<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 June 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 June 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 June 30, 1999
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets as at June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the three and six months ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in Capital and Surplus as at June 30, 1999 5
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 6
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
June 30 December 31
ASSETS ($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS: (UNAUDITED)
<S> <C> <C>
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1999 $66,805; 1998 $45,248) $ 67,622 $ 49,254
Equity (cost: 1999 $ - ; 1998 $19,219) - 20,524
Short-term investments 4,628 459
Policy loans 22,897 19,320
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 95,147 $ 89,557
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 20,650 23,789
Deferred acquisition costs 175,971 163,506
Income taxes recoverable - 2,665
Deferred income taxes 1,009 -
Other assets 12,068 9,062
Separate account assets 1,175,391 1,075,231
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,480,236 $ 1,363,810
===================================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 66,768 $ 60,830
Due to affiliates 9,061 5,133
Deferred income taxes - 763
Other liabilities 20,082 18,656
Separate account liabilities 1,175,391 1,075,231
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,271,302 $ 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) 2,714 (2,664)
Accumulated other comprehensive income (loss) (4,378) (2,237)
- -------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 208,934 $ 203,197
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,480,236 $ 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
($ thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 2,302 $ 2,208 $ 4,452 $ 4,158
Fee income 18,010 13,344 34,095 26,011
Net investment income 1,614 985 3,177 2,619
Realized investment gains (losses) - 74 1,051 (8)
Other - 47 106 104
- ----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 21,926 $ 16,658 $42,881 $32,884
- ----------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 3,980 $ 2,406 $ 5,485 $ 7,582
Operating costs and expenses 11,540 9,117 21,461 19,473
Commissions 489 743 1,343 1,296
Amortization of deferred acquisition costs 3,144 3,158 5,676 4,486
Interest expense - 976 46 1,884
Policyholder dividends 30 138 110 794
- ----------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 19,183 $ 16,538 $34,121 $35,515
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,743 120 8,760 (2,631)
- ----------------------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (EXPENSE) (982) (22) (3,382) 968
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $(1,663)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK SURPLUS (DEFICIT) LOSS EQUITY
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $15,002 $193,096 $(2,664) $(2,237) $ 203,197
Capital contribution (note 4) - 2,500 - - 2,500
Comprehensive income (note 3) - - 5,378 (2,141) 3,237
-------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $15,002 $195,596 $ 2,714 $(4,378) $ 208,934
-------------------------------------------------------------------------------------------------------------------
</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>
SIX MONTHS ENDED
JUNE 30
($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,378 $ (1,663)
Adjustments to reconcile net income to net cash used in operating activities:
Additions to policy liabilities 1,492 304
Deferred acquisition costs (17,401) (24,055)
Amortization of deferred acquisition costs 5,676 4,486
Realized (gain) loss on investments (1,051) 8
Increases (decreases) to deferred income taxes (449) 1,110
Other 7,863 2,720
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ 1,508 $ (17,090)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 1,086 $ 23,438
Fixed maturity securities purchased (22,703) (5,538)
Equity securities sold 20,284 4,922
Equity securities purchased (14) (5,177)
Net change in short-term investments (4,169) (8,145)
Net policy loans advanced (3,577) (2,305)
- -------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities $ (9,093) $ 7,195
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 5,934 $ 4,080
Withdrawals of policyholder account balances on
variable life and annuity policies (1,488) (2,236)
- -------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities $ 4,446 $ 1,844
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period $ (3,139) $ (8,051)
Balance, beginning of year 23,789 19,882
- -------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 20,650 $ 11,831
- -------------------------------------------------------------------------------------------------------------------
</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
JUNE 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 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.
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 six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the full year ending December
31, 1999.
3. COMPREHENSIVE INCOME
Total comprehensive income for the three months and six months ended
June 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
COMPREHENSIVE INCOME: 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $ (1,663)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses)
on available-for-sale securities (854) (179) (2,457) 990
Foreign currency translation 294 (742) 316 (789)
--------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (560) $ (921) $ (2,141) $ 201
--------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 1,201 $ (823) $ 3,237 $ (1,462)
--------------------------------------------------------------------------------------------------
</TABLE>
Other comprehensive income is reported net of taxes payable
(recoverable) of $(460) and $(96) for the three months, and $(1,323)
and $533 for the six months ended June 30, 1999 and 1998, respectively.
7
<PAGE> 8
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT JUNE 30 AS AT DECEMBER 31
($ thousands) 1999 1998
----------------------------------------- ---------------- -------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 2,949 $ 380
Current period change (2,457) 2,569
----------------------------------------- ---------------- -------------------
Ending balance $ 492 $ 2,949
----------------------------------------- ---------------- -------------------
FOREIGN CURRENCY:
Beginning balance $ (5,186) $ (5,272)
Current period change 316 86
----------------------------------------- ---------------- -------------------
Ending balance $ (4,870) $ (5,186)
----------------------------------------- ---------------- -------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
$ (4,378) $ (2,237)
----------------------------------------- ---------------- -------------------
</TABLE>
4. 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.
