Hancock John Life Insurance Co – ‘10-Q’ for 6/30/01

On:  Tuesday, 8/14/01, at 12:45pm ET   ·   For:  6/30/01   ·   Accession #:  1005477-1-500606   ·   File #:  333-45862

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      47    300K 

Document Table of Contents

10-Q
1st Page of 47
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q

 |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934           

For the quarterly period ended June 30, 2001

 Commission File Number: 333-45864

 JOHN HANCOCK LIFE INSURANCE COMPANY
Exact name of registrant as specified in charter

MASSACHUSETTS                                   04-1414660    
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)                                                

John Hancock Place
 Boston, Massachusetts 02117
(Address of principal executive offices)

(617) 572-6000
(Registrant's telephone number, including area code)

   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) has been subject to such 
filing requirements for the past 90 days. Yes |X| No | |                        

Number of shares outstanding of our only class of common stock as of
August 3, 2001:                                                                 

 1,000

10-Q
2nd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 2nd
PART I FINANCIAL INFORMATION                                                    
ITEM 1. FINANCIAL STATEMENTS                                                    

 JOHN HANCOCK LIFE INSURANCE COMPANY

 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                               June 30,                    
                                                                                 2001          December 31,
                                                                              (Unaudited)         2000     
                                                                        ---------------------------------  
                                                                                     (in millions)         
                                                                                                           
Assets                                                                                                     

Investments                                                                                                
Fixed maturities:                                                                                          
    Held-to-maturity--at amortized cost                                                                    
    (fair value: 2001--$1,885.8; 2000--$11,651.2)......................        $ 1,909.8        $11,888.6  
    Available-for-sale--at fair value                                                                      
    (cost: 2001--$30,384.2; 2000--$15,790.3)...........................         30,672.4         16,023.5  
    Trading securities--at fair value                                                                      
    (cost: 2001--$17.3)................................................             17.1               --  
Equity securities:                                                                                         
    Available-for-sale--at fair value                                                                      
    (cost: 2001--$841.6; 2000--$830.6).................................            982.9          1,094.9  
    Trading securities--at fair value                                                                      
    (cost: 2001--$327.6; 2000--$193.4).................................            290.0            231.6  
Mortgage loans on real estate..........................................          8,857.5          8,968.9  
Real estate............................................................            501.5            519.0  
Policy loans...........................................................            438.3            428.6  
Short-term investments.................................................            177.5            151.9  
Other invested assets..................................................          1,522.2          1,353.0  
                                                                        ---------------------------------  

         Total Investments.............................................         45,369.2         40,660.0  

Cash and cash equivalents..............................................            919.1          2,841.2  
Accrued investment income..............................................            708.9            585.9  
Premiums and accounts receivable.......................................            363.1            210.8  
Deferred policy acquisition costs......................................          2,487.6          2,388.5  
Reinsurance recoverable................................................          3,263.3          2,829.0  
Other assets...........................................................          2,381.0          2,100.6  
Closed block assets - Note 6...........................................          9,966.9          9,710.0  
Separate accounts assets...............................................         24,000.1         26,454.8  
                                                                        ---------------------------------  

         Total Assets..................................................        $89,459.2        $87,780.8  
                                                                        =================================  

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

 2

10-Q
3rd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 3rd
 JOHN HANCOCK LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

                                                        [Enlarge/Download Table]

                                                                               June 30,                    
                                                                                 2001         December 31, 
                                                                             (Unaudited)         2000      
                                                                        -----------------------------------
                                                                                    (in millions)          
                                                                                                           
Liabilities and Shareholder's Equity                                                                       

Liabilities                                                                                                
Future policy benefits.................................................          $24,021.1       $22,996.4 
Policyholders' funds...................................................           16,893.9        15,722.9 
Unearned revenue.......................................................              733.9           671.3 
Unpaid claims and claim expense reserves...............................              225.3           253.7 
Dividends payable to policyholders.....................................              127.8           130.8 
Short-term debt........................................................               66.6           245.3 
Long-term debt.........................................................              740.6           534.0 
Income taxes...........................................................              705.5           428.8 
Other liabilities......................................................            3,739.2         2,600.7 
Closed block liabilities - Note 6......................................           12,181.5        12,035.9 
Separate accounts liabilities..........................................           24,000.1        26,454.8 
                                                                        ---------------------------------- 

     Total Liabilities.................................................           83,435.5        82,074.6 

Minority interest......................................................              284.6           290.3 

Commitments and contingencies - Note 5                                                                     

Shareholder's Equity                                                                                       
Common stock, $10,000 par value; 1,000 shares authorized                                                   
  and outstanding......................................................               10.0            10.0 
Additional paid in capital.............................................            4,998.4         4,998.9 
Retained earnings......................................................              420.6           330.1 
Accumulated other comprehensive income.................................              310.1            76.9 
                                                                        ---------------------------------- 

     Total Shareholder's Equity........................................            5,739.1         5,415.9 
                                                                        ---------------------------------- 

     Total Liabilities and Shareholder's Equity........................          $89,459.2       $87,780.8 
                                                                        ================================== 

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

 3

10-Q
4th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 4th
 JOHN HANCOCK LIFE INSURANCE COMPANY

 UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

                                                                                  Three Months Ended         Six Months Ended       
                                                                                        June 30,                  June 30,          
                                                                                  2001          2000          2001         2000     
                                                                           ---------------------------------------------------------
                                                                                  (in millions)                (in millions)        
                                                                                                                                    
Revenues                                                                                                                            
Premiums...................................................................     $  467.8      $  559.2      $  871.9    $  1,016.9  
Universal life and investment-type product charges.........................        179.0         180.8         357.0         385.3  
Net investment income......................................................        829.1         806.9       1,607.8       1,651.9  
Net realized investment and other gains (losses), net of related                                                                    
  amortization of deferred policy acquisition costs and amounts                                                                     
  credited to participating pension contractholders ($(9.0) and                                                                     
  $(0.8) for the three month ended June 30, 2001 and 2000 and $(4.7) and                                                            
  $1.5 for the six months ended June 30, 2001 and 2000, respectively) .....         (8.3)         63.0         (34.7)         81.4  
Investment management revenues, commissions and                                                                                     
  other fees...............................................................        155.3         186.4         306.5         415.6  
Other revenue..............................................................         57.9           5.0          61.7           7.9  
Contribution from the closed block - Note 6................................         16.4          22.6          36.7          51.3  
                                                                           ---------------------------------------------------------

     Total revenues........................................................      1,697.2       1,823.9       3,206.9       3,610.3  

Benefits and Expenses                                                                                                               
Benefits to policyholders, excluding amounts related to net                                                                         
  realized investment and other gains (losses) credited to                                                                          
  participating pension contractholders ($(1.4) and $(2.5) for the three                                                            
  month ended June 30, 2001 and 2000 and $0.9 and $4.6 for the six months                                                           
  ended June 30, 2001 and 2000, respectively)..............................        965.4       1,040.9       1,790.4       1,992.9  
Other operating costs and expenses.........................................        392.8         369.2         741.4         793.9  
Amortization of deferred policy acquisition costs, excluding                                                                        
  amounts related to net realized investment and other gains                                                                        
  (losses) ($(7.6) and $1.7 for the three month ended June 30, 2001 and                                                             
  2000 and $(5.6) and $(3.1) for the six months ended June 30, 2001 and                                                             
  2000, respectively)......................................................         51.2          49.6         129.4          93.4  
Dividends to policyholders.................................................         26.5          27.8          53.9          93.7  
                                                                           ---------------------------------------------------------

     Total benefits and expenses...........................................      1,435.9       1,487.5       2,715.1       2,973.9  
                                                                           ---------------------------------------------------------

Income before income taxes, minority interest and                                                                                   
  cumulative effect of accounting changes..................................        261.3         336.4         491.8         636.4  
Income taxes...............................................................         75.5         107.1         145.3         208.2  
                                                                           ---------------------------------------------------------

Income before minority interest and cumulative effect of                                                                            
  accounting changes.......................................................        185.8         229.3         346.5         428.2  

Minority interest..........................................................         (3.5)         (1.3)        (13.2)         (2.7) 
                                                                           ---------------------------------------------------------

Income before cumulative effect of accounting changes (Note 1).............        182.3         228.0         333.3         425.5  

Cumulative effect of accounting changes, net of tax .......................           --            --           7.2            --  
                                                                           ---------------------------------------------------------

Net income.................................................................       $182.3        $228.0        $340.5        $425.5  
                                                                           =========================================================

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

 4

10-Q
5th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 5th
 JOHN HANCOCK LIFE INSURANCE COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
AND COMPREHENSIVE INCOME

                                                        [Enlarge/Download Table]

                                                                                   Accumulated                                     
                                                        Additional                    Other             Total           Shares     
                                              Common     Paid in      Retained    Comprehensive     Shareholder's    Outstanding   
                                              Stock      Capital      Earnings        Income           Equity       (in thousands) 
                                            ---------------------------------------------------------------------------------------
                                                                                  (in millions)                                    
                                                                                                                                   
Balance at April 1, 2001...................   $ 10.0    $ 4,998.5      $ 238.3       $    343.7      $ 5,590.5           1.0       

Demutualization transaction................                  (0.1)                                        (0.1)                    

Comprehensive income:                                                                                                              
  Net income for the period................                              182.3                           182.3                     

  Other comprehensive income, net of tax:                                                                                          
    Net unrealized gains (losses) .........                                               (37.7)         (37.7)                    
    Net accumulated gains (losses) on cash                                                                                         
      flow hedges..........................                                               (17.3)         (17.3)                    
    Foreign currency translation                                                                                                   
      adjustment...........................                                                20.3           20.3                     
                                                                                                 --------------------              
Comprehensive income.......................                                                              147.6                     

Minority interest..........................                                                 1.1            1.1                     
                                            ---------------------------------------------------------------------------------------

Balance at June 30, 2001...................   $ 10.0    $ 4,998.4      $ 420.6       $    310.1      $ 5,739.1           1.0       
                                            =======================================================================================

Balance at April 1, 2000...................   $ 10.0    $ 4,904.2      $ 153.5       $     22.6      $ 5,090.3           1.0       

Demutualization transaction................                  46.4                                         46.4                     

Comprehensive income:                                                                                                              
  Net income ..............................                              228.0                           228.0                     

  Other comprehensive income, Net of tax:                                                                                          
    Net unrealized gains (losses)..........                                               (94.4)         (94.4)                    
    Foreign currency translation                                                                                                   
      adjustment...........................                                               (15.5)         (15.5)                    
    Minimum pension liability..............                                                (5.5)          (5.5)                    
                                                                                                 --------------------              

Comprehensive income.......................                                                              112.6                     
                                            ---------------------------------------------------------------------------------------

Balance at June 30, 2000...................   $ 10.0    $ 4,950.6      $ 381.5       $    (92.8)     $ 5,249.3           1.0       
                                            =======================================================================================

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

5 

10-Q
6th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 6th
 JOHN HANCOCK LIFE INSURANCE COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
AND COMPREHENSIVE INCOME

                                                        [Enlarge/Download Table]

                                                                                  Accumulated                      Shares      
                                                       Additional                    Other          Total       Outstanding    
                                              Common    Paid in      Retained    Comprehensive  Shareholder's       (in        
                                              Stock     Capital      Earnings        Income         Equity       Thousands)    
                                            -----------------------------------------------------------------------------------
                                                                                 (in millions)                                 
                                                                                                                               
Balance at January 1, 2001.................   $ 10.0   $ 4,998.9     $   330.1     $      76.9   $   5,415.9        1.0        

Demutualization transaction................                 (0.5)                                       (0.5)                  

Comprehensive income:                                                                                                          
   Net income..............................                              340.5                         340.5                   

   Other comprehensive income,                                                                                                 
     Net of tax:                                                                                                               
     Net unrealized gains (losses).........                                                5.7           5.7                   
     Net accumulated gains (losses) on                                                                                         
       cash flow hedges....................                                              (20.0)        (20.0)                  
     Foreign currency translation                                                                                              
       Adjustment..........................                                               (3.3)         (3.3)                  
                                                                                                ---------------                
Comprehensive income.......................                                                            322.9                   

Dividend paid to parent company............                             (250.0)                       (250.0)                  
Change in accounting principle.............                                              227.6         227.6                   
Minority interest..........................                                               23.2          23.2                   
                                            -----------------------------------------------------------------------------------

Balance at June 30, 2001...................   $ 10.0   $ 4,998.4     $   420.6     $     310.1   $    5,739.1       1.0        
                                            ===================================================================================

Balance at January 1, 2000.................       --          --     $ 4,782.9     $     (29.7)  $   4,753.2         --        

Demutualization transaction................   $ 10.0   $ 4,950.6      (4,826.9)                        133.7        1.0        

Comprehensive income:                                                                                                          
  Net income before demutualization........                               44.0                          44.0                   
  Net income after demutualization.........                              381.5                         381.5                   
                                                                  ---------------               ---------------                
  Net income for the period................                              425.5                         425.5                   

  Other comprehensive income, net of tax:                                                                                      
    Net unrealized gains (losses)..........                                              (44.8)        (44.8)                  
    Foreign currency translation                                                                                               
      adjustment...........................                                               (7.3)         (7.3)                  
    Minimum pension liability..............                                              (11.0)        (11.0)                  
                                                                                                ---------------                

Comprehensive income.......................                                                            362.4                   
                                            -----------------------------------------------------------------------------------

Balance at June 30, 2000...................   $ 10.0   $ 4,950.6     $   381.5     $     (92.8)  $   5,249.3        1.0        
                                            ===================================================================================

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

6 

10-Q
7th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 7th
 JOHN HANCOCK LIFE INSURANCE COMPANY

 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                                             Six Months Ended     
                                                                                                 June 30,         
                                                                                             2001        2000     
                                                                                         -------------------------
                                                                                              (in millions)       
                                                                                                                  
Cash flows from operating activities:                                                                             
  Net income............................................................................     $  340.5   $  425.5  
  Adjustments to reconcile net income to net cash provided by operating activities:                               
    Amortization of discount - fixed maturities.........................................        (80.1)     (46.2) 
    Realized investment and other (gains) losses, net...................................         34.7      (81.4) 
    Change in deferred policy acquisition costs.........................................       (109.4)    (137.7) 
    Depreciation and amortization.......................................................         41.5       57.1  
    Net cash flows from trading securities..............................................        (75.5)    (162.7) 
    Increase in accrued investment income...............................................       (123.0)     (58.4) 
    (Increase) decrease in premiums and accounts receivable.............................       (152.3)      14.0  
    Decrease (increase) in other assets and other liabilities, net......................         15.4     (321.6) 
    Increase in policy liabilities and accruals, net....................................      1,008.9      811.1  
    Increase in income taxes............................................................        181.5      329.2  
    Initial cash transferred to the closed block........................................           --     (158.6) 
    Contribution from the closed block..................................................        (36.7)     (51.3) 
                                                                                         -------------------------

