The Registrant occupies office space leased by it. The lease expires in February, 2004.
The Registrant had net income of $2,403,000 for 1996 as compared to $930,000 for 1995. An increase in group life and health insurance premiums, higher fees from appreciating separate account assets and proportionally lower federal income taxes in 1996, were offset by lower earnings on investments and a decrease in fixed annuity deposits.
Financial statements, in the form required by Regulation S-X, are set forth below. The Registrant is not subject to the requirement to file supplementary financial data specified by Item 302 of Regulation S-K.
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) NOTES TO STATUTORY FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Registrant, which is domiciled in the State of New York, prepares its financial statements in accordance with statutory accounting practices prescribed or permitted by the State of New York Insurance Department. Prescribed accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as New York State laws, regulations and general administrative rules. Permitted accounting practices encompass all accounting practices not so prescribed. The permitted accounting practices adopted by the Registrant are not material to the financial statements. Prior to 1996, statutory accounting practices were recognized by the insurance industry and the accounting profession as generally accepted accounting principles (GAAP) for mutual life insurance companies and stock life insurance companies wholly owned by mutual life insurance companies. In April, 1993, the Financial Accounting Standards Board (FASB) issued an interpretation (the Interpretation), that became effective in 1996, that has changed the previous practice of mutual life insurance companies (and stock life insurance companies that are wholly owned subsidiaries of mutual life insurance companies) with respect to utilizing statutory basis financial statements for general purposes, in that it will no longer allow such financial statements to be described as having been prepared in conformity with GAAP. Consequently, these financial statements prepared in conformity with statutory accounting practices as described above, vary from and are not intended to present the Registrant's financial position and results of operations and capital in conformity with GAAP. (See Note 17 for further discussion relative to the Registrant's basis of financial statement presentation.) The effects on the financial statements of the variances between the statutory basis of accounting and GAAP, although not reasonably determinable, are presumed to be material.
Assets and liabilities of the separate accounts, representing net deposits and accumulated net investment earnings less fees, held primarily for the benefit of contract holders, are shown as separate captions in the financial statements. Assets held in the separate accounts are carried at market values.
The Registrant has also established a non-unitized separate account for amounts allocated to the fixed portion of a certain combination fixed/variable deferred annuity contracts. The assets of this account are available to fund general account liabilities and general account assets are available to fund liabilities of this account.
Gains (losses) from mortality experience and investment experience, not applicable to contract owners, are transferred to (from) the general account. Accumulated gains (losses) that have not been transferred are recorded as payable (receivable) to (from) the general account. Amounts payable to the general account of the Registrant amounted to $1,689,000 in 1996. The amount receivable from the general account of the Registrant was $1,037,000 in 1995.
The Registrant has also revised the format of its statutory statements of operations, changes in capital stock and surplus and cash flow in order to to match more exactly the presentation used in the preparation of its Annual Statement. As a result, reclassifications have been made in the amounts as reported in the 1995 and 1994 audited financial statements to conform to the presentation used for the 1996 amounts. For 1995 and 1994, surplus as reported in these financial statements differs from the amounts reported in the statutory Annual Statement by an immaterial amount because prepaid items were reported as non-admitted.
2. BONDS: The amortized cost and estimated fair value of investments in debt securities as of December 31, 1996 and 1995 are as follows:
2. BONDS (CONTINUED): The amortized cost and estimated fair value of bonds at December 31, 1996 and 1995 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call and/or prepayment penalties.
Proceeds from sales and maturities of investments in debt securities during 1996, 1995 and 1994 were $76,431,000, $111,448,000 and $85,719,000, respectively. Gross gains of $537,000, $1,295,000 and $1,400,000 and gross losses of $183,000, $335,000 and $464,000 were realized on such sales during 1996, 1995 and 1994, respectively.
