<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number: 33-57020
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other jurisdiction of incorporation or organization)
23-2030787
(I.R.S. Employer Identification No.)
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of principal executive offices)
(416) 926-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's sole class of common
stock, as of September 30, 1999 is 4,501,862.
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Quarterly Report on Form 10-Q
For the period ended September 30, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets as at September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the three and nine months ended September 30, 4
1999 and 1998
Consolidated Statement of Changes in Capital and Surplus as at September 30, 1999 5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 6
and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10
Part II Other Information 16
Item 1 Legal Proceedings 16
Item 2 Change in Securities 16
Item 3 Default upon Senior Securities 16
Item 4 Submission of Matters to a vote of Security Holders 16
Item 5 Other Information 16
Item 6A Exhibits 16
Item 6B Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
ASSETS ($ thousands) 1999 1998
- --------------------- ------------ -----------
(UNAUDITED)
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1999 $70,574; 1998 $45,248) $70,898 $49,254
Equity (cost: 1999 $NIL ; 1998 $19,219) - 20,524
Short-term investments 6,781 459
Policy loans 25,230 19,320
---------- ----------
TOTAL INVESTMENTS $102,909 $89,557
---------- ----------
Cash and cash equivalents 19,070 23,789
Deferred acquisition costs 181,494 163,506
Income taxes recoverable - 2,665
Deferred income taxes 3,146 -
Other assets 11,199 9,062
Separate account assets 1,171,938 1,075,231
---------- ----------
TOTAL ASSETS $1,489,756 $1,363,810
---------- ----------
LIABILITIES, CAPITAL AND SURPLUS ($thousands) 1999 1998
LIABILITIES:
Policyholder liabilities and accruals $74,371 $60,830
Due to affiliates 9,014 5,133
Deferred income taxes - 763
Other liabilities 22,659 18,656
Separate account liabilities 1,171,938 1,075,231
---------- ----------
TOTAL LIABILITIES $1,277,982 $1,160,613
---------- ----------
CAPITAL AND SURPLUS:
Common shares $4,502 $4,502
Preferred shares 10,500 10,500
Contributed surplus 195,596 193,096
Retained earnings (deficit) 5,682 (2,664)
Accumulated other comprehensive loss (4,506) (2,237)
---------- ----------
TOTAL CAPITAL AND SURPLUS $211,774 $203,197
---------- ----------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,489,756 $1,363,810
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- --------------------
($ thousands) 1999 1998 1999 1998
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 2,640 $ 2,109 $ 7,092 $ 6,267
Fee income 17,650 13,737 51,851 39,852
Net investment income 1,806 1,578 4,983 4,197
Realized investment gains (losses) - - 1,051 (8)
-------- -------- ------- --------
TOTAL REVENUE $22,096 $17,424 $64,977 $50,308
-------- -------- ------- --------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 6,134 $ 3,879 $11,619 $11,461
Amortization of deferred acquisition costs 4,355 3,641 10,031 8,127
Operating costs and expenses 7,654 10,919 30,458 31,688
Interest expense - 381 46 2,265
Policyholder dividends 34 180 144 974
-------- -------- ------- --------
TOTAL BENEFITS AND EXPENSES $18,177 $19,000 $52,298 $54,515
-------- -------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES 3,919 (1,576) 12,679 (4,207)
-------- -------- ------- --------
INCOME TAX BENEFIT (EXPENSE) (951) 472 (4,333) 1,440
-------- -------- ------- --------
NET INCOME (LOSS) $ 2,968 $(1,104) $ 8,346 $(2,767)
-------- -------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($thousands) STOCK SURPLUS (DEFICIT) LOSS SURPLUS
- ------------ -------- ----------- ---------- ------------- -----------
<C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 15,002 $193,096 $ (2,664) $ (2,237) $203,197
Capital contribution (note 5) - 2,500 - - 2,500
Comprehensive income (note 4) - - 8,346 (2,269) 6,077
-------- -------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999 $ 15,002 $195,596 $ 5,682 $ (4,506) $211,774
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
<S> <C> <C>
($thousands) 1999 1998
- ------------ -------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 8,346 $ (2,767)
Adjustments to reconcile net income to net cash used in operating activities:
Additions to policy liabilities 6,937 3,598
