-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FscGWIFuFLmPC4nRXkq0fiBp5qUqqh4HElY2OvrqklS9ye/HlV2hREemEontAbo1 W4OQ2sjryqd/XYbR6nNkgg== 0000927016-97-003031.txt : 19971114 0000927016-97-003031.hdr.sgml : 19971114 ACCESSION NUMBER: 0000927016-97-003031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN VARIABLE LIFE INSURANCE CO CENTRAL INDEX KEY: 0000755110 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042664016 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-62895 FILM NUMBER: 97713307 BUSINESS ADDRESS: STREET 1: 200 CLARENDON ST STREET 2: JOHN HANCOCK PLACE P O BOX 111 CITY: BOSTON STATE: MA ZIP: 02117-0111 BUSINESS PHONE: 6175724390 MAIL ADDRESS: STREET 1: 200 CLARENDON ST STREET 2: P O BOX 111 CITY: BOSTON STATE: MA ZIP: 02117-0111 10-Q 1 SEPTEMBER 30, 1997 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1997 Commission File No. 33-62895 - ------------------------------------------------------------------------- John Hancock Variable Life Insurance Company -------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2664016 - ------------------------------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 200 Clarendon Street, Boston, Massachusetts 02117 - ------------------------------------------------------------------------- (Address of principal executive offices (Zip Code) Registrant's telephone number, including area code (617)572-9196 ------------- None - ------------------------------------------------------------------------------ (Former name, former address, and former fiscal year if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No - - Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Shares Outstanding Class at September 30, 1997 ----- --------------------- common stock, 50,000 $50 par value
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY -------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements
Statements of Financial Position as of September 30, 1997 and December 31, 1996 . . . . . . . . 2 Statements of Operations and Unassigned Deficit for the Three and Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 3 Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 4 Statements of Stockholder's Equity for the Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 5 Condensed Notes to Financial Statements . . . . . . . . 6 Item 2. Management's Discussion and Analysis . . . . . . . . 7 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 10
SIGNATURES JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
(Unaudited) September 30 December 31 1997 1996 ------------------------ (In millions) ASSETS Bonds $ 899.9 $ 753.5 Preferred stocks 17.4 9.6 Common stocks 4.3 1.4 Investment in affiliates 78.7 72.0 Mortgage loans on real estate 245.5 212.1 Real estate 40.0 38.8 Policy loans 101.5 80.8 Cash and temporary cash investments 0.0 31.9 Premiums due and deferred 33.2 36.8 Investment income due and accrued 25.7 22.6 Other general account assets 13.5 17.8 Assets held in separate accounts 4,430.7 3,290.5 ----------------------- TOTAL ASSETS $5,890.4 $4,567.8 ======================= OBLIGATIONS AND STOCKHOLDER'S EQUITY OBLIGATIONS Policy reserves $ 932.2 $ 877.8 Federal income and other taxes payable 29.9 29.4 Other accrued expenses 164.7 75.1 Asset valuation reserve 18.1 16.6 Obligations related to separate accounts 4,425.4 3,285.8 ------------------------ TOTAL OBLIGATIONS 5,570.3 4,284.7 STOCKHOLDER'S EQUITY Common Stock, $50 par value; authorized 50,000 shares; issued and outstanding 50,000 shares 2.5 2.5 Paid-in capital 377.5 377.5 Unassigned deficit (59.9) (96.9) ------------------------ TOTAL STOCKHOLDER'S EQUITY 320.1 283.1 ------------------------ TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY $5,890.4 $4,567.8 ========================
See condensed notes to the financial statements (unaudited). JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
(Unaudited) Three months ended Nine months ended September 30 September 30 ------------------------------------------ 1997 1996 1997 1996 ---------- -------- -------- -------- (In millions) INCOME Premiums $224.8 $ 198.1 $644.8 $ 683.5 Net investment income 22.5 20.7 64.1 56.6 Other, net 96.9 26.8 267.3 100.8 ----------------------------------------- 344.2 245.6 976.2 840.9 BENEFITS AND EXPENSES Payments to policyholders and beneficiaries 64.3 57.3 181.3 175.4 Additions to reserves to provide for future payments to policyholders and beneficiaries 214.4 141.2 578.7 483.3 Expenses of providing service to policyholders and obtaining new insurance 46.8 32.4 148.2 127.2 State and miscellaneous taxes 4.0 2.9 13.8 11.0 ----------------------------------------- 329.5 233.8 922.0 796.9 ----------------------------------------- GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES AND NET REALIZED CAPITAL GAINS (LOSSES) 14.7 11.8 54.2 44.0 Federal income taxes 10.2 8.0 27.2 24.6 ----------------------------------------- GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL GAINS (LOSSES) 4.5 3.8 27.0 19.4 Net realized capital gains (losses) (0.2) 0.8 (0.2) (0.2) ----------------------------------------- NET GAIN 4.3 4.6 26.8 19.2 Unassigned deficit at beginning of period (70.5) (114.8) (96.9) (131.3) Net unrealized capital gains (losses) and other adjustments (0.2) 0.8 4.3 2.0 Change in reserves on account of change in valuation basis 6.7 0.0 6.7 0.0 Other reserves and adjustments (0.2) (2.0) (0.8) (1.3) ----------------------------------------- UNASSIGNED DEFICIT AT END OF PERIOD $(59.9) $(111.4) $(59.9) $(111.4) =========================================
