<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, 1998
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:
The number of shares outstanding of the issuer's sole class of common stock, as
of December 31, 1998 is 4,501,861
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, 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.
1
<PAGE> 2
PART I
Item 1. - Business
Description of Company, Reportable Segments and Products
The Registrant, also referred to as the "Company", is a direct wholly-owned U.S.
subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA"),
which in turn is a direct wholly-owned subsidiary of the Manulife Reinsurance
Corporation (U.S.A.) ("MRC"). MRC is an indirectly wholly-owned subsidiary of
The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian
mutual insurance company.
Manulife Financial 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.
The Company reports two business segments: Traditional Life Insurance sold in
Taiwan and Variable Life Insurance and Annuities sold in the U.S. The Company's
reportable segments have been determined based on geography, differences in
product features, and distribution; the segments are also consistent with the
Company's management structure.
Variable Products
During the last five years the Company has grown significantly through the
successful growth in variable insurance sales. This growth reflects:
a) continuing shift in consumer preference as they seek greater control
over their investment decision making,
b) more active marketing and sales practices by the Company,
c) increased product lines,
d) expanded offering of investment portfolios.
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<PAGE> 3
The recently launched Survivorship Variable Universal Life (SVUL) product and
the Corporate-owned Variable Life (COLI) product launched in 1997, together
with an expanded offering of 36 investment portfolios, have been positively
received.
The deposit growth for VUL is consistent with the Company's commitment to
develop variable products as core "estate/business planning products".
The broad range of high-profile external fund managers permits the policyholders
to take advantage of an investment approach known as managing to the "Efficient
Frontier" in which investors' assets are allocated among a broad mix of
investment choices consistent with their risk-tolerance levels. We are confident
the combination of both products and investment platform form the foundation of
future growth and profitability.
The Company has de-emphasized the sale of variable annuities and concentrated on
the sale of estate planning variable life products which is more consistent with
its client and producer base. Variable annuities for Manulife Financial
are currently being marketed through an affiliated company, The Manufacturers
Life Insurance Company of North America.
Taiwan
The Company entered Taiwan in 1992 as a start-up venture to sell traditional
insurance products through its Taiwan branch. During 1995 the Company commenced
full operations that resulted in significant expenditures on agent recruitment
and training. In 1996, Taiwan's operating losses increased as a result of costs
associated with recruitment and training. Although management expected losses,
the magnitude was not acceptable. In late 1996, a new General Manager was
appointed and transferred to Taiwan with the mandate to slow growth and focus
more selectively on strategic opportunities. Improvements were seen in 1997 and
1998 with decreases in the net losses reported. The Company continues to
anticipate a large potential for this market.
Regulation
The Company is subject to the laws of the state of Michigan governing insurance
companies and to the regulation of the Michigan Insurance Department. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which the Company operates. Regulation by each insurance
department includes periodic examination to determine the Company's contract
liabilities and reserves so that each insurance department may verify that these
items are correct. Regulation by supervisory agencies includes licensing to
transact business, overseeing trade practices, licensing agents, approving
policy forms, establishing reserve requirements, fixing maximum interest rates
on life insurance policy loans and minimum rates for accumulation of surrender
values, prescribing the form and content of required financial statements and
regulation of the type and amounts of investments permitted. The Company's books
and accounts are subject to review by each insurance department and other
supervisory agencies at all times, and the Company files annual statements with
these agencies. A full examination of the Company's operations is conducted
periodically by the Michigan Insurance Department. Under Michigan holding
company laws and other laws and regulations, intercompany transactions, and
transfers of assets may be subject to prior notification or approval depending
upon the size of such transfers and payments in relation to the financial
positions of the companies.
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Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments on the
Company under these laws cannot be reasonably estimated. Most of these laws do
provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal legislation that removed barriers preventing banks
from engaging in the insurance business or that changed the Federal income tax
treatment of insurance companies, insurance company products, or employee
benefit plans could significantly affect the insurance business.
On January 20, 1998, the Board of Directors of Manulife Financial announced that
it had asked the management of Manulife Financial to prepare a plan for
conversion from a mutual life insurance company to an investor-owned,
publicly-traded stock company. Any demutualization plan for Manulife Financial
is subject to the approval of its Board of Directors and policyholders, as well
as regulatory approval.
Forward-Looking Information
Certain information included herein is forward-looking within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not limited to,
statements concerning anticipated operating results, financial resources, growth
in existing markets and the impact of the year 2000. Such forward-looking
information involves important risks and uncertainties that could significantly
affect actual results and cause them to differ materially from expectations
expressed herein. These risks and uncertainties include changes in general
economic conditions, the effect of regulatory, tax and competitive changes in
the environment in which the Company operates, fluctuations in interest rates,
performance of financial markets and the Company's ability to achieve
anticipated levels of earnings.
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.
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PART II
Item 5. - Market for Registrants Common Equity and Related Stockholder Matters
Since the Registrant is a wholly-owned subsidiary of ManUSA, which is the sole
record holder of the Registrant's shares, there is no public trading market for
the Registrant's common stock. The Registrant has declared no cash dividends on
its common stock at any time during the two most recent fiscal years.
Item 6. - Selected Financial Data
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------- --------------- --------------- --------------- ---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Under Generally Accepted Accounting Principles:
Total Revenues $ 29,866 $ 56,226 $ 73,532 $62,174 $60,322
Net Loss 754 3,636 8,407 6,846 6,726
Total Assets 1,363,810 1,166,611 1,062,603 854,814 654,968
Long Term Obligations - 41,500 8,500 167,390 159,019
Capital and Surplus 203,197 106,769 116,630 110,520 101,839
</TABLE>
5
<PAGE> 6
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operation
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 "ManAmerica" or the "Company") should be read in conjunction with
the Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements.
REVIEW OF CONSOLIDATED OPERATING RESULTS
<TABLE>
<CAPTION>
----------------------------------------------------------- ------------------- ------------------ ---------------
Financial Summary (In `000's) 1998 1997 1996
----------------------------------------------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C>
Premiums $9,290 $ 8,607 $ 12,898
Consideration paid on reinsurance terminated (40,975) - -
Fee Income 54,547 38,682 40,434
Net Investment Income 6,128 8,275 19,651
Other Revenues 1,082 544 668
Realized Investment Gains (Losses) (206) 118 (119)
----------------------------------------------------------- ------------------- ------------------ ---------------
TOTAL REVENUES $29,866 $56,226 $ 73,532
----------------------------------------------------------- ------------------- ------------------ ---------------
Policyholder Benefits and Claims $ 16,541 $ 6,733 $ 14,473
Reduction of reserves on reinsurance terminated (40,975) - -
Operating Costs and Expenses, including Commissions 44,237 44,580 45,012
Amortization of Deferred Acquisition Costs 9,266 4,860 13,240
----------------------------------------------------------- ------------------- ------------------ ---------------
Loss Before Income Taxes (1,146) (4,113) (12,316)
Income Tax Benefit 392 477 3,909
Net Loss (754) (3,636) (8,407)
----------------------------------------------------------- ------------------- ------------------ ---------------
General Account Assets 288,579 269,567 394,509
Separate Account Assets 1,075,231 897,044 668,094
----------------------------------------------------------- ------------------- ------------------ ---------------
TOTAL ASSETS 1,363,810 1,166,611 $1,062,603
----------------------------------------------------------- ------------------- ------------------ ---------------
General Account Liabilities 85,382 162,798 $ 277,879
Separate Account Liabilities 1,075,231 897,044 668,094
----------------------------------------------------------- ------------------- ------------------ ---------------
CAPITAL AND SURPLUS $203,197 $106,769 $116,630
----------------------------------------------------------- ------------------- ------------------ ---------------
</TABLE>
NET LOSS
The Company reported a consolidated net loss in 1998 of $0.8 million, compared
to the 1997 net loss of $3.6 million ($8.4 million net loss in 1996). The main
contributors to these losses were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
----------------------------------------------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C>
US Operations $1.5 $(0.8) $ 9.1
Taiwan Operations (2.3) (2.8) (17.5)
----------------------------------------------------------- ------------------ ------------------ ---------------
NET LOSS $(0.8) $ (3.6) $ ( 8.4)
----------------------------------------------------------- ------------------ ------------------ ---------------
</TABLE>
The net income from U.S. operations in 1998 of $1.5 million compared to a net
loss in 1997 of $0.8 million was primarily a result of increased fee income
earned in 1998 compared to 1997. The higher net
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<PAGE> 7
loss in 1997 compared to 1996 was directly attributable to new business strain
on dramatically increased variable universal life contract sales for which
deposits increased 28% over 1996 levels.
The net loss from Taiwan operations decreased to $2.3 million in 1998 from $2.8
million in 1997 (a $17.5 million net loss in 1996). The lower net loss in 1998
was a result of higher premiums and lower operating costs which were partially
offset by higher policyholder benefits due to increased business and lower
surrenders. The increased net loss in 1997 compared to 1996 was a result of
significant start-up costs incurred in Taiwan, particularly associated with
producer recruitment. In 1997, as discussed earlier, improvements were made in
the Taiwan branch operations to rationalize the operations, slow the sales
growth and related production costs, and to instead focus on strategic growth.
Lower sales in 1998 and 1997 compared to 1996 have significantly reduced the
level of commissions and expenses incurred.
PREMIUMS
Premium revenue for 1998 was $9.3 million compared to $8.6 million in 1997
($12.9 million in 1996). Of the total, premiums related to sales of traditional
life insurance contracts in Taiwan in 1998, 1997 and 1996 were $9.2 million,
$8.1 million and $12.2 million respectively. The increase in premiums for Taiwan
in 1998 compared to 1997 reflects the focused growth strategy adopted in 1997 as
discussed previously. The decrease in premiums for Taiwan in 1997 from 1996
reflects this same shift in strategy. In 1998, $0.1 million of premiums were
reported for U.S. operations, compared to $0.5 million in 1997 and $0.7 million
in 1996. The U.S. 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. On December 31, 1998, this agreement was terminated and the Company
transferred premiums and reserves totaling $41.0 million related to this block
of business to ManUSA. This transaction is reported as consideration paid on
reinsurance terminated of $41.0 million along with a corresponding reduction of
reserves on reinsurance terminated.