3. MORTGAGE LOANS: The Registrant invests in commercial first mortgage loans throughout the United States. The Registrant monitors the condition of the mortgage loans in its portfolio. In those cases where mortgages have been restructured, appropriate provisions have been made. In those cases where, in management's judgement, the mortgage loans' values are impaired, appropriate losses are recorded.
As of December 31, 1996, the Registrant has restructured mortgage loans totalling $3,545,000 against which there are provisions of $497,000.
6. REINSURANCE: The Registrant has agreements with Sun Life (Canada) which provide that Sun Life (Canada) will reinsure the mortality and morbidity risks of the group life insurance contracts and group long-term disability contracts issued by the Registrant. Under these agreements, basic death benefits and long-term disability benefits are reinsured on a yearly renewable term basis. The agreements provide that Sun Life (Canada) will reinsure the mortality risks in excess of $50,000 per policy for group life insurance contracts and $3,000 per policy per month for the group long-term disability contracts ceded by the Registrant. Reinsurance transactions under these agreements had the effect of decreasing income from operations by $500,000 for the year ended December 31, 1996 and increasing income from operations by $652,000 and $222,000 for the years ended December 31, 1995 and 1994, respectively.
The following are summarized proforma results of operations of the Registrant for the years ended December 31, 1996, 1995 and 1994 before the effect of reinsurance transactions with Sun Life (Canada).
In addition to pension benefits, the Registrant provides certain health, dental and life insurance benefits ("post-retirement benefits") for retired employees and dependents. Substantially all employees may become eligible for these benefits if they reach normal retirement age while working for the Registrant, or retire early upon satisfying an alternate age plus service condition. Life insurance benefits are generally set at a fixed amount.
The fair values of the Registrant's general account reserves and liabilities under investment-type contracts (insurance and annuity contracts that do not involve mortality or morbidity risks) are estimated using discounted cash flow analyses or surrender values. Those contracts that are deemed to have short-term guarantees have a carrying amount equal to the estimated market value.
11. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSE: Activity in the liability for unpaid claims and claim adjustment expense is summarized below (in 000's).
The Registrant made cash payments to Sun Life of Canada (U.S.) of $2,797,000, $2,421,000 and $725,000 during 1996, 1995 and 1994, respectively.
Rent expense under these and prior leases in 1996, 1995 and 1994 amounted to $336,000, $336,000 and $307,000, respectively.
14. CAPITAL STOCK AND SURPLUS: On January 2, 1985, the Registrant issued 2,000 shares of common stock to Sun Life of Canada (U.S.) for $6,000,000. Through December 31, 1996, Sun Life of Canada (U.S.) has contributed an additional $25,500,000 to the Registrant's capital, of which $750,000 was used to establish a special contingency reserve in support of separate account business as required by New York Insurance Law. As a result of the law being repealed, the Registrant is no longer required to hold a special contingency reserve and has included the funds with paid-in capital.
17. ACCOUNTING POLICIES AND PRINCIPLES: The financial statements of the Registrant have been prepared on the basis of statutory accounting practices, which prior to 1996, were considered by the insurance industry and the accounting profession to be in accordance with GAAP for mutual life insurance companies. The primary differences between statutory accounting and GAAP are described as follows. Statutory accounting practices do not recognize the following assets or liabilities which are reflected under GAAP: deferred acquisition costs, deferred federal income taxes and statutory non-admitted assets. AVR and IMR are established under statutory accounting
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Because the Registrant's management uses financial information prepared in conformity with accounting policies generally accepted in Canada in the normal course of business, the management of the Registrant has determined that the cost of complying with Statement No. 120 would exceed the benefits that the Registrant, or the users of its financial statements, would experience. Consequently, the Registrant has elected not to apply such standards in the preparation of these financial statements.
However, because of the effects of the matter discussed in the second preceding paragraph, in our opinion, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of Sun Life Insurance and Annuity Company of New York as of December 31, 1996 and 1995 or the results of its operations or its cash flow for each of the three years in the period ended December 31, 1996.