         Net cash provided by operating activities .....................................      1,045.5      619.0  

Cash flows from investing activities:                                                                             
    Sales of:                                                                                                     
      Fixed maturities available-for-sale...............................................     10,501.6    2,643.3  
      Equity securities available-for-sale..............................................        275.1      150.0  
      Real estate.......................................................................          0.6       26.3  
      Short-term investments and other invested assets..................................        108.4       16.1  
    Maturities, prepayments and scheduled redemptions of:                                                         
      Fixed maturities held-to-maturity.................................................        107.6      918.0  
      Fixed maturities available-for-sale...............................................      1,392.7      640.1  
      Short-term investments and other invested assets..................................         57.4      404.2  
      Mortgage loans on real estate.....................................................        651.6      566.7  
    Purchases of:                                                                                                 
      Fixed maturities held-to-maturity.................................................        (31.6)    (888.0) 
      Fixed maturities available-for-sale...............................................    (15,785.0)  (3,442.1) 
      Equity securities available-for-sale..............................................       (202.2)    (114.8) 
      Real estate.......................................................................         (2.9)     (26.1) 
      Short-term investments and other invested assets..................................       (299.0)    (315.6) 
      Mortgage loans on real estate issued..............................................       (669.4)    (704.6) 
      Cash (paid) received related to acquisition of business...........................        (41.0)     126.3  
      Cash received on sale of subsidiary ..............................................         12.8         --  
      Other, net........................................................................         69.2       12.4  
                                                                                         -------------------------

        Net cash (used in) provided by investing activities.............................     (3,854.1)      12.2  

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

7 

10-Q
8th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 8th
 JOHN HANCOCK LIFE INSURANCE COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

                                                        [Enlarge/Download Table]

                                                                                        Six Months Ended        
                                                                                            June 30,            
                                                                                       2001           2000      
                                                                                  ------------------------------
                                                                                          (in millions)         
                                                                                                                
Cash flows from financing activities:                                                                           
    Issuance of common stock.....................................................      $       --    $    10.0  
    Contribution from parent.....................................................              --      1,578.8  
    Payments to eligible policyholders under Plan of Reorganization..............              --     (1,044.3) 
    Dividends paid to parent.....................................................          (250.0)          --  
    Universal life and investment-type contract deposits.........................         5,307.9      3,577.8  
    Universal life and investment-type contract maturities and withdrawals.......        (4,132.0)    (3,907.4) 
    Issuance of short-term debt..................................................            51.6           --  
    Issuance of long-term debt...................................................           145.2         10.0  
    Repayment of long-term debt..................................................           (14.0)       (28.0) 
    Net decrease in commercial paper.............................................          (222.2)      (148.1) 
                                                                                  ------------------------------

         Net cash provided by financing activities...............................           886.5         48.8  
                                                                                  ------------------------------

         Net (decrease) increase in cash and cash equivalents....................        (1,922.1)       680.0  

Cash and cash equivalents at beginning of year...................................         2,841.2      1,797.7  
                                                                                  ------------------------------

Cash and cash equivalents at end of period.......................................       $   919.1    $ 2,477.7  
                                                                                  ==============================

The accompanying notes are an integral part of these unaudited consolidated     
financial statements.                                                           

8 

10-Q
9th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 9th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Summary of Significant Accounting Policies                            

Basis of Presentation                                                           

The accompanying unaudited consolidated financial statements of John Hancock    
Life Insurance Company (the Company) have been prepared in accordance with      
accounting principles generally accepted in the United States for interim       
financial information and with the instructions to Form 10-Q and Article 10 of  
Regulation S-X. Accordingly, they do not include all of the information and     
footnotes required by accounting principles generally accepted in the United    
States for complete financial statements. In the opinion of management, these   
unaudited consolidated financial statements contain all adjustments, consisting 
of only normal and recurring adjustments, necessary for a fair presentation of  
the financial position and results of operations. Operating results for the     
three and six month periods ended June 30, 2001 are not necessarily indicative  
of the results that may be expected for the year ending December 31, 2001. These
unaudited consolidated financial statements should be read in conjunction with  
the Company's annual audited financial statements as of December 31, 2000       
included in the Company's Form 10-K for the year ended December 31, 2000 filed  
with the United States Securities and Exchange Commission (SEC) (as amended by  
Form 10K/A filed with the SEC on June 27, 2000 hereafter referred to, as        
amended, as the Company's 2000 Form 10-K).                                      

The balance sheet at December 31, 2000 has been derived from the audited        
financial statements at that date but does not include all of the information   
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.                                       

Reorganization and Initial Public Offering                                      

In connection with John Hancock Mutual Life Insurance Company's (the Mutual     
Company) Plan of Reorganization (the Plan), effective February 1, 2000, the     
Mutual Company converted from a mutual life insurance company to a stock life   
insurance company (i.e. demutualized) and became a wholly-owned subsidiary of   
John Hancock Financial Services, Inc. (JHFS), which is a holding company. All   
policyholder membership interests in the Mutual Company were extinguished on    
that date and eligible policyholders of the Mutual Company received, in the     
aggregate, 212.8 million shares of common stock, $1,438.7 million of cash and   
$43.7 million of policy credits as compensation. In addition, the Company       
established a closed block to fund the guaranteed benefits and dividends of     
certain participating insurance policies. In connection with the Plan, the      
Mutual Company changed its name to John Hancock Life Insurance Company.         

In addition, on February 1, 2000, JHFS completed its initial public offering    
(IPO) in which 102.0 million shares of common stock were issued at a price of   
$17.00 per share. Net proceeds from the IPO were $1,657.7 million, of which     
$105.7 million was retained by JHFS and $1,552.0 million was contributed to the 
Company.                                                                        

Cumulative Effect of Accounting Change                                          

During the first quarter of 2001, the Company changed the method of accounting  
for the recognition of deferred gains and losses considered in the calculation  
of the annual expense for its employee pension plan under Statement of Financial
Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions," and   
for its postretirement health and welfare plans under SFAS No. 106, "Employers' 
Accounting for Postretirement Benefits Other Than Pensions." The Company changed
the method of recognizing gains and losses from deferral within a 10% corridor  
and amortization of gains outside this corridor over the future working careers 
of the participants to deferral within a 5% corridor and amortization of gains  
and losses outside this corridor over the future working careers of the         
participants. The new method is preferable because, in the Company's situation, 
it produces results that more closely match current economic realities of the   
Company's retirement and welfare plans through the use of the current fair      
values of assets while still mitigating the impact of extreme gains and losses. 
As a result, on January 1, 2001, the Company recorded a credit of $18.6 million 
(net of tax of $9.9 million), related to its employee benefit pension plans, and
a credit of $4.7 million (net of tax of $2.6 million), related to its           
postretirement health and welfare plans. The total credit recorded as a         
cumulative effect of an accounting change was $23.3 million (net of tax of $12.5
million). The proforma results, assuming this change in accounting had taken    
place as of the beginning of 2001, would not be materially different form the   
reported results. This change in acounting increased net income for the three   
and six month periods ended June 30, 2001 by $1.1 million and $2.2 million,     
respectively.                                                                   

9 

10-Q
10th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 10th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)              

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.   
133, "Accounting for Derivative Instruments and Hedging Activities." In June    
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and  
Hedging Activities - Deferral of the Effective Date of FASB Statement 133." This
Statement amends SFAS No. 133 to defer its effective date for one year, to      
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS  
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging     
Activities." This Statement makes certain changes in the hedging provisions of  
SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS   
No. 133 requires all derivatives to be recognized on the balance sheet at fair  
value, and establishes special accounting for the following three types of      
hedges: fair value hedges, cash flow hedges, and hedges of foreign currency     
exposures of net investments in foreign operations. Special accounting for      
qualifying hedges provides for matching the timing of gain or loss recognition  
on the hedging instrument with the recognition of the corresponding change in   
value of the hedged item. If the derivative is accounted for as a hedge,        
depending on the nature of the hedge, the change in the fair value of           
derivatives is either offset against the change in the fair value of the hedged 
asset, liability or firm commitment through earnings or recognized in other     
comprehensive income until the change in value of the hedged item is recognized 
in earnings. The ineffective portion of a derivative's change in fair value is  
recognized immediately in earnings and is included in net realized and other    
investment gains. As a result, such amounts are not included in the             
determination of the Company's segment after tax operating income. In addition, 
SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed   
maturity investment securities as hedged items in hedging relationships where   
the hedged risk is interest rate risk.                                          

On January 1, 2001, the Company adopted SFAS No. 133, as amended. The Company's 
risk management philosophy has not changed as a result of adoption of the       
Statement. The adoption of SFAS No. 133, as amended, resulted in a charge to    
operations accounted for as a cumulative effect of accounting change of $16.1   
million (net of tax of $8.3 million) as of January 1, 2001. In addition, as of  
January 1, 2000, a $227.6 million (net of tax of $122.6 million) cumulative     
effect of accounting change was recorded in other comprehensive income for the  
transition adjustment in the adoption of SFAS 133, as amended, and the          
reclassification of certain securities from the held-to-maturity category to the
available-for-sale category. The transition adjustment for the adoption of SFAS 
133 resulted in an increase in other comprehensive income of $40.5 million (net 
of tax of $21.8 million) that was accounted for as the cumulative effect of     
accounting change. The adjustment for the reclassification of $12.1 billion of  
the held-to-maturity fixed maturity investment portfolio to the                 
available-for-sale category resulted in an increase in other comprehensive      
income of $187.1 million (net of tax of $100.8 million) as of January 1, 2001.  

New Accounting Pronouncements                                                   

In July 2001, the FASB issued Statements of Financial Accounting Standards No.  
141, "Business Combinations," and No. 142, "Goodwill and Other Intangible       
Assets." SFAS No. 141 requires that all business combinations be accounted for  
under a single method - the purchase method. Use of the pooling-of-interests    
method is no longer permitted. SFAS No. 141 also clarifies the criteria to      
recognize intangible assets separately from goodwill. SFAS No. 142 requires that
goodwill and intangible assets deemed to have indefinite lives no longer be     
amortized to earnings, but instead be reviewed at least annually for impairment.
Other intangibles assets will continue to be amortized over their useful lives. 

SFAS No. 141 requires that the purchase method of accounting be used for        
business combinations initiated after June 30, 2001. SFAS No. 142 will be       
effective January 1, 2002. The Company estimates that adoption of SFAS No. 142  
will result in an increase in net income of approximately $10 - $15 million for 
the year ended December 31, 2002. During 2002, the Company will perform the     
first of the required impairment tests of goodwill and of indefinite lived      
intangible assets as of January 1, 2002 based on the guidance in SFAS No. 142.  
The effect of these tests on the earnings and financial position of the Company 
has not been determined at this time.                                           

In December 2000, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP 00-3), "Accounting by Insurance Enterprises   
for Demutualizations and Formations of Mutual Insurance Holding Companies and   
Certain Long-Duration Participating Contracts." SOP 00-3, which was adopted with
respect to accounting for demutualization expenses by the Company effective     
December 15, 2000, requires that demutualization related expenses be classified 
as a single line item within income from continuing operations and should not be
classified as an extraordinary item. The adoption of SOP 00-3 resulted in the   
reclassification of demutualization                                             

10

10-Q
11th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 11th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)              

expenses previously recorded as an extraordinary item in the three and six month
periods ended June 30, 2000 of ($3.5) million (net of tax of ($1.8) million) and
$10.2 million (net of tax of $0.4 million), respectively. The remaining         
provisions of this SOP, which will require (1) the inclusion of all closed block
activity together with all other assets, liabilities, revenues and expenses and 
(2) recognition of a policyholder dividend obligation that represents cumulative
actual closed block earnings in excess of expected periodic amounts calculated  
at the date of the demutualization, are effective no later than December 31,    
2001. See Note 6 for a summary description of the closed block assets,          
liabilities, revenues and expenses, which do not include the policyholder       
dividend obligation that will be required in 2001. The Company currently is     
evaluating the effect that establishing the policyholder dividend obligation    
will have on its results of operations and financial position. That impact is   
not known at this time.                                                         

Codification                                                                    

In March 1998, the National Association of Insurance Commissioners (NAIC)       
adopted codified statutory accounting principles (Codification) effective       
January 1, 2001. Codification changes prescribe statutory accounting practices  
and results in changes to the accounting practices that the Company uses to     
prepare its statutory-basis financial statements. The state of domicile of the  
Company adopted Codification as the prescribed basis of accounting on which     
domestic insurers must report their statutory-basis results effective January 1,
2001. The cumulative effect of changes in accounting principles adopted to      
conform to the requirements of Codification is reported as an adjustment to     
surplus in the statutory-basis financial statements as of January 1, 2001.      
Although the implementation of Codification reduced the Company's               
statutory-basis capital and surplus, the Company remains in compliance with all 
regulatory and contractual obligations.                                         

Recent Acquisitions                                                             

On June 18, 2001, The Maritime Life Assurance Company (Maritime), a             
majority-owned Canadian subsidiary of the Company, signed a Share Purchase      
Agreement to purchase Royal & Sun Alliance Life Insurance Company of Canada     
("RSAF") for an amount of approximately $153.7 million (USD). The purchase is   
expected to close on October 1, 2001 subject to regulatory approvals. RSAF's    
business includes life insurance, guaranteed interest savings and retirement    
products and segregated funds.                                                  

On April 2, 2001, a subsidiary of the Company, Signature Fruit Company, LLC     
(Signature Fruit), acquired certain assets and assumed certain liabilities out  
of bankruptcy proceedings of Tri Valley Growers, Inc., a cooperative            
association. The transaction was accounted for as a purchase and the results of 
operations are included in the accompanying financial statements since the date 
of acquisition. The fair values of assets acquired and liabilities assumed were 
$252.1 million and $199.1 million, respectively. The net loss related to the    
acquired operations was $1.2 million for the three months ended June 30, 2001.  
The pro forma results for the three and six month periods ended June 30, 2001   
and 2000, respectively, assuming the acquisition had taken place at the         
beginning of the periods presented, would not be materially different from the  
reported results.                                                               

On March 1, 2000, the Company acquired the individual long-term care insurance  
business of Fortis, Inc. (Fortis). The pro forma results for the three and six  
month periods ended June 30, 2000, assuming the acquisition of Fortis had taken 
place as of the beginning of 2000, would not be materially different from the   
reported results.                                                               

Note 2 -- Transactions with Parent                                              

The Company provides JHFS with personnel, property and facilities in carrying   
out certain of its corporate functions. The Company annually determines a fee   
for these services and facilities based on a number of criteria. The amount of  
service fee charged to JHFS was $11.0 million and $16.7 million for the three   
and six month periods ended June 30, 2001, respectively. No such service fee was
charged to JHFS during the comparable prior year periods. During the six month  
period ended June 30, 2001, the Company paid dividends to JHFS of $250.0        
million. No such dividends were paid during the comparable prior year period.   