See condensed notes to the financial statements (unaudited). JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
(Unaudited) Nine months ended September 30 ------------------ 1997 1996 -------- -------- (In millions) Cash flows from operating activities: Insurance premiums $ 650.0 $ 688.7 Net investment income 61.9 55.4 Benefits to policyholders and beneficiaries (169.2) (162.1) Dividends paid to policyholders (13.7) (11.6) Insurance expenses and taxes (189.4) (137.2) Net transfers to separate accounts (513.9) (369.3) Other, net 262.0 62.8 ------------------- NET CASH PROVIDED FROM OPERATIONS 87.7 126.7 ------------------- Cash flows used in investing activities: Bond purchases (297.8) (420.3) Bond sales 76.7 168.8 Bond maturities and scheduled redemptions 36.7 20.8 Bond prepayments 45.2 18.7 Stock purchases (15.7) (1.5) Proceeds from stock sales 6.2 0.3 Real estate purchases (0.9) (6.5) Real estate sales 0.1 0.2 Other invested assets purchases 0.0 (0.2) Proceeds from the sale of other invested assets 0.0 1.0 Mortgage loans issued (59.3) (17.5) Mortgage loan repayments 25.0 10.1 Other, net 64.2 22.8 ------------------- NET CASH USED IN INVESTING ACTIVITIES (119.6) (203.3) ------------------- DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (31.9) (76.6) Cash and temporary cash investments at beginning of year 31.9 76.6 ------------------- CASH AND TEMPORARY CASH INVESTMENTS AT THE END OF PERIOD $ 0.0 $ 0.0 ===================
See condensed notes to the financial statements (unaudited). JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF STOCKHOLDER'S EQUITY
Common Paid-in Unassigned Stock Capital Deficit Total -------------------------------------- (In millions) For the nine months ended September 30, 1996 (unaudited) Balance at January 1, 1996 $2.5 $377.5 $(131.3) $248.7 1996 Transactions: Net gain 19.2 19.2 Net unrealized capital gains and other adjustments 2.0 2.0 Other reserves and adjustments (1.3) (1.3) -------------------------------------- Balance at September 30, 1996 $2.5 $377.5 $(111.4) $268.6 ====================================== For the nine months ended September 30, 1997 (unaudited) Balance at January 1, 1997 $2.5 $377.5 $ (96.9) $283.1 1997 Transactions: Net gain 26.8 26.8 Net unrealized capital gains and other adjustments 4.3 4.3 Change in reserves on account of changes in valuation basis 6.7 6.7 Other reserves and adjustments (0.8) (0.8) -------------------------------------- Balance at September 30, 1997 $2.5 $377.5 $ (59.9) $320.1 ======================================
See condensed notes to the financial statements (unaudited). JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 1--BASIS OF PRESENTATION The accompanying unaudited interim financial statements have been prepared on the basis of accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance and in conformity with the practices of the National Association of Insurance Commissioners, which practices differ from generally accepted accounting principles (GAAP). Pursuant to Financial Accounting Standard Board Interpretation 40, "Applicability of General Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises" (FIN 40), as amended which was effective for 1996 financial statements, financial statements based on statutory accounting practices can no longer be described as prepared in conformity with GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition As of September 30, 1997, total assets grew by 29.0% to $5,890.4 million, from $4,567.8 million at December 31, 1996. This increase is principally due to the growth in the separate accounts where assets increased by 34.7% during 1997 from $3,290.5 million at December 31, 1996, to $4,430.7 million at September 30, 1997. Total obligations grew by 30.0% to $5,570.3 million from $4,284.7 million at December 31, 1996. As with assets, most of this growth was in the separate accounts, which grew by 34.7% during 1997, from $3,285.8 million at December 31, 1996, to $4,425.4 million at September 30, 1997. Separate account assets and liabilities consist primarily of the fund balances associated with variable life and annuity business. The asset holdings include fixed income, equity growth, total return real estate, and global mutual funds, with liabilities representing amounts due to policyholders. Total stockholder's equity grew by 13.1% from $283.1 million at December 31, 1996, to $320.1 million at September 30, 1997. Investments The Company continues to address industry wide issues of asset quality and liquidity that have emerged in recent years. JHVLICO's bond portfolio is highly diversified. It maintains diversity by geographic region, industry group, and limiting the size of individual investments relative to the total portfolio. The Company's holdings in investment (NAIC SVO classes 1 and 2) and medium (NAIC SVO class 3) grade bonds are 89.6% and 7.9%, respectively, of total general account bonds at September 30, 1997. The corresponding percentages at December 31, 1996 were 90.5% and 7.2%, respectively. Most of the medium grade bonds are private placements that provide long-term