Total general account and separate account deposits not included in premiums
above were as follows:
<TABLE>
<CAPTION>
(In 000's) 1998 1997 1996
----------------------------------------------------------- -------------------- --------------- -----------------
<S> <C> <C> <C>
Variable Life Insurance $207,401 $185,355 $144,438
Variable Annuities 2,640 11,598 36,130
----------------------------------------------------------- -------------------- --------------- -----------------
TOTAL $210,041 $196,953 $180,568
----------------------------------------------------------- -------------------- --------------- -----------------
</TABLE>
The growth in variable life insurance deposits continued while single premium
variable annuity premiums continued to decrease in 1998 and 1997. The deposit
growth for variable life is consistent with the Company's commitment to develop
variable core "estate/business planning products". Sales of the COLI variable
universal life product launched in 1997 continued to grow in 1998. With the
merger of Manulife Financial and North American Life Assurance Company in 1996,
the sale of variable annuities in the Company was de-emphasized in October 1997
and all variable annuity sales are made through an affiliated company, The
Manufacturers Life Insurance Company of North America.
FEE INCOME
Fee income for 1998 was $54.5 million, compared to $38.7 million in 1997 ($40.4
million in 1996). The increase in fee income in 1998 is attributable to: i)
higher cost of insurance charges resulting from a larger inforce block of
business in 1998 compared to 1997 and 1996; ii) increased mortality and expense
risk charges earned as a percentage of the value of invested assets in the
separate account portfolios which have grown significantly in 1998 and 1997
compared to 1996 due to continued strong investment performance, and; iii)
higher surrender charges earned due mainly to a larger inforce block of
business. Cost of insurance charges for 1998, 1997 and 1996 were $28.3
million, $21.3 million and $19.3 million, respectively; mortality and expense
risk charges earned on separate account assets for 1998, 1997 and 1996 were
$8.5 million, $7.0 million and $5.2 million, respectively, and; surrender
charges for 1998, 1997 and 1996 were $5.1 million, $3.2 million and $3.0
million, respectively. The variable universal life and annuity business
accounted for 81% of the fee income earned by the
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<PAGE> 8
Company in 1998 compared to 82% in 1997 and 85% in 1996. The remainder of
the fee income is primarily derived through asset-based distribution fees which
have increased to $7.6 million in 1998 compared to $5.1 million in 1997 ($1.6
million in 1996).
NET INVESTMENT INCOME
Net investment income was $6.1 million in 1998 compared to $8.3 million in 1997
($19.7 million in 1996). Included in the 1997 investment income is approximately
$2.5 million of interest earned on the Manufacturers Life Mortgage Securities
Corporation ("MLMSC") bonds which were repaid on March 1, 1997. The decrease in
net investment income from 1996 to 1997 is due to the maturity of the MLMSC
bonds in March 1997 on which interest of approximately $13.2 million was
reported in 1996.
POLICYHOLDER BENEFITS AND CLAIMS
Policyholder benefits increased to $16.5 million in 1998, compared to $6.7
million in 1997 ($14.5 million in 1996). The increase in 1998 is primarily a
result of increased reserves for the Taiwan business due to new business and a
much slower run-off of reserves as lower surrenders were experienced compared to
1997.
OPERATING COSTS AND EXPENSES, INCLUDING COMMISSIONS
Operating costs and expenses, including commissions, were $85.5 million for 1998
compared to $77.9 million for 1997 before deferral of acquisition expenses
($81.0 million for 1996). Net of deferred acquisition costs, these costs were
$44.2 million for 1998 compared to $44.6 million for 1997 ($45.0 million for
1996). The increase in expenses before deferral of acquisition expenses in 1998
is primarily attributable to higher variable expenses resulting from increased
sales of variable insurance products compared to 1997. A greater portion of
these expenses have been deferred in 1998 compared to 1997 as they relate to the
acquisition of new business.
AMORTIZATION OF DEFERRED ACQUISITION COSTS
The DAC amortization expense was $9.3 million for 1998 compared to $4.9 million
for 1997 ($13.2 million for 1996). In 1997, there was significant DAC unlocking
due to assumption changes in the DAC model and re-pricing of the Company's
variable products. This was partially offset by amounts written-off relating to
DAC in the Taiwan operations due to high reported lapses in 1997.
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<PAGE> 9
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
The Company had total consolidated assets of $1,364 million at December 31,
1998, an increase of $197 million or 16.9% from 1997. This change is principally
a result of separate account asset growth of $178 million due to strong
investment performance of the underlying investment funds, continued consumer
preference for participation in the stock market through separate accounts, and
the additional product offerings and investment options introduced in 1998.
INVESTMENTS
The following table outlines, by type of investment, the carrying value of the
general account investment portfolio of the Company:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ ----------------------- ----------------------
<S> <C> <C>
Investment Type (In `000's) 1998 1997
- ------------------------------------------------------------------ ----------------------- ----------------------
Fixed maturities $ 49,254 $ 67,893
Equities 20,524 19,460
Policy Loans 19,320 14,673
Short-Term Investments 459 2,130
----------------------------------------------------------------- ----------------------- ----------------------
TOTAL INVESTMENTS $ 89,557 $ 104,156
----------------------------------------------------------------- ----------------------- ----------------------
</TABLE>
General account investments decreased by $14.6 million or 14% from 1997. This
change is due to a decrease in fixed maturities of $18.6 million, an increase in
policy loans of $4.6 million and a decrease in short-term investments of $1.7
million. The Company manages its investment portfolio to provide liquidity to
meet new business strain on increased variable life insurance sales.
FIXED MATURITIES
The Company's fixed maturity bond portfolio of $49.3 million represents 55% of
investments at the end of 1998, compared to 65% at the end of 1997.
As at December 31, 1998, 91% of the bond portfolio was rated "A" or higher, and
100% was rated investment grade, "BBB" or higher. The corresponding percentages
at the end of 1997 were 97.5% and 100%.
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------------------------------- ------------------------------
Fixed maturities by Investment Grade
(In `000's) 1998 1997
- ---------------------------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
AAA $29,927 60.8% $52,496 77.3%
AA 544 1.1% 516 1.0%
A 14,459 29.3% 13,167 19.3%
BBB 4,324 8.8% 1,714 2.5%
--------------------------------------------------- ----------------- --------------- -------------- ---------------
TOTAL FIXED MATURITIES $49,254 100.0% $67,893 100.0%
--------------------------------------------------- ----------------- --------------- -------------- ---------------
</TABLE>
9
<PAGE> 10
EQUITY SECURITIES
The Company's equity portfolio of $20.5 million represents 23% of investments at
the end of 1998, compared to 19% at the end of 1997. The equities consist
entirely of investments in the portfolios of the MIT.
POLICY LOANS
Policy loans represented 22% of investments at December 31, 1998, compared to
12% in 1997. 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, 1998 and 1997.
DEFERRED ACQUISITION COSTS (DAC)
DAC increased from $130.4 million at the end of 1997 to $163.5 million as at the
end of 1998. This increase is due mainly to deferrable acquisition costs
associated with the sale of the COLI product introduced in 1997.
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) 1998 1997
- ------------------------------------------------------------------------ ------------------------ --------------------
<S> <C> <C>
Life Insurance:
Taiwan $ 18,383 $13,291
Reinsurance - 40,975
Variable Life 42,447 40,211
- ------------------------------------------------------------------------ ------------------------ --------------------
TOTAL $ 60,830 $ 94,477
- ------------------------------------------------------------------------ ------------------------ --------------------
Separate Account Liabilities (In '000's) 1998 1997
- ------------------------------------------------------------------------ ------------------------ --------------------
Variable Life Insurance $ 811,959 $ 603,732
Variable Annuities 263,272 293,312
- ------------------------------------------------------------------------ ------------------------ --------------------
TOTAL $1,075,231 $ 897,044
- ------------------------------------------------------------------------ ------------------------ --------------------
</TABLE>
Separate account liabilities are $1,075 million, an increase of 20% over 1997.
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
1998 and sales of the COLI product.
The decrease in reinsurance reserves reflects the transfer of reserves to ManUSA
resulting from the termination of the reinsurance agreement between the two
companies discussed previously.
Taiwan reserves increased in 1998 due to increased business and lower lapses and
surrenders.
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<PAGE> 11
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 accounts, 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 1998, this amounted to $24 million or 21% of total
investments, including cash and cash equivalents, compared to $22 million in
1997 or 17.7%. 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 cost 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 $69.3 million and $24.7 million in 1998 and 1997,
respectively, compared to $20.5 million in 1996. Included in the 1998 total for
cash used in operating activities is the consideration paid of $41.0 million on
the termination of the reinsurance agreement with ManUSA. As a result, the
Company looks to its parent, ManUSA, for the necessary capital to support its
operations. In 1996, a $15 million contribution of capital was made to the
Company by ManUSA to provide further liquidity. In 1998, the surplus debenture
for $8.5 million issued to the Company from ManUSA in 1995 was discharged and
recorded as a capital contribution. Also in 1998, the promissory note in the
amount of $33 million issued by the Company to ManUSA in 1997 was discharged and
the amount of $34.3 million ($33 million plus interest of $1.3 million) was
recorded as a capital contribution. In addition, in 1998, a further $51.7
million contribution of capital was made to the Company by ManUSA to offset the
payment of $41.0 million made by the Company to ManUSA on the termination of the
reinsurance agreement between the two companies discussed previously. The
Company and Manulife Financial have entered into an agreement whereby Manulife
Financial provides a claims paying guarantee to the Company's U.S.
policyholders. This claims paying guarantee does not apply to the Company's
separate account contract holders.
