurance agreement.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
--------------------------------- ------- ------- -------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 676 $ 5,959 $25,386
Policy reserves assumed 44,497 47,386 47,673
Policy reserves ceded 304 3,838 3,806
--------------------------------- ------- ------- -------
</TABLE>
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use NASL Series Trust as its investment
vehicle. The NASL Series Trust is an entity sponsored by an
affiliated company, North American Security Life Insurance Company.
19
<PAGE> 35
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
13. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
------------------------------- ------- ------ -----
<S> <C> <C> <C>
Direct premiums $12,998 $9,809 $2,380
Reinsurance assumed - - -
Reinsurance ceded 776 475 188
------------------------------- ------- ------ ------
TOTAL PREMIUMS $12,222 $9,334 $2,192
------------------------------- ------- ------ ------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $357, $170 and
$57 during 1996, 1995 and 1994 respectively.
14. FOREIGN OPERATIONS
The Company markets traditional life insurance products in Taiwan through
its Taiwanese Branch. The carrying amount of net assets located in Taiwan
as at December 31, 1996 and 1995 was $15,080 and $1,125 respectively.
The income (loss) before taxes related to the Taiwan and U.S. business
was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
------------------------------- --------- ------- -------
<S> <C> <C> <C>
Taiwan $(17,530) $(9,332) $(3,763)
U.S. 9,123 2,486 (2,963)
------------------------------- --------- -------- --------
TOTAL $ (8,407) $(6,846) $(6,726)
------------------------------- --------- -------- --------
</TABLE>
15. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the course
of its business. Contingent liabilities arising from litigation, income
taxes and other matters are not considered material in relation to the
financial position of the Company.
20
<PAGE> 36
FINANCIAL STATEMENT SCHEDULES
21
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the financial statements of The Manufacturers Life Insurance
Company of America as of December 31, 1996 and 1995 and 1994 and for each of
the three years in the period ended December 31, 1996 and have issued our
report thereon dated March 21, 1997 (included elsewhere in this Annual Report
on Form 10-K). Our audits also included the financial statement schedules
listed in this Annual Report on Form 10-K. These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
PHILADELPHIA, PENNSYLVANIA Ernst & Young LLP
MARCH 21, 1997
22
<PAGE> 38
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31,1996
($ THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ----------------------------------- --------- --------- -------------
<S> <C> <C> <C>
Fixed maturities:
United States Government $ 9,219 $ 9,507 $ 9,507
Foreign Governments 9,227 9,440 9,440
Corporate 32,010 32,761 32,761
- ----------------------------------- --------- --------- -------------
Total fixed maturities 50,456 51,708 51,708
Equity Securities:
Common stocks - other 19,450 21,572 21,572
Mortgage loans 645 645
Policy loans 9,822 9,822
Cash and short term investments 17,493 17,493
- ----------------------------------- --------- --------- -------------
Total Investments $97,866 $73,280 $101,240
=================================== ========= ========= =============
</TABLE>
23
<PAGE> 39
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
($ THOUSANDS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS BENEFITS, CLAIMS
DEFERRED LOSSES, CLAIMS OTHER POLICY NET LOSSES, AND OTHER
ACQUISITION AND UNEARNED CLAIMS AND PREMIUM INVESTMENT SETTLEMENT OPERATING
SEGMENT COSTS LOSS EXPENSES PREMIUMS BENEFITS PAYABLE REVENUE INCOME EXPENSES EXPENSES
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Life Insurance and annuities $102,610 $91,915 $635 $379 $12,898 $6,141 $14,473 $52,067
Other (incl. non-life
subsidiaries) - - - - - 13,510 - 6,185
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $102,610 $91,915 $635 $379 $12,898 $19,651 $14,473 $58,252
============================ ======== ======== ===== ===== ======== ======== ======== ========
1995:
Life Insurance and annuities $78,829 $86,129 $642 $582 $15,293 $5,841 $16,905 $37,151
Other (incl. non-life
subsidiaries) - - - - - 12,888 - 4,787
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $78,829 $86,129 $642 $582 $15,293 $18,729 $16,905 $41,938
============================ ======== ======== ===== ===== ======== ======== ======== ========
1994:
Life Insurance and annuities $60,124 $72,623 $427 $95 $27,578 $3,588 $28,768 $25,108
Other (incl. non-life
subsidiaries) - - - - - 14,103 - 3,499
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $60,124 $72,623 $427 $95 $27,578 $17,691 $28,768 $28,607
============================ ======== ======== ===== ===== ======== ======== ======== ========
</TABLE>
24
<PAGE> 40
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE IV -- REINSURANCE
($ THOUSANDS)
<TABLE>
<CAPTION>
COL.A COL. B COL. C COL. D COL. E COL. F
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER NET AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
- ------------------------------------------ ----------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Life insurance in force $7,700,816 $552,986 $98,741 $7,246,571 1.36%
========================================== =========== ============ =========== =========== ===============
Insurance premiums:
Life $12,998 $776 $676 $12,898 5.24%
========================================== =========== ============ =========== =========== ===============
Year ended December 31, 1995:
Life insurance in force $5,140,950 $147,818 $97,908 $5,091,040 1.92%
========================================== =========== ============ =========== =========== ===============
.