Deferred acquisition costs (27,022) (33,818)
Amortization of deferred acquisition costs 10,031 8,127
Realized (gain) loss on investments (1,051) 8
Increases (decreases) to deferred income taxes (2,444) 620
Other 11,053 9,206
-------- --------
Net cash provided by (used in) operating activities $ 5,850 $(15,026)
-------- --------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 1,102 $ 23,363
Fixed maturity securities purchased (26,313) (6,654)
Equity securities sold 20,284 7,032
Equity securities purchased (14) (6,919)
Net change in short-term investments (6,322) (4,555)
Net policy loans advanced (5,910) (3,668)
-------- --------
Cash provided by (used in) investing activities $(17,173) $ 8,599
-------- --------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 8,924 $ 6,071
Withdrawals of policyholder account balances on
variable life and annuity policies (2,320) (4,652)
-------- --------
Cash provided by financing activities $ 6,604 $ 1,419
-------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period $ (4,719) $ (5,088)
Balance, beginning of year 23,789 19,882
-------- --------
BALANCE, END OF PERIOD $ 19,070 $ 14,874
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (hereafter referred
to as "ManAmerica" or the "Company") is a direct wholly-owned U.S.
subsidiary of The Manufacturers Life Insurance Company (U.S.A.)
("ManUSA"), which is an indirect wholly-owned subsidiary of The
Manufacturers Life Insurance Company, which in turn is a wholly-owned
subsidiary of Manulife Financial Corporation. Manulife Financial
Corporation and its subsidiaries are known collectively as "Manulife
Financial".
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
ManAmerica and its wholly-owned subsidiaries have been prepared in
accordance with generally accepted accounting principles ("GAAP"), except
that they do not contain complete notes. However, in the opinion of
management, these statements include all normal recurring adjustments
necessary for a fair presentation of the results. These financial
statements should be read in conjunction with the financial statements
and the related notes included in ManAmerica's annual report on Form 10-K
for the year ended December 31, 1998. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1999.
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 financial statement presentation.
3. RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities.
Contracts that contain embedded derivatives, such as certain insurance
contracts, are also addressed by the Statement. FAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In July 1999 the FASB issued Statement 137 which delayed the
effective date of FAS 133 to fiscal years beginning after June 15, 2000.
The Company is evaluating FAS No. 133 and has not determined its impact
on results of operations and financial condition.
7
<PAGE> 8
4. COMPREHENSIVE INCOME
Total comprehensive income for the three months and nine months ended
September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
COMPREHENSIVE INCOME: 1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $2,968 $(1,104) $ 8,346 $(2,767)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses)
on available-for-sale securities (268) 269 (2,725) 1,259
Foreign currency translation 140 75 456 (714)
-------- ------- -------- -------
Other comprehensive income (loss) $ (128) $ 344 $ (2,269) $ 545
-------- ------- -------- -------
COMPREHENSIVE INCOME (LOSS) $2,840 $ (760) $ 6,077 $(2,222)
-------- ------- -------- -------
</TABLE>
Other comprehensive income is reported net of taxes recoverable (payable)
of $144 and ($145) for the three months, and $1,465 and ($678) for the
nine months ended September 30, 1999 and 1998, respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
($ thousands) 1999 1998
- ------------- ------------ -----------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 2,949 $ 380
Current period change (2,725) 2,569
------------ -----------
Ending balance $ 224 $ 2,949
------------ -----------
FOREIGN CURRENCY:
Beginning balance $(5,186) $(5,272)
Current period change 456 86
------------ -----------
Ending balance $(4,730) $(5,186)
------------ -----------
ACCUMULATED OTHER COMPREHENSIVE LOSS $(4,506) $(2,237)
============ ===========
</TABLE>
5. CAPITAL CONTRIBUTION
On January 29, 1999, ManUSA contributed an amount receivable from a
subsidiary to the Company in the amount of $1,722 in exchange for one
common share. On April 15, 1999, ManUSA contributed an additional amount
receivable of $778 from a subsidiary to the Company.