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.
11
<PAGE> 12
RISK MANAGEMENT PRACTICES AND PROCEDURES
Risk management is a fundamental component in the Company's financial strength
and stability, 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
reviews by internal and external auditors and regulators.
The key risks faced by the Company and how they are managed is explained in the
following sections.
INTEREST RATE RISK
Interest rate risk is the risk that the Company will incur economic losses due
to adverse changes in interest rates. The Company manages its interest rate risk
through an asset/liability management program. The Company has established a
target portfolio mix which takes into account the risk attributes of the
liabilities supported by the assets, expectations of market performance, and a
generally conservative investment philosophy. Preservation of capital and
maintenance of income flows are key objectives of this program.
Based upon the Company's investment strategy and its asset-liability management
process, management estimates that a 100 basis point immediate, parallel
increase in interest rates for the entire year of 1999 would decrease the fair
value of its fixed maturity securities by approximately $2.6 million. The
Company's liabilities are comprised primarily of separate account liabilities
for which contract holders bear the risk of fluctuations in interest rates.
EQUITY RISK
The Company earns asset based fees based on the asset levels invested in the
separate accounts. As a result, the Company is subject to equity risk and the
effect changes in equity market levels will have on the amounts invested in the
separate accounts. The Company estimates that the effect of a 10% decline in
equity fair values in force at December 31, 1998 would adversely affect the
Company's asset based fees by $2.0 million if applicable over the entire year of
1999.
CURRENCY RISK
The Company's policy of matching assets with related liabilities by currency
limits its exposure to foreign currency movements to a minimal level. The
currency exposure on surplus is proportional to the underlying liabilities, thus
insulating the Company's "surplus to liability" ratios from changes in foreign
currency exchange rates.
As a result of the Company's foreign currency policy, the impact of the current
foreign exchange crisis in Asia on the Company's earnings was minimal although
the Company recognizes that the economic value of the Taiwan branch was affected
by the economic and currency developments in these markets.
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.
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<PAGE> 13
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. 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.
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.
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.
13
<PAGE> 14
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company (collectively
with its subsidiaries "Manufacturers Life"), to ensure that computer systems and
processes of Manufacturers Life and its subsidiaries and affiliates, including
the Company, will continue to perform through the end of this century and in the
next. In 1996, in order to make Manufacturers Life's systems Year 2000
compliant, a program was instituted to modify or replace both Manufacturers
Life's information technology systems ("IT systems") and embedded technology
systems ("Non-IT systems"). The phases of this program include (i) an inventory
and assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification. For most IT and non-IT systems identified as critical,
certification has been completed for the Company. Of those systems classified as
critical, management believes that over 99% were Year 2000 compliant at the end
of 1998. Management continues to focus attention on the remaining 1% of critical
systems. Those that affect the Company are expected to be compliant by the end
of the second quarter in 1999. Management believes that the Company's
non-critical systems will be Year 2000 compliant by the end of the first quarter
1999.
In addition to efforts directed at Manufacturers Life's own systems,
Manufacturers Life is presently consulting vendors, customers, and other third
parties with which it deals in an effort to ensure that no material aspect of
Manufacturers Life's operations will be hindered by Year 2000 problems of these
third parties. This process includes providing third parties with questionnaires
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities. Manufacturers Life
recognizes the importance of preparing for the change to the Year 2000 and, in
January 1999, commenced preparation of contingency plans, in the event that
Manufacturers Life's Year 2000 program has not fully resolved its Year 2000
issues. The Year 2000 Project Management Office for Manufacturers Life's U.S.
Division is coordinating the preparation of the Year 2000 contingency plan on
behalf of U.S. Division affiliates and subsidiaries. Contingency planning is
targeted for completion by mid-1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operational problems for Manufacturers Life's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the Year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manufacturers Life's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on
Manufacturers Life's operations, customer relations or financial condition.
Manufacturers Life estimates the total cost of its Year 2000 program will be
approximately $59 million, of which $49.5 million has been incurred through
December 31, 1998; however, there can be no assurance that the actual cost
incurred will not be materially higher than such estimate. Most costs will be
expensed as incurred; however, those costs attributed to the purchase of new
software and hardware will generally be
14
<PAGE> 15
capitalized. The total cost of the Year 2000 program is not expected to have a
material effect on Manufacturers Life's net operating income.
Item 7A. Quantitative And Qualitative Disclosure About Market Risk
See item 7 "Risk Management Practices and Procedures".
Item 8. Financial Statements And Supplementary Data
See Following Page.
15
<PAGE> 16
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors............................................. 17
Audited Consolidated Financial Statements.................................. 18
Consolidated Balance Sheets........................................... 18
Consolidated Statements of Income..................................... 19
Consolidated Statements of Changes in Capital And Surplus............. 20
Consolidated Statements of Cash Flows................................. 21
Notes to Consolidated Financial Statements................................. 22
16
<PAGE> 17
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania
March 15, 1999 Ernst & Young LLP
17
<PAGE> 18
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
As at December 31 ($ thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value: (note 3)
Fixed maturity (amortized cost: 1998 $45,248; 1997 $66,565) .......... $ 49,254 $ 67,893
Equity (cost: 1998 $ 19,219; 1997 $20,153) .......................... 20,524 19,460
Short-term investments .................................................. 459 2,130
Policy loans ............................................................ 19,320 14,673
----------- -----------
TOTAL INVESTMENTS ....................................................... $ 89,557 $ 104,156
----------- -----------
Cash and cash equivalents ............................................... $ 23,789 $ 19,882
Deferred acquisition costs (note 5) ..................................... 163,506 130,355
Income taxes recoverable ................................................ 2,665 5,679
Other assets ............................................................ 9,062 9,495
Separate account assets ................................................. 1,075,231 897,044
----------- -----------
TOTAL ASSETS ............................................................ $ 1,363,810 $ 1,166,611
=========== ===========
LIABILITIES, CAPITAL AND SURPLUS 1998 1997
----------- -----------
LIABILITIES:
Policyholder liabilities and accruals ................................... $ 60,830 $ 94,477
Notes payable (note 7) .................................................. -- 41,500
Due to affiliates ....................................................... 5,133 13,943
Deferred income taxes (note 6) .......................................... 763 1,174
Other liabilities ....................................................... 18,656 11,704
Separate account liabilities ............................................ 1,075,231 897,044
----------- -----------
TOTAL LIABILITIES ....................................................... $ 1,160,613 $ 1,059,842
----------- -----------
CAPITAL AND SURPLUS:
Common shares (note 8) .................................................. $ 4,502 $ 4,502
Preferred shares (note 8) ............................................... 10,500 10,500
Contributed surplus ..................................................... 193,096 98,569
Retained earnings (deficit) ............................................. (2,664) (1,910)
Accumulated other comprehensive income (loss) ........................... (2,237) (4,892)
----------- -----------
TOTAL CAPITAL AND SURPLUS ............................................... $ 203,197 $ 106,769
----------- -----------
TOTAL LIABILITIES, CAPITAL AND SURPLUS .................................. $ 1,363,810 $ 1,166,611
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 19
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Premiums ............................................................ $ 9,290 $ 8,607 $ 12,898
Consideration paid on reinsurance terminated (note 10) .............. (40,975) -- --
Fee income .......................................................... 54,547 38,682 40,434
Net investment income (note 3) ...................................... 6,128 8,275 19,651
Realized investment gains (losses) .................................. (206) 118 (119)
Other ............................................................... 1,082 544 668
-------- -------- --------
TOTAL REVENUE ............................................................ $ 29,866 $ 56,226 $ 73,532
-------- -------- --------
BENEFITS AND EXPENSES:
Policyholder benefits and claims .................................... $ 16,541 $ 6,733 $ 14,473
Reduction of reserves on reinsurance terminated (note 10) ........... (40,975) -- --
Operating costs and expenses ........................................ 41,676 41,742 34,581
Commissions ......................................................... 2,561 2,838 10,431
Amortization of deferred acquisition costs (note 5) ................. 9,266 4,860 13,240
Interest expense .................................................... 1,722 2,750 12,251
Policyholder dividends .............................................. 221 1,416 872
-------- -------- --------
TOTAL BENEFITS AND EXPENSES .............................................. 31,012 60,339 85,848
-------- -------- --------
LOSS BEFORE INCOME TAXES ................................................. (1,146) (4,113) (12,316)
-------- -------- --------
INCOME TAX BENEFIT (NOTE 6) .............................................. 392 477 3,909
-------- -------- --------
NET LOSS ................................................................. $ (754) $ (3,636) $ (8,407)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 20
\
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS
------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ......... $15,002 $ 83,569 $ 10,133 $ 1,816 $ 110,520
Issuance of shares ................. -- 15,000 -- -- 15,000
Comprehensive income (loss) (note 2) -- -- (8,407) (483) (8,890)
------- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1996 ......... $15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630
Comprehensive income (loss) (note 2) -- -- (3,636) (6,225) (9,861)
------- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1997 ......... $15,002 $ 98,569 $ (1,910) $(4,892) $ 106,769
Capital contribution (note 8) ...... -- 94,527 -- -- 94,527
Comprehensive income (loss) (note 2) -- -- (754) 2,655 1,901
------- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1998 ......... $15,002 $193,096 $ (2,664) $(2,237) $ 203,197
======= ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss .................................................................. $ (754) $ (3,636) $ (8,407)
Adjustments to reconcile net loss to net cash used in operating
activities:
Additions (deductions) to policy liabilities and accruals ........... (36,217) (2,147) 3,287
Deferred acquisition costs ........................................... (43,065) (33,544) (36,024)
Amortization of deferred acquisition costs ........................... 9,266 4,860 13,240
Realized (gains) losses on investments ............................... 206 (118) 119
Decreases (increases) to deferred income taxes ...................... (1,796) 2,730 777
Other ................................................................ 3,067 7,144 6,540
-------- --------- ---------
Net cash used in operating activities ..................................... $(69,293) $ (24,711) $ (20,468)
-------- --------- ---------
INVESTING ACTIVITIES:
Fixed maturity securities sold ............................................ $ 27,852 $ 73,772 $ 120,234
Fixed maturity securities purchased ....................................... (6,429) (89,763) (108,401)
Equity securities sold .................................................... 8,555 10,586 25,505
Equity securities purchased ............................................... (8,082) (11,289) (22,203)
Mortgage loans repaid ..................................................... -- 514 6,669
Net change in short-term investments ...................................... 1,671 4,558 (2,992)
Net policy loans advanced ................................................. (4,647) (4,851) (2,867)
Guaranteed annuity contracts .............................................. -- 171,691 (16,356)
-------- --------- ---------
Cash provided by investing activities ..................................... $ 18,920 $ 155,218 $ 2,581
-------- --------- ---------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances ............................ $ 7,981 $ 7,582 $ 5,493
Withdrawals of policyholder account balances on
variable life and annuity policies ................................... (5,410) (3,252) (2,994)
Bonds payable repaid ...................................................... -- (158,760) --
Issuance of shares ........................................................ -- -- 15,000
Issuance of promissory note ............................................... -- 33,000 --
Capital Contribution ...................................................... 51,709 -- --
-------- --------- ---------
Cash provided by (used in) financing activities ........................... $ 54,280 $(121,430) $ 17,499
-------- --------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year ....................................... 3,907 9,077 (3,380)
Balance, beginning of year ................................................ 19,882 10,805 14,185
-------- --------- ---------
BALANCE, END OF YEAR ...................................................... $ 23,789 $ 19,882 $ 10,805
-------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (the "Company") is
a wholly-owned subsidiary of The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA"), which is in turn an indirectly 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.