financing for medium size companies. These bonds typically are protected by individually negotiated financial covenants and/or collateral. At September 30, 1997, the balance (NAIC SVO classes 4, 5, and 6) of 2.5% of total general account bonds consists of lower grade bonds and bonds in default. Bonds in default represent 0.8% of total general account bonds. Management believes the Company's commercial mortgage lending philosophy and practices are sound. The Company generally makes mortgage loans against properties with proven track records and high occupancy levels, and typically does not make construction or condominium loans nor lend more than 75% of the property's value at the time of the loan. To assist in the management of its mortgage loans, the Company uses a computer-based mortgage risk analysis system. The Company has outstanding commitments to purchase long-term bonds, and issue real estate mortgages totaling $46.8 million, $20.1 million, respectively at September 30, 1997. The corresponding amounts at December 31, 1996 were $42.1 million, and $33.5 million, respectively. The Company monitors the creditworthiness of borrowers under long-term bond commitments and requires collateral as deemed necessary. The majority of these commitments expire in 1997 and 1998. Reserves and Obligations The Company's obligations principally consist of aggregate reserves for life policies and contracts of $932.2 million in the general account and obligations of $4,425.4 million in the separate accounts at September 30, 1997. The corresponding amounts at December 31, 1996 were $877.8 million and $3,285.8 million, respectively. These liabilities are computed in accordance with commonly accepted actuarial standards and are based on actuarial assumptions which are in accordance with, or more conservative than, those called for in state regulations. All reserves meet the requirements of the insurance laws of the Commonwealth of Massachusetts. Intensive asset adequacy testing was performed in 1996 for the vast majority of reserves. As a result of that testing, no additional reserves were established. Adequacy testing is done annually and generally performed in the fourth quarter. The Company's investment reserves include the Asset Valuation Reserve ("AVR") required by the NAIC and state insurance regulatory authorities. The AVR is included in the Company's obligations. At September 30, 1997, and December 31, 1996, the AVR was $18.1 million and $16.6 million, respectively. Since 1995, there have been no voluntary contributions made to the AVR. Management believes the Company's level of reserve is adequate. The AVR was established to stabilize statutory surplus from non-interest related fluctuations in the market value of bonds, stocks, mortgage loans, real estate and other invested assets. The AVR generally captures realized and unrealized capital gains or losses on such assets, other than those resulting from changes in interest rates. Each year, the amount of an insurer's AVR will fluctuate as capital gains or losses are absorbed by the reserve. To adjust for such changes over time, an annual contribution must be made to the AVR equal to 20% of the difference between the maximum AVR (as determined annually according to the type and quality of an insurer's assets) and the actual AVR. The AVR provisions permitted a phase-in period whereby the required contribution was 10% in 1992, 15% in 1993, and the full 20% factor thereafter. Such contributions may result in a slower rate of growth of, or a reduction to, surplus. Changes in the AVR are accounted for as direct increases or decreases in surplus. The impact of the AVR on the surplus position of John Hancock in the future will depend in part on the composition of the Company's investment portfolio. The Interest Maintenance Reserve ("IMR") captures realized capital gains and losses (net of taxes) on fixed income investments (primarily bonds and mortgage loans) resulting from changes in interest rate levels. These amounts are not reflected in the Company's capital account and are amortized into net investment income over the estimated remaining lives of the investments disposed. At September 30, 1997 and December 31, 1996 the balance of the IMR was $7.3 million and $5.9 million, respectively. The impact of the IMR on the surplus of the Company depends upon the amount of future interest related capital gains and losses on fixed income investments. Results of Operations For the nine months ending September 30, 1997, the net gain from operations was $26.8 million, $7.6 million higher than the same period during 1996. For the quarter ending September 30, 1997, the net gain from operations was $4.3 million, $0.3 million lower than the same period during 1996. For the nine months ending September 30, 1997, total revenues increased by 16.1%, or $135.3 million to $976.2 million as compared to the same period during 1996. For the quarter ending September 30, 1997, total revenues increased by 40.1%, or $98.6 million as compared to the same period in 1996. For the nine months ending September 30, 1997, premiums, net of premium ceded to reinsurers, decreased by 5.7%, or $38.7 million to $644.8 million as compared to the same period during 1996. For the quarter ending September 30, 1997 premiums, net of premium ceded to reinsurers, increased