5. DISPOSAL OF EQUITY SECURITIES
In January 1999, the Company disposed of shares of the Manufacturers
Investment Trust for proceeds of $18.8 million and realized a gain of
$1,051 on the sale.
6. SEGMENT DISCLOSURES
The Company reports two business segments: Traditional Life Insurance
sold in Taiwan and Variable Life Insurance sold in the U.S. The
Company's reportable segments have been determined based on geography,
differences in product features, and distribution; the segments are
also consistent with the Company's management structure.
8
<PAGE> 9
6. SEGMENT DISCLOSURES (CONTINUED)
Segmented information for the Company is as follows:
<TABLE>
<CAPTION>
AS AT AND FOR THE SIX MONTHS ENDED JUNE 30
($ thousands) TAIWAN U.S. TOTAL
-------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C>
1999
Premiums and fee income $ 4,452 $ 34,095 $ 38,547
Interest expense - 46 46
Income tax benefit (expense) 697 (4,079) (3,382)
Net income (loss) (1,294) 6,672 5,378
Total assets excluding separate account assets $ 30,510 $274,335 $ 304,845
-------------------------------------------------- ---------------- ------------ ----------
1998
Premiums and fee income $ 4,158 $ 26,011 $ 30,169
Interest expense - 1,884 1,884
Income tax benefit 551 417 968
Net loss (1,024) (639) (1,663)
Total assets excluding separate account assets $ 27,344 $261,235 $ 288,579
-------------------------------------------------- ---------------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30
($ thousands) TAIWAN U.S. TOTAL
-------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C>
1999
Premiums and fee income $ 2,302 $ 18,010 $ 20,312
Interest expense - - -
Income tax benefit (expense) 246 (1,228) (982)
Net income (loss) (457) 2,218 1,761
-------------------------------------------------- ---------------- ------------ ----------
1998
Premiums and fee income $ 2,208 $ 13,490 $ 15,698
Interest expense - 976 976
Income tax benefit (expense) 271 (293) (22)
Net income (loss) (224) 332 98
-------------------------------------------------- ---------------- ------------ ----------
</TABLE>
7. COMPARATIVE FIGURES
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 financial statement presentation.
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 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 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 and its subsidiaries were $96.7 billion
(Cdn) as of December 31, 1998 with a consolidated surplus position of $6.0
billion (Cdn).
The Company, along with its ultimate parent company Manulife Financial, enjoys
strong financial ratings that enhance its ability to attract new sales and
retain assets. 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 more 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,
o broader offering of underlying investment portfolios by external fund
advisers, including asset allocated portfolios "funds of funds",
10
<PAGE> 11
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. We are
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. Despite the Asian financial crisis in 1997, the Company's Taiwan operation
has experienced moderate growth over the last two years. The Company continues
to anticipate a large potential for the Taiwan market 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
The discussion that follows focuses on the results for the six months and three
months ended June 30, 1999 compared to the results for the six months and three
months ended June 30, 1998.
NET INCOME
Significantly higher fee income on a maturing block of in-force business,
together with improved mortality experience and lower interest expense through
the conversion of inter-company debt to capital, have contributed positively to
the Company's earnings.
DEPOSITS
Variable universal life (VUL) deposits of $110.2 million for the six months and
$47.4 million for the three months ended June 30, 1999 were 6.9% and 3.9%
higher, respectively, than VUL deposits of $103.1 million and $45.6 million for
the same periods in 1998. This growth was a result of 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 $1,175 million at the end of the
second quarter of 1999.
FEE INCOME
Fee income increased to $34.1 million for the six months and $18.0 million for
the three months ended June 30, 1999 compared to $26.0 million and $13.3 million
for the same periods 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.
NET INVESTMENT INCOME
Net investment income was $3.2 million for the six months and $1.6 million for
the three months ended June 30, 1999 compared to $2.6 million and $1.0 million
for the same periods in 1998. The increase in investment income in 1999 is due
primarily to the increase in fixed maturity security holdings during the first
half of 1999 compared to the first half of 1998.
REALIZED CAPITAL GAINS
Realized gains for the six months ended June 30, 1999 were $1.1 million compared
to $0.0 million in the same period of 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.
12
<PAGE> 13
POLICYHOLDER BENEFITS
Policyholder benefits were $5.5 million for the six months and $4.0 million for
the three months ended June 30, 1999, compared to $7.6 million and $2.4 million
for the same periods in 1998. The overall decrease in policyholder benefits for
the first half of 1999 is due to improved mortality experience in the U.S.
business compared to 1998.