11

10-Q
12th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 12th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information                                                   

The Company operates in the following five business segments: two segments      
primarily serve retail customers, two segments serve institutional customers and
our fifth segment is the Corporate and Other Segment, which includes our        
international operations. Our retail segments are the Protection Segment and the
Asset Gathering Segment. Our institutional segments are the Guaranteed and      
Structured Financial Products Segment (G&SFP) and the Investment Management     
Segment. For additional information about the Company's business segments, refer
to the Company's 2000 Form 10-K, as amended.                                    

The following tables summarize selected financial information by segment for the
three and six month periods ended or as of June 30, 2001 and 2000, respectively,
and reconciles segment revenues and segment after-tax operating income to       
amounts reported in the unaudited consolidated statements of income (in         
millions). Included in the Protection Segment for 2001 are the closed block     
assets and liabilities, as well as the contribution from the closed block, which
is reflected in "Revenues" in the table below (see Note 6).                     

                                                        [Enlarge/Download Table]

                                                             Retail                  Institutional                           
                                                 Retail      Asset    Institutional   Investment    Corporate                
                                               Protection  Gathering     G&SFP        Management    and Other  Consolidated  
                                               ------------------------------------------------------------------------------
                                                                                                                             
As of or for the three months ended                                                                                          
June 30, 2001                                                                                                                
Revenues:                                                                                                                    
    Segment revenues.......................... $   391.1   $   294.9   $   485.7        $   30.9    $   514.6    $ 1,717.2   
    Realized investment and other gains                                                                                      
      (losses), net...........................     (28.6)      (18.1)       (9.1)           (0.1)        35.9        (20.0)  
                                               ------------------------------------------------------------------------------
    Revenues.................................. $   362.5   $   276.8   $   476.6        $   30.8    $   550.5    $ 1,697.2   
                                               ==============================================================================
    Net investment income..................... $   145.6   $   122.8   $   464.4        $    3.7    $    92.6    $   829.1   
Net Income:                                                                                                                  
    Segment after-tax operating income........      77.4        37.4        58.9             4.6         22.5        200.8   
    Realized investment and other gains                                                                                      
      (losses), net...........................     (18.1)      (11.2)       (6.2)             --         21.3        (14.2)  
    Restructuring charges.....................      (1.6)       (1.9)       (0.6)           (0.1)        (0.1)        (4.3)  
                                               ------------------------------------------------------------------------------
    Net income................................ $    57.7   $    24.3   $    52.1        $    4.5    $    43.7    $   182.3   
                                               ==============================================================================
Supplemental Information:                                                                                                    
    Inter-segment revenues....................        --          --          --        $    6.6 $       (6.6)          --   
    Equity in net income of investees                                                                                        
      accounted for by the equity method...... $     2.5   $     2.8   $     4.7             0.4         15.7    $    26.1   
    Amortization of deferred policy                                                                                          
      acquisition costs, excluding amounts                                                                                   
      related to net realized investment                                                                                     
      gains (losses)..........................      24.6        13.6         0.9              --         12.1         51.2   
    Segment assets............................ $27,712.7   $14,306.0   $32,160.1        $2,961.6    $12,318.8    $89,459.2   

12

10-Q
13th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 13th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information - (Continued)                                     

                                                        [Enlarge/Download Table]

                                                             Retail                  Institutional                           
                                                 Retail      Asset    Institutional   Investment    Corporate                
                                               Protection  Gathering     G&SFP        Management    and Other  Consolidated  
                                               ------------------------------------------------------------------------------
                                                                                                                             
As of or for the three months ended                                                                                          
June 30, 2000                                                                                                                
Revenues:                                                                                                                    
    Segment revenues.......................... $   345.8   $   299.5   $   617.5        $   48.7    $   452.7    $ 1,764.2   
    Realized investment and other gains                                                                                      
      (losses), net...........................       6.7         4.0       (13.5)            0.6         61.9         59.7   
                                               ------------------------------------------------------------------------------
    Revenues.................................. $   352.5   $   303.5   $   604.0        $   49.3    $   514.6    $ 1,823.9   
                                               ==============================================================================

    Net investment income..................... $   143.2   $   113.3   $   424.5        $    4.7    $   121.2    $   806.9   
Net Income:                                                                                                                  
    Segment after-tax operating income........      54.3        29.3        55.1            11.0         29.6        179.3   
      Realized investment and other gains                                                                                    
        (losses), net.........................       4.1         2.5        (8.4)            0.3         40.3         38.8   
    Restructuring charges.....................      (0.6)       (0.1)       (0.1)             --           --         (0.8)  
    Demutualization expenses..................       2.4         0.5         0.4              --          0.2          3.5   
    Other demutualization related costs.......        --          --        (0.1)             --          0.1           --   
    Surplus tax...............................       2.9         0.1         1.5              --          2.7          7.2   
                                               ------------------------------------------------------------------------------
    Net income................................ $    63.1   $    32.3   $    48.4        $   11.3    $    72.9    $   228.0   
                                               ==============================================================================
Supplemental Information:                                                                                                    
    Inter-segment revenues....................        --          --          --        $   10.4    $   (10.4)          --   
    Equity in net income of investees                                                                                        
      accounted for by the equity method...... $     4.8   $     3.4   $     5.8             2.5         27.9         44.4   
    Amortization of deferred policy                                                                                          
      acquisition costs, excluding                                                                                           
      amounts related to net realized                                                                                        
      investment gains (losses)...............      12.5        21.0         0.7              --         15.4         49.6   
    Segment assets............................ $26,817.3   $14,295.6   $31,220.1        $2,014.9    $12,337.1    $86,685.0   

13

10-Q
14th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 14th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information - (Continued)                                     

                                                        [Enlarge/Download Table]

                                                               Retail                  Institutional                           
                                                   Retail      Asset    Institutional   Investment    Corporate                
                                                 Protection  Gathering     G&SFP        Management    and Other  Consolidated  
                                                 ------------------------------------------------------------------------------
                                                                                                                               
As of or for the six months ended                                                                                              
June 30, 2001                                                                                                                  
Revenues:                                                                                                                      
    Segment revenues............................ $   736.1   $   583.8   $   988.4        $   66.5    $   878.5    $ 3,253.3   
    Realized investment and other gains                                                                                        
      (losses), net.............................     (37.9)      (11.2)      (23.5)           (0.1)        26.3        (46.4)  
                                                 ------------------------------------------------------------------------------
    Revenues.................................... $   698.2   $   572.6   $   964.9        $   66.4    $   904.8    $ 3,206.9   
                                                 ==============================================================================

    Net investment income....................... $   289.9   $   242.6   $   931.2        $    9.2    $   134.9    $ 1,607.8   
Net Income:                                                                                                                    
    Segment after-tax operating income..........     145.5        68.9       117.3            10.0         39.9        381.6   
      Realized investment and other gains                                                                                      
        (losses), net...........................     (23.6)       (6.6)      (14.4)           (0.1)        15.7        (29.0)  
      Restructuring charges.....................      (2.8)      (15.1)       (0.7)           (0.5)        (0.2)       (19.3)  
      Cumulative effect of accounting changes...      11.7        (0.5)       (1.2)           (0.2)        (2.6)         7.2   
                                                 ------------------------------------------------------------------------------
    Net income.................................. $   130.8   $    46.7   $   101.0        $    9.2    $    52.8    $   340.5   
                                                 ==============================================================================
Supplemental Information:                                                                                                      
    Inter-segment revenues......................        --          --          --        $   14.7    $   (14.7)          --   
    Equity in net income of investees                                                                                          
      accounted for by the equity method........ $     4.8   $     3.9   $     8.1             0.4         28.3    $    45.5   
    Amortization of deferred policy                                                                                            
      acquisition costs, excluding amounts                                                                                     
      related to net realized investment                                                                                       
      gains.....................................      51.9        37.0         1.5              --         39.0        129.4   
    Segment assets.............................. $27,712.7   $14,306.0   $32,160.1        $2,961.6    $12,318.8    $89,459.2   

14

10-Q
15th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 15th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information - (Continued)                                     

                                                        [Enlarge/Download Table]

                                                             Retail                  Institutional                           
                                                 Retail      Asset    Institutional   Investment    Corporate                
                                               Protection  Gathering     G&SFP        Management    and Other  Consolidated  
                                               ------------------------------------------------------------------------------
                                                                                                                             
As of or for the six months ended                                                                                            
June 30, 2000                                                                                                                
Revenues:                                                                                                                    
    Segment revenues.......................... $   789.2   $   596.9   $ 1,099.5        $  127.9    $   917.5    $ 3,531.0   
    Realized investment and other gains                                                                                      
      (losses), net...........................      14.5         5.9       (20.9)            0.6         79.2         79.3   
                                               ------------------------------------------------------------------------------
    Revenues.................................. $   803.7   $   602.8   $ 1,078.6        $  128.5    $   996.7    $ 3,610.3   
                                               ==============================================================================

    Net investment income..................... $   315.7   $   215.9   $   848.8        $   10.3    $   261.2    $ 1,651.9   
Net Income:                                                                                                                  
    Segment after-tax operating income........     123.8        65.6       109.3            32.4         50.0        381.1   
      Realized investment and other gains                                                                                    
        (losses), net.........................       9.0         3.7       (13.1)            0.3         50.2         50.1   
      Restructuring charges...................      (3.6)       (1.0)       (2.2)             --         (0.9)        (7.7)  
      Group pension dividend transfer.........        --          --         5.7              --           --          5.7   
      Demutualization expenses................      (0.2)       (0.1)       (0.2)             --         (0.2)        (0.7)  
      Other demutualization related costs.....      (6.7)       (1.4)       (1.7)             --         (0.4)       (10.2)  
      Surplus tax.............................       2.9         0.1         1.5              --          2.7          7.2   
                                               ------------------------------------------------------------------------------
    Net income................................ $   125.2   $    66.9   $    99.3        $   32.7    $   101.4    $   425.5   
                                               ==============================================================================
Supplemental Information:                                                                                                    
    Inter-segment revenues....................        --          --          --        $   21.5    $   (21.5)          --   
    Equity in net income of investees                                                                                        
      accounted for by the equity method...... $     5.7   $     3.2   $     6.3             8.0        58.5     $    81.7   
    Amortization of deferred policy                                                                                          
      acquisition costs, excluding amounts                                                                                   
      related to net realized investment                                                                                     
      gains (losses)..........................      25.7        36.1         1.4              --         30.2         93.4   
    Segment assets............................ $26,817.3   $14,295.6   $31,220.1        $2,014.9    $12,337.1    $86,685.0   

Note 4 -- Severance                                                             

As part of the parent Company's Competitive Position Project, the Company       
participated in a restructuring plan to reduce costs and increase future        
operating efficiency by consolidating portions of its operations. The plan      
consists primarily of reducing staff in the home office and terminating certain 
operations outside the home office.                                             

In connection with the restructuring plan, approximately 735 employees have been
or will be terminated. These employees are or have been associated with         
operations in our Boston office and outside the home office. As of June 30, 2001
and December 31, 2000, the liability for employee termination costs, included in
other liabilities was $27.4 million and $20.6 million, respectively. Employee   
termination costs, included in other operating costs and expenses, were $7.0    
million and $2.2 million for the three months ended June 30, 2001 and 2000 and  
$30.6 million and $13.0 million for the six months ended June 30, 2001 and 2000,
respectively. Of the total number of employees affected, approximately 637      
employees were terminated as of June 30, 2001, having received benefit payments 
of approximately $49.5 million.                                                 

15

10-Q
16th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 16th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Contingencies                                                         

In the normal course of its business operations, the Company is involved with   
litigation from time to time with claimants, beneficiaries and others, and a    
number of litigation matters were pending as of June 30, 2001. It is the opinion
of management, after consultation with counsel, that the ultimate liability with
respect to these claims, if any, will not materially affect the financial       
position or results of operations of the Company.                               

During 1997, the Company entered into a court-approved settlement relating to a 
class action lawsuit involving certain individual life insurance policies sold  
from 1979 through 1996. In entering into the settlement, the Company            
specifically denied any wrongdoing. The reserve held in connection with the     
settlement to provide for relief to class members and for legal and             
administrative costs associated with the settlement amounted to $40.5 million   
and $172.8 million at June 30, 2001 and December 31, 2000, respectively. There  
were no additional reserves recorded related to the settlement for the three and
six month periods ended June 30, 2001 and 2000. The estimated reserve is based  
on a number of factors, including the estimated cost per claim and the estimated
costs to administer the claims.                                                 

During 1996, management determined that it was probable that a settlement would 
occur and that a minimum loss amount could be reasonably estimated. Accordingly,
the Company recorded its best estimate based on the information available at the
time. The terms of the settlement agreement were negotiated throughout 1997 and 
approved by the court on December 31, 1997. In accordance with the terms of the 
settlement agreement, the Company contacted class members during 1998 to        
determine the actual type of relief to be sought by class members. The majority 
of the responses from class members were received by the fourth quarter of 1998.
The type of relief sought by class members differed from the Company's previous 
estimates, primarily due to additional outreach activities by regulatory        
authorities during 1998 encouraging class members to consider alternative       
dispute resolution relief. In 1999, the Company updated its estimate of the cost
of claims subject to alternative dispute resolution relief and revised its      
reserve estimate accordingly.                                                   

Given the uncertainties associated with estimating the reserve, it is reasonably
possible that the final cost of the settlement could differ materially from the 
amounts presently provided for by the Company. The Company will continue to     
update its estimate of the final cost of the settlement as the claims are       
processed and more specific information is developed, particularly as the actual
cost of the claims subject to alternative dispute resolution becomes available. 
However, based on information available at the time, and the uncertainties      
associated with the final claim processing and alternative dispute resolution,  
the range of any additional cost related to the settlement cannot be estimated  
with precision.                                                                 

On February 28, 1997, the Company sold a major portion of its group insurance   
business to UNICARE Life & Health Insurance Company (UNICARE), a wholly-owned   
subsidiary of WellPoint Health Networks, Inc. The business sold included the    
Company's group accident and health business and related group life business and
Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all of 
which were indirect wholly-owned subsidiaries of the Company. The Company       
retained its group long-term care insurance operations. The insurance business  
sold was transferred to UNICARE through a 100% coinsurance agreement. The       
Company has secured a $397.0 million letter of credit facility with a group of  
banks. The banks have agreed to issue a letter of credit to the Company pursuant
to which the Company may draw up to $397.0 million for any claims not satisfied 
by UNICARE under the coinsurance agreement after the Company has incurred the   
first $113.0 million of losses from such claims. The amount available pursuant  
to the letter of credit agreement and any letter of credit issued thereunder    
automatically will be reduced on a scheduled basis consistent with the          
anticipated run-off of liabilities related to the business reinsured under the  
coinsurance agreement.                                                          

The letter of credit facility was reduced to $127.0 million on March 1, 2001.   
The letter of credit and any letters of credit issued thereunder are scheduled  
to expire on March 1, 2002. The Company remains liable to its policyholders to  
the extent that UNICARE does not meet its contractual obligations under the     
coinsurance agreement.                                                          

Through the Company's group health insurance operations, the Company entered    
into a number of reinsurance arrangements in respect of personal accident       
insurance and the occupational accident component of workers compensation       
insurance, a portion of which was originated through a pool managed by Unicover 
Managers, Inc. Under these arrangements, the Company both assumed risks as a    
reinsurer and also passed 95% of these risks on to other companies. This        
business had originally been reinsured by a number of different companies and   
has become the subject of widespread disputes. The disputes concern the         
placement of the business with reinsurers and recovery of the reinsurance. The  
Company is engaged in disputes, including a number of legal proceedings, in     
respect of this business. The risk to the Company is that other companies that  
reinsured the business from the Company may seek to avoid their reinsurance     
obligations. However, the Company believes that it has a reasonable legal       
position in this                                                                

16

10-Q
17th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 17th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Contingencies - (Continued)                                           

matter. During the fourth quarter of 1999 and early 2000, the Company received  
additional information about its exposure to losses under the various           
reinsurance programs. As a result of this additional information and in         
connection with global settlement discussions initiated in late 1999 with other 
parties involved in the reinsurance programs, during the fourth quarter of 1999 
the Company recognized a charge for uncollectible reinsurance of $133.7 million,
after tax, as its best estimate of its remaining loss exposure. The Company     
believes that any exposure to loss from this issue, in addition to amounts      
already provided for as of June 30, 2001, would not be material.                

