-----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, FkTg9OL8qJvCiuuFHtlvBLx6B4NOuiyJMNcq6qcrmdkpfvT0ywPNzeLkUvap79nj sHxdOk4a3rijL8uwSeOjxA== 0000927016-96-001754.txt : 19961118 0000927016-96-001754.hdr.sgml : 19961118 ACCESSION NUMBER: 0000927016-96-001754 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 1934 Act SEC FILE NUMBER: 812-05959 FILM NUMBER: 96665239 BUSINESS ADDRESS: STREET 1: 200 CLARENDON STREET 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 FORM 10-Q 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, 1996 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 November 15, 1996 ----- -------------------- common stock, 50,000 $50 par value
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY -------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements
Statements of Financial Position as of Septemeber 30, 1996, and December 31, 1995 . . . . . . . . 2 Statements of Operations and Unassigned Deficit for the Three Months and Nine Months Ended September 30, 1996, and 1995 . . . . . . . . 3 Statements of Cash Flows for the Nine Months Ended Septmeber 30, 1996 and 1995 . . . . . . . . 4 Statements of Stockholder's Equity for the Nine Months Ended September 30, 1996, and 1995 . . . . . . . . 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 1996 1995 ---------------------------- (In millions) ASSETS Bonds $ 762.1 $ 552.8 Preferred stocks 4.8 5.0 Common stocks 1.3 1.7 Investment in affiliates 70.1 65.3 Mortgage loans on real estate 152.7 146.7 Real estate 43.4 36.4 Policy loans 75.5 61.8 Cash and temporary cash investments 0.0 76.6 Premiums due and deferred 35.5 39.6 Investment income due and accrued 21.9 18.6 Other general account assets 26.4 20.8 Assets held in separate accounts 2,982.9 2,421.0 --------------------- TOTAL ASSETS $4,176.6 $3,446.3 ===================== OBLIGATIONS AND STOCKHOLDER'S EQUITY OBLIGATIONS Policy reserves $ 802.2 $ 671.1 Federal income and other taxes payable 17.8 14.2 Other accrued expenses 93.7 79.9 Asset valuation reserve 15.7 15.4 Obligations related to separate accounts 2,978.6 2,417.0 --------------------- TOTAL OBLIGATIONS 3,908.0 3,197.6 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 (111.4) (131.3) --------------------- TOTAL STOCKHOLDER'S EQUITY 268.6 248.7 --------------------- TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY $4,176.6 $3,446.3 ======================
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 ------------------------------------------- 1996 1995 1996 1995 ---------- -------- --------- --------- (In millions) INCOME Premiums $ 198.1 $ 136.1 $ 683.5 $ 378.9 Net investment income 20.7 15.9 56.6 47.1 Other, net 26.8 14.1 100.8 57.7 ---------------------------------------- 245.6 166.1 840.9 483.7 BENEFITS AND EXPENSES Payments to policyholders and beneficiaries 57.3 50.0 175.4 161.3 Additions to reserves to provide for future payments to policyholders and beneficiaries 141.2 64.5 483.3 165.3 Expenses of providing service to policyholders and obtaining new insurance 32.4 31.6 127.2 113.9 State and miscellaneous taxes 2.9 2.7 11.0 8.8 ---------------------------------------- 233.8 148.8 796.9 449.3 ---------------------------------------- GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES AND NET REALIZED CAPITAL GAINS (LOSSES) 11.8 17.3 44.0 34.4 Federal income taxes 8.0 6.9 24.6 19.9 ---------------------------------------- GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL GAINS (LOSSES) 3.8 10.4 19.4 14.5 Net realized capital gains (losses) 0.8 0.1 (0.2) (0.6) ---------------------------------------- NET GAIN 4.6 10.5 19.2 13.9 Unassigned deficit at beginning of period (114.8) (157.7) (131.3) (162.1) Net unrealized capital gains (losses) and other adjustments 0.8 1.1 2.0 2.0 Change in separate account surplus 0.1 0.2 0.4 0.5 Other reserves and adjustments (2.1) 0.3 (1.7) 0.1 ---------------------------------------- UNASSIGNED DEFICIT AT END OF PERIOD $(111.4) $(145.6) $(111.4) $(145.6) ========================================
See condensed notes to the financial statements (unaudited). JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
(Unaudited) Nine months ended September 30 --------------------- 1996 1995 --------- --------- (In millions) Cash flows from operating activities: Insurance premiums $ 688.7 $ 383.4 Net investment income 55.4 46.1 Benefits to policyholders and beneficiaries (162.1) (150.3) Dividends paid to policyholders (11.6) (9.5) Insurance expenses and taxes (137.2) (122.5) Net transfers to separate accounts (369.3) (149.4) Other, net 62.8 28.4 --------------------- NET CASH PROVIDED FROM OPERATIONS 126.7 26.2 --------------------- Cash flows used in investing activities: Bond purchases (420.3) (53.3) Bond sales 168.8 16.7 Bond maturities and scheduled redemptions 20.8 22.9 Bond prepayments 18.7 5.3 Stock purchases (1.5) (1.7) Proceeds from stock sales 0.3 0.7 Real estate purchases ( 6.5) (15.5) Real estate sales 0.2 0.0 Other invested assets purchases (0.2) 0.0 Proceeds from the sale of other invested assets 1.0 0.0 Mortgage loans issued (17.5) (6.5) Mortgage loan repayments 10.1 16.2 Other, net 22.8 (34.6) --------------------- NET CASH USED IN INVESTING ACTIVITIES (203.3) (49.8) --------------------- DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (76.6) (23.6) Cash and temporary cash investments at beginning of year 76.6 76.0 --------------------- CASH AND TEMPORARY CASH INVESTMENTS AT THE END OF PERIOD $ 0.0 $ 52.4 =====================