6. DISPOSAL OF EQUITY SECURITIES
In January 1999, the Company disposed of shares of the Manufacturers
Investment Trust for proceeds of $18,000 and realized a gain of $1,051 on
the sale.
8
<PAGE> 9
7. SEGMENT DISCLOSURES
The Company reports two business segments: Traditional Life Insurance
sold in Taiwan and Variable Life Insurance sold in the U.S. The
Company's reportable segments have been determined based on geography,
differences in product features, and distribution; the segments are
also consistent with the Company's management structure.
Segmented information for the Company is as follows:
<TABLE>
<CAPTION>
AS AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30
($ thousands) TAIWAN U.S. TOTAL
- ------------- -------- --------- ---------
<S> <C> <C> <C>
1999
Premiums and fee income $ 7,092 $ 51,851 $ 58,943
Interest expense - 46 46
Income tax benefit (expense) 1,592 (5,925) (4,333)
Net income (loss) (2,965) 11,311 8,346
Total assets excluding separate account assets $30,738 $287,080 $317,818
------- -------- --------
1998
Premiums and fee income $ 6,267 $ 39,852 $ 46,119
Interest expense - 2,265 2,265
Income tax benefit 1,729 (289) 1,440
Net income (loss) (3,212) 445 (2,767)
Total assets excluding separate account assets $25,034 $254,040 $279,074
------- -------- --------
FOR THE THREE MONTHS ENDED SEPTEMBER 30
($ thousands) TAIWAN U.S. TOTAL
- ------------- -------- --------- ---------
1999
Premiums and fee income $ 2,640 $ 17,650 $ 20,290
Interest expense - - -
Income tax benefit (expense) 895 (1,846) (951)
Net income (loss) (1,671) 4,639 2,968
------- -------- --------
1998
Premiums and fee income $ 2,109 $ 13,737 $ 15,846
Interest expense - 381 381
Income tax benefit 1,178 (706) 472
Net income (loss) (2,188) 1,084 (1,104)
------- -------- --------
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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.
CORPORATE STRUCTURE AND OVERVIEW
The Company is a direct wholly-owned subsidiary of The Manufacturers Life
Insurance Company (U.S.A.) ("ManUSA"), which is an indirect wholly-owned
subsidiary of The Manufacturers Life Insurance Company, which in turn is a
wholly-owned subsidiary of Manulife Financial Corporation. Manulife Financial
Corporation and its subsidiaries are known collectively as "Manulife
Financial".
Manulife Financial is a leading provider of financial protection products and
investment management services to individuals, families, businesses and groups
in selected international markets. Manulife Financial operates in 16 countries
and territories worldwide, with more than 27,000 employees and agents. Funds
under management by Manulife Financial were $96.7 billion (Cdn) as of December
31, 1998 with a consolidated surplus position of $6.0 billion (Cdn).
The Company, along with The Manufacturers Life Insurance Company, enjoys strong
financial ratings that enhance its ability to attract new sales and retain
assets. The Company has received financial strength ratings of A++ (Superior)
by A.M. Best and AA+ (Very Strong) by Standards and Poor's ("S&P"). The
Company is rated AAA (Highest) by Duff & Phelps in terms of its ability to meet
its contractual obligations to policyholders.
The Company reports two business segments: Variable Life Insurance sold in the
U.S. and Traditional Life Insurance sold in Taiwan. The Company's reportable
segments have been determined based on geography.
VARIABLE LIFE PRODUCTS
During the last five years the Company has grown significantly through the
successful implementation of its variable insurance sales strategies. This
growth reflects:
o continuing shift in consumer preference as they seek greater
control over their investment decision making,
o directed marketing and sales practices by the Company,
o increased product offerings, including the launch in late
1997 of the Corporate-Owned Variable Life (COLI) product, a
Survivorship Variable Universal Life (SVUL) product and a Diet
Corporate-Owned Variable Life product for the small-case COLI market
launched in early 1999,
10
<PAGE> 11
o broader offering of underlying investment portfolios by
external fund advisers, including asset allocated portfolios "funds
of funds",
o active monitoring of portfolio managers.
