The Company leases two separate facilities for its annuity operations and group sales offices. On February 24, 1999, the Company terminated the lease associated with its annuity operations office as it intends to consolidate the functions performed at this facility with its parent company, Sun Life of Canada (U.S.). The group sales office lease is scheduled to expire in July, 1999.
The Company had net income of $6,685,000 for 1998 as compared to $3,356,000 for 1997. The increase in net income between years was due directly to higher earnings in the annuity and group disability businesses and an over-accrued federal income tax provision at December 31, 1997, offset by lower earnings from group life insurance. The increase in annuity income was primarily due to higher fee income from market appreciation on separate account assets and lower reserve strain from lower fixed annuity sales in 1998. The
During the fourth quarter of 1996, SLOC began a comprehensive analysis of its information technology ("IT") and non-IT systems, including its hardware, software, data, data feed products, and internal and external supporting services, to ensure the ability of these systems to correctly process date calculations through the year 2000 and beyond. SLOC created a full-time Year 2000 project team in early 1997 to manage this endeavor across the Company. This team, which works with dedicated personnel from all business units and with the legal and audit departments, reports directly to the Company's senior management on a monthly basis. In addition, SLOC's Year 2000 project is periodically reviewed by internal and external auditors.
To date, all relevant systems have been identified and their components inventoried, needed resolutions have been documented, timelines and project plans have been developed, remediation and testing are in process. Over 90% of the components have been remediated, tested and are certified as Year 2000 compliant. The majority of the remaining components are in the testing phase and will be certified over the course of the year.
Non-IT applications, including building security, HVAC systems, and other such systems, will be tested. Compliant client server and mainframe environments have been built which allow for testing of critical dates such as December 31, 1999, January 1, 2000, February 28, 2000, February 29, 2000 and March 1, 2000 without impact to current production.
Although the Company expects all critical systems to be Year 2000 compliant before the end of 1999, there can be no assurance that this result will be completely achieved. Factors giving rise to this uncertainty include possible loss of technical resources to perform the work, failure to identify all susceptible systems, non-compliance by third-parties whose systems and operations affect the Company, and other similar uncertainties. A possible worst-case scenario might include one or more of the Company's significant systems being non-compliant. Such a scenario could result in material disruption to the Company's operations. Consequences of such disruptions could include, among other possibilities, the inability to update customers' accounts, process payments and other financial transactions; and report accurate data to management, customers, regulators, and others. Consequences also could include business interruptions or shutdowns, reputational harm, increased scrutiny by regulators, and litigation related to Year 2000 issues. Such potential consequences, depending on their nature and duration, could have a material impact on the Company's results of operations and financial position.
The Private Securities Litigation Reform Act of 1995 defines forward looking statements as statements not based on historical fact. This Form 10-K includes forward looking statements by the Company. These statements relate to such topics as to Year 2000 compliance, volume growth, market share, and financial goals. It is important to understand that these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those that the statements anticipate. These risks and uncertainties may concern, among other things: - The Company's ability to identify and address Year 2000 issues successfully, in a timely manner, and at reasonable cost. They also may concern the ability of the Company's vendors, suppliers, other service providers, and customers to successfully address their own Year 2000 issues in a timely manner. - Heightened competition, particularly in terms of price, product features, and distribution capability, which could constrain the Company's growth and profitability. - Changes in interest rates and market conditions. - Regulatory and legislative developments.
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND SURPLUS
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, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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, group life and group long-term disability insurance. The parent company, Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), is ultimately a wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life (Canada)"), a mutual life insurance company.
The Company has established unitized separate accounts applicable to individual qualified and nonqualified variable annuity contracts.
The Company has also established a nonunitized 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.
Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Certain 1997 and 1996 amounts have been reclassified to conform to amounts as presented in 1998.
A bond, included above, with an amortized cost of approximately $404,000 and $408,000 at December 31, 1998 and 1997, respectively, was on deposit with the Superintendent of Insurance of the State of New York as required by law.
3. MORTGAGE LOANS: The Company invests in commercial first mortgage loans throughout the United States. The Company monitors the condition of the mortgage loans in its portfolio. In those cases where mortgages have been restructured, appropriate allowances for losses have been made. In those cases where, in management's judgment, the mortgage loans' values are impaired, appropriate losses are recorded.
The Company has made no commitments of mortgage loans on real estate into the future.