Insurance premiums:
Life $9,809 $475 $5,959 $15,293 38.97%
========================================== =========== ============ =========== =========== ===============
Year ended December 31, 1994:
Life insurance in force $4,628,330 $287,659 $102,918 $4,443,589 2.32%
========================================== =========== ============ =========== =========== ===============
Insurance premiums:
Life $2,380 $188 $25,386 $27,578 92.05%
========================================== =========== ============ =========== =========== ===============
</TABLE>
25
<PAGE> 41
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Nothing to Report
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The directors and executive officers of the Company (sometimes referred to
herein as "Manufacturers Life of America"), together with their principal
occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Position with
Name (Age) Manufacturers Life Principal
of America Occupation
Sandra M. Cotter Director Attorney -- 1989-present,
(34) (since December Dykema, Gossett
1992)
James D. Gallagher Director, Vice President, Secretary and
(42) Secretary and General Counsel -- January 1997-
General Counsel present, ManUSA; Vice President,
Legal Services U.S. Operations --
January 1996-present,
The Manufacturers Life
Insurance Company; Vice
President, secretary and General Counsel
-- 1994- present, North American
Security Life; Vice President and
Associate General Counsel-- 1991-1994,
The Prudential Insurance Company of
America
Bruce Gordon Director Vice President, U.S. Operations
(53) (Since May 1996) --Pensions -- 1990-present,
The Manufacturers Life
Insurance Company
Donald A. Guloien President and Senior Vice President, Business
(40) Director Development -- 1994-to present,
(since September The Manufacturers Life
1990) Insurance Company; Vice
President, U.S. Individual Business --
1990-1994 The Manufacturers Life
Insurance Company Mr. Guloien is also a
director of Manulife Series Fund, Inc.
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C>
Theodore Kilkuskie Director Vice President, U.S. Individual
(41) Insurance -- January 1997-present,
ManUSA; Vice President, U.S. Individual
Insurance -- June 1995-present,
The Manufacturers Life Insurance
Company; Executive Vice President,
Mutual Funds -- January 1995-May 1995,
State Street Research; Vice President,
Mutual Funds -- 1987-1994, Metropolitan
Life Insurance Company
Joseph J. Pietroski Director Senior Vice President,
(58) (since July 1982) General Counsel and Corporate
Secretary -- 1988-present, The
Manufacturers Life Insurance Company
John D. Richardson Chairman and Senior Vice President, and
(59) Director General Manager, U.S.