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. The Company then transferred all the
common and preferred shares of Manufacturers Adviser Corporation
("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco
has primarily three wholly-owned subsidiaries, ManEquity Inc., a
registered broker/dealer, MAC, an investment fund management company,
and Manulife Capital Corporation ("MCC"), an investment holding
company.
In October 1997, the Manufacturers Life Mortgage Securities Corporation
("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent
to the maturity and repayment of the mortgage-backed US dollar bonds.
All assets and liabilities of MLMSC were transferred to Holdco at their
respective book values.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities,
capital and surplus, revenues and expenses of each separate entity are
combined retroactively at their historical carrying values to form the
financial statements of the Company for all periods presented to give
effect to the reorganization as if the structure in place at December
31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary
companies are therefore combined and all significant intercompany
balances and transactions are eliminated on combination. In addition,
the capital and surplus of the Company has been restated retroactively
to reflect the capital structure in place at December 31, 1996.
22
<PAGE> 23
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1996
--------
<S> <C>
Revenue:
ManAmerica .................................. $ 54,404
Holdco ...................................... 15,543
MAC ......................................... 3,585
--------
TOTAL REVENUE ................................. $ 73,532
--------
Net Income (loss):
ManAmerica .................................. $ (8,676)
Holdco ...................................... (670)
MAC ......................................... 939
--------
TOTAL NET LOSS ................................ $ (8,407)
--------
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
Certain reclassifications have been made to 1997 and 1996 financial
information to conform to the 1998 presentation.
B) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
23
<PAGE> 24
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NET INCOME (LOSS) ............................................ $ (754) $(3,636) $(8,407)
------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560)
Foreign currency translation ............................... 86 (5,272) --
Reclassification adjustment for realized gains (losses)
included in net income ....................................... (134) 77 (77)
------- ------- -------
Other comprehensive income (loss) ............................ 2,655 (6,225) (483)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) .................................. $ 1,901 $(9,861) $(8,890)
------- ------- -------
</TABLE>
Other comprehensive income (loss) is reported net of tax expense
(benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996,
respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
------- -------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance ................................................. $ 380 $ 1,333
Current period change ............................................. 2,569 (953)
------- -------
Ending balance .................................................... $ 2,949 $ 380
------- -------
FOREIGN CURRENCY:
Beginning balance ................................................. $(5,272) $ --
Current period change ............................................. 86 (5,272)
------- -------
Ending balance .................................................... $(5,186) $(5,272)
------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) .......................... $(2,237) $(4,892)
------- -------
</TABLE>
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect results of operations or financial position,
nor did it affect the manner in which the Company defines its
operating segments. The Company reports two business segments:
Traditional Life Insurance sold in Taiwan and Variable Life and
Annuities sold in the U.S. Refer to Note 12 for additional segment
information.
C) 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 accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
Policy loans are reported at aggregate unpaid balances which
approximate fair value.
24
<PAGE> 25
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
D) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
E) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily
related to the production of new business are deferred to the extent
recoverable and included as an asset. 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 accumulated
other comprehensive income. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is
immediately expensed.
F) POLICYHOLDER LIABILITIES
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.
G) 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 assets are recorded
at market value. Operations of the separate accounts are not included
in the accompanying financial statements.
H) 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.
25
<PAGE> 26
I) 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.
J) 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, policy charges for cost of
insurance 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, fees and claims are reported net
of reinsured amounts. Amounts paid with respect to ceded reinsurance
contracts are reported as reinsurance receivables in other assets.
K) 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. The resultant translation adjustments are
included in accumulated other comprehensive income.
L) INCOME TAX
Income taxes have been provided for in accordance with SFAS No. 109
"Accounting for Income Taxes." The Company joins ManUSA, Manulife
Reinsurance Corporation ("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.
26
<PAGE> 27
3. INVESTMENTS AND INVESTMENT INCOME
A) FIXED MATURITY AND EQUITY SECURITIES
At December 31, 1998, 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
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
AS AT DECEMBER 31, ----------------- ---------------- ------------------ -----------------
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
U.S. government ............ $27,349 $51,694 $2,578 $ 937 $ -- $ (135) $29,927 $52,496
Foreign governments ........ 9,353 6,922 709 203 -- (14) 10,062 7,111
Corporate .................. 8,546 7,949 719 415 -- (78) 9,265 8,286
------- ------- ------ ------ ------- ------- ------- -------
Total fixed maturity
securities.................. $45,248 $66,565 $4,006 $1,555 $ -- $ (227) $49,254 $67,893
Equity securities .......... $19,219 $20,153 $3,217 $1,496 $(1,912) $(2,189) $20,524 $19,460
------- ------- ------ ------ ------- ------- ------- -------
</TABLE>
Proceeds from sales of fixed maturity securities during 1998 were
$27,852 (1997 $73,772; 1996 $120,234). Gross gains of $362 and gross
losses of $107 were realized on those sales (1997 $955 and $837; 1996
$1,858 and $1,837 respectively).
Proceeds from sale of equity securities during 1998 were $8,555 (1997
$10,586; 1996 $25,505). Gross gains of $16 and gross losses of $477
were realized on those sales (1997 $NIL and $NIL; 1996 $NIL and $140
respectively).
The contractual maturities of fixed maturity securities at December 31,
1998 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Fixed maturity securities
One year or less ......................................... $ 1,174 $ 1,179
Greater than 1; up to 5 years ............................ 7,792 8,081
Greater than 5; up to 10 years........................... 24,422 26,395
Due after 10 years ....................................... 11,860 13,599
------- -------
TOTAL FIXED MATURITY SECURITIES ............................... $45,248 $49,254
======= =======
</TABLE>
27
<PAGE> 28
B) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Fixed maturity securities ..................................... $4,675 $4,545 $ 4,447
Equity securities ............................................. 227 331 671
Guaranteed annuity contracts .................................. -- 2,796 13,196
Other investments ............................................. 1,485 772 1,697
------ ------ -------
Gross investment income ....................................... 6,387 8,444 20,011
------ ------ -------
Investment expenses ........................................... 259 169 360
------ ------ -------
NET INVESTMENT INCOME ......................................... $6,128 $8,275 $19,651
====== ====== =======
</TABLE>
4. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage
Securities Corporation, has historically invested amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities were collateral for the 8 1/4 % mortgage-backed bonds
payable. On March 1, 1997 the annuities matured and the proceeds were
used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1, ......................................... $ 130,355 $ 102,610 $ 78,829
Capitalization ................................................ 43,065 33,544 36,024
Accretion of interest ......................................... 11,417 9,357 6,344
Amortization .................................................. (20,683) (14,217) (19,583)
Effect of net unrealized gains (losses)
on securities available for sale ......................... (784) 1,268 996
Currency ...................................................... 136 (2,207) --
--------- --------- ---------
BALANCE AT DECEMBER 31 ........................................ $ 163,506 $ 130,355 $ 102,610
========= ========= =========
</TABLE>
6. INCOME TAXES
Components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current expense (benefit) ..................................... $ 1,404 $(3,207) $(4,686)
Deferred expense (benefit) .................................... (1,796) 2,730 777
------- ------- -------
TOTAL EXPENSE (BENEFIT) ....................................... $ (392) $ (477) $(3,909)
======= ======= =======
</TABLE>
28
<PAGE> 29
The Company's deferred income tax liability, which results from tax
effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Differences in computing policy reserves .......................... $ 38,888 $ 34,291
Policyholder dividends payable .................................... -- 240
Investments ....................................................... 708 793
Other deferred tax assets ......................................... 333 --
-------- --------
Deferred tax assets .................................................... $ 39,929 $ 35,324
-------- --------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs ........................................ $ 38,778 $ 30,682
Investments ....................................................... 1,859 166
Policyholder dividends payable .................................... 55 --
Other deferred tax liabilities .................................... -- 5,650
-------- --------
Deferred tax liabilities ............................................... $ 40,692 $ 36,498
-------- --------
NET DEFERRED TAX LIABILITIES ........................................... $ (763) $ (1,174)
======== ========
</TABLE>
At December 31, 1998, the consolidated group has utilized all available
operating loss carryforwards and net capital loss carryforwards. The
losses of the Company, MRC and ManUSA may be used to offset the
ordinary and capital gain income of MRL. However, losses of MRL may not
be used to offset the income of the other members of the consolidated
group.