Reinsurance ceded contracts do not relieve the Company from its obligations to  
policyholders. The Company remains liable to its policyholders for the portion  
reinsured to the extent that any reinsurer does not meet its obligations for    
reinsurance ceded to it under the reinsurance agreements. Failure of the        
reinsurers to honor their obligations could result in losses to the Company;    
consequently, estimates are established for amounts deemed or estimated to be   
uncollectible. To minimize its exposure to significant losses from reinsurance  
insolvencies, the Company evaluates the financial condition of its reinsurers   
and monitors concentration of credit risk arising from similar characteristics  
of the reinsurers.                                                              

Note 6 -- Closed Block                                                          

The following table sets forth certain summarized financial information relating
to the closed block as of the dates indicated:                                  

                                                        [Enlarge/Download Table]

                                                                                            June 30,        December 31,  
                                                                                              2001             2000       
                                                                                      ------------------------------------
                                                                                                  (in millions)           
                                                                                                                          
Assets                                                                                                                    
Investments                                                                                                               
Fixed maturities:                                                                                                         
  Held-to-maturity--at amortized cost                                                                                     
    (fair value: June 30--$113.1; December 31--$2,327.4).............................      $   116.9         $ 2,269.9    
  Available-for-sale--at fair value                                                                                       
    (cost: June 30--$5,068.9; December 31--$2,378.7).................................        5,146.6           2,353.0    
Equity securities:                                                                                                        
  Available-for-sale--at fair value                                                                                       
    (cost: June 30--$10.3; December 31--$5.3)........................................           10.8               6.3    
Mortgage loans on real estate........................................................        1,899.5           1,930.6    
Policy loans.........................................................................        1,548.7           1,540.6    
Short-term investments...............................................................            6.1              62.1    
Other invested assets................................................................           70.0              40.7    
                                                                                      ------------------------------------
  Total Investments..................................................................        8,798.6           8,203.2    

Cash and cash equivalents............................................................            4.5             305.6    
Accrued investment income............................................................          173.1             149.3    
Premiums and accounts receivable.....................................................           21.4              27.1    
Deferred policy acquisition costs....................................................          878.8             947.3    
Other assets.........................................................................           90.5              77.5    
                                                                                      ------------------------------------
  Total Closed Block Assets..........................................................      $ 9,966.9         $ 9,710.0    
                                                                                      ====================================
Liabilities                                                                                                               
Future policy benefits...............................................................      $10,020.3         $ 9,910.5    
Policyholders' funds.................................................................        1,481.0           1,459.5    
Other liabilities....................................................................          680.2             665.9    
                                                                                      ------------------------------------
   Total Closed Block Liabilities....................................................      $12,181.5         $12,035.9    
                                                                                      ====================================

17

10-Q
18th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 18th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Closed Block - (Continued)                                            

The following table sets forth certain summarized financial information relating
to the closed block for the period indicated:                                   

                                                        [Enlarge/Download Table]

                                                                 Three Months   Three Months  Six Months  For the Period  
                                                                    Ended          Ended        Ended       February 1    
                                                                   June 30,       June 30,     June 30,   Through June 30,
                                                                     2001           2000         2001          2000       
                                                              ------------------------------------------------------------
                                                                                     (in millions)                        
                                                                                                                          
Revenues                                                                                                                  
  Premiums...................................................       $211.7         $229.9       $445.3        $401.8      
  Net investment income......................................        163.5          158.4        332.5         267.3      
  Net realized investment and other gains (losses), net......        (11.9)          (3.2)        (9.2)         (0.1)     
  Other closed block revenue (expense).......................           --            0.1          0.3          (0.2)     
                                                              ------------------------------------------------------------
    Total closed block revenues..............................        363.3          385.2        768.9         668.8      

Benefits and Expenses                                                                                                     
  Benefits to policyholders..................................        215.1          237.3        468.7         410.3      
  Other operating costs and expenses.........................         (1.6)          (2.6)        (3.9)         (5.7)     
  Amortization of deferred policy acquisition costs, net.....         15.1           19.9         39.3          28.4      
  Dividends to policyholders.................................        118.3          108.0        228.1         184.5      
                                                              ------------------------------------------------------------
    Total closed block benefits and expenses.................        346.9          362.6        732.2         617.5      
                                                              ------------------------------------------------------------

    Contribution from the closed block.......................       $ 16.4         $ 22.6       $ 36.7        $ 51.3      
                                                              ============================================================

Note 7 -- Derivatives and Hedging Instruments                                   

The Company uses various derivative instruments to hedge and manage its exposure
to changes in interest rate levels, foreign exchange rates, and equity market   
prices, and to manage the duration of assets and liabilities.                   

The fair value of derivative instruments classified as assets at June 30, 2001  
was $39.3 million and appears on the consolidated balance sheet in other assets.
The fair value of derivative instruments classified as liabilities at June 30,  
2001 was $180.7 million and appears on the consolidated balance sheet in other  
liabilities.                                                                    

In certain of these cases, the Company uses hedge accounting as allowed by SFAS 
No. 133, as amended, by designating derivative instruments as either fair value 
or cash flow hedges. For derivative instruments that are designated and qualify 
as fair value hedges, the change in fair value of the derivative instrument as  
well as the offsetting change in fair value of the hedged item are recorded in  
net realized investment and other gains and losses. For derivative instruments  
that are designated and qualify as cash flow hedges, the effective portion of   
the change in fair value of the derivative instrument is recorded in other      
comprehensive income, and then reclassified into income when the hedged item    
affects income. Hedge effectiveness is assessed quarterly by a variety of       
techniques including regression analysis and cumulative dollar offset. In       
certain cases there is no hedge ineffectiveness is assumed because the          
derivative instrument was constructed such that all the terms of the derivative 
exactly match the hedged risk in the hedged item.                               

For derivative instruments not designated as hedges, the change in fair value of
the derivative is recorded in net realized investment and other gains and       
losses.                                                                         

In cases where the Company receives or pays a premium as consideration for      
entering into a derivative instrument (i.e., interest rate caps and floors,     
swaptions, and equity collars), the premium is amortized into investment income 
over the useful life of the derivative instrument. The fair value of such       
premiums (i.e., the inherent ineffectiveness of the derivative) is excluded from
the assessment of hedge effectiveness and is included in net realized investment
and other gains and losses.                                                     

18

10-Q
19th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 19th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Derivatives and Hedging Instruments - (Continued)                     

Fair Value Hedges                                                               

The Company uses interest rate futures contracts and interest rate swap         
agreements as part of its overall strategies of managing the duration of assets 
and liabilities or the average life of certain asset portfolios to specified    
targets. Interest rate swap agreements are contracts with a counterparty to     
exchange interest rate payments of a differing character (e.g., fixed-rate      
payments exchanged for variable-rate payments) based on an underlying principal 
balance (notional principal). The net differential to be paid or received on    
interest rate swap agreements and currency rate swap agreements is accrued and  
recognized as a component of net investment income.                             

The Company also manages interest rate exposure by using interest rate swap     
agreements to modify certain liabilities, such as fixed rate debt and Constant  
Maturity Treasuries (CMT) indexed liabilities, by converting them to a floating 
rate.                                                                           

The Company enters into interest rate cap agreements, cancelable interest rates 
swap agreements, and written swaptions to manage the interest rate exposure of  
options that are embedded in certain assets and liabilities. A written swaption 
obligates the Company to enter into an interest rate agreement on the expiration
date, contingent on future interest rates. Interest rate cap and floor          
agreements are contracts with a counterparty which require the payment of a     
premium for the right to receive payments for the difference between the cap or 
floor interest rate and a market interest rate on specified future dates based  
on an underlying principal balance (notional principal). Amounts earned on      
interest rate cap and floor agreements and swaptions are recorded as an         
adjustment to net investment income.                                            

The Company uses equity collar agreements to reduce its equity market exposure  
with respect to certain common stock investments that the Company holds. A      
collar consists of a written call option that limits the Company's potential for
gain from appreciation in the stock price as well as a purchased put option that
limits the Company's potential for loss from a decline in the stock price.      

Currency rate swap agreements are used to manage the Company's exposure to      
foreign exchange rate fluctuations. Currency rate swap agreements are contracts 
to exchange the currencies of two different countries at the same rate of       
exchange at specified future dates.                                             

For the three and six month periods ended June 30, 2001, the Company recognized 
a net gain of $8.4 million and $0.9 million, respectively, related to the       
ineffective portion of its fair value hedges, and a net loss of $3.2 million and
$1.1 million, respectively, related to the portion of the hedging instruments   
that were excluded from the assessment of hedge effectiveness. For the three    
months ended June 30, 2001, all of the Company's hedged firm commitments        
qualified as fair value hedges.                                                 

Cash Flow Hedges                                                                

The Company uses forward starting interest rate swap agreements to hedge the    
variable cash flows associated with future asset acquisitions, which will       
support the Company's long-term care insurance businesses. These agreements will
reduce the impact of future interest rate changes on the cost of acquiring      
adequate assets to support the investment income assumptions used in pricing    
these products.                                                                 

The Company uses interest rate futures contracts to hedge the variable cash     
flows associated with variable benefit payments that it will make on certain    
annuity contracts.                                                              

The Company used interest rate floor agreements to hedge the interest rate risk 
associated with minimum interest rate guarantees in certain of its life         
insurance and annuity businesses.                                               

For the three and six month periods ended June 30, 2001, the Company recognized 
a net loss of $0.4 million and $0.5 million, respectively, related to the       
ineffective portion of its cash flow hedges, and a net loss of $30.6 million and
$22.6 million, respectively, related to the portion of the hedging instruments  
that was excluded from the assessment of hedge effectiveness. For the three and 
six month periods ended June 30, 2001, all of the Company's hedged forecast     
transactions qualified as cash flow hedges.                                     

For the three and six month periods ended June 30, 2001, no amounts were        
reclassified from other accumulated comprehensive income to earnings and it is  
anticipated that approximately $3.8 million will be reclassified from other     
accumulated comprehensive income to earnings within the next twelve months. The 
maximum length for which variable cash flows are hedged is 24 years.            

19

10-Q
20th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 20th
 JOHN HANCOCK LIFE INSURANCE COMPANY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Derivatives and Hedging Instruments - (Continued)                     

For the three and six month periods ended June 30, 2001, none of the Company's  
cash flow hedges have been discontinued because it was probable that the        
original forecasted transaction would not occur by the end of the originally    
specified time period documented at inception of the hedging relationship.      

The transition adjustment for the adoption of SFAS No. 133, as amended, resulted
in an increase in other comprehensive income of $23.0 million (net of tax of    
$12.3 million) representing the accumulation in other comprehensive income of   
the effective portion of the Company's cash flow hedges as of January 1, 2001.  
As of June 30, 2001, $20.0 million of losses (net of tax of $10.8 million)      
representing the effective portion of the change in fair value of derivative    
instruments designated as cash flow hedges was added to accumulated other       
comprehensive income, resulting in a balance of $3.0 million (net of tax of $1.6
million).                                                                       

Derivatives Not Designated as Hedging Instruments                               

The Company enters into interest rate swap agreements, cancelable interest rate 
swap agreements, interest rate futures contracts, and interest rate cap and     
floor agreements to manage exposure to interest rates as described above under  
Fair Value Hedges without designating the derivatives as hedging instruments.   

The Company enters into equity indexed futures contracts and equity indexed     
option contracts and equity swaps to generate investment return to be credited  
to equity indexed universal life insurance policies. The gains and losses on    
these derivatives are included in net investment income, and are offset by      
crediting similar amounts to policyholders accounts.                            

Note 8 -- Related Party Transactions                                            

Certain directors of the Company are members or directors of other entities that
periodically perform services for or have other transactions with the Company.  
Such transactions are either subject to bidding procedures or are otherwise     
entered into on terms comparable to those that would be available to unrelated  
third parties and are not material to the Company's results of operations or    
financial condition.                                                            

20

10-Q
21st Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 21st
 JOHN HANCOCK LIFE INSURANCE COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS 
of OPERATIONS                                                                   

Management's Discussion and Analysis of Financial Condition and Results of      
Operations (MD&A) addresses the financial condition of John Hancock Life        
Insurance Company (John Hancock or the Company) as of June 30, 2001, compared   
with December 31, 2000, and its consolidated results of operations for the three
and six month periods ended June 30, 2001 and June 30, 2000, and, where         
appropriate, factors that may affect future financial performance. The          
discussion of the Company's consolidated financial results of operations        
includes the results of the closed block for the six month period ended June 30,
2001 and the period February 1, 2000 (the date the closed block became          
effective) through June 30, 2000 combined on a line by line basis with the      
results of operations outside the closed block for such period, as further      
discussed below. This discussion should be read in conjunction with the         
Company's MD&A and annual audited financial statements as of December 31, 2000  
included in the Company's Form 10-K for the year ended December 31, 2000 filed  
with the Securities and Exchange Commission (SEC) (hereafter referred to, as    
amended, as the Company's 2000 Form 10-K) and unaudited consolidated financial  
statements and related notes included elsewhere in this Form 10-Q.              