(since January Operations -- 1995-present,
1995) The Manufacturers Life
Insurance Company; Senior Vice
President and General Manager, Canadian
Operations -- 1992-1994, The
Manufacturers Life Insurance Company;
Senior Vice President, Financial
Services -- 1992, The Manufacturers Life
Insurance Company; Executive Vice
Chairman & CFO -- 1989-1991, Canada
Trust
John R. Ostler Vice President, Financial Vice President -
(44) Chief Actuary 1992-present, The Manu-
and Treasurer facturers Life Insurance Company;
Vice President, Insurance Products -
1990- 1992, The Manufacturers Life
Insurance Company
Douglas H. Myers Vice President, Assistant Vice President and
(42) Finance and Controller, U.S. Operations
Compliance, -- 1988-present, The Manu-
Controller facturers Life Insurance Company
Joseph Mounsey Senior Vice Senior Vice President, Investments --
(48) President 1994-present, The Manufacturers Life
Insurance Company; Senior Vice
President, International Investments
1991-1994, The Manufacturers Life
Insurance Company
Victor Apps Senior Vice Senior Vice President and
(48) President and General Manager, Greater China Division
General Manager -- 1995-present, The Manufacturers Life
Insurance Company; Vice President and
General Manager, Greater China Division
-- 1993-1995, The Manufacturers Life
Insurance Company; International
Vice President, Asia Pacific Division
-- 1988-1993, The Manufacturers Life
Insurance Company
Robert A. Cook Vice President Vice President, Product Management --
(42) 1996-present, The Manufacturers Life
Insurance Company; Sales and Marketing
Director, U.K. Division -- 1994-1995,
The Manufacturers Life Insurance
Company; Vice President, Corporate
Strategic Review -- 1992-1993, The
Manufacturers Life Insurance Company
</TABLE>
<PAGE> 43
Item 11 - EXECUTIVE COMPENSATION
All of the executive officers of the Company also serve as officers of
Manufacturers Life and receive no compensation directly from the Company.
Allocations have been made as to such officers' time devoted to duties as
executive officers of the Company and its subsidiaries. The aggregate allocated
cash compensation of the president of the Company for services rendered in all
capacities to the Company and its subsidiaries during 1996 was $19,666. This
consisted of salary ($12,684), profit-sharing ($5,460), flexible spending
benefits ($1,522) and incentive plans (not eligible). No executive officer had
allocated cash compensation in excess of $100,000. These figures include
salary, applicable profit-sharing and incentive plans and flexible spending
benefits.
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, health and pension. There are no other
benefit packages which currently enhance overall compensation by more than 10%.
Directors of the Company who are also officers or employees of Manufacturers
Life or its affiliates receive no compensation in addition to their compensation
as officers or employees of Manufacturers Life or its affiliates. Directors who
are not also officers or employees will receive compensation as set by the
Board. No shares of the Company are owned by any executive officer or director.
Executive officers participate in certain plans sponsored by Manufacturers Life.
A short-term profit sharing plan is in place for all employees of Manufacturers
Life and its subsidiaries at "director" level and above. Pay-outs under the
short-term profit sharing plan are based on a percentage of salary and the
employee's level in the organization. Manufacturers Life also maintains a Long
Term Incentive Plan for officers of Manufacturers Life who have attained the
title of Vice-President. Benefits are directly linked to long-term growth as
measured by changes in Manufacturers Life's surplus.
Manufacturers Life maintains a defined benefit pension plan for the benefit of
all Canadian Staff which vests at two years of service. Benefit pay-out is a
function of years of service and salary including all contractual incentive
compensation.
Pay-outs under this program are regulated by the various provincial benefit acts
and Section 248 of the Income Tax Act (Canada).
The maximum yearly pension benefit as permitted by Section 248 of the Income
Tax Act (Canada) is $1,266 per year of service. There are no years of service
restrictions limiting overall pay-outs under this section. The maximum yearly
benefit is currently earned at a salary of $72,419. The yearly allowable
benefit will be indexed commencing 1999 based on increases in average industrial
wages.
All executive officers of the Company currently accrue maximum yearly
<PAGE> 44
benefits under this plan.
In addition there is a supplemental pension arrangement available to officers of
Manufacturers Life who have attained the title of Vice President. This is an
unfunded, non-qualified arrangement intended to provide additional pension
income consistent with the executive's pre-retirement income.