7. NOTES PAYABLE
a) On June 15, 1998, the outstanding promissory note in the
amount of $33,000 plus interest at 6.95% issued on December 5,
1997 payable to ManUSA was discharged and the amount due of
$34,318 ($33,000 plus interest of $1,318) was recorded as a
capital contribution.
b) On December 31, 1998, the surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to
ManUSA was discharged and the amount due of $8,500 was
recorded as a capital contribution.
8. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands, except per share amounts) 1998 1997
------- -------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1
5,000,000 Preferred shares, Par value $100
ISSUED AND OUTSTANDING:
4,501,861 Common shares ...................... $ 4,502 $ 4,502
105,000 Preferred shares ..................... 10,500 10,500
------- -------
TOTAL ............................................ $15,002 $15,002
======= =======
</TABLE>
29
<PAGE> 30
During 1996, the Company issued two common shares to its Parent Company
in return for a capital contribution of $15,000.
In 1998, the outstanding promissory note payable referred to in note
7(a) above, totaling $34,318, was discharged and recorded as a capital
contribution.
On December 31, 1998, the Company issued one common share to ManUSA in
exchange for a capital contribution of $60,209. Included in this
capital contribution was the discharge of the surplus debenture in the
amount of $8,500 referred to in note 7(b) above.
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, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss
of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996
$5,961). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
($ thousands) CARRYING VALUE FAIR VALUE
-------------- ----------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities ...... $69,778 $69,778
Short-term investments .................... 459 459
Policy loans .............................. 19,320 19,320
Cash and cash equivalents ................. 23,789 23,789
------- -------
</TABLE>
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.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
approximate fair values.
POLICY LOANS: Carrying values approximate fair values.
30
<PAGE> 31
10. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with Manulife Financial and
ManUSA which can be terminated by any party upon two months' notice.
Under the agreements, the Company will pay direct operating expenses
incurred each year by Manulife Financial and ManUSA on its behalf.
Services provided under the agreement include legal, actuarial,
investment, data processing and certain other administrative services.
Costs incurred under these agreements were $34,070, $32,733 and $29,384
in 1998, 1997 and 1996 respectively. In addition, there were $12,817,
$11,249 and $6,934 of agents bonuses allocated to the Company during
1998, 1997 and 1996, respectively, which are included in deferred
acquisition costs.
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) On December 31, 1998, the coinsurance treaties under which the
Company had assumed two blocks of insurance from ManUSA were
terminated. The Company's risk under these treaties was limited to
$100,000 of initial face amount per claim plus a pro-rata share of
any increase in face amount. Upon the termination of the treaties,
the Company paid consideration in the amount of approximately
$41.0 million to ManUSA and policyholder reserves totaling $41.0
million were recaptured by ManUSA. No gain or loss resulted from
the termination of these treaties.
(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) 1998 1997 1996
---------------------------------------------------------------- ------------- --------------- ------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 48 $ 509 $ 724
Life and annuity premiums ceded 76 69 99
Policy reserves assumed - 40,975 44,497
Policy reserves ceded 145 130 304
---------------------------------------------------------------- ------------- --------------- ------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $NIL, $3,972 and $NIL during 1998, 1997 and 1996 respectively.
The Company and Manulife Financial have entered into an agreement
whereby Manulife Financial provides a claims paying guarantee to the
Company's U.S. policyholders. This claims paying guarantee does not
apply to the Company's separate account contract holders.
31
<PAGE> 32
11. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums $9,723 $8,607 $12,949
Reinsurance ceded 405 440 676
---------------------------------------------------------------- -------------- ------------- -------------
TOTAL PREMIUMS $9,318 $8,167 $12,273
---------------------------------------------------------------- -------------- ------------- -------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts with unrelated
insurance companies were $1,362, $909 and $357 during 1998, 1997 and
1996 respectively.
12. SEGMENT DISCLOSURES
The Company reports two business segments: Traditional Life Insurance
sold in Taiwan and Variable Life and Annuities sold in the U.S. The
Company's reportable segments have been determined based on geography,
differences in product features, and distribution; the segments are
also consistent with the Company's management structure. Segmented
information for the Company is as follows:
<TABLE>
<CAPTION>
As at December 31,
($ thousands) Taiwan U.S. Total
----------------------------------------------------------------- ---------------- ------------ ------------
<S> <C> <C> <C>
1998
Premiums and fee income $ 9,243 $ 54,594 $ 63,837
Interest expense - 1,722 1,722
Income taxes (benefit) (1,219) 827 (392)
Net income (loss) (2,265) 1,511 (754)
Total assets excluding separate account assets $30,268 $258,311 $288,579
----------------------------------------------------------------- ---------------- ------------ ------------
1997
Premiums and fee income $8,099 $ 39,190 $ 47,289
Interest expense - 2,750 2,750
Income taxes (benefit) (1,526) 1,049 (477)
Net income (loss) (2,835) (801) (3,636)
Total assets excluding separate account assets $25,401 $244,166 $269,567
----------------------------------------------------------------- ---------------- ------------ ------------
1996
Premiums and fee income $12,200 $ 41,132 $ 53,332
Interest expense - 12,251 12,251
Income taxes (benefit) (6,125) 2,216 (3,909)
Net income (loss) (17,500) 9,093 (8,407)
Total assets excluding separate account assets $15,268 $379,241 $394,509
----------------------------------------------------------------- ---------------- ------------ ------------
</TABLE>
The accounting policies for each segment above are the same as those
described in the summary of significant accounting policies. The
Company has no intersegment revenues and no significant major
customers.
32
<PAGE> 33
13. 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.
14. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED)
The Year 2000 risk is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. The effects of the Year 2000 risk may be experienced before, on,
or after January 1, 2000 and, if not addressed, could result in systems
failures or miscalculations causing disruptions of normal business
operations. It is not possible to be certain that the Company's Year
2000 program will fully resolve all aspects of the Year 2000 risk,
including those related to third parties.
A full discussion of the Company's Year 2000 program and Year 2000
review will be contained in the Company's Management Discussion and
Analysis.
33
<PAGE> 34
FINANCIAL STATEMENT SCHEDULES
34
<PAGE> 35
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, 1998 and 1997 and 1996 and for each of the
three years in the period ended December 31, 1998 and have issued our report
thereon dated March 15, 1999 (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 15, 1999
35
<PAGE> 36
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
($THOUSANDS)
<TABLE>
<CAPTION>
Amount
Market Shown in the
Type of Investment Cost Value Balance Sheet
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
United States Government $ 27,349 $ 29,927 $ 29,927
Foreign Governments 9,353 10,062 10,062
Corporate 8,546 9,265 9,265
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 45,248 $ 49,254 $ 49,254
- ------------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks - other 19,219 20,524 20,524
Policy loans 19,320 19,320 19,320
Short Term Investments 459 459 459
Cash on Hand and on Deposit 23,789 23,789 23,789
========================================================================================================================
TOTAL INVESTMENTS $108,035 $ 113,346 $113,346
========================================================================================================================
</TABLE>
36
<PAGE> 37
+THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
($ THOUSANDS)
<TABLE>
<CAPTION>
Future
Policy Other
Benefits Policy
Deferred Losses, Claims Claims
Acquisition and Unearned and Premium
Segment Costs Loss Expenses Premiums Benefits Revenue
Payable
- -------------------------- ------------ ----------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1998:
Life Insurance and $ 163,506 $ 57,353 $ 1,994 $1,483 $ 9,290
annuities
Other (incl. non-life - - - - -
subsidiaries)
========================== ============ ================= ========== ============ ============
Total $ 163,506 $ 57,353 $ 1,994 $1,483 $ 9,290
========================== ============ ================= ========== ============ ============
1997:
Life Insurance and $ 130,355 $ 91,994 $ 674 $1,809 $ 8,607
annuities
Other (incl. non-life - - - - -
subsidiaries)
========================== ============ ================= ========== ============ ============
Total $ 130,355 $ 91,994 $ 674 $1,809 $ 8,607
========================== ============ ================= ========== ============ ============
1996:
Life Insurance and $ 102,610 $ 91,915 $ 635 $ 379 $ 12,898
annuities
Other (incl. non-life - - - - -
subsidiaries)
========================== ============ ================= ========== ============ ============
Total $ 102,610 $ 91,915 $ 635 $ 379 $ 12,898
========================== ============ ================= ========== ============ ============
Benefits,
Net Claims Other
Investment Losses and Operating
Segment Income Settlement Expenses
Expenses
- -------------------------- ------------- ---------------- -------------
<S> <C> <C> <C>
1998:
Life Insurance and $ 5,442 $ 16,541 $ 49,257
annuities
Other (incl. non-life 686 - 4,246
subsidiaries)
========================== ============= ================ =============
Total $ 6,128 $ 16,541 $ 53,503
========================== ============= ================ =============
1997:
Life Insurance and $ 5,103 $ 6,733 $ 46,968
annuities
Other (incl. non-life 3,172 - 2,472
subsidiaries)
========================== ============= ================ =============
Total $ 8,275 $ 6,733 $ 49,440
========================== ============= ================ =============
1996:
Life Insurance and $ 6,141 $ 14,473 $ 52,067
annuities
Other (incl. non-life 13,510 - 6,185
subsidiaries)
========================== ============= ================ =============
Total $ 19,651 $ 14,473 $ 58,252
========================== ============= ================ =============
</TABLE>
37
<PAGE> 38
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
- ---------------------------------- ---------------- ----------------- -------------------- ------------------ -----------------
Gross Ceded to Assumed Percentage of
Amount Other from Other Net Amount
Companies Companies Amount Assumed to Net
================ ================= ==================== ================== =================
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance in force $ 12,728,348 $ 2,797,498 $ 0 $ 9,930,850 0%
================ ================= ==================== ================== =================
Insurance Premiums:
Life $ 9,723 $ 481 $ 48 $ 9,290 .52%
================ ================= ==================== ================== =================
Year ended December 31, 1997:
Life insurance in force $ 9,834,590 $ 2,083,344 $ 84,172 $ 7,835,418 1.07%
================ ================= ==================== ================== =================
Insurance Premiums:
Life $ 8,607 $ 509 $ 509 $ 8,607 5.91%
================ ================= ==================== ================== =================
Year ended December 31, 1996:
Life insurance in force $ 7,700,816 $ 552,986 $ 98,741 $ 7,246,571 1.36%
================ ================= ==================== ================== =================
Insurance Premiums:
Life $ 12,949 $ 775 $ 724 $ 12,898 5.61%
================ ================= ==================== ================== =================
</TABLE>
38
<PAGE> 39
Item 9. - Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Nothing to Report
39
<PAGE> 40
PART III
Item 10 - Directors And Executive Officers Of Registrant
The directors and executive officers of the Company, together with
their principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
Name (Age) Position with Manufacturers Life Principal Occupation
of America
- ------------------------------- ----------------------------------- ------------------------------------------------------------
<S> <C> <C>
Sandra M. Cotter (36) Director (since December 1992) Attorney, Dykema, Gossett, PLLC, 1989 to present.