Statements, analyses, and other information contained in this report relating to
trends in the Company's operations and financial results, the markets for the   
Company's products, the future development of the Company's business, and the   
contingencies and uncertainties to which the Company may be subject, as well as 
other statements including words such as "anticipate," "believe," "plan,"       
"estimate," "intend," "will," "should," "may," and other similar expressions,   
are "forward-looking statements" under the Private Securities Litigation Reform 
Act of 1995. Such statements are made based upon management's current           
expectations and beliefs concerning future events and their effects on the      
Company, which may not be those anticipated by management. The Company's actual 
results may differ materially from the results anticipated in these             
forward-looking statements. See "Management's Discussion and Analysis of        
Financial Condition and Results of Operations--Important Factors that May Affect
Future Results" included herein for a discussion of factors that could cause or 
contribute to such material differences.                                        

The Reorganization and Initial Public Offering                                  

The Board of Directors of John Hancock Mutual Life Insurance Company (the Mutual
Company) unanimously adopted the Plan of Reorganization (the Plan) on August 31,
1999. Under the terms of the Plan, effective February 1, 2000, the Mutual       
Company converted from a mutual life insurance company to a stock life insurance
company (i.e. demutualized) and became a wholly-owned subsidiary of John Hancock
Financial Services, Inc. (JHFS), which is a holding company. All policyholder   
membership interests in the Mutual Company were extinguished on that date and   
eligible policyholders of the Mutual Company received, in aggregate, 212.8      
million shares of common stock, $1,438.7 million of cash and $43.7 million of   
policy credits as compensation. In connection with the reorganization, the      
Mutual Company changed its name to John Hancock Life Insurance Company.         

In addition, on February 1, 2000, JHFS, the parent company, completed its       
initial public offering (IPO) in which 102.0 million shares of common stock were
issued at a price of $17.00 per share. Net proceeds from the IPO were $1,657.7  
million, of which $105.7 million was retained by JHFS and $1,552.0 million was  
contributed to the Company.                                                     

Under the Plan, as of February 1, 2000, the Company created a closed block for  
the benefit of policies included therein. The purpose of the closed block is to 
protect the policy dividend expectations of the policies included in the closed 
block after demutualization. Unless the Commissioner of Insurance of the        
Commonwealth of Massachusetts and, in certain circumstances the New York        
Superintendent of Insurance, consent to an earlier termination, the closed block
will continue in effect until the date none of such policies are in-force. As of
February 1, 2000, the Company segregated closed block assets of $9,343.0        
million, an amount that is expected to produce cash flows which, together with  
anticipated revenues from policies included in the closed block, is expected to 
be sufficient to provide for payment of policy benefits, taxes and direct asset 
acquisition and disposal costs, and for continuation of policy dividend scales  
payable in 1999, so long as the experience underlying such dividend scales      
continues. The assets allocated to the closed block and any cash flows provided 
by these assets will solely benefit the holders of policies included in the     
closed block. As of February 1, 2000, when the closed block was established,    
total closed block liabilities were $12,118.3 million.                          

If the assets allocated to the closed block, the cash flows therefrom and the   
revenues from the closed block business prove to be insufficient to pay the     
benefits guaranteed under the policies included in the closed block, the Company
will be required to make payments from its general funds in an amount equal to  
the shortfall. We funded the closed block to provide for payment of guaranteed  
benefits on such policies and for continuation of dividends paid under 1999     
policy dividends scales, assuming the experience underlying such dividend scales
continues. Therefore, we do not believe it will be necessary to use general     
funds to pay guaranteed benefits on closed block business unless the            

21

10-Q
22nd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 22nd
 JOHN HANCOCK LIFE INSURANCE COMPANY

closed block business experiences substantial adverse deviations in investment, 
mortality, persistency or other experience factors.                             

For additional information on the closed block see Note 6 to the unaudited      
consolidated financial statements and the Company's 2000 Form 10-K, as amended. 

The costs relating to the demutualization, excluding costs relating to the      
offering, were approximately $119.6 million, net of tax, of which $10.9 million,
net of tax, was recognized in the six month period ending June 30, 2000. No     
demutualization costs were incurred in 2001. Demutualization expenses include   
printing and mailing costs and our aggregate cost of engaging independent       
accounting, actuarial, financial, investment banking, legal and other           
consultants to advise us. In addition, our costs include the costs of the staff 
and advisors of the Massachusetts Division of Insurance and the New York        
Insurance Department as to the demutualization process and related matters.     

Results of Operations                                                           

The table below presents the consolidated results of operations for the three   
and six month periods ended June 30, 2001 and 2000, respectively. For           
comparability with prior periods, the table below includes the results of       
operations of the closed block for the three and six month periods ended June   
30, 2001, the three month period ended June 30, 2000 and the five month period  
February 1, 2000 through June 30, 2000 within the six month period ended June   
30, 2000 combined on a line by line basis with the results of operations outside
the closed block.                                                               

                                                        [Enlarge/Download Table]


                                                             Three months ended         Six months ended     
                                                                  June 30,                  June 30,         
                                                         ----------------------------------------------------
                                                              2001          2000        2001        2000     
                                                              ----          ----        ----        ----     
                                                                            (in millions)                    
                                                                                                             
Revenues (1).............................................  $2,044.1       $2,186.5    $3,939.1    $4,227.8   

Benefits and expenses (1)................................   1,782.8        1,850.1     3,447.3     3,591.4   
                                                         ----------------------------------------------------
Income before income taxes, minority                                                                         
  interest and cumulative effect of                                                                          
  accounting changes.....................................     261.3          336.4       491.8       636.4   

Income taxes.............................................      75.5          107.1       145.3       208.2   
                                                         ----------------------------------------------------
Income before minority interest and                                                                          
  cumulative effect of accounting changes................     185.8          229.3       346.5       428.2   
                                                         ----------------------------------------------------

Minority interest........................................      (3.5)          (1.3)      (13.2)       (2.7)  

Cumulative effect of accounting changes..................        --             --         7.2          --   
                                                         ----------------------------------------------------

Net income...............................................  $  182.3       $  228.0    $  340.5    $  425.5   
                                                         ====================================================

(1)   Revenues and benefits and expenses above differ from the unaudited        
  consolidated statements of income due to closed block expenses for the
      three and six month periods ended June 30, 2001 and the three month period
     ended June 30, 2000 and the period February 1, 2000 through June 30, 2000
 of $346.9 million, $362.6 million, $732.2 million and $617.5 million,
respectively. These expenses are included in revenues through the   
contribution from the closed block on the unaudited consolidated    
   statements of income for the three and six month periods ended June 30,
2001 and 2000, respectively.                                        

22

10-Q
23rd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 23rd
 JOHN HANCOCK LIFE INSURANCE COMPANY

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

Consolidated income before income taxes, minority interest and cumulative effect
of accounting changes of $261.3 million for the three months ended June 30, 2001
decreased by $75.1 million, or 22.3%, from that reported in the comparable prior
year period, primarily due to a decrease in net realized investment and other   
gains (losses) of $80.0 million. The Company generated $20.2 million in net     
realized investment and other losses in the three months ended June 30, 2001,   
compared to $59.8 million in net realized investment and other gains for the    
three months ended June 30, 2000. Net realized investment and other gains       
generated in 2000 were the result of the initiative to divest the Company of    
real estate investments, while net realized investment and other losses         
generated in 2001 were primarily the result of deteriorating economic conditions
offset by gains from the sale of equity investments. Income before income taxes,
minority interest and cumulative effect of accounting changes in the Corporate  
and Other Segment decreased $49.7 million primarily driven by the corporate     
operations businesses in which net investment income and net realized investment
and other gains decreased from the comparable prior year period. In addition,   
income before income taxes and cumulative effect of accounting changes decreased
$13.7 million in the Asset Gathering Segment primarily due to a decrease in     
investment-type product fees. The Investment Management Segment decreased $11.6 
million primarily due to lower advisory fees on lower average assets under      
management in the current period and the receipt of a one-time lawsuit          
settlement in the timber investment management unit and a performance fee earned
by the mezzanine fund manager in the second quarter of 2000. Income before      
income taxes and cumulative effect of accounting changes decreased $6.7 million 
in the Protection Segment driven by net realized investment and other gains     
allocated to the business, partially offset by lower benefits to policyholders  
and amortization of deferred policy acquisition costs. Partially offsetting     
these decreases in income before income taxes, minority interest and cumulative 
effect of accounting changes was an increase in the Guaranteed and Structured   
Financial Products Segment (G&SFP) of $6.6 million, primarily due to an increase
in net investment income resulting from an increase in invested assets backing  
spread based products.                                                          

Revenues of $2,044.1 million for the three months ended June 30, 2001 decreased 
$142.4 million, or 6.5%, compared to the three months ended June 30, 2000,      
primarily due to a decrease of $127.5 million in the G&SFP Segment. The decrease
in G&SFP revenues is primarily due to a decrease in premiums associated with the
sales of single premium annuities. Revenue decreased $26.7 million in the Asset 
Gathering Segment, primarily due to net realized investment and other losses of 
$18.1 million for the three months ended June 30, 2001 compared to $4.0 million 
in gains in the comparable prior year period. In addition, management advisory  
fee income and commission income decreased $19.7 million primarily from the     
mutual funds business partially offset by increased investment income in the    
fixed annuity business. The Investment Management Segment revenues decreased    
$18.4 million primarily due to lower advisory fees on lower average assets under
management in the current period and the receipt of a $9.8 million legal        
settlement in our timber management operation and a $1.5 million performance fee
received by the mezzanine fund manager in the comparable prior year period. In  
addition, revenues decreased $6.0 million, or 0.8%, in the Protection Segment,  
primarily due to net realized investment and other losses of $28.7 million      
compared to gains of $6.8 million in the comparable prior year period. This     
decrease was partially offset by an increase in investment-type product charges 
and premiums during the three months ended June 30, 2001. These decreases in    
revenues were partially offset by an increase in the Corporate and Other        
Segment, which increased $36.2 million, or 7.0%. Premiums grew by $41.8 million,
primarily driven by the Company's majority-owned Canadian subsidiary, The       
Maritime Life Assurance Company (Maritime) and other income grew by $54.5       
million primarily due to the acquisition of Signature Fruit, LLC. (Signature    
Fruit), a subsidiary who acquired certain assets and assumed certain liabilities
out of bankruptcy of Tri-Valley Growers, Inc., in corporate operations.         
Partially offsetting these increases in revenues within Corporate and Other was 
a decrease in net realized investment and other gains of $25.8 million and a    
decrease in net investment income of $28.7 million primarily due to the         
utilization of capital for the stock buy back program, dividend paid to         
shareholders and capital supplied for the growth of the retail and institutional
businesses.                                                                     

Benefits and expenses of $1,782.8 million for the three months ended June 30,   
2001 decreased $67.3 million, or 3.6%, compared to the three months ended June  
30, 2000. The decrease is driven by G&SFP decreasing $134.1 million, or 25.2%,  
primarily due to a decrease in reserves reflecting the 100% reinsurance of      
single premium annuities in the current period. Benefits and expenses in the    
Asset Gathering Segment decreased $13.1 million primarily due to a decrease in  
operating expenses and amortization of deferred policy acquisition costs.       
Operating expenses decreased due to lower commission expense in the mutual fund 
business driven by lower front-end load charge mutual fund sales and lower      
redemptions of deferred sales charge mutual fund shares. Amortization of        
deferred policy acquisition costs decreased primarily due to improved separate  
account performance and lower lapses. In addition, expenses in the Investment   
Management Segment decreased $6.8 million driven by lower operating expenses due
to a decline in incentive compensation payments in the comparable prior year    
period and the legal settlement in the timber investment management business in 
the prior year period. Partially offsetting these                               

23

10-Q
24th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 24th
 JOHN HANCOCK LIFE INSURANCE COMPANY

decreases in benefits and expenses was an increase in the Corporate and Other   
Segment of $85.9 million, primarily due to an increase in policyholder benefits 
in Maritime on increases in premiums, and from the impact of the acquisition of 
Signature Fruit. The Protection Segment increased $0.8 million, or 0.1%,        
primarily due to a decrease in the amortization of deferred policy acquisition  
costs in both the traditional and non-traditional life insurance products       
partially offset by an increase in operating expenses.                          

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

Consolidated income before income taxes, minority interest and cumulative effect
of accounting changes of $491.8 million for the six months ended June 30, 2001  
decreased by $144.6 million, or 22.7%, from that reported in the comparable     
prior year period, primarily due to a decrease in net realized investment and   
other gains (losses) of $125.2 million. The Company generated $43.9 million in  
net realized investment and other losses in the six months ended June 30, 2001, 
compared to $81.3 million in net realized investment and other gains for the six
months ended June 30, 2000. Net realized investment and other gains generated in
2000 were the result of the initiative to divest the Company of real estate     
investments, while losses generated in 2001 were primarily the result of        
difficult economic conditions. Income before taxes, minority interest and       
cumulative effect of accounting changes in the Corporate and Other Segment      
decreased $70.7 million primarily due to the impact on corporate operations of  
lower realized gains and the inclusion of Signature Fruit in operating expenses.
Partially offsetting these decreases in the Corporate and Other Segment was an  
increase at Maritime, primarily due to favorable experience in Maritime's       
individual life insurance business and group insurance business. The Investment 
Management Segment income before income taxes, minority interest and cumulative 
effect of accounting changes decreased $39.5 million on lower advisory fee      
income partially offset by lower operating expenses. Investment Management      
Segment advisory fees decreased due to lower average asset under management in  
the current period, one-time fees, a lawsuit settlement in the timber investment
management unit and a performance fee earned by the mezzanine fund manager all  
occurring in the prior year period. The Asset Gathering Segment decreased $32.8 
million due to lower commission income from lower sales and redemptions in the  
mutual funds business and lower net realized investment and other gains,        
partially offset by lower operating expense. The Protection Segment decreased   
$3.9 million primarily due to net realized investment and other losses and      
increased amortization of deferred policy acquisition costs during the period,  
partially offset by lower operating expenses. Partially offsetting these        
decreases in income before income taxes, minority interest and cumulative effect
of accounting changes was an increase of $2.3 million in the Guaranteed and     
Structured Financial Products Segment (G&SFP) due to growth in its spread based 
business.                                                                       

Revenues of $3,939.1 million for the six months ended June 30, 2001 decreased   
$288.7 million, or 6.8%, compared to the six months ended June 30, 2000,        
primarily due to a decrease in revenue of $113.7 million in the G&SFP Segment, a
decrease of 10.5%. The decrease in G&SFP revenues is primarily due to sales of  
single premium annuities. Partially offsetting the decrease in premiums in G&SFP
was growth in net investment income resulting from an increase in invested      
assets backing spread based products compared to the prior year period. Revenues
increased $9.1 million, or 0.6%, in the Protection Segment, primarily due to net
realized investment and other losses, partially offset by an increase in net    
investment income. The Corporate and Other Segment decreased $91.9 million, or  
9.2%, primarily due to a decrease of $126.3 million of net investment income    
driven by the mark-to-market adjustments on equity securities backing universal 
life products issued by Maritime, and nonrecurring investment income on IPO     
proceeds earned in the prior year. Maritime's mark-to-market adjustments are    
largely offset by changes to policyholder benefits and deferred acquisition     
costs. In addition, realized gains from venture capital partnerships decreased  
by $19.5 million. The Investment Management Segment revenues decreased $62.0    
million, or 48.2%, primarily due to nonrecurring advisory fee income. Investment
Management Segment advisory fee income in the prior year period included the    
receipt of a $45.3 million incentive fee in connection with the restructuring of
a timber management contract, as well as the lawsuit settlement and a $6.1      
million performance fee received by the mezzanine fund manager. Asset Gathering 
Segment revenues decreased $30.2 million, or 5.0%, primarily due to a decrease  
in management advisory fees and commission income from the mutual funds business
of $55.4 million , driven by the impact of redemptions, market depreciation and 
lower sales. These decreases were partially offset by an increase in net        
investment income of $26.7 million driven by fixed annuity business growth and  
$21.1 million in increased premiums primarily due to the single premium         
immediate annuity business.                                                     

Benefits and expenses of $3,447.3 million for the six months ended June 30, 2001
decreased $144.1 million, or 4.0%, compared to the six months ended June 30,    
2000. The decrease is driven by G&SFP decreasing $116.0 million, or 12.5%,      
primarily due to sales of single premium annuities.                             