EXPENSES AND DEFERRED ACQUISITION COSTS (DAC) AMORTIZATION
Operating costs and expenses, including commissions, were $39.5 million for the
six months and $21.0 million for the three months ended June 30, 1999 compared
to $44.4 million and $20.4 million for the same periods in 1998, before deferral
of acquisition expenses. Net of deferred acquisition costs, these costs were
$22.8 million for the six months and $12.0 million for the three months ended
June 30, 1999, compared with $20.8 million and $9.9 million for the same periods
in 1998. The decrease in expenses before deferral of acquisition expenses in
1999 is attributable to a decline in COLI sales in the first half of 1999 and
volatility due to the random nature of large case COLI sales.
Interest expense reported in the first half of 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.
ASSETS
Separate account assets were $1,175 million at the end of the first half of
1999, compared to $1,075 million at the end of 1998. This growth reflects net
cash transfers of $27 million, and $73 million of gains due to investment
performance of the underlying investment funds.
General account assets were $305 million at the end of the first quarter of
1999, compared to $289 million at the end of 1998. This growth was due primarily
to the increase in the DAC asset which increased by $12.5 million from $163.5
million at the end of 1998 to $176.0 million as at the end of the first half of
1999.
The Company's fixed maturity securities increased by $18.3 million from $49.3
million at the end of 1998 to $67.6 million at the end of the first half of
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.
LIABILITIES
The Company's separate account liabilities increased $100 million. Separate
Account liabilities move in tandem with changes in Separate Account assets.
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 June 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 Manufacturers Life Insurance Company (collectively
with its subsidiaries "Manulife Financial") to ensure that the computer systems
and processes of Manulife Financial, including the Company's, will continue to
perform through the end of this century and in the next.
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
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<PAGE> 15
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 replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification.
As at June 30, 1999, management believes that the certification phase has been
completed for all the Company's critical IT and Non-IT systems. 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 $61.2 million,* of which $56.3 million* has been incurred through
June 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 $4.6
million,* of which $1.4 million* was incurred through June 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 $8.5 million* for the first six months of 1999, including the total joint
venture costs, and $15.9 million* for the first six 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 1.493 in effect June 30, 1999.
15
<PAGE> 16
PART II--OTHER INFORMATION
Item 1 - Legal Proceedings
Nothing to report.
Item 2 - Changes in Securities
Nothing to report.
Item 3 - Defaults upon Senior Securities
Nothing to report.
Item 4 - Submission of Matters to a Vote of Security Holders
Nothing to report.
Item 5 - Other Information
Nothing to report.
Item 6A - Exhibits
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- --------------- ------------------------- ---------------------------
<S> <C> <C>
(1) Not Applicable
(2) None
(3)(a)(i) Restated Articles of 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)(i)
Manufacturers Life 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 0646-END.001 Incorporated by reference to Exhibit
(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)(b)
Agreement 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 between Incorporated by reference to Exhibit
The Manufacturers Life (8)(d) to Post-Effective Amendment
</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 amended Company of America on May 2, 1994
March 1, 1994 (File No. 33-57018)
(10)(c) Specimen Agreement between Incorporated by reference to Exhibit
ManEquity, Inc. and (3) (b) (i) to the registration statement on --
registered representatives 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 to Exhibit
Incorporated by ManEquity, (3)(B)(ii) to the registration statement
and Dealers 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
(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 Schedule Filed Herewith
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
(28) Not Applicable
Item 6B - Reports on Form 8-K
No reports on Form 8-K
were filed during the
quarter.
</TABLE>
<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)
August 16, 1999 By: /s/ Douglas H. Myers
Date ----------------------------------
DOUGLAS H. MYERS
Vice-President, Finance
(Principal Financial Officer)
August 16, 1999 By: /s/ Donald A. Guloien
Date ----------------------------------
DONALD A. GULOIEN
President & Director
(Principal Executive Officer)
20
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial data schedule for quarter ended June 30, 1999
21
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 67,622
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 95,147
<CASH> 20,650
<RECOVER-REINSURE> 4,101
<DEFERRED-ACQUISITION> 175,971
<TOTAL-ASSETS> 1,480,236
<POLICY-LOSSES> 66,768
<UNEARNED-PREMIUMS> 981
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,175,391
<NOTES-PAYABLE> 0
0
10,500
<COMMON> 4,502
<OTHER-SE> 193,932
<TOTAL-LIABILITY-AND-EQUITY> 1,480,236
4,452
<INVESTMENT-INCOME> 3,177
<INVESTMENT-GAINS> 1,051
<OTHER-INCOME> 106
<BENEFITS> 5,485
<UNDERWRITING-AMORTIZATION> 5,676
<UNDERWRITING-OTHER> 22,804
<INCOME-PRETAX> 8,760
<INCOME-TAX> (3,382)
<INCOME-CONTINUING> 5,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,378
<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>