James D. Gallagher (44) Director (since May 1996), Vice President, Secretary and General Counsel,
Secretary and General Counsel The Manufacturers Life Insurance Company (USA),
January 1997 to present; Secretary and General
Counsel, Manufacturers Adviser Corporation,
January 1997 to present; Vice President, Legal Services
U.S. Operations, The Manufacturers Life Insurance Company,
January 1996 to present; Vice President, Secretary and General
Counsel, The Manufacturers Life Insurance Company of North
America, 1994 to present; Vice President and Associate General
Counsel, The Prudential Insurance Company of America, 1991
to 1994.
Donald A. Guloien (41) Director (since August 1990) and Executive Vice President, Business Development,
President The Manufacturers Life Insurance Company, January 1999 to
present; Senior Vice President, Business Development, The
Manufacturers Life Insurance Company, 1994 to December 1998;
Vice President, U.S. Individual Business, The Manufacturers
Life Insurance Company, 1990 to 1994.
Theodore Kilkuskie (43) Director (since May 1996) and Senior Vice President, U.S. Annuities, The Manufacturers Life
Vice President, US Individual Insurance Company, January 1999 to present; President,
Insurance The Manufacturers Life Insurance Company of North America,
January 1999 to present; Senior Vice President, U.S.
Individual Insurance, The Manufacturers Life Insurance
Company, August 1998 to December 1998; Vice President,
U.S. Individual Insurance, The Manufacturers Life Insurance
Company, June 1995 to February 1998; Executive Vice President,
Mutual Fund Sales & Marketing, State Street Research &
Management, March 1994 to June 1995.
James O'Malley (52) Director (since November 1998) Senior Vice President, U.S. Pensions, The Manufacturers Life
Insurance Company, January 1999 to present; Vice President,
Systems New Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Name (Age) Position with Manufacturers Life Principal Occupation
of America
- ------------------------------- ----------------------------------- ------------------------------------------------------------
<S> <C> <C>
Joseph J. Pietroski (60) Director (since July 1992) Senior Vice President, General Counsel and Corporate
Secretary, The Manufacturers Life Insurance Company,
1988 to present.
John D. Richardson (61) Chairman and Director (since Senior Executive Vice President, The Manufacturers
January 1995) Life Insurance Company, January 1999 to present;
Executive Vice President, U.S. Operations, The
Manufacturers Life Insurance Company, November 1997
to December 1998; Senior Vice President and General
Manager, U.S. Operations, The Manufacturers Life
Insurance Company, January 1995 to October 1997;
Senior Vice President and General Manager, Canadian
Operations, The Manufacturers Life Insurance
Company, June 1992 to December 1994.
Victor Apps (51) Vice President, Asia Executive Vice President, Asia Operations, The
Manufacturers Life Insurance Company, November 1997
to present; Senior Vice President and General
Manager, Greater China Division, The Manufacturers
Life Insurance Company, 1995 to 1997; Vice President
and General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1993 to 1995;
International Vice President, Asia Pacific Division,
The Manufacturers Life Insurance Company, 1988
to-1993.
Felix Chee (52) Vice President, Investments Executive Vice President, The Manufacturers Life
Insurance Company, November 1997 to present; Chief
Investment Officer, The Manufacturers Life Insurance
Company, June 1997 to present; Senior Vice President
and Treasurer, The Manufacturers Life Insurance
Company, August 1994 to May 1997; Vice President and
Treasurer, The Manufacturers Life Insurance Company,
October 1993 to July 1994.
Robert A. Cook (44) Vice President, Marketing Senior Vice President, US Individual Insurance,
The Manufacturers Life Insurance Company, January
1999 to present; Vice President, Product Management,
The Manufacturers Life Insurance Company, 1996 to
December 1998; Sales and Marketing Director, U.K.
Division, The Manufacturers Life Insurance Company,
1994 to-1995.
Hugh McHaffie (40) Vice President Vice President, Product Development, US Annuities,
The Manufacturers Life Insurance Company, January
1996 to present; Vice President, US Annuities, The
Manufacturers Life Insurance Company of North
America, September 1996 to present, Vice President,
Product Actuary, The Manufacturers Life Insurance
Company of North America, August 1994 to September
1996; Product Development Executive, The
Manufacturers Life Insurance Company of North
America, August 1990 to August 1994.
Douglas H. Myers (44) Vice President, Finance and President, ManEquity, Inc., April 1994 to
Compliance, Controller present; Assistant Vice President and Controller,
U.S. Operations, The Manufacturers Life Insurance
Company, 1988 to present.
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
Name (Age) Position with Manufacturers Life Principal Occupation
of America
- ------------------------------- ----------------------------------- ------------------------------------------------------------
<S> <C> <C>
John G. Vrysen (43) Vice President and Appointed Chief Financial Officer and Treasurer, Manulife-Wood
Actuary Logan Holding Co., Inc., January
1996 to present; Vice President and Chief Financial
Officer, U.S. Operations, The Manufacturers Life
Insurance Company, January 1996 to present; Vice
President and Chief Actuary, The Manufacturers Life
Insurance Company of New York, March 1992 to
present; Vice President and Chief Actuary, The
Manufacturers Life Insurance Company of North
America, January 1986 to present.
Jean Wong (35) Vice President and Treasurer Vice President and Chief Accountant, US Division,
The Manufacturers Life Insurance Company, May 1998
to present; Chief Accountant, US Division, The
Manufacturers Life Insurance Company, July 1996 to
May 1998; Director, Finance and Administration, Star
Data Systems Inc., December 1995 to July 1996; Vice
President and Chief Financial Officer, Primerica
Financial Services, June 1993 to December 1995.
</TABLE>
Item 11 - EXECUTIVE COMPENSATION
The Company's executive officers may also serve as officers of one or more of
Manulife Financial's affiliates. Allocations have been made as to such officers'
time devoted to duties as executive officers of the Company. The following table
shows the allocated compensation paid or awarded to or earned by the Company's
Chief Executive Officer for services provided to the Company. No other executive
officer had allocated cash compensation in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
- -------------------- ------- ---------- ---------- -------------- ------------- -------------- ------------ ---------------
Name and Principal Year Salary Bonus 1 Other Annual Restricted Securities LTIP All Other
Position Compensation 2 Stock Underlying Payouts Compensation 3
Award(s) Options/SARs
- -------------------- ------- ---------- ---------- -------------- ------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don A. Guloien, 1998 $8,875 $4,800 $1,100 N/A N/A $1,303 $12
President
</TABLE>
1 Bonus for 1997 performance paid in 1998.
2 Does not include group health insurance since the plans are the same for all
salaried employees.
3 Other Compensation includes the value of term life insurance premiums paid by
Manulife Financial for the benefit of the executive officer.
The Management Resources and Compensation Committee (the "Committee") of the
Board of Directors is comprised of six external directors. The Committee's
principal mandate is to approve the appointment, succession and remuneration of
Manulife Financial's Executive Vice Presidents and Senior Vice Presidents,
including the Named Executive Officers. For the President and Chief Executive
Officer of Manulife Financial, the Committee makes compensation recommendations
that are then approved by the entire Board. The Committee also approves the
compensation programs for all other officers as well as the annual review of the
Annual Incentive Plan awards and Long-Term Incentive Plan grants for all
officers of Manulife Financial and it's subsidiaries.
42
<PAGE> 43
In addition to the annual reviews, the Committee approves any major changes to
all policies which are designed to attract, retain, develop and motivate
employees and all pension plans of Manulife Financial and it's subsidiaries.
Manulife Financial's executive compensation policies are designed to recognize
and reward individual performance as well as provide a total compensation
package which is competitive with the median of Manulife Financial's comparator
group, which is comprised of Schedule I banks and major life insurance
companies. Further, Manulife Financial ensures that its compensation levels are
competitive within local markets outside of Canada.
Manulife Financial's executive compensation program is comprised of three key
components; base salary, annual incentives and long-term incentives. Officers of
the Company participate in the following Manulife Financial compensation
programs.