The growth for variable life insurance products 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. The Company is confident the combination of both products and
investment platform form the foundation of future growth and profitability.
TAIWAN
The Company entered Taiwan in 1992 as a start-up venture to sell traditional
insurance products through its Taiwan branch with full operations commencing in
1995. The Company's Taiwan operation has experienced moderate growth over the
last two years. The Company expects to continue to expand in Taiwan with a
focus on selling innovative insurance related products and services including
traditional life insurance, annuity, and estate and retirement planning
products, as well as financial, estate and retirement planning services to
high net worth individuals.
FORWARD-LOOKING STATEMENTS
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.
11
<PAGE> 12
REVIEW OF CONSOLIDATED OPERATING RESULTS AND CONSOLIDATED FINANCIAL CONDITION
CONSOLIDATED OPERATING RESULTS
The discussion that follows compares results for the three months ended
September 30, 1999 to the three months ended September 30, 1998.
The Company recorded net income of $3.0 million in 1999 compared to a net loss
of $1.1 million in 1998. Significantly higher fee income on a maturing block
of in-force business, lower operating costs and expenses and lower interest
expense through the conversion of inter-company debt to capital, have
contributed positively to the Company's earnings in 1999 compared to 1998.
Variable universal life (VUL) deposits of $63.9 million in 1999 were 25% higher
than VUL deposits of $51.0 million in 1998. This growth was due primarily to
strong renewal business and contributed to the increase in the Company's
separate account assets which went from $1,075 million at the end of 1998 to
$1,172 million at the end of September 30, 1999. Fee income increased to $17.7
million in 1999 compared to $13.7 million in 1998. The increase in fee income
in 1999 is attributable to higher cost of insurance and asset-based fees due to
the maturing VUL business and higher asset-based distribution fees earned by
the Company's broker-dealer subsidiary.
The Company incurred total benefits and expenses in 1999 of $18.2 million, a
decrease of $0.8 million, or 4% compared to 1998. Higher policyholder benefits
and DAC amortization in 1999 were offset by lower operating costs and expenses
and lower interest expense. Higher policyholder benefits in 1999 were a result
of higher death claims. Higher DAC amortization was a result of accelerated
write-off of the DAC asset associated with the Company's VUL business due to
higher gross margins attributable mainly to higher interest spreads earned in
1999 compared to 1998. Operating costs and expenses were $16.9 million for
1999 compared to $20.6 million for 1998, before deferral of acquisition
expenses. Net of deferred acquisition costs, these costs were $7.7 million for
1999 and $10.9 million for 1998. The decrease in expenses before deferral of
acquisition expenses in 1999 is attributable to a decline in COLI sales
compared to 1998. Interest expense reported in 1998 relates to interest on a
promissory note of $33 million payable to ManUSA which was discharged and
converted to capital on June 15, 1998 and interest on a surplus debenture due
to ManUSA of $8.5 million which was discharged and contributed to capital on
December 31, 1998. No such interest costs were recorded in 1999.
The discussion that follows compares results for the nine months ended
September 30, 1999 to the nine months ended September 30, 1998.
The Company recorded net income of $8.3 million in 1999 compared to a net loss
of $2.8 million in 1998. Significantly higher fee income on a maturing block
of in-force business, lower operating costs and expenses and lower interest
expense through the conversion of inter-company debt to capital, have
contributed positively to the Company's earnings in 1999 compared to 1998.
12
<PAGE> 13
Variable universal life (VUL) deposits of $174.1 million in 1999 were 13%
higher than VUL deposits of $154.1 million in 1998. This growth was due
primarily to strong renewal business and contributed to the increase in the
Company's separate account assets which went from $1,075 million at the end of
1998 to $1,172 million at the end of September 30, 1999. Fee income increased
to $51.9 million in 1999 compared to $39.9 million in 1998. The increase in
fee income in 1999 is attributable to increasing cost of insurance and
asset-based fees on the maturing VUL business and asset-based distribution fees
earned by the Company's broker-dealer subsidiary. Realized gains for 1999 were
$1.1 million compared to $0.0 million in 1998. The gain in 1999 resulted from
the sale of the Company's $18.8 million investment in shares of Manufacturers
Investment Trust (MIT). The Company's initial investment in MIT was provided
to create critical asset mass and to reduce market volatility of the underlying
funds. Critical mass of the underlying funds was achieved during 1998.
