SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATUTORY STATEMENTS OF OPERATIONS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
Sun Life Insurance and Annuity Company of New York (the Registrant) 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.
During 1996 the Registrant changed its method of accounting and reporting for deposits to and withdrawals from its unitized separate accounts. Previously, deposits were recorded as direct increases in liabilities of the separate accounts and withdrawals and benefits were recorded as direct decreases in that liability. Effective for 1996 the Registrant recorded deposits as revenue in the general account, withdrawals and benefits as expenses in the general account and the transfer of those funds between the general account and the separate account are reflected as an expense (income) item. Amounts presented for the years ended December 31, 1995 and 1994 have been restated to conform to this presentation. The effect of this change was to increase revenue and expenses by $54 million in 1996, $29 million in 1995 and $40 million in 1994, with no impact on net income of the general account. This new method of reporting is consistent with the accounting treatment for deposits and withdrawals and benefits of the non-unitized separate account of the Registrant and is consistent with prescribed statutory accounting practices.
A bond, included above, with an amortized cost of approximately $412,000 and $399,000 at December 31, 1996 and 1995, respectively, was on deposit with the Superintendent of Insurance of the State of New York as required by law.
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 interest maintenance reserve were $354,000, $960,000 and $936,000 in 1996, 1995 and 1994, respectively. All gains are transferred net of applicable income taxes.
The funding policy for the pension plan is to contribute an amount which at least satisfies the minimum amount required by ERISA. The Registrant 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 Registrant's share of the group's accrued pension cost at December 31, 1996, 1995 and 1994 was $178,000, $97,000 and $79,000, respectively. The Registrant's share of net periodic pension cost was $81,000, $18,000 and $79,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Registrant also participates with Sun Life (Canada), Sun Life of Canada (U.S.) and certain affiliates in a 401(k) savings plan for which substantially all employees are eligible. The Registrant matches, up to specified amounts, employees' contributions to the plan. Employer contributions were $27,000, $21,000 and $17,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Effective January 1, 1993, the Registrant began to accrue the estimated cost of retiree benefit payments during the years the employee provides service. The Registrant has elected to recognize a transition obligation of approximately $52,000 over a period of ten years. The expense recognized in the financial statements relative to this plan was $8,000 in 1996, $7,000 in 1995 and $5,000 in 1994. Effective June 5, 1996, the Registrant made certain changes regarding eligibility and benefits to its post-retirement health benefits plans for retirees on or after that date. The impact of these changes is a decrease of 1996 post-retirement costs of $13,000. The Registrant's post-retirement health care plans currently are not funded.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and fair values of the Registrant's financial instruments at December 31, 1996 and 1995:
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.
10. STATUTORY INVESTMENT VALUATION RESERVES: The asset valuation reserve (AVR) provides a reserve for losses from investments in bonds, mortgage loans, real-estate and other invested assets with related increases or decreases being recorded directly to surplus.
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, 1996 and 1995 the unpaid claim and claim adjustment liability for these contracts is included in Policy Reserves.
12. FEDERAL INCOME TAXES: The Registrant files a consolidated federal income tax return with Sun Life of Canada (U.S.) and other affiliates. Federal income taxes are calculated as if the Registrant filed a return as a separate company. No provision is recognized for timing differences which may exist between financial statement and taxable income. Such differences include reserves, depreciation and accrual of market discount on bonds.
13. LEASE COMMITMENTS: The Registrant leases two separate facilities for its annuity operations and group sales office. Both leases commenced in March, 1994.
15. MANAGEMENT AND SERVICE CONTRACTS: The Registrant has agreements with Sun Life (Canada) which provide that Sun Life (Canada) will furnish to the Registrant, as requested, personnel as well as certain investment, actuarial and administrative services on a cost reimbursement basis. Expenses under these agreements amounted to approximately $1,866,000 in 1996, $1,741,000 in 1995 and $1,559,000 in 1994.
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 Registrant has met the minimum risk-based capital requirements at December 31, 1996 and 1995.
17. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED): practices but not under GAAP. Methods for calculating real estate depreciation and investment valuation allowances differ under statutory accounting practices and GAAP. Premiums for investment type products are recognized as income for statutory purposes and as deposits to policyholders' accounts for GAAP.
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 as of December 31, 1996 and 1995, 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, 1996. 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 practices differ from generally accepted accounting principles. The effects on the financial statements of the variances 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, 1996 and 1995, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1996 on the basis of accounting described in Notes 1 and 17.
In our previous report dated February 7, 1996 we expressed an opinion that the 1995 and 1994 financial statements, prepared using accounting practices prescribed or permitted by the Insurance Department of the State of New York, presented fairly, in all material respects, the financial position of Sun Life Insurance and Annuity Company of New York, as of December 31, 1995, and the results of its operations and its cash flow for the years ended December 31, 1995 and 1994 in conformity with generally accepted accounting principles. As described in Notes 1 and 17 to the financial statements, pursuant to provisions of Statement of Financial Accounting Standards No. 120, ACCOUNTING AND REPORTING BY MUTUAL LIFE INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN LONG-DURATION PARTICIPATING CONTRACTS, financial statements of mutual life insurance enterprises (and stock life insurance companies that are wholly owned subsidiaries of mutual life insurance companies) for periods ending on or before December 15, 1996, prepared using accounting practices prescribed or permitted by insurance regulators are not considered presentations in conformity with generally accepted accounting principles when presented for comparative purposes with the enterprise's financial statements for periods subsequent to the effective date of Statement No. 120. Accordingly, our present opinion on the presentation of the 1995 and 1994 financial statements in accordance with generally accepted accounting principles, as presented herein, is different from that expressed in our previous report.