SALARY
The Committee approves the salary ranges and salary increase levels for all of
Manulife Financial's Executive and Senior Vice Presidents individually, and all
Vice Presidents as a group, based on competitive industry data for all markets
in which Manulife Financial operates. Salary increases for Manulife Financial's
officers have been consistent with the salary increase programs approved for all
employees.
In establishing Manulife Financial's competitive position and developing annual
salary increase programs, Manulife Financial uses several annual surveys as
prepared by independent compensation consulting firms with reference to publicly
disclosed information.
43
<PAGE> 44
ANNUAL INCENTIVE PLAN
Manulife Financial's Annual Incentive Plan ("AIP") provides executive officers
of Manulife Financial with the opportunity to earn incentive bonuses based on
the achievement of pre-established corporate and divisional earnings objectives
and divisional and individual performance objectives.
The Committee and management periodically review the design of the incentive
plan to ensure that it:
(i) is competitive with Manulife Financial's comparator groups;
(ii) supports, and aligns, with Manulife Financial's strategic objectives;
and
(iii) recognizes and rewards individual contributions and value creation.
In conducting these reviews, Manulife Financial obtains advice from independent,
external consultants.
The AIP uses earnings and performance measures to determine awards with
predetermined thresholds for each component as approved by the Committee
annually. Incentive awards are established for each participant based on
organizational level. Incentive award levels range from 12% to 60% of base
salary assuming achievement of targeted performance objectives. When corporate
and divisional performance objectives are significantly exceeded, a participant
can receive incentive awards ranging from 30% to 150% of base salary. If
corporate and divisional performance objectives are below targeted performance,
the incentive awards are adjusted downward according to plan guidelines. The
Named Executive Officers participate in the AIP on the same basis as all other
officers.
LONG TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Securities-Price-Based Plans (US $)3
-------------------------------------------
Name Securities Units or Performance or Threshold Target ($ or #)4 Maximum
Other Rights (#)1 Other Period ($ or #) ($ or #)
Until
Maturation or
Payout2
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Don Guloien .......... 672 Jan. 1, 2002 N/A $4,588 N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1 Each grant has two components: Cash Appreciation Rights and Retirement
Appreciation Rights.
2 The appreciation in the value of Cash Appreciation Rights are redeemed four
years following the grant date. Retirement Appreciation Rights are only redeemed
upon retirement or cessation of employment with Manulife.
3 Canadian dollars converted to US dollars using a book rate of 1.50.
4 The target is calculated assuming Cash Appreciation Rights are exercised in
the fourth year. At that time 50% of the target is redeemed in cash and the
balance continues to appreciate until redeemed upon retirement or cessation of
employment.
Manulife Financial's Board of Directors approved the implementation of a
Long-Term Incentive Plan ("LTIP") effective April 1, 1994. All employees at the
Vice President level and above are eligible to participate in the LTIP.
The purpose of the LTIP is to encourage executive officers to act in the
long-term interests of Manulife Financial and to provide an opportunity to share
in value creation as measured by changes in Manulife Financial's statutory
surplus. The LTIP is an appreciation rights plan which requires that a
substantial portion of any accumulated gain remain invested with Manulife
Financial during the participant's career with Manulife Financial.
The Committee reviews the LTIP on an annual basis having regard to Manulife
Financial's performance, targeted growth and competitive position. The Committee
approves grants on a prospective basis considering management's recommendations
for participation, size and terms of grant.
Grants of appreciation rights are generally made to participants in the LTIP
each year. The number of appreciation rights granted to participants is
determined based on the net present value of the potential payout represented by
the appreciation rights, assuming that Manulife Financial's surplus grows at a
targeted rate. Appreciation rights are granted such that this net present value
represents between 20% and 115% of the participant's salary level on the date of
grant
44
<PAGE> 45
PERQUISITES
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, dental, basic and dependent life insurance,
long and short-term disability coverage and defined contribution or defined
benefit plan.
US domiciled officers at the Vice President levels and above are provided with
an automobile and parking benefit, cellular telephone and computer. The
automobile benefit covers insurance and maintenance. There are no other benefit
packages which currently enhance overall compensation by more than 10%.
Canadian domiciled officers at the Vice President levels and above are eligible
to receive the Executive Flexible Spending Account. The objective of the program
is to assist and encourage the executive officers to represent the interests and
high standards of Manulife Financial, both from a business and a personal
perspective. The program's flexibility allows use of the allowance for benefit
choices from a comprehensive list of options, including: car, mortgage subsidy
and club memberships.
US RETIREMENT PLANS
With the integration of the Manulife Financial and North American Life
operations, a review of the retirement programs for the employees in the United
States was conducted in 1998. As a result of this review, effective July 1,
1998, (i) the two defined benefit pension plans (The Manulife Financial United
States Salaried Employees Pension Plan and the North American Life Staff Pension
Fund 1948 for United States Members) were merged and converted to a Cash Balance
Plan, entitled "The Manulife Financial U.S. Cash Balance Plan"; (ii) the
Supplemental Pension Plan for United States Salaried Employees of Manufacturers
Life Insurance Company was converted into a Cash Balance Supplemental Plan,
entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan"; and,
(iii) the two 401(k) plans (The Manulife Financial 401(k) Savings Plan and the
North American Security Life 401(k) Savings Plans) were merged and restated into
The Manulife Financial U.S. 401(k) Savings Plan.
The executives of Manufacturers Life of America are eligible to participate in
the three restated retirement plans as sponsored by The Manufacturer's Life
Insurance Company (U.S.A.).
The Manulife Financial Cash Balance Plan
To implement the conversion to the Cash Balance Plan, participants in the two
former defined benefit plans were provided with opening account balances equal
to the value of their accrued benefit under their respective prior plan
participation as at June 30, 1998, using interest rate assumption equal to the
Pension Benefit Guaranty Corporation (PBGC) rate for 1998.
Under this plan, which is a defined benefit plan, a separate account is
established for each participant. The account receives company contribution
credits based on vesting service and earnings as outlined in the table below.
The account earns semi-annual interest credits based on the yield of one-year
Treasury bills plus half a percentage point, subject to a minimum interest
credit of 5.25%. The yearly maximum amount of eligible pay allowed under the
qualified plan is $160,000 for 1998. Employees are vested after 3 years of
vesting service. Normal retirement age is 65. Pension benefits are provided to
those who terminate after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance account at
normal retirement date. Early benefits are actuarially equivalent to the normal
retirement benefits but are subsidized for participants who were age 45 and 5 or
more years of vesting service on July 1, 1998 and who terminate employment after
attaining age 50 and completing 10 years of service. For these grandfathered
participants, the prior early retirement factors under the Manulife Financial
Plan apply. The normal form of payment under the Cash Balance Plan is a life
annuity, with various optional forms available, including a lump sum equal to
the cash balance account.
45
<PAGE> 46
Company Contribution Credits
Years of Vesting Service Percentage of Eligible Pay
- ------------------------ --------------------------
Less than 6 4%
6, but less than 11 5%
11, but less than 16 7%
16, but less than 21 9%
21 or more 11%
Projected Cash Balance Plan pension benefits at age 65 payable as an annual life
annuity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 16,960 30,178 49,664 76,018 111,659
- --------------------------------------------------------------------------------
175,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
200,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
225,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
250,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
300,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
400,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
500,000 18,090 32,190 52,975 81,086 119,103
- --------------------------------------------------------------------------------
</TABLE>
The Manulife Financial U.S. Supplemental Cash Balance Plan
In addition to their pension plan benefits, executives are eligible for benefits
under The Manulife Financial U.S. Supplemental Cash Balance Plan. This is a
non-contributory, non-qualified plan, the purpose of which is to provide the
executives with the same level of retirement benefits they would have been
entitled to but for the limitations prescribed for qualified plans under the
Internal Revenue Code. Opening account balances were established using the same
method as The Manulife Financial U.S. Cash Balance Plan. During the period of an
executive's active participation in the plan, annual company contributions are
made with respect to the portion of the executives earnings which is in excess
of $160,000 for 1998 as outlined below with interest credited under this plan at
the same rate as provided under the Cash Balance Plan. In addition, a one time
contribution may be made for a participant if it is determined at the time of
their termination of employment, that the participant's pension benefit under
the Cash Balance Plan is limited by Internal Revenue Code Section 415. Together,
these contributions serve to restore to the participant the benefit that they
would have been entitled to under the Cash Balance Plan's benefit formula but
for the limitations, in Internal Revenue Code Sections 401(a) (17) and 415.
Benefits are provided to those who terminate after three years. The default form
of payment under the plan is a lump sum, although participants may elect to
receive payment in the form of an annuity provided that such election is made
within the time period prescribed in the plan.