The Company incurred total benefits and expenses in 1999 of $52.3 million, a
decrease of $2.2 million, or 4% compared to 1998. Lower operating costs and
expenses and lower interest expense in 1999 were partially offset by higher DAC
amortization. Operating costs and expenses were $56.4 million for 1999
compared to $65.0 million for 1998, before deferral of acquisition expenses.
Net of deferred acquisition costs, these costs were $30.5 million for 1999 and
$31.7 million for 1998. The decrease in expenses before deferral of
acquisition expenses in 1999 is attributable to a decline in COLI sales in 1999
and volatility due to the random nature of large case COLI sales. Interest
expense reported in 1998 relates to interest on a promissory note of $33
million payable to ManUSA which was discharged and converted to capital on June
15, 1998 and interest on a surplus debenture due to ManUSA of $8.5 million
which was discharged and contributed to capital on December 31, 1998. No such
interest costs were recorded in 1999. Higher DAC amortization was a result of
accelerated write-off of the DAC asset associated with the Company's VUL
business due to higher gross margins attributable mainly to improved mortality
experience and higher interest spreads earned in 1999 compared to 1998.
CONSOLIDATED FINANCIAL POSITION
SEPTEMBER 30, 1999 COMPARED TO DECEMBER 31, 1998
Total assets increased from $1,364 million at December 31, 1998 to $1,490
million at September 30, 1999, an increase of $126 million or 9%. Separate
account assets increased by 9% over the first nine months of 1999 and represent
79% of total assets. General account assets were $318 million at the end of
the first nine months of 1999, compared to $289 million at the end of 1998.
This growth was due primarily to the increase in the DAC asset of 11% or $18.0
million from $163.5 million at the end of 1998 to $181.5 million at September
30, 1999. The Company's fixed maturity securities increased by $21.6 million
from $49.3 million at the end of 1998 to $70.9 million at the end of September
30, 1999. The proceeds from the sale of the Company's investment in shares of
Manufacturers Investment Trust (MIT) discussed previously were primarily used
to purchase additional fixed maturity securities.
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the Company's separate accounts.
13
<PAGE> 14
MARKET RISK
Risk management is a fundamental component in the Company's financial strength
and stability, and is essential to its continuing success. The key market
risks faced by the Company are interest rate risk, equity price risk and
foreign currency exchange 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.
The Company earns asset based fees on the asset levels invested in the separate
accounts. As a result, the Company is subject to equity and interest rate
risks, and the effect changes in equity market levels and interest rate changes
will have on the amounts invested in the separate accounts.
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.
Based on the Company's overall exposure to interest rate, equity price and
foreign currency exchange risks, the Company believes that changes in market
rates would not materially affect the consolidated near-term financial
position, results of operations or cashflows of the Company as of September 30,
1999. Refer to the Company's Annual Report on form 10-K for a more detailed
discussion of "Risk Management Practices and Procedures".
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company
also uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable
year. Any of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in systems failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by the Company's ultimate parent company, Manulife
Financial Corporation, on behalf of all of its subsidiaries, to ensure that the
computer systems and processes of all of the Manulife Financial companies,
including the Company's, will continue to perform through the end of this
century and in the next.
14
<PAGE> 15
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
Project was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this Project 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.
Management believes that the certification phase was completed for all the
Company's critical IT and Non-IT systems as of June 30, 1999. Management
believes that the Company's non-critical systems were Year 2000 compliant by
the end of the first quarter 1999.
