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.
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATEMENTS OF OPERATIONS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK (Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.)) STATEMENTS OF CAPITAL STOCK AND SURPLUS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): The following are summarized pro-forma results of operations of the Company for the years ended December 31, 1995 and 1994 before the effect of reinsurance transactions with Sun Life (Canada).
The Company has established a non-unitized separate account for amounts allocated to the fixed portion of a certain combination fixed/variable deferred annuity contract. The assets of this account are available to fund general account liabilities and general account assets are available to fund liabilities of this account.
Any difference between the assets and liabilities of the separate accounts is treated as payable to or receivable from the general account of the Company. The amount receivable from the general account of the Company amounted to $1,037,000 in 1995. The amount payable to the general account of the Company in 1994 was $1,308,000.
The reserves for life insurance, health insurance and annuity contracts, developed by accepted actuarial methods, have been established and maintained on the basis of published mortality and morbidity tables using assumed interest rates and valuation methods that will provide reserves at least as great as those required by law and contract provisions.
Certain reclassifications have been made in the 1994 financial statements to conform to the classifications used in 1995.
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 (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. CAPITAL STOCK AND SURPLUS: On January 2, 1985, the Company issued 2,000 shares of common stock to Sun Life of Canada (U.S.) for $6,000,000. Through December 31, 1995, Sun Life of Canada (U.S.) has contributed an additional $25,500,000 to the Company'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.
3. BONDS (CONTINUED): The amortized cost and estimated market value of bonds at December 31, 1995 and 1994 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 or prepayment penalties.
A bond included above with an amortized cost of approximately $399,000 and $398,000 at December 31, 1995 and 1994, respectively, was on deposit with the Superintendent of Insurance of the State of New York as required by law.
4. MORTGAGE LOANS (CONTINUED): The following table shows the geographic distribution of the mortgage portfolio.
As of December 31, 1995, the Company has restructured mortgage loans totalling $4,891,000, against which there are provisions of $497,000.
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 and amortized into income over the remaining contractual life of the security sold. The realized capital gains credited to the interest maintenance reserve were $960,000, $936,000 and $1,081,000 in 1995, 1994 and 1993, respectively. All gains are net of applicable taxes.
8. RETIREMENT PLANS: The Company participates with Sun Life (Canada) and Sun Life of Canada (U.S.) in a non-contributory defined benefit pension plan covering essentially all employees. The benefits are based on years of service and compensation.
On January 1, 1994, the Company adopted Statement of Financial Accounting Standard No. 87, "Employers Accounting for Pensions," which is in accordance with generally accepted accounting principles.
8. RETIREMENT PLANS (CONTINUED): The Company 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 Company matches, up to specified amounts, employees' contributions to the plan. Employer contributions were $21,000, $17,000 and $14,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers Accounting for Post-retirement 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 service. 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 $52,000 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 $7,000 in 1995, $5,000 in 1994 and $14,000 in 1993. The Company's post-retirement health care plans currently are not funded.
9. OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED): Net periodic post-retirement benefit cost components:
The discount rate used in determining the accumulated post-retirement benefit obligation was 7.5% in 1995 and 8.0% in 1994 and the assumed health care cost trend rate was 12.0% graded to 6% over 10 years after which it remains constant.
The fair values of the Company'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.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED): The fair values of mortgages are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same maturities.
12. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSE: Activity in the liability for unpaid claims and claim adjustment expense is summarized below.
13. FEDERAL INCOME TAXES: The Company 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 Company filed a return as a separate company. No provision is recognized for timing differences which may exist between financial statement and taxable
Rent expense under these and prior leases in 1995, 1994 and 1993 amounted to $336,000, $307,000 and $286,000, respectively.
Beginning In 1996, the Company will file financial statements prepared in accordance with all applicable pronouncements that define generally accepted accounting principles for all enterprises.
We have audited the accompanying balance sheets of Sun Life Insurance and Annuity Company of New York (a wholly-owned subsidiary of Sun Life Assurance Company of Canada) as of December 31, 1995 and 1994, and the related statements of operations, capital stock and surplus, and cash flows for each of the three years in the period ended December 31, 1995. 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.