24

10-Q
25th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 25th
 JOHN HANCOCK LIFE INSURANCE COMPANY

The Investment Management Segment's benefits and expenses decreased $22.6       
million, or 30.8%, driven by a decrease in operating expenses due to incentive  
compensation payments in the comparable prior year period associated with the   
restructuring of a portfolio in the timber investment management business and   
the legal settlement in the prior year period. In addition, the Corporate and   
Other Segment benefits and expenses decreased $21.1 million, or 2.5%, driven by 
a $79.0 million decrease in benefits to policyholders, primarily due to reduced 
policyholder credits on negative mark-to-market adjustments on equity securities
supporting Maritime's universal life policies and favorable experience in the   
individual life insurance and group insurance lines of business, partially      
offset by an increase in operating expenses in corporate operations, primarily  
the result of the acquisition of Signature Fruit. Partially offsetting these    
decreases is an increase in the Protection Segment, which increased in benefits 
and expenses of $13.0 million, or 1.1%, primarily due to increased amortization 
of deferred policy acquisition costs, which was partially offset by a decrease  
in other operating costs and expenses. In addition, Asset Gathering Segment     
increased benefits and expenses of $2.7 million, or 0.5%, is primarily due to   
increased benefits to policyholders, partially offset by lower operating        
expenses driven by lower commission expense in the mutual fund business on lower
front end load charge mutual fund sales and lower redemptions of deferred sales 
charge mutual fund shares.                                                      

Results of Operations by Segment                                                

  We operate our business in five segments. Two segments primarily serve
retail customers, two segments serve institutional customers and our fifth      
segment is the Corporate and Other Segment, which includes our international    
operations. Our retail segments are the Protection Segment and the Asset        
Gathering Segment. Our institutional segments are the Guaranteed and Structured 
Financial Products Segment and the Investment Management Segment.               

We evaluate segment performance and base management's incentives on 
segment after-tax operating income, which excludes the effect of net realized   
investment and other gains and losses and other unusual or non-recurring events 
and transactions. Segment after-tax operating income is determined by adjusting 
GAAP net income for net realized investment and other gains and losses,         
extraordinary items, and certain other items, which we believe are not          
indicative of overall operating trends. While these items may be significant    
components in understanding and assessing our consolidated financial            
performance, we believe that the presentation of segment after-tax operating    
income enhances the understanding of our results of operations by highlighting  
net income attributable to the normal, recurring operations of the business.    
However, segment after-tax operating income is not a substitute for net income  
determined in accordance with GAAP.                                             

  A discussion of the adjustments to GAAP reported income, many of which
affect each operating segment, follows the table below. A reconciliation of     
segment after-tax operating income, as adjusted, to GAAP reported net income    
precedes each segment discussion.                                               

25

10-Q
26th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 26th
 JOHN HANCOCK LIFE INSURANCE COMPANY

                                                        [Enlarge/Download Table]

                                                             Three months ended                 Six months ended           
                                                                  June 30,                          June 30,               
                                                     ----------------------------------------------------------------------
                                                           2001            2000              2001              2000        
                                                     ----------------------------------------------------------------------
                                                                                 (in millions)                             
                                                                                                                           
Segment Data: (1)                                                                                                          
Segment after-tax operating income:                                                                                        
  Protection Segment.................................    $  77.4         $  54.3           $ 145.5           $ 123.8       
  Asset Gathering Segment............................       37.4            29.3              68.9              65.6       
                                                     ----------------------------------------------------------------------
    Total Retail.....................................      114.8            83.6             214.4             189.4       
  Guaranteed and Structured Financial Products                                                                             
    Segment..........................................       58.9            55.1             117.3             109.3       
  Investment Management Segment......................        4.6            11.0              10.0              32.4       
                                                     ----------------------------------------------------------------------
    Total Institutional..............................       63.5            66.1             127.3             141.7       
  Corporate and Other Segment........................       22.5            29.6              39.9              50.0       
                                                     ----------------------------------------------------------------------
  Total segment after-tax operating income...........      200.8           179.3             381.6             381.1       

After-tax adjustments: (1)                                                                                                 
    Realized investment and other                                                                                          
      gains (losses), net............................      (14.2)           38.8             (29.0)             50.1       
    Restructuring charges............................       (4.3)           (0.8)            (19.3)             (7.7)      
    Group pension dividend transfer..................         --              --                --               5.7       
    Demutualization expenses.........................         --             3.5                --              (0.7)      
    Other demutualization related costs..............         --              --                --             (10.2)      
    Surplus tax......................................         --             7.2                --               7.2       
                                                     ----------------------------------------------------------------------
  Total after-tax adjustments........................      (18.5)           48.7             (48.3)             44.4       
                                                     ----------------------------------------------------------------------

  Income before cumulative effect of accounting                                                                            
    changes..........................................      182.3           228.0             333.3             425.5       
  Cumulative effect of accounting changes............                         --               7.2                --       
                                                     ----------------------------------------------------------------------
  Net income.........................................    $ 182.3         $ 228.0           $ 340.5           $ 425.5       
                                                     ======================================================================

(1) See "Adjustments to GAAP Reported Net Income" set forth below.              

Adjustments to GAAP Reported Net Income                                         

   Our GAAP reported net income is affected by net realized investment and
other gains and losses and other unusual or non-recurring events and            
transactions presented in the reconciliation of GAAP reported net income to     
segment after-tax operating income in Note 3 -- Segment Information in the notes
to the unaudited consolidated financial statements. A description of these      
adjustments follows.                                                            

In both periods, net realized investment and other gains and losses,
except for gains and losses from mortgage securitizations and mezzanine funds   
have been excluded from segment after-tax operating income due to their         
volatility between periods and because such data are often excluded by analysts 
and investors when evaluating the overall financial performance of insurers.    

     The volatility between periods can be impacted by economic conditions, as
well as by changes in the volume of activity, which can be influenced by us and 
our investment decisions. Net realized investment and other gains and losses    
from mortgage securitizations and mezzanine funds were not excluded from segment
after-tax operating income because we view the related gains and losses as an   
integral part of the core business of those operations.                         

26

10-Q
27th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 27th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Net realized investment and other gains have been reduced by: (1)   
amortization of deferred policy acquisition costs to the extent that such       
amortization results from net realized investment and other gains and losses and
(2) the portion of net realized investment and other gains and losses credited  
to participating pension contractholder accounts. We believe presenting net     
realized investment and other gains and losses in this format provides          
information useful in evaluating our operating performance. This presentation   
may not be comparable to presentations made by other insurers. Summarized below 
is a reconciliation of (a) net realized investment and other gains and losses   
per the unaudited consolidated financial statements and (b) the adjustment made 
for net realized investment and other gains and losses to calculate segment     
after-tax operating income for the three and six month periods ended June 30,   
2001 and 2000, respectively.                                                    

                                                        [Enlarge/Download Table]

                                                                  Three months ended         Six months ended       
                                                                       June 30,                  June 30,           
                                                              ------------------------------------------------------
                                                                  2001         2000         2001          2000      
                                                              ------------------------------------------------------
                                                                                  (in millions)                     
                                                                                                                    
Net realized investment and other gains (losses) ...........     $(12.5)      $ 59.1       $(55.4)      $ 79.8      
Amortization of deferred policy acquisition costs related to                                                        
  net realized investment gains (losses)....................        6.7         (1.8)         5.9         (3.1)     
Amounts credited (charged) to participating pension contract                                                        
  holder accounts...........................................      (14.4)         2.5          5.6          4.6      
                                                              ------------------------------------------------------
Net realized investment and other gains (losses), net of                                                            
  related amortization of deferred policy acquisition costs                                                         
  and amounts credited to participating pension contract                                                            
  holders per unaudited consolidated financial                                                                      
  statements (1)............................................      (20.2)        59.8        (43.9)        81.3      
Realized investment (gains) losses attributable to mortgage                                                         
  securitizations and mezzanine funds.......................        0.1         (0.2)        (2.5)        (2.0)     
                                                              ------------------------------------------------------
Realized investment and other gains (losses), net - pre-tax                                                         
  adjustment to calculate segment operating income..........      (20.1)        59.6        (46.4)        79.3      
Less income tax effect......................................        5.9        (20.8)        17.4        (29.2)     
                                                              ------------------------------------------------------
Realized investment and other gains (losses), net -                                                                 
  after-tax adjustment to calculate segment operating income     $(14.2)      $ 38.8       $(29.0)      $ 50.1      
                                                              ======================================================

(1)   Net realized investment and other gains (losses), net of related          
     amortization of deferred policy acquisition costs and amounts credited to
     participating pension contractholders for the three and six month periods
    ended June 30, 2001 and 2000, respectively, includes $(11.9) million and
 $(3.2) million and $(9.2) million and $(0.1) million, in net realized
losses generated in the closed block. This balance is included in   
      contribution from the closed block in the unaudited consolidated financial
statements.                                                         

  As part of the Company's Competitive Position Project we have incurred
after-tax restructuring charges to reduce costs and increase future operating   
efficiency by consolidating portions of our operations. Additional information  
regarding restructuring costs is included in Note 4 - Severance in the notes to 
the unaudited consolidated financial statements. After-tax restructuring costs  
were $4.3 million and $0.8 million for the three month periods ended June 30,   
2001 and 2000, respectively, and $19.3 million and $7.7 million for the six     
month periods ended June 30, 2001 and 2000, respectively.                       

 During 1999, we recorded an amount related to the transfer of certain
assets from the Guaranteed and Structured Financial Products Segment to the     
corporate account within the Corporate and Other Segment. The $5.7 million      
after-tax credit occurring in the first quarter of 2000 is a change in estimate 
of this transaction based on information that became available in 2000.         

    In December 2000, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 00-3 (SOP 00-3 SOP 00-3, which was adopted 
with respect to accounting for demutualization expenses by the Company effective
on December 31, 2000, requires that demutualization related expenses be         
classified as a single line item within income from continuing operations and   
should not be classified as an extraordinary item. The adoption of SOP 00-3     
resulted in the reclassification of demutualization expenses previously recorded
as an extraordinary item for the three and six month periods ended June 30, 2000
of a $3.5 million after-tax credit and a $0.7 million after-tax expense,        
respectively. No demutualization costs were recognized in 2001. The Company     
considers demutualization expenses to be an adjustment to GAAP recorded net     
income.                                                                         

The Company incurred after-tax charges for demutualization related  
expenses to improve our financial analysis and financial reporting abilities.   
These charges primarily included consulting fees and planning and expense       
management costs. After-tax charges for demutualization related expenses were   
$10.2 million for the six month periods ended June 30, 2000, respectively. No   
such costs were incurred in 2001.                                               

   Effective within the year 2000, the Company is no longer subject to the
surplus tax imposed on mutual life insurance companies. During the three and six
month periods ended June 30, 2000 the Company recognized a reduction in equity  
based taxes of $7.2 million, resulting from a revised estimate related to prior 
years. This after-tax credit was excluded from after-tax operating income for   
these periods.                                                                  

27

10-Q
28th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 28th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Retail-Protection Segment                                                       

The following table presents certain summary financial data relating to the     
Protection Segment for the periods indicated.                                   

                                                        [Enlarge/Download Table]

                                                                 Three months ended              Six months ended        
                                                                      June 30,                       June 30,            
                                                                 2001           2000           2001           2000       
                                                           --------------------------------------------------------------
                                                                                   (in millions)                         
                                                                                                                         
Revenues (1)..............................................     $ 737.8        $ 708.4       $ 1,468.2      $ 1,406.7     

Benefits and expenses.....................................       621.0          625.4         1,245.4        1,220.6     

Income taxes..............................................        39.4           28.7            77.3           62.3     
                                                           --------------------------------------------------------------

Segment after-tax operating income (1)....................        77.4           54.3           145.5          123.8     
                                                           --------------------------------------------------------------

After-tax adjustments: (1)                                                                                               
  Realized investment and other gains                                                                                    
    (losses), net.........................................       (18.1)           4.1           (23.6)           9.0     
  Surplus tax.............................................          --            2.9              --            2.9     
  Demutualization expenses................................          --            2.4              --           (6.9)    
  Restructuring charges...................................        (1.6)          (0.6)           (2.8)          (3.6)    
                                                           --------------------------------------------------------------
Total after-tax adjustments...............................       (19.7)           8.8           (26.4)           1.4     
                                                           --------------------------------------------------------------

GAAP Reported:                                                                                                           
Income before cumulative effect of accounting changes.....        57.7           63.1           119.1          125.2     
Cumulative effect of accounting changes, net of tax.......          --             --            11.7             --     
                                                           --------------------------------------------------------------
Net income................................................     $  57.7        $  63.1       $   130.8      $   125.2     
                                                           ==============================================================

Other Data:                                                                                                              
Segment after-tax operating income:                                                                                      
  Non-traditional life (variable and universal life)......     $  30.8        $  21.9       $    61.9      $    48.1     
  Traditional life........................................        30.6           22.2            56.1           56.7     
  Long-term care..........................................        15.5           11.2            28.9           20.1     
  Other...................................................         0.5           (1.0)           (1.4)          (1.1)    
                                                           --------------------------------------------------------------
Segment after-tax operating income (1)....................     $  77.4        $  54.3       $   145.5      $   123.8     
                                                           ==============================================================

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.        