In addition to efforts directed at the Company's own systems, Manulife
Financial consulted vendors, customers, borrowers and other third parties with
which the Company deals in an effort to ensure that no material aspect of the
Company's operations will be hindered by Year 2000 problems of these third
parties. This process included sending questionnaires to third parties
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities. Where appropriate,
risk management steps are being followed as a result of the third-party
assessment.
The Year 2000 Project Management Office for Manulife Financial's U.S. Division
has coordinated the preparation and completion of contingency plans on behalf
of U.S. Division affiliates and subsidiaries, including the Company, in the
event that Manulife Financial's Year 2000 Project has not fully resolved its
Year 2000 issues.
Management believes that, due to the modifications made to existing software
and conversions to new software, the Year 2000 risk will not pose significant
operational problems for the Company's computer systems. As part of the Year
2000 Project, critical systems were "time-shift" tested in the year 2000 and
beyond to confirm that they will continue to function properly before, during
and after the change to the year 2000. However, there can be no assurance that
Manulife Financial's Year 2000 Project, including consulting third parties and
its contingency planning, will avoid any material adverse effect on the
Company's operations, customer relations or financial condition.
Manulife Financial estimates the total cost of its Year 2000 Project will be
approximately $60.5 million,* of which $58.7 million* has been incurred through
September 30, 1999. In addition, previously unbudgeted costs associated with
the start up of a new joint venture in Japan in April 1999 are estimated to be
$5.0 million,* of which approximately $3.2 million* was incurred through
September 30, 1999. These previously unbudgeted costs will be shared by
Manulife Financial and its joint venture partner. There can be no assurance
that the actual costs incurred will not be materially higher than estimated.
Manulife Financial's Year 2000 costs were $12.5 million* for the first nine
months of 1999, including the total joint venture costs, and $26.4 million* for
the first nine months of 1998. Most costs will be expensed as incurred;
however, those costs attributed to the purchase of new software and hardware
will generally be capitalized.
* All figures are shown in US dollars converted from Canadian dollars using the
average exchange rate of 1.490 in effect September 30, 1999.
15
<PAGE> 16
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1 - Legal Proceedings
Nothing to report.
Item 2 - Changes in Securities
Nothing to report.
Item 3 - Defaults upon Senior Securities
Nothing to report.
Item 4 - Submission of Matters to a Vote of Security Holders
Nothing to report.
Item 5 - Other Information
Nothing to report.
Item 6A - Exhibits
</TABLE>
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- -----------
<S> <C> <C>
(1) Not Applicable
(2) None
(3)(a)(i) Restated Articles of Incorporated by reference to Exhibit 3
Redomestication of The (A) (i) to Post- Effective Amendment
Manufacturers Life No. 6 on Form S-1 filed by The
Insurance Company of Manufacturers Life Insurance Company of
America** America on December 9, 1996 (File No.
33-57020)
(3)(b)(i) By-Laws of The Incorporated by reference to Exhibit 3(b)
Manufacturers Life (i) to Post- Effective Amendment No. 6 on
Insurance Company of Form S-1 filed by The Manufacturers Life
America** Insurance Company of America on
December 9, 1996 (File No. 33-57020)
(4)(a) Form of Multi-Account Incorporated reference to Exhibit (4)(a)
Flexible Variable to Pre- Effective Amendment No. 1
on Form S-1 filed by The Manufacturers
Life Insurance Company of America
on February 10, 1994 (File No.
33-57020)
(4)(b)(i) Individual Retirement Incorporated by reference to Exhibit
Annuity Rider (4)(b)(i) to Pre-Effective Amendment
No. 1 on Form S-1 filed by The
Manufacturers Life Insurance Company
of America on February 10, 1994 (File No.
33-57020)
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
(4)(b)(i)(a) Trustee-Owned Policies Incorporated by reference to Exhibit
Annuity Rider (4)(b)(i)(a) to Pre-Effective Amendment
No. 1 on Form S-1 filed by The
Manufacturers Life Insurance Company
of America on February 10, 1994 (File No.