by 13.5% or $26.7 million as compared to the same period during 1996. The nine months decrease in premium income is primarily due to the reinsurance of 50% of the 1997 annuity deposits with the parent company. The reinsurance agreement was put in place in the fourth quarter of 1996 and covers annuity deposits from January 1, 1995 forward. For the nine months ending September 30, 1997, net investment income increased by 13.3% or $7.5 million to $64.1 million as compared to the same period during 1996. For the quarter ending September 30, 1997, net investment income increased by 8.7% or $1.8 million as compared to the same period during 1996. These increases can be primarily attributed to an increased asset base. For the nine months ending September 30, 1997, and for the quarter ending September 30, 1997, other income increased by $166.5 million and $70.1 million respectively compared to the same periods in 1996. These increases were primarily attributable to the increase in commission and expense allowances and reserve adjustments on reinsurance ceded. For the nine months ending September 30, 1997, total benefits and expenses increased by 15.7% or $125.1 million to $922.0 million as compared to the same period during 1996. For the quarter ending September 30, 1997 total benefits and expenses increased by 40.9% or $95.7 million as compared to the same period during 1996. For the nine months ending September 30, 1997, benefit payments and additions to reserves increased by 15.4% or $101.3 million to $760.0 million as compared to the same period during 1996. For the quarter ending September 30, 1997, benefit payments and additions to reserves increased by 40.4% or $80.2 million as compared to the same period during 1996. For the nine months ending September 30, 1997, insurance expenses increased by 16.5% or $21.0 million to $148.2 million as compared to the same period during 1996. For the quarter ending September 30, 1997, insurance expenses increased by 44.4% or $14.4 million as compared to the same period during 1996. These increases in insurance expenses were attributable largely to commission expense resulting from the sale of new business. Liquidity and Capital Resources The Company's liquidity resources at September 30, 1997, include cash and short-term investments of $0.0 million, public bonds of $375.2 million, and investment grade private placement bonds of $462.1 million. The corresponding amounts at December 31, 1996 were $31.9 million, $263.2 million, and $439.7 million, respectively. In addition, the Company's separate accounts are highly liquid and are available to meet most outflow needs for variable life insurance. Management believes the liquidity resources above of $837.3 million as of September 30, 1997, strongly position the Company to meet all its obligations to policyholders and others. Generally, the Company's financing needs are met by means of funds provided by normal operations. As of September 30, 1997 and year end 1996, the Company had no outstanding borrowings from sources outside its affiliated group. Total surplus, or stockholder's equity, including the AVR, is $338.2 million as of September 30, 1997 compared to $299.7 million as of December 31, 1996. The current statutory accounting treatment of deferred acquisition cost ("DAC") taxes results in an understatement of the Company's surplus, which will persist during periods of growth in new business written. These taxes result from federal income tax law that approximates acquisition expenses and then spreads the corresponding tax deduction over a period of years. The result is a DAC tax which is collected immediately and subsequently returned through tax deduction in later years. Since it began its operations, the Company has received a total of $381.8 million in capital contributions from John Hancock, of which $377.5 million is credited to paid-in capital and $2.5 million is credited to capital stock as of September 30, 1997. In 1993, $1.8 million of capital was returned to John Hancock. To support the Company's operations, for the indefinite future, John Hancock is committed to make additional capital contributions if necessary to ensure that the Company maintains a positive net worth. The Company's stockholder's equity, net of unassigned deficit, was $320.1 million at September 30, 1997 and $283.1 million at December 31, 1996. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Sheet (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. John Hancock Variable Life Insurance Company ---------------------------- (Registrant) Date: November 12, 1997 /s/ Thomas J. Lee ----------------- ---------------------------- Vice President Date: November 12, 1997 /s/ Paula M. Pashko ----------------- ---------------------------- Assistant Controller EX-27 2 ARTICLE 7 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF FINANCIAL POSITION, STATEMENT OF OPERATIONS AND UNASSIGNED DEFICIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 899,868,327 0 0 100,323,352 245,462,996 40,012,365 1,285,667,040 0 0 0 5,890,394,515 1,075,902,987 0 0 22,459,243 11,371,257 0 0 2,500,000 317,625,127 5,890,394,515 644,848,831 64,095,187 (219,208) 267,340,506 760,022,831 0 0 54,030,759 27,201,703 0 0 0 0 26,829,056 0 0 0 0 0 0 0 0 0
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