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

Segment after-tax operating income was $77.4 million for the three months ended 
June 30, 2001, an increase of $23.1 million, or 42.5%, from $54.3 million for   
the three months ended June 30, 2000. Non-traditional life insurance business   
after-tax operating income increased $8.9 million, or 40.6%, primarily due to   
increased fee income. Traditional life insurance business after-tax operating   
income increased $8.4 million, or 37.8%, primarily resulting from reductions in 
operating expenses. Individual long-term care insurance business after-tax      
operating income increased $4.2 million, or 47.2%, resulting from higher        
investment income and positive morbidity gains driven by the growth in business.
Group long-term care insurance business after-tax operating income increased    
$0.1 million, or 4.3%.                                                          

Revenues were $737.8 million for the three months ended June 30, 2001, an       
increase of $29.4 million, or 4.2%, from $708.4 million for the three months    
ended June 30, 2000. Premiums increased $8.9 million, or 2.8%, primarily due to 
individual long-term care insurance premiums, which increased $21.5 million, or 
33.2%, driven by continued growth in the business and the Fortis acquisition.   
Partially offsetting this increase was a decline in traditional life insurance  
premiums of $12.6 million, or 5.2%, driven by a decrease in direct term life    
insurance premiums due to the impact on sales of Regulation XXX price increases,
and decreased whole life insurance premiums due to                              

28

10-Q
29th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 29th
 JOHN HANCOCK LIFE INSURANCE COMPANY

customers' continued focus on non-traditional life products. Universal life and 
investment-type product charges consist primarily of cost of insurance fees and 
separate account fees and were $101.9 million for the three months ended June   
30, 2001, an increase of $14.7 million, or 16.9%, from $87.2 million for the    
three months ended June 30, 2000. This was primarily due to increases in both   
universal and variable life insurance product fees, of $7.2 million and $7.5    
million respectively from the comparable prior year period, primarily driven by 
advisory fee increases and universal life account value increases. The segment's
net investment income increased $7.2 million, or 2.4%, primarily due to         
increased asset balances and improved portfolio yields.                         

Benefits and expenses were $621.0 million for the three months ended June 30,   
2001, a decrease of $4.4 million, or 0.7%, from $625.4 million for the three    
months ended June 30, 2000. Benefits to policyholders decreased $6.7 million, or
1.8%, due primarily to a decrease in benefits in the traditional life business, 
driven by lower surrenders. Other operating costs and expenses decreased $12.9  
million primarily due to a decrease of $31.1 million in operating expenses on   
traditional life insurance products. Dividends to policyholders increased $7.9  
million, or 6.8%, primarily due to increased dividends on traditional life      
insurance products partially resulting from the implementation of a revised     
acquisition modeling system. Amortization of deferred policy acquisition costs  
increased $7.4 million, or 22.8%, due to increased amortization resulting from  
revised projections of estimated gross profits based upon changes in estimated  
future mortality and expense margins, and revised estimates relating to the     
implementation of new modeling systems during the period in both the traditional
and non-traditional life insurance products. The Segment's effective tax rate on
operating income was 33.7% and 34.5% for the three months ended June 30, 2001   
and 2000, respectively.                                                         

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

Segment after-tax operating income was $145.5 million for the six months ended  
June 30, 2001, an increase of $21.7 million, or 17.5%, from $123.8 million for  
the six months ended June 30, 2000. Non-traditional life insurance after-tax    
operating income increased $13.8 million, or 28.7%, primarily due to higher fee 
income and net investment income. Traditional life insurance after-tax operating
income decreased $0.6 million, or 1.1%, primarily resulting from higher         
amortization of deferred policy acquisitions costs related to anticipated       
changes to future dividend scales, mostly offset by reductions in operating     
expenses. Individual long-term care insurance after-tax operating income        
increased $9.6 million, or 51.1%, resulting from higher investment income and   
positive morbidity gains. Group long-term care insurance after-tax operating    
income decreased $0.8 million, or 61.5%.                                        

Revenues were $1,468.2 million for the six months ended June 30, 2001, an       
increase of $61.5 million, or 4.4%, from $1,406.7 million for the six months    
ended June 30, 2000. Premiums increased $16.0 million, or 2.5%, primarily due to
individual long-term care insurance premiums, which increased $40.6 million, or 
31.0%, driven by continued growth in the business and the Fortis acquisition.   
Partially offsetting this increase was a decline in traditional life insurance  
premiums of $17.5 million, or 3.5%, driven by a decrease in term life insurance 
premiums due to the impact on sales of Regulation XXX price increases and       
decreased whole life insurance premiums due to customers' continued focus on    
non-traditional life products. Universal life and investment-type product       
charges were $203.8 million for the six months ended June 30, 2001, an increase 
of $5.2 million, or 2.6%, from $198.6 million for the six months ended June 30, 
2000. This increase was due primarily to the universal life insurance product   
fees, which increased by $9.6 million, or 34.2%, from the comparable prior year 
period, primarily driven by increased fees due to higher account values. Segment
net investment income increased $39.2 million, or 6.7%, primarily due to        
increased asset balances and improved portfolio yields.                         

Benefits and expenses were $1,245.4 million for the six months ended June 30,   
2001, an increase of $24.8 million, or 2.0%, from $1,220.6 million for the six  
months ended June 30, 2000. Benefits to policyholders increased $1.2 million, or
0.2%. Other operating costs and expenses decreased $15.5 million primarily due  
to a decrease of $38.2 million in operating expenses on traditional life        
insurance products. Dividends to policyholders increased $1.8 million, or 0.8%, 
primarily due to increased dividends on traditional life insurance products.    
Amortization of deferred policy acquisition costs increased $37.2 million, or   
68.8%, primarily due to increased amortization resulting from change in the     
dividend scale in the traditional life products and changes in estimated future 
mortality an expense margins in non-traditional life products. The Segment's    
effective tax rate on operating income was 34.7% and 33.5% for the six months   
ended June 30, 2001 and 2000, respectively.                                     

29

10-Q
30th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 30th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Retail-Asset Gathering Segment                                                  

     The following table presents certain summary financial data relating to the
Asset Gathering Segment for the periods indicated.                              

                                                        [Enlarge/Download Table]

                                                                  Three months ended                 Six months ended          
                                                                       June 30,                          June 30,              
                                                                 2001            2000             2001             2000        
                                                           --------------------------------------------------------------------
                                                                                      (in millions)                            
                                                                                                                               
Revenues (1)..............................................      $294.9          $299.5           $583.8           $596.9       

Benefits and expenses.....................................       239.4           256.1            481.5            498.9       

Income taxes..............................................        18.1            14.1             33.4             32.4       
                                                           --------------------------------------------------------------------

Segment after-tax operating income (1)....................        37.4            29.3             68.9             65.6       
                                                           --------------------------------------------------------------------

After-tax adjustments: (1)                                                                                                     
  Realized investment and other                                                                                                
    gains, net............................................       (11.2)            2.5             (6.6)             3.7       
  Surplus tax.............................................          --             0.1               --              0.1       
  Demutualizaton expenses, net of tax.....................          --             0.5               --             (0.1)      
  Other demutualization related costs.....................          --              --               --             (1.4)      
  Restructuring charges...................................        (1.9)           (0.1)           (15.1)            (1.0)      
                                                           --------------------------------------------------------------------
Total after-tax adjustments...............................       (13.1)            3.0            (21.7)             1.3       
                                                           --------------------------------------------------------------------

Income before cumulative effect of accounting changes.....        24.3            32.3             47.2             66.9       
Cumulative effect of accounting changes...................          --              --             (0.5)              --       
                                                           --------------------------------------------------------------------

Net income................................................      $ 24.3          $ 32.3           $ 46.7           $ 66.9       
                                                           ====================================================================

Other Data:                                                                                                                    
Segment after-tax operating income (loss):                                                                                     
  Annuity.................................................      $ 21.5          $ 19.8           $ 41.7           $ 45.6       
  Mutual funds............................................        13.7            10.7             28.1             22.1       
  Other...................................................         2.2            (1.2)            (0.9)            (2.1)      
                                                           --------------------------------------------------------------------
Segment after-tax operating income........................      $ 37.4          $ 29.3           $ 68.9           $ 65.6       
                                                           ====================================================================

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.        

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

Segment after-tax operating income was $37.4 million for the three months ended 
June 30, 2001, an increase of $8.1 million, or 27.6%, from $29.3 million        
reported in the comparable prior year period. Annuity business after-tax        
operating income was $21.5 million for the three months ended June 30, 2001, an 
increase of $1.7 million, or 8.6%, primarily due to increased net investment    
income and lower operating expenses, partially offset by increased benefits to  
policyholders and reduced fees on variable annuity products. Mutual funds       
after-tax operating income increased $3.0 million, or 28.0%, primarily due to   
lower commissions and operating expenses that decreased $25.6 million, or 25.8% 
from the comparable prior year period.                                          

Revenues were $294.9 million for the three months ended June 30, 2001, a        
decrease of $4.6 million, or 1.5%, from $299.5 million reported for the         
comparable prior year period. The decrease in revenues was primarily due to     
lower management advisory fees and commission income which decreased $19.7      
million, or 14.2% driven by the mutual funds business due to a decrease in      
average assets under management and lower sales. Net investment income was      
$122.8 million for the three months ended June 30, 2001, an increase of $9.5    
million, or 8.3%, from $113.3 million reported in the comparable prior year     
period. Net investment income increased primarily due to increases in invested  
assets backing fixed annuity products. Investment-type product fees were $32.6  
million for the three months ended June 30, 2001, a decrease of $1.7 million, or
5.0%, from $34.3 million reported for the comparable prior year period.         

30

10-Q
31st Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 31st
 JOHN HANCOCK LIFE INSURANCE COMPANY

The decrease in investment-type product fees is primarily due to a decline in   
the average variable annuity reserves which decreased 16.4% to $6,530.7 million 
for the three months ended June 30, 2001 from $7,809.6 million reported in the  
comparable prior year period. The decrease in average variable annuity reserves 
is driven by depreciation of the equity markets. The mortality and expense fees 
as a percentage of average account balances were 1.29% for the three months     
ended June 30, 2001 and 2000.                                                   

Investment management revenues, commissions, and other fees were $119.1 million 
for the three months ended June 30, 2001, a decrease of $19.7 million, or 14.2%,
from $138.8 million for the comparable prior year period. Average mutual fund   
assets under management were $30,139.3 million for the three months ended June  
30, 2001, a decrease of $2,332.3 million or 7.2%, from $32,471.6 million        
reported in the comparable prior year period, due to net redemptions and market 
depreciation in latter half of the prior year. The mutual fund business         
experienced net redemptions for the three months ended June 30, 2001 of $136.5  
million compared to net redemptions of $60.4 million in the comparable prior    
year period. Excluding the sale of the full service retirement business, the    
mutual fund business incurred $186.8 million in net deposits for the three      
months ended June 30, 2001. The redemptions related to the sale of the          
full-service retirement plan business were $323.3 million. The mutual fund      
business assets under management grew due to realized net market appreciation of
$1,625.4 million for the three months ended June 30, 2001 compared to $1,096.6  
million of market depreciation in the comparable prior year period. Deposits and
reinvestments for the second quarter of 2001 increased to $1,529.7 million, an  
increase of $210.8 million, or 16.0%, compared to $1,318.9 million in the       
comparable prior year period. Investment advisory fees were $47.0 million for   
the three months ended June 30, 2001, a decrease of $0.5 million, or 1.0%, from 
$47.5 million reported in the comparable prior year period and were 0.62% and   
0.59% of average mutual fund assets under management for the three months ended 
June 30, 2001 and 2000, respectively. Underwriting and distribution fees        
decreased $20.7 million, or 26.4%, to $57.6 million for the three months ended  
June 30, 2001, primarily due to a decrease in front end load charge mutual fund 
sales and lower deferred sales charges due to decreased redemptions. Shareholder
service and other fees were $14.7 million for the three months ended June 30,   
2001.                                                                           

Benefits and expenses decreased $16.7 million, or 6.5%, to $239.4 million for   
the three months ended June 30, 2001 from $256.1 million reported in the        
comparable prior year period. Benefits to policyholders increased $22.9 million,
or 25.5%, primarily due to an increase in interest credited on fixed annuity    
account balances due to higher average account balances. Other operating costs  
and expenses decreased $32.3 million, or 22.2%, to $112.9 million for the three 
months ended June 30, 2001 from $145.2 million reported in the comparable prior 
year period primarily due to the decrease in commission fees incurred in the    
mutual fund business, the result of lower front-end load mutual fund sales and  
lower deferred sales charges due to lower redemptions. In addition, operating   
expenses decreased in the annuities and mutual fund businesses due to expense   
reduction programs. The decrease in expenses in the mutual fund business was    
driven by lower subadvisory asset based fees due to a decline in average assets 
under management and the sale of the retirement plan record-keeping business.   
Amortization of deferred policy acquisition costs decreased $7.3 million, or    
34.8%, to $13.7 million for the three months ended June 30, 2001 from $21.0     
million reported in the comparable prior year period, primarily in the variable 
annuities business due to improved separate account performance and lower       
lapses. The Segment's effective tax rate on operating income was 32.6% and 32.5%
for the three months ended June 30, 2001 and 2000, respectively.                

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

Segment after-tax operating income was $68.9 million for the six months ended   
June 30, 2001, an increase of $3.3 million, or 5.0%, from $65.6 million reported
in the comparable prior year period. Annuity business after-tax operating income
was $41.7 million for the six months ended June 30, 2001, a decrease of $3.9    
million, or 8.6%, primarily due an increase in benefits to policyholders,       
partially offset by increased net investment income. Mutual funds after-tax     
operating income increased $6.0 million, or 27.1%, primarily due to lower       
commissions and operating expenses that decreased $59.0 million, or 28.3% from  
the comparable prior year period, partially offset by lower management advisory 
fees, commissions, and other fee revenue.                                       

Revenues were $583.8 million for the six months ended June 30, 2001, a decrease 
of $13.1 million, or 2.2%, from $596.9 million reported for the comparable prior
year period. The decrease in revenues was due to lower management advisory fees 
and commission income decreased $55.4 million;, or 19.1% primarily from the     
mutual funds business due to a decrease in average assets under management and  
lower sales. Net investment income was $242.6 million for the six months ended  
June 30, 2001, an increase of $26.7 million, or 12.4%, from $215.9 million      
reported in the comparable prior year period. Net investment income increased   
primarily due to increases in invested assets backing fixed annuity products.   
Investment-type product fees were $65.4 million for the six months ended June   
30, 2001, a decrease of $4.5 million, or 6.4%, from $69.9 million reported for  
the comparable prior year period. The decrease in investment-type product fees  
is primarily due to a decline in the average variable annuity reserves,         

31

10-Q
32nd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 32nd
 JOHN HANCOCK LIFE INSURANCE COMPANY

driven by depreciation of the equity markets and lapses in the latter half of   
the prior year. Average variable annuity reserves decreased 10.1% to $6,932.9   
million for the six months ended June 30, 2001 from $7,712.8 million reported in
the comparable prior year period. The mortality and expense fees as a percentage
of average account balances were 1.24% and 1.36% for the six months ended June  
30, 2001 and 2000, respectively.                                                

Investment management revenues, commissions, and other fees were $234.4 million 
for the six months ended June 30, 2001, a decrease of $55.4 million, or 19.1%,  
from $289.8 million for the comparable prior year period. Average mutual fund   
assets under management were $30,349.8 million for the six months ended June 30,
2001, a decrease of $2,322.6 million or 7.1%, from $32,672.4 million reported in
the comparable prior year period, due to redemptions and market depreciation in 
the latter half of the prior year. The mutual fund business experienced net     
deposits for the six months ended June 30, 2001 of $124.1 million compared to   
net redemptions of $364.4 million in the comparable prior year period, despite  
difficult market conditions in the six months ended June 30, 2001. The mutual   
fund business incurred $257.3 million in net redemptions for the six months     
ended June 30, 2001 related to the sale of the full-service retirement plan     
business. Absent this one time event, the mutual fund business experienced net  
deposits of $381.4 million for the same period. Deposits and reinvestments for  
the six months ended June 30, 2001 include the funding of a $247 million        
institutional advisory account. Investment advisory fees were $93.1 million for 
the six months ended June 30, 2001, a decrease of $2.3 million, or 2.4%, from   
$95.4 million reported in the comparable prior year period and were 0.61% and   
0.59% of average mutual fund assets under management for the six months ended   
June 30, 2001 and 2000, respectively. Underwriting and distribution fees        
decreased $53.9 million, or 31.6%, to $116.6 million for the six months ended   
June 30, 2001, primarily due to a decrease in front end load mutual fund sales  
and lower deferred sales charges due to decreased redemptions. Shareholder      
service and other fees were $24.9 million for the six months ended June 30, 2001
compared to $23.9 million reported in the comparable prior year period.         