Combined pension benefits at age 65 under these arrangements is as follows:
<TABLE>
<CAPTION>
Years of Service
Remuneration* 15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 24,879 33,172 41,465 49,758 58,052
150,000 30,394 40,525 50,657 60,788 70,919
200,000 41,423 55,231 69,039 82,847 96,655
250,000 52,453 69,937 87,422 104,906 122,390
300,000 63,482 84,643 105,804 126,965 148,126
400,000 85,541 114,055 142,569 171,083 199,597
500,000 107,600 143,467 179,334 215,201 251,068
600,000 129,659 172,879 216,099 259,319 302,539
700,000 151,718 202,291 252,864 303,437 354,010
800,000 173,777 231,703 289,629 347,555 405,481
900,000 195,836 261,115 326,394 391,673 456,952
1,000,000 217,895 290,527 363,159 435,791 508,423
</TABLE>
*Remuneration table is based on a 100% time allocation to Manufacturers Life of
America.
Normal retirement age is 65. Pay-out is annuity based with either single life
with a ten year guarantee or joint life with a five year guarantee.
Donald Guloien, President and Chief Operating Officer, has 15 years and 9 months
of credited service.
<PAGE> 45
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
<TABLE>
<CAPTION>
(a) Name & Address Amount & Nature Percent
Title of of Beneficial of Beneficial of
Class Owner Ownership Class
----------- -------------------- ------------------- -----------
<S> <C> <C> <C>
Common Manulife Reinsurance 4,501,860 shares 100%
Corporation
Preferred Manulife Reinsurance 105,000 100%
Corporation
</TABLE>
(b) Nothing to report.
(c) Nothing to report.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain officers and/or directors of The Manufacturers Life Insurance
Company of America are also officers and/or directors of ManEquity, Inc., an
affiliated broker/dealer. ManEquity received, in 1996, compensation for the
sale of variable products issued by The Manufacturers Life Insurance company of
America in the amount of $21,492,659. Similar payments will be received in 1997.
Legal fees were paid to the firm of Dykema Gossett during the Company's
last fiscal year. A director of the Company is associated with that firm;
however, legal fees so paid did not exceed 5% of Dykema Gossett's consolidated
gross revenues during its last full fiscal year.
<PAGE> 46
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 dated March 21, 1997.
b. Balance Sheets at December 31, 1996 and 1995.
c. Statements of Income for the Years ended December 31, 1996, 1995 and 1994.
d. Statements of Changes in Capital and Surplus for the Years ended December
31, 1996, 1995 and 1994.
e. Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994.
f. Notes to Financial Statement - December 31, 1996.
(2) Financial Statement Schedules:
a. Report of Independent Auditors dated March 21, 1997 on financial statement
schedules.
b. Schedule I - Summary of Investments - other than Investment in Related
Parties.
c. Schedule III - Supplemental Insurance Information.
d. Schedule IV - Reinsurance.
All other schedules are omitted because they are not required or the required
information is shown in the financial statements as notes thereto.
<PAGE> 47
(b). The following exhibits are filed as part of this report by incorporation
by reference as indicated below.
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- -------------------
<S> <C> <C>
(1) Not applicable
(2) None
(3)(a)(i) Articles of Incorporation Incorporated by reference of
The Manufacturers Life to Exhibit (6)(a)(i) to
Insurance Company of the Registration Statement
America on Form N-4 filed by The
Manufacturers Life
Insurance Company of
America on January 13,
1993 (File No. 33-57018).
(3)(a)(ii) By-Laws of The Manufacturers Incorporated by reference
Life Insurance Company of to Exhibit (6)(b)(i) to
America the Registration Statement
On Form N-4 filed by The
Manufacturers Life Insurance
Company of America on January
13, 1993 (File No. 33-57018).
(4)(a) Form of Multi-Account Incorporated by reference
Flexible Variable Annnuity to Exhibit (4)(a) to
Policy 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 reference
Annuity Rider 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
10, 1994 (File No. 33-57020).
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- -------------------
<S> <C> <C>
(4)(b)(i)(a) Trustee-Owned Policies Incorporated by reference
Annuity Rider 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 statement on Form
N-4 filed by The Manufacturers
Life Insurance Company of
America on January 13, 1993
(File No. 33-57018).