<TABLE>
<CAPTION>
Complete Years of Cash
Balance Service Credits as of Percentage of Eligible Pay Percentage of Eligible Pay
December 31st up to $200,000 over $200,000
- ------------------------------ -------------------------- --------------------------
<S> <C> <C>
Less than 6 .................. 4% 4%
6, but less than 11........... 5% 5%
11, but less than 16 ......... 7% 5%
16, but less than 21 ......... 9% 5%
21 or more ................... 11% 5%
</TABLE>
46
<PAGE> 47
Projected Supplemental pension benefits at age 65 payable as an annual life
annuity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 0 0 0 0 0
- --------------------------------------------------------------------------------
175,000 1,696 3,018 4,966 7,602 11,166
- --------------------------------------------------------------------------------
200,000 4,523 8,048 13,244 20,271 29,776
- --------------------------------------------------------------------------------
225,000 7,081 12,178 19,501 29,404 42,797
- --------------------------------------------------------------------------------
250,000 9,639 16,309 25,757 38,536 55,818
- --------------------------------------------------------------------------------
300,000 14,756 24,570 38,271 56,801 81,861
- --------------------------------------------------------------------------------
400,000 24,990 41,092 63,298 93,330 133,946
- --------------------------------------------------------------------------------
500,000 35,224 57,615 88,325 129,859 186,031
- --------------------------------------------------------------------------------
</TABLE>
Projected Cash Balance and Supplemental pension benefits at age 65 payable as an
annual annuity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service
- --------------------------------------------------------------------------------
Renumeration ($) 15 20 25 30 35
- --------------------------------------------------------------------------------
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 16,960 30,178 49,664 76,018 111,659
- --------------------------------------------------------------------------------
175,000 19,786 35,208 57,941 88,688 130,269
- --------------------------------------------------------------------------------
200,000 22,613 40,238 66,219 101,357 148,879
- --------------------------------------------------------------------------------
225,000 25,171 44,368 72,476 110,490 161,900
- --------------------------------------------------------------------------------
250,000 27,729 48,499 78,732 119,622 174,921
- --------------------------------------------------------------------------------
300,000 32,846 56,760 91,246 137,887 200,964
- --------------------------------------------------------------------------------
400,000 43,080 73,282 116,273 174,416 253,049
- --------------------------------------------------------------------------------
500,000 53,314 89,805 141,300 210,945 305,134
- --------------------------------------------------------------------------------
</TABLE>
The Manulife Financial U.S. 401(k) Savings Plan
In addition to the above plans a 401(k) Savings Plan is also offered. The plan
allows employees of the Company to contribute on a pre-tax basis 1% to 15% of
their earnings up to the yearly limit of $160,000 for 1998. The yearly maximum
an employee can contribute is $10,000 for 1998. The company matches 50% of the
first 6% of contributions. Employees become 100% vested in the employer matching
contributions as outlined in the vesting schedule below. Additionally they
become 100% vested if they retire on or after age 65, become disabled or die.
Years of Vesting Service Vested Percentage
- ------------------------ -----------------
Less than 2 years 0%
2 years but less than 3 50%
3 years and thereafter 100%
CANADIAN RETIREMENT PLANS
Executive officers domiciled in Canada, and certain executive officers formerly
domiciled in Canada, are eligible to participate in Manulife Financial's
Canadian Staff Pension Plan and to receive supplemental pension benefits under
Manulife Financial's supplemental retirement income program. Under these plans,
income is payable for the life of the executive officer, with a guarantee of a
minimum of 120 monthly payments. If the executive officer is married, the income
is actuarially adjusted to a joint and survivor pension which pays a set amount
during the life of the executive officer. Upon the death of the executive
officer, this amount is reduced by one-third and is payable for the life of the
spouse (provided that in no event is this amount reduced prior to 60 months from
the date of retirement).
Pensionable earnings for this purpose are calculated as the highest average of
the base earnings and bonuses earned over any 36 consecutive months. The pension
benefit is determined by years of service multiplied by the sum of
47
<PAGE> 48
1.3% of pensionable earnings up to the average of the last three years maximum
pensionable earnings ("YMPE") plus 2.0% of the excess of pensionable earnings
over the average YMPE, without regard to the maximum pension limit for
registered pension plans imposed by Revenue Canada.
Employees hired after the age of 40 who become executive officers at the vice
president level and above within one year of hire may also receive additional
service credits equal to their actual period of service, to a maximum of 10
years.
The following table sets forth the aggregate standard annual benefits payable to
executive officers under Manulife Financial's Canadian Staff Pension Plan and
supplemental retirement income program.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years of Service
------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ---------------------------------------------------------------------------------------------------
$ $ $ $ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
125,000 34,978 46,637 58,296 69,955 81,615
- ---------------------------------------------------------------------------------------------------
150,000 42,478 56,637 70,796 84,955 99,115
- ---------------------------------------------------------------------------------------------------
175,000 49,978 66,637 83,296 99,955 116,615
- ---------------------------------------------------------------------------------------------------
200,000 57,478 76,637 95,796 114,955 134,115
- ---------------------------------------------------------------------------------------------------
225,000 64,978 86,637 108,296 129,955 151,615
- ---------------------------------------------------------------------------------------------------
250,000 72,478 96,637 120,796 144,955 169,115
- ---------------------------------------------------------------------------------------------------
300,000 87,478 116,637 145,796 174,955 204,115
- ---------------------------------------------------------------------------------------------------
400,000 117,478 156,637 195,796 234,955 274,115
- ---------------------------------------------------------------------------------------------------
450,000 132,478 176,637 220,796 264,955 309,115
- ---------------------------------------------------------------------------------------------------
500,000 147,478 196,637 245,796 294,955 344,115
- ---------------------------------------------------------------------------------------------------
600,000 177,478 236,637 295,796 354,955 414,115
- ---------------------------------------------------------------------------------------------------
700,000 207,478 276,637 345,796 414,955 484,115
- ---------------------------------------------------------------------------------------------------
800,000 237,478 316,637 395,796 474,955 554,115
- ---------------------------------------------------------------------------------------------------
900,000 267,478 356,637 445,796 534,955 624,115
- ---------------------------------------------------------------------------------------------------
1,000,000 297,478 396,637 495,796 594,955 694,115
- ---------------------------------------------------------------------------------------------------
</TABLE>
Mr. Guloien had 17.8 years of credited service as at December 31, 1998.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)
<TABLE>
<CAPTION>
Name & Address of Amount & Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ------------------ -------------------- ----------------
<S> <C> <C> <C>
Common The Manufacturers Life 4,501,861 shares 100%
Insurance Company (U.S.A.)
Preferred The Manufacturers Life 105,000 100%
Insurance Company (U.S.A.)
</TABLE>
(b) Nothing to report.
(c) Nothing to report.
48
<PAGE> 49
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain officers and/or directors of the Company are also officers and/or
directors of ManEquity, Inc., an affiliated broker/dealer. ManEquity, Inc.
received, in 1998, compensation for the sale of variable products issued by the
Company in the amount of $35,330,465.
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.
49
<PAGE> 50
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 15, 1999.
b. Balance Sheets at December 31, 1998 and 1997.
c. Statements of Income for the Years ended December 31, 1998, 1997 and 1996.
d. Statements of Changes in Capital and Surplus for the Years ended December
31, 1998, 1997 and 1996.
e. Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996.
f. Notes to Financial Statement - December 31, 1998.
(2) Financial Statement Schedules:
a. Report of Independent Auditors dated March 15, 1999 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.
(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
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- ------------------
<S> <C> <C>
(3) (a) (i) Restated Articles of Filed as Exhibit 3
Redomestication of The (A) (i) to Post-
Manufacturers Life Effective Amendment
Insurance Company of No. 6 on Form S-1
America** filed by The
Manufacturers Life
Insurance Company of
America on December
9, 1996 (File No.
33-57020)
(3) (b) (i) By-Laws of The Filed as Exhibit 3
Manufacturers Life (b) (i) to Post-
Insurance Company of Effective Amendment
America** No. 6 on Form S-1
filed by The
Manufacturers Life
Insurance Company of
America on December
9, 1996 (File No.
33-57020)
(4)(a) Form of Multi-Account Incorporated by reference
Flexible Variable Annuity 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).
(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).
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- ------------------
<S> <C> <C>
(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).
(4) (b) (iii) Endorsement 0646 Filed as Exhibit (4) (b) (iii) to
Form 10Q by The Manufacturers Life Insurance
Company America on August 14, 1997 (File No.
33-57020)
(5) Not Applicable
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10)(a) Reinsurance Agreement Incorporated by reference
to Exhibit (10)(a) to
Pre-Effective Amendment No. 1 on
Form S-1 filed by The
Manufacturers Life Insurance
Company of America on February
10, 1994 (File No. 33-57020).
(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).
(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).
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- ------------------
<S> <C> <C>
(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).
(11) None
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) None
(16) Not Applicable
(17) Not Applicable
(18) None
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
WHERE EXHIBIT
EXHIBIT NO. DESCRIPTION LOCATED
- ----------- ----------- ------------------
<S> <C> <C>
(19) None
(20) Not Applicable
(21) Not Applicable
(22) None
(23)(a) None
(23)(c) None
(24) Power of Attorney Incorporated by reference to
Exhibit 12 to 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 Filed herewith
(28) Not Applicable
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
No Annual Report covering the Registrant's last fiscal year or proxy material
has been or will be sent to Registrant's security holders.
54
<PAGE> 55
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 29, 1999 By: /s/ Donald A. Guloien
- --------------- -------------------------
Date DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
Attest
/s/ James D. Gallagher
- -----------------------
JAMES D. GALLAGHER
Secretary
55
<PAGE> 56
SIGNATURES
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 29th day of March, 1999.
Signature Title
- --------- -----
*
- ------------------------- 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
JAMES O'MALLEY
*
- ------------------------- 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
56
<PAGE> 57
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial data schedule for year ended December 31, 1998
57
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 49,254
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 20,524
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 89,557
<CASH> 23,789
<RECOVER-REINSURE> 613
<DEFERRED-ACQUISITION> 163,506
<TOTAL-ASSETS> 1,363,810
<POLICY-LOSSES> 60,830
<UNEARNED-PREMIUMS> 1,994
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,075,231
<NOTES-PAYABLE> 0
0
10,500
<COMMON> 4,502
<OTHER-SE> 188,195
<TOTAL-LIABILITY-AND-EQUITY> 1,363,810
9,290
<INVESTMENT-INCOME> 6,128
<INVESTMENT-GAINS> (206)
<OTHER-INCOME> 1,082
<BENEFITS> 16,541
<UNDERWRITING-AMORTIZATION> 9,266
<UNDERWRITING-OTHER> 44,237
<INCOME-PRETAX> (1,146)
<INCOME-TAX> 392
<INCOME-CONTINUING> (754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754)
<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>