Realized capital gains and losses on bonds and mortgages which relate to changes in levels of interest rate risk are charged or credited to an interest maintenance reserve ("IMR") and amortized into income over the remaining contractual life of the security sold. The gross realized capital gains credited to the IMR were $408,000, $355,000 and $354,000 in 1998, 1997 and 1996, respectively. All gains are transferred net of applicable income taxes.
5. NET INVESTMENT INCOME: Net investment income consisted of the following for:
6. REINSURANCE: 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 $4,000 per policy per month for the group long-term disability contracts ceded by the Company. For the year ended December 31, 1997 and 1996, the agreements provided that Sun Life (Canada) would reinsure $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 (decreasing) income from operations by $(771,000), $139,000 and $(500,000) for the years ended December 31, 1998, 1997, and 1996, respectively.
6. REINSURANCE: (CONTINUED): The following are summarized pro forma results of operations of the Company for the years ended December 31, 1998, 1997 and 1996 before the effect of reinsurance transactions with Sun Life (Canada).
8. SEGMENT INFORMATION: The Company offers financial products and services such as fixed and variable annuities, group life insurance and group long-term disability protection. Within these areas, the Company conducts business principally in two operating segments and maintains a corporate surplus segment to provide for the capital needs of the various operating segments and to engage in other financing related activities.
8. SEGMENT INFORMATION: (CONTINUED): The Retirement Products and Services ("RPS") segment markets and administers individual variable and fixed annuity products, including market value adjusted annuities, while the Group Insurance segment markets and administers group life insurance and group long-term disability products.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. SFAS No. 106 allows recognition of the cumulative effect of the liability in the year of adoption or the amortization of the obligation over a period of up to 20 years. The Company has elected to recognize this obligation of approximately $455,000 over a period of ten years. The Company's cash flows are not affected by implementation of this standard, but implementation decreased net income by $6,000, $16,000, and $8,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company's postretirement health, dental and life insurance benefits currently are not funded.
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, maturity, repayment and liquidity characteristics.
15. MANAGEMENT AND SERVICE CONTRACTS: 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, actuarial and administrative services on a cost reimbursement basis. Expenses under these agreements amounted to approximately $1,037,000 in 1998, $1,155,000 in 1997 and $1,866,000 in 1996.
16. 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 at December 31, 1998 and 1997.
Because the Company'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 Company has determined that the cost of complying with Statement No. 120 would exceed the benefits that the Company, or the users of its financial statements, would experience. Consequently, the Company has elected not to apply such standards in the preparation of these statutory financial statements.
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, 1998, 1997 AND 1996
18. SUBSEQUENT EVENT: Subsequent to December 31, 1998, the Company announced its intention to consolidate the customer service and accounting functions, currently performed at its office at 80 Broad Street in New York, New York, with its parent company, Sun Life of Canada (U.S.), based in Wellesley Hills, Massachusetts. A plan to transfer these operations, effective July 1, 1999, was presented to the New York State Insurance Department on February 8, 1999, and is currently undergoing review. The Company will maintain its corporate home office in the State of New York and will continue to offer individual annuity, group life and group disability products to residents of New York. This action is expected to improve operating efficiencies and achieve greater economies of scale. As a result of this event, the Company will be terminating approximately 18 employees and is expecting to incur severance related costs ranging between $250,000 and $490,000. In addition, the expense associated with terminating its lease at the 80 Broad Street facility will total approximately $77,000.
We have audited the accompanying statutory statements of admitted assets, liabilities and capital stock and surplus of Sun Life Insurance and Annuity Company of New York ("the Company") as of December 31, 1998 and 1997, and the related statutory statements of operations, changes in capital stock and surplus, and cash flow for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
As described more fully in Notes 1 and 17 to the financial statements, the Company prepared these financial statements using accounting practices prescribed or permitted by the Insurance Department of the State of New York, which is a comprehensive basis of accounting other than generally accepted accounting principles. The effects on the financial statements of the differences between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital stock and surplus of Sun Life Insurance and Annuity Company of New York as of December 31, 1998 and 1997, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1998 on the basis of accounting described in Notes 1 and 17.
However, because of the differences between the two bases of accounting referred to in the second preceding paragraph, in our opinion, the statutory 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, 1998 and 1997 or the results of its operations or its cash flow for each of the three years in the period ended December 31, 1998.