(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. 33-57020).
(10)(b)(i) Service Agreement between Incorporated by reference
Manufacturers Life of to Exhibit (8)(a)
America and The Manu- to the registration state-
facturers Life ment on Form N-4 filed by
Insurance Company The Manufacturers Life
Insurance Company of America on
January 13, 1993 (File No.
33-57018).
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- -------------------
<S> <C> <C>
(10)(b)(ii) Amendment to Service Incorporated by reference
Agreement to Exhibit (8)(b)
to the registration statement
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 reference
Service Agreement to Exhibit (10)(b)(iii)
to the registration statement
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 reference
The Manufacturers Life to Exhibit (10)(b)(iv)
Insurance Company and to the registration state-
ManEquity, Inc. dated ment on Form N-4 filed by
January 2, 1991 as amended The Manufacturers Life
March 1, 1994 Insurance Company of
America on April 29, 1994
(File No. 33-57018).
(10)(c) Specimen Agreement between Incorporated by reference
ManEquity, Inc. and to Exhibit (3)(b)
registered representatives (i) to the registration
statement 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 reference
ManEquity, Inc. and Dealers to Exhibit (3)(b)
(ii) to the registration
statement on Form N-4 filed by
The Manufacturers Life Insurance
Company of America on January
13, 1993 (File No. 33-57018).
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- -------------------
<S> <C> <C>
(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)(a) None
(23)(b) None
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- -------------------
<S> <C> <C>
(23)(c) None
(24) Power of Attorney Incorporated by reference to
Exhibit 12 to the post-
effective amendment No. 10 to
the registration statement 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
(28) Not Applicable
</TABLE>
<PAGE> 52
(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.
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Securities 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)
March ___, 1997 /s/ Donald A. Guloien
_______________________________________ By:______________________________
Date DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
Attest
/s/ James D. Gallagher
_______________________________________
JAMES D. GALLAGHER
Secretary
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Securities 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)
March , 1997 By: /s/ Donald A. Guloien
________________________________ ____________________________
Date DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
Attest
/s/ James D. Gallagher
________________________________
<PAGE> 55
SIGNATURES
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
indicated on this ____ day of March, 1997.
<TABLE>
<CAPTION>
Signature Title
- ---------- ------
<S> <C>
*
________________________________ Chairman and Director
JOHN D. RICHARDSON
*
________________________________ President and Director
DONALD A. GULOIEN (Principal Executive Officer)
*
________________________________ Director
SANDRA M. COTTER
/s/ James D. Gallagher
________________________________ Director
JAMES D. GALLAGHER
*
________________________________ Director
BRUCE GORDON
*
________________________________ Director
JOSEPH J. PIETROSKI
*
________________________________ Director
THEODORE KILKUSKIE, JR.
*
________________________________ Vice President, Finance
DOUGLAS H. MYERS (Principal Financial and
Accounting Officer)
*/s/ James D. Gallagher
________________________________
JAMES D. GALLAGHER
Pursuant to Power of Attorney
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995
AND 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 51,708
<DEBT-CARRYING-VALUE> 51,708
<DEBT-MARKET-VALUE> 51,708
<EQUITIES> 21,572
<MORTGAGE> 645
<REAL-ESTATE> 0
<TOTAL-INVEST> 101,240
<CASH> 17,493
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 102,610
<TOTAL-ASSETS> 1,062,603
<POLICY-LOSSES> 91,915
<UNEARNED-PREMIUMS> 635
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 668,094
<NOTES-PAYABLE> 158,760
<COMMON> 4,502
0
10,500
<OTHER-SE> 101,628
<TOTAL-LIABILITY-AND-EQUITY> 1,062,603
12,898
<INVESTMENT-INCOME> 19,651
<INVESTMENT-GAINS> (119)
<OTHER-INCOME> 40,434
<BENEFITS> 14,473
<UNDERWRITING-AMORTIZATION> 13,240
<UNDERWRITING-OTHER> 45,012
<INCOME-PRETAX> (12,316)
<INCOME-TAX> (3,909)
<INCOME-CONTINUING> (8,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,407)
<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>