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, 1995 (unaudited) Balance at January 1, 1995 $ 25.0 $355.0 $(162.1) $217.9 1995 Transactions: Net gain 13.9 13.9 Net unrealized capital gains and other adjustments 2.0 2.0 Change in separate account surplus 0.5 0.5 Other reserves and adjustments 0.1 0.1 Reclassification of paid-in capital (22.5) 22.5 0.0 --------------------------------------- Balance at September 30, 1995 $ 2.5 $377.5 (145.6) $234.4 ======================================= 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 Change in separate account surplus 0.4 0.4 Other reserves and adjustments (1.7) (1.7) --------------------------------------- Balance at September 30, 1996 $ 2.5 $377.5 $(111.4) $268.6 =======================================
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 were considered generally accepted accounting principles for a stock life insurance company wholly-owned by a mutual company for years prior to 1996. However, in April 1993, the Financial Accounting Standard Board (FASB) issued Interpretation 40, "Applicability of General Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises" (Interpretation). The Interpretation, as amended, is effective for 1996 annual financial statements and thereafter and no longer will allow statutory-basis financial statements to be described as being prepared in conformity with generally accepted accounting principles (GAAP). Upon the effective date of the Interpretation, in order for their financial statements to be described as being prepared in conformity with GAAP, mutual life insurance companies will be required to adopt all applicable authoritative GAAP pronouncements in any general-purpose financial statements that they may issue. John Hancock Variable Life Insurance Company (the Company) has not quantified the effects of the application of the Interpretation on its financial statements. The Company has not yet determined whether for general purposes it will continue to issue statutory-basis financial statements or statements adopting all applicable authoritative GAAP pronouncements. If the Company decides that its general-purpose financial statements will be prepared in accordance with GAAP rather than statutory accounting practices, the financial statements included herein would have to be restated to reflect all applicable authoritative GAAP pronouncements, including Statement of Financial Accounting Standards (SFAS) Nos. 60, 97, and 113. 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 three and nine months periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition As of September 30, 1996, total assets grew by 21.2% to $4,176.6 million, from $3,446.3 million at December 31, 1995. This increase is principally due to the growth in the separate accounts where assets increased by 23.2% during 1996 from $2,421.0 million at December 31, 1995, to $2,982.9 million at September 30, 1996. Total obligations grew by 22.2% to $3,908.0 million from $3,197.6 million at December 31, 1995. Most of this growth in total obligations was in the separate accounts, which grew by $561.6 million during 1996, from $2,417.0 million at December 31, 1995, to $2,978.6 million at September 30, 1996. 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 8.0% from $248.7 million at December 31, 1995, to $268.6 million at September 30, 1996. 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. For the past several years, the Company has invested new money predominantly in long-term investment grade corporate bonds as a means of lowering the relative proportion of assets invested in commercial mortgages. As a result, the Company's holdings in investment (NAIC SVO classes 1 and 2) and medium (NAIC SVO class 3) grade bonds are 91.6% and 6.1%, respectively, of total general account bonds at September 30, 1996. The corresponding percentages at December 31, 1995 were 90.1% and 6.7%, 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, 1996, the balance (NAIC SVO classes 4, 5, and 6) of 2.3% 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 $48.4 million and $45.3 million, respectively at September 30, 1996. The corresponding amounts at December 31, 1995 were $16.6 million and $5.4 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 1996 and 1997. Reserves and Obligations The Company's obligations principally consist of aggregate reserves for life policies and contracts of $802.2 million in the general account and obligations of $2,978.6 million in the separate accounts at September 30, 1996. The corresponding amounts at December 31, 1995 were $671.1 million and $2,417.0 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 1995 for all 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 total obligations include the Asset Valuation Reserve ("AVR") required by the NAIC and state insurance regulatory authorities. At September 30, 1996, and December 31, 1995, the AVR was $15.7 million and $15.4 million, respectively. The AVR contained voluntary contributions of $2.8 million in 1995. There was no voluntary contribution made during the nine months ended September 30, 1996. Management believes the Company's level of reserve is adequate and is made more conservative by the voluntary contributions. 