33-57020)
(4)(b)(ii) Unisex Endorsement Incorporated by reference to Exhibit
(4)(b)(ii) to the registration statement
on Form N-4 filed by The Manufacturers
Life Insurance Company of America on
January 13, 1993 (File No. 33-57018)
(4)(b)(iii) Endorsement Incorporated by reference to Exhibit
0646-END.001 (4)(b)(ii) to Form 10Q by The
Manufacturers Life Insurance Company of
America on August 14, 1997 (File No.
33-57020)
(5) Not Applicable
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10)(a) Reinsurance Agreement Incorporated by reference to Exhibit (10)
(a) to Pre-Effective Amendment No. 1 on
Form S-1 filed by The Manufacturers Life
Insurance Company of America on February
10, 1994 (File No. 33-57018)
(10)(b)(i) Service Agreement Incorporated by reference to Exhibit 8(a)
between Manufacturers to the registration statement on Form N-4
Life of America and filed by The Manufacturers Life Insurance
The Manufacturers Company of America on January 13, 1993
Life Insurance (File No. 33-57018)
Company
(10)(b)(ii) Amendment to Service Incorporated by reference to Exhibit (8)
Agreement (b) to the registration statement on Form
N-4 filed by The Manufacturers Life
Insurance Company of America on January
13, 1993 (File No. 33-57018)
(10)(b)(iii) Second Amendment to Incorporated by reference to Exhibit
Service Agreement (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 Incorporated by reference to Exhibit
between The (8)(d) to Post- Effective Amendment
Manufacturers Life
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
Insurance Company and No. 1 statement on Form N-4 filed by
ManEquity, Inc. dated The Manufacturers Life Insurance
January 2, 1991 as Company of America on May 2, 1994
amended March 1, 1994 (File No. 33-57018)
(10)(c) Specimen Agreement Incorporated by reference to Exhibit
between ManEquity, (3) (b) (i) to the registration statement
Inc. and registered on - Form N-4 filed by The Manufacturers
representatives Life Insurance Company of America on
January 13, 1993 (File No. 33-57018)
(10)(d) Specimen Agreement Incorporated by reference to Exhibit
between Incorporated (3)(B)(ii) to the registration statement
by ManEquity, and on Form N-4 filed by The Manufacturers
Dealers Life Insurance Company of America
on January 13, 1993 (File No. 33-57018)
(11) None
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) None
(16) Not Applicable
(17) Not Applicable
(18) None
(19) None
(20) Not Applicable
(21) Not Applicable
(22) None
(23) None
(24) Power of Attorney Incorporated by reference to Exhibit
(12) to Post-Effective Amendment
No. 10 on Form S-6 filed by The
Manufacturers Life Insurance Company of
America on February 28, 1997
(File No.33-52310)
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Filed Herewith
Schedule
</TABLE>
18
<PAGE> 19
(28) Not Applicable
<TABLE>
<S> <C>
Item 6B - Reports on Form 8-K
No reports on Form 8-K
were filed during the
quarter.
</TABLE>
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
(Registrant)
November 15, 1999 By: /s/ Douglas H. Myers
Date -----------------------------
DOUGLAS H. MYERS
Vice-President, Finance
(Principal Financial Officer)
November 15, 1999 By: /s/ Donald A. Guloien
Date -----------------------------
DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial data schedule for quarter ended
September 30, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 70,898
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 102,909
<CASH> 19,070
<RECOVER-REINSURE> 4,385
<DEFERRED-ACQUISITION> 181,494
<TOTAL-ASSETS> 1,489,756
<POLICY-LOSSES> 74,371
<UNEARNED-PREMIUMS> 1,021
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,171,938
<NOTES-PAYABLE> 0
0
10,500
<COMMON> 4,502
<OTHER-SE> 196,772
<TOTAL-LIABILITY-AND-EQUITY> 1,489,756
7,092
<INVESTMENT-INCOME> 4,983
<INVESTMENT-GAINS> 1,051
<OTHER-INCOME> 0
<BENEFITS> 11,619
<UNDERWRITING-AMORTIZATION> 10,031
<UNDERWRITING-OTHER> 30,458
<INCOME-PRETAX> 12,679
<INCOME-TAX> (4,333)
<INCOME-CONTINUING> 8,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,346
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
