The Registrant had net income of $930,000 for 1995 as compared to $4,355,000 for 1994. An increase in group life and health insurance premiums and fixed annuity deposits in 1995, were offset by lower earnings on investments, higher annuity surrenders and proportionally higher federal income taxes.
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATEMENTS OF CASH FLOWS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Sun Life Insurance and Annuity Company of New York (the Company) is incorporated as a life insurance company and is currently engaged in the sale of individual fixed and variable annuities and group life and long-term disability insurance. The parent company, Sun Life Assurance Company of Canada (U.S.) (Sun Life of Canada (U.S.)), is a wholly-owned subsidiary of Sun Life Assurance Company of Canada (Sun Life (Canada)), a mutual life insurance company. The Company, which is domiciled in the State of New York, prepares its financial statements in accordance with statutory accounting practices prescribed by the State of New York Insurance Department. Statutory accounting practices are considered to be generally accepted accounting principles for mutual insurance companies and subsidiaries and affiliates of mutuals. 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 Company are not material to the financial statements. Preparation of the financial statements requires management to make certain estimates and assumptions.
Assets in the balance sheets are stated at values prescribed or permitted to be reported by state regulatory authorities. Bonds are carried at cost adjusted for amortization of premium or accrual of discount. Mortgage loans acquired at a premium or discount are carried at amortized values and other mortgage loans at the amounts of the unpaid balances. Real estate investments are carried at the lower of cost or appraised value, adjusted for accumulated depreciation, less encumbrances. Depreciation of buildings and improvements is calculated using the straight line method over the estimated useful life of the property. For life and annuity contracts, premiums are recognized as revenues over the premium paying period, whereas commissions and other costs applicable to the acquisition of new business are charged to operations as incurred. Furniture and equipment acquisitions are capitalized but treated as nonadmitted assets. Furniture and equipment depreciation is calculated on a straight line basis over the useful life of the assets.
The Company has agreements with Sun Life (Canada) which provide that Sun Life (Canada) will furnish to the Company, as requested, personnel as well as certain investment and administrative services on a cost reimbursement basis. Expenses under these agreements amounted to approximately $1,741,000 in 1995, $1,559,000 in 1994 and $1,200,000 in 1993.
The Company 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 Company. 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 Company. Reinsurance transactions under these agreements had the effect of increasing income from operations by approximately $652,000 and $222,000 for the years ended December 31, 1995 and 1994, respectively.
The group life and long term disability reinsurance agreements require that the reinsurer provide funds in amounts equal to the reserves ceded.
Deposits to all separate accounts are reported as increases in separate account liabilities and are not reported as revenues. Mortality and expense risk charges and surrender fees incurred by the separate accounts are included in income of the Company.
3. BONDS: The amortized cost and estimated market value of investments in debt securities as of December 31, 1995 and 1994 are as follows:
8. RETIREMENT PLANS (CONTINUED): The funding policy for the pension plan is to contribute an amount which at least satisfies the minimum amount required by ERISA. The Company is charged for its share of the pension cost based upon its covered participants. Pension plan assets consist principally of a variable accumulation fund contract held in a separate account of Sun Life (Canada).
The following table sets forth the funded status for the pension plan (for Sun Life (Canada), Sun Life of Canada (U.S.), Sun Investment Services Company, another wholly-owned subsidiary of Sun Life of Canada (U.S.), and the Company) at December 31, 1995 and 1994:
9. OTHER POST-RETIREMENT BENEFIT PLANS: In addition to pension benefits the Company 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 Company, or retire early upon satisfying an alternate age plus service condition. Life insurance benefits are generally set at a fixed amount.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 1995 and 1994:
The fair values of short-term bonds are estimated to be the amortized cost. The fair values of long-term bonds which are publicly traded are based upon market prices or dealer quotes. For privately placed bonds, fair values are estimated using prices for publicly traded bonds of similar credit risk and maturity and repayment characteristics.
The table shown below presents changes in the major elements of the AVR and IMR.
The information presented above includes unpaid benefit claims and claim adjustment expenses for the group life and group long term disability contracts. As of December 31, 1995 and 1994 the unpaid claim and claim adjustment liability for these contracts is included in Policy Reserves on the Balance Sheet.
14. LEASE COMMITMENTS: The Company leases two separate facilities for its annuity operations and group sales office. Both leases commenced in March, 1994.
15. RISK-BASED CAPITAL: Effective December 31, 1993 the NAIC adopted risk-based capital requirements for life insurance companies. The risk-based capital requirements provide a method for measuring the minimum acceptable amount of adjusted capital that a life insurer should have, as determined under statutory accounting practices, taking into account the risk characteristics of its investments and products. The Company has met the minimum risk-based capital requirements for 1995 and 1994.
16. NEW ACCOUNTING PRONOUNCEMENT: In April 1993, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises." Under this new interpretation, annual financial statements of mutual life insurance enterprises for fiscal years beginning after December 15, 1992, shall provide a brief description that financial statements prepared on the basis of statutory accounting practices will no longer be described as prepared in conformity with generally accepted accounting principles. In January 1995, Statement of Financial Accounting Standards No. 120 (SFAS No. 120), "Accounting and Reporting by Mutual Life Insurance Enterprises for Certain Long Duration Participating Contracts" was issued. SFAS No. 120 delays the effective date of Interpretation No. 40 until fiscal years beginning after December 15, 1995.
TO THE BOARD OF DIRECTORS AND STOCKHOLDER SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK WELLESLEY HILLS, MASSACHUSETTS