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, 1996 and December 31, 1995 the balance of the IMR was $5.7 million and $6.9 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, 1996, the net gain from operations was $19.2 million, $5.3 million higher than the same period during 1995. For the quarter ending September 30, 1996, the net gain from operations was $4.6 million, $5.9 million lower than the same period during 1995. For the nine months ending September 30, 1996, total revenues increased by 73.8%, or $357.2 million to $840.9 million as compared to the same period during 1995. For the quarter ending September 30,1996, total revenues increased by 47.9%, or $79.5 million as compared to the same period in 1995. For the nine months ending September 30, 1996, premiums, net of premium ceded to reinsurers, increased by 80.4% or $304.6 million to $683.5 as compared to the same period during 1995. Of this nine month increase, $100.0 million was due to sales of corporate owned life insurance. For the quarter ending September 30, 1996 premiums, net of premium ceded to reinsurers, increased by 45.6% or $62.0 million as compared to the same period during 1995. For the nine months ending September 30, 1996, net investment income increased by 20.1% or $9.5 million to $56.6 million as compared to the same period during 1995. For the quarter ending September 30,1996, net investment income increased by 30.2% or $4.8 million as compared to the same period during 1995. These increases can be attributed to an increase in gross income on long-term bonds for the nine and three month periods ended September 30, 1996 of $12.9 million, and $7.9 million, respectively. The increase on long-term bond income was the result of an increased asset base. For the nine months ending September 30, 1996, and for the quarter ending September 30,1996, other income increased by $43.1 million and $12.7 million, respectively compared to the same periods in 1995. 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, 1996, total benefits and expenses increased by 77.4% or $347.6 million to $796.9 million as compared to the same period during 1995. For the quarter ending September 30,1996 total benefits and expenses increased by 57.1% or $85 million as compared to the same period during 1995. For the nine months ending September 30, 1996, benefit payments and additions to reserves increased by 101.7% or $332.1 million to $658.7 million as compared to the same period during 1995. For the quarter ending September 30,1996, benefit payments and additions to reserves increased by 73.4% or $84 million as compared to the same period during 1995. For the nine months ending September 30, 1996, insurance expenses increased by 11.7% or $13.3 million to $127.2 million as compared to the same period during 1995. For the quarter ending September 30,1996, insurance expenses increased by 2.5% or $0.8 million as compared to the same period during 1995. 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, 1996, include cash and short-term investments of $0.0 million, public bonds of $311.0 million, and investment grade private placement bonds of $401.1 million. The corresponding amounts at December 31, 1995 were $76.6 million, $206.2 million, and $294.7 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 $712.1 million as of September 30, 1996, 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, 1996 and year end 1995, the Company had no outstanding borrowings from sources outside its affiliated group. Total surplus, or stockholder's equity, including the AVR, is $284.3 million as of September 30, 1996 compared to $264.1 million as of December 31, 1995. 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, 1996. 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 $268.6 million at September 30, 1996 and $248.7 million at December 31, 1995. 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: 11-12-96 /s/ Henry D. Shaw -------- ---------------------------- Vice Chairman and President Date: 11-12-96 /s/ Patrick F. Smith -------- ---------------------------- Controller EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF FINANCIAL POSITION, STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 762,053,099 0 0 76,237,908 152,656,400 43,402,584 1,034,349,991 0 0 0 4,176,582,703 813,480,563 0 1,001,754 0 0 0 0 2,500,000 266,078,999 4,176,582,703 683,526,665 56,623,244 (197,122) 100,722,685 658,714,905 0 0 43,795,385 24,622,889 0 0 0 0 19,172,496 0 0 0 0 0 0 0 0 0
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