Benefits and expenses decreased $17.4 million, or 3.5%, to $481.5 million for   
the six months ended June 30, 2001 from $498.9 million reported in the          
comparable prior year period. Benefits to policyholders increased $48.5 million,
or 28.6%, primarily due to an increase in interest credited on fixed annuity    
account balances due to higher average account balances. Other operating costs  
and expenses decreased $66.9 million, or 22.8%, to $226.1 million for the six   
months ended June 30, 2001 from $293.0 million reported in the comparable prior 
year period. The decrease was primarily due to the decrease in commission fees  
incurred in the mutual fund business, the result of lower front-end load mutual 
fund sales and lower deferred sales charges due to lower redemptions. In        
addition, mutual fund operating expenses decreased due to operating             
efficiencies, lower subadvisory asset based fees due to a decline in average    
assets under management, and the sale of the retirement plan record-keeping     
business. Amortization of deferred policy acquisition costs increased $1.0      
million to $37.1 million for the six months ended June 30, 2001 from $36.1      
million reported in the comparable prior year period. The Segment's effective   
tax rate on operating income was 32.6% and 33.0% for the six months ended June  
30, 2001 and 2000, respectively.                                                

32

10-Q
33rd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 33rd
 JOHN HANCOCK LIFE INSURANCE COMPANY

Institutional-Guaranteed and Structured Financial Products Segment              

   The following table presents certain summary financial data relating to
the Guaranteed and Structured Financial Products Segment for the periods        
indicated.                                                                      

                                                        [Enlarge/Download Table]

                                               Three months ended             Six months ended         
                                                    June 30,                      June 30,             
                                               2001          2000            2001           2000       
                                          -------------------------------------------------------------
                                                                 (in millions)                         
                                                                                                       
Revenues (1)                                 $ 485.7       $ 617.5         $ 988.4        $1,099.5     

Benefits and expenses                          398.0         533.4           812.9           932.7     

Income taxes                                    28.8          29.0            58.2            57.5     
                                          -------------------------------------------------------------

Segment after-tax operating income (1)          58.9          55.1           117.3           109.3     
                                          -------------------------------------------------------------

After-tax adjustments: (1)                                                                             
  Realized investment and other gains                                                                  
     (losses), net                              (6.2)         (8.4)          (14.4)          (13.1)    
  Restructuring charges                         (0.6)         (0.1)           (0.7)           (2.2)    
  Surplus tax                                     --           1.5              --             1.5     
  Demutualization expenses                        --           0.4              --            (0.2)    
  Other demutualization related costs             --          (0.1)             --            (1.7)    
  Group pension dividend transfer                 --            --              --             5.7     
                                          -------------------------------------------------------------
Total after-tax adjustments                     (6.8)         (6.7)          (15.1)          (10.0)    
                                          -------------------------------------------------------------

Income before cumulative effect of                                                                     
  accounting changes                            52.1          48.4           102.2            99.3     
Cumulative effect of accounting changes,                                                               
  net of tax                                      --            --            (1.2)             --     
                                          -------------------------------------------------------------
Net income                                   $  52.1       $  48.4         $ 101.0        $   99.3     
                                          =============================================================

Other Data:                                                                                            
Segment after-tax operating income:                                                                    
  Spread-based products                      $  52.7       $  46.0         $ 104.4        $   92.3     
  Fee-based products                             6.2           9.1            12.9            17.0     
                                          -------------------------------------------------------------
Segment after-tax operating income (1)       $  58.9       $  55.1         $ 117.3        $  109.3     
                                          =============================================================

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.        

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

     Segment after-tax operating income was $58.9 million for the three months
ended June 30, 2001, an increase of $3.8 million, or 6.9%, from $55.1 million   
reported in the comparable prior-year period. Spread-based products after-tax   
operating income was $52.7 million, an increase of $6.7 million, or 14.6%, from 
$46.0 million reported in the comparable prior year period, primarily due to    
increased investment income, the result of an increase in average invested      
assets. Fee-based product after-tax operating income was $6.2 million, a        
decrease of $2.9 million, or 31.9%, from $9.1 million reported in the comparable
prior year period, primarily due to lower asset-based fees on Separate Account  
GICs.                                                                           

  Revenues decreased $131.8 million, or 21.3%, to $485.7 million for the
three months ended June 30, 2001 from $617.5 million reported in the comparable 
prior year period, largely due to a $167.8 million decrease in premiums, the    
result of lower single premium annuity sales. Investment-type product charges   
were $12.9 million for the three months ended June 30, 2001, a decrease of $3.9 
million, or 23.2%, primarily due to lower asset based fees on Separate Account  
GICs. Investment-type product charges were 0.52% and 0.55% of average fee-based 
policy reserves for the three months ended June 30, 2001 and 2000, respectively.
Net investment income increased                                                 

33

10-Q
34th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 34th
 JOHN HANCOCK LIFE INSURANCE COMPANY

$39.9 million, or 9.5%, to $464.4 million for the three months ended June 30,   
2001 from $424.5 million reported in the comparable prior year period, primarily
as a result of a higher level of average invested assets backing spread-based   
products., which increased $4,332.3 million, or 26.0% to $21,021.4 million for  
the three months ended June 30, 2001 from $16,689.1 million reported in the     
comparable prior year period. The average investment yield on these invested    
assets decreased to 7.85% for the three months ended June 30, 2001 compared to  
8.79% reported in the prior year period, reflecting the lower interest rate     
environment in the current period.                                              

Benefits and expenses decreased $135.4 million, or 25.4%, to $398.0 
million for the three months ended June 30, 2001 from $533.4 million reported in
the comparable prior year period, primarily due to the decrease in benefits to  
policyholders as a result of decreased sales of single premium annuity          
contracts, partially offset by an increase in interest credited. The increase in
interest credited was driven by higher average account balances for spread-based
products of $3,295.7 million to $19,088.8 million for the three months ended    
June 30, 2001 from $15,793.1 million reported in the comparable prior year      
period combined with a decrease in the average interest credited rate on account
balances for spread-based products. Other operating costs and expenses were     
$26.0 million for the three months ended June 30, 2001, an increase of $4.4     
million, or 20.4%, from $21.6 million reported in the comparable prior year     
period. The increase was primarily due tothe increased level of reinsurance     
arrangements. The increases in operating expenses from these arrangements is    
offset in lower benefits to policyholders. Dividends of $8.8 million for the    
three months ended June 30, 2001, decreased $2.0 million, or 18.5%, from $10.8  
million reported in the comparable prior year period, reflecting a lower level  
of distributable surplus to participating contractholder accounts. The          
Segment's effective tax rates on operating income were 32.8% and 34.5% for the  
three months ended June 30, 2001 and 2000, respectively.                        

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

    Segment after-tax operating income was $117.3 million for the six months
ended June 30, 2001, an increase of $8.0 million, or 7.3%, from $109.3 million  
reported in the comparable prior-year period. Spread-based products after-tax   
operating income was $104.4 million, an increase of $12.1 million, or 13.1%,    
from $92.3 million reported in the comparable prior year period, primarily due  
to increased investment income. Fee-based product after-tax operating income was
$12.9 million, a decrease of $4.1 million, or 24.1%, from $17.0 million reported
in the comparable prior year period, primarily due to lower asset-based fees on 
Separate Account GICs.                                                          

      Revenues decreased $111.1 million, or 10.1%, to $988.4 million for the six
months ended June 30, 2001 from $1,099.5 million reported in the comparable     
prior year period, largely due to a $186.1 million decrease in premiums, the    
result of lower single premium annuity sales. Investment-type product charges   
were $26.2 million for the six months ended June 30, 2001, a decrease of $7.1   
million, or 21.3% from $33.3 million reported in the comparable prior period    
primarily due to lower expense recoveries from participating contracts.         
Investment-type product charges were 0.51% and 0.56% of average fee-based policy
reserves for the six months ended June 30, 2001 and 2000, respectively. Net     
investment income increased $82.4 million, or 9.7%, to $931.2 million for the   
six months ended June 30, 2001 from $848.8 million reported in the comparable   
prior year period, primarily as a result of a higher level of average invested  
assets backing spread-based products. Average invested assets backing           
spread-based products increased $3,542.6 million, or 21.2% to $20,255.7 million 
for the six months ended June 30, 2001 from $16,713.1 million reported in the   
comparable prior year period. The average investment yield on these invested    
assets decreased to 8.16% for the six months ended June 30, 2001 compared to    
8.69% reported in the prior year period, reflecting the lower interest rate     
environment in the current period.                                              

Benefits and expenses decreased $119.8 million, or 12.8%, to $812.9 million for 
the six months ended June 30, 2001 from $932.7 million reported in the          
comparable prior year period. The decrease in benefits and expenses is primarily
due to the decrease in benefits to policyholders as a result of decreased sales 
of single premium annuity contracts, partially offset by an increase in interest
credited. The increase in interest credited was driven by higher average account
balances for spread-based products of $2,778.3 million to $18,598.4 million for 
the six months ended June 30, 2001 from $15,820.1 million reported in the       
comparable prior year period combined with a decrease in the average interest   
credited rate on account balances for spread-based products. Other operating    
costs and expenses were $45.1 million for the six months ended June 30, 2001, an
increase of $4.9 million, or 12.2%, from $40.2 million reported in the          
comparable prior year period. The increase was primarily due to the increased   
level of reinsurance arrangements. The increases in operating expenses from     
these arrangements is offset in lower benefits to policyholders. Dividends of   
$17.5 million for the six months ended June 30, 2001, decreased $0.8 million, or
4.4%, from $18.3 million reported in the comparable prior year period,          
reflecting a lower level of distributable surplus to participating contract     
holder accounts. The Segment's effective tax rates on operating income were     
33.1% and 34.5% for the six months ended June 30, 2001 and 2000, respectively.  

34

10-Q
35th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 35th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Institutional-Investment Management Segment                                     

The following table presents certain summary financial data relating to the     
Investment Management Segment for the periods indicated.                        

                                                        [Enlarge/Download Table]

                                                                 Three months ended               Six months ended         
                                                                      June 30,                        June 30,             
                                                                 2001           2000            2001            2000       
                                                           ----------------------------------------------------------------
                                                                                    (in millions)                          
                                                                                                                           
Revenues (1)..............................................       $30.9          $48.7           $66.5          $127.9      

Benefits and expenses.....................................        23.3           30.3            49.8            73.4      

Income taxes..............................................         3.0            7.4             6.7            22.1      
                                                           ----------------------------------------------------------------

Segment after-tax operating income (1)....................         4.6           11.0            10.0            32.4      
                                                           ----------------------------------------------------------------

After-tax adjustments: (1)                                                                                                 
  Realized investment and other gains, net................          --            0.3            (0.1)            0.3      
  Restructuring charges ..................................        (0.1)            --            (0.5)             --      
                                                           ----------------------------------------------------------------
Total after-tax adjustments...............................        (0.1)           0.3            (0.6)            0.3      
                                                           ----------------------------------------------------------------

Income before cumulative effect of                                                                                         
  accounting changes......................................         4.5           11.3             9.4            32.7      
Cumulative effect of accounting changes...................          --             --              (0.2)           --      
                                                           ----------------------------------------------------------------
Net income................................................       $ 4.5          $11.3           $ 9.2          $ 32.7      
                                                           ================================================================

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.        

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

Segment after-tax operating income was $4.6 million for the three months ended  
June 30, 2001, a decrease of $6.4 million, or 58.2%, from $11.0 million reported
in the comparable prior year period. The decrease was primarily due to lower    
investment advisory fees.                                                       

Revenues decreased $17.8 million, or 36.6%, to $30.9 million for the three      
months ended June 30, 2001 from $48.7 million reported in the comparable prior  
year period. Net investment income was $3.7 million for the three months ended  
June 30, 2001, a decrease of $1.0 million from $4.7 million reported in the     
comparable prior year period, primarily due to the sale of Energy Investors     
Management Company and other related subsidiaries in 2000. Investment management
revenues, commissions, and other fees decreased $16.1 million, or 37.2%, for the
three months ended June 30, 2001, primarily due to a decrease in investment     
advisory fees, which decreased $15.7 million to $25.5 million for the three     
months ended June 30, 2001 compared to $41.2 million reported in the prior year 
period primarily due to a $9.8 million incentive fee receipt in connection with 
settlement of a lawsuit and a $1.5 million performance fee received by the      
mezzanine fund manager during the second quarter 2000, while the balance came   
from lower assets under management in the segment in 2001. Investment management
revenues, commissions and other fees were 0.37% and 0.45% of average advisory   
assets under management in 2001 and 2000, respectively. Mortgage origination and
servicing fees were $1.8 million for the three months ended June 30, 2001       
compared to $2.1 million in 2000. Realized investment gains decreased $0.3      
million for the three months ended June 30, 2001.                               

Benefits and expenses were $23.3 million for the three months ended June 30,    
2001, a decrease of $7.0 million, or 23.1%, from $30.3 million reported in the  
comparable prior year period. The decrease was primarily due to a $2.8 million  
incentive compensation payment related to the receipt of the lawsuit settlement 
in the timber management operation and a $0.9 million performance fee paid for  
the management of the mezzanine fund during the second quarter 2000. Other      
operating costs and expenses were 0.32% and 0.31% of average advisory assets    
under management in 2001 and 2000, respectively. The Segment's effective tax    
rate on operating income was 39.5% and 40.2% for the three months ended June 30,
2001 and 2000, respectively. The effective tax rate for the Institutional       
Investment Management Segment is higher than our other business segments        
primarily due to the state tax on certain subsidiaries.                         

35

10-Q
36th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 36th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

Segment after-tax operating income was $10.0 million for the six months ended   
June 30, 2001, a decrease of $22.4 million, or 69.1%, from $32.4 million        
reported in the comparable prior year period. The decrease was primarily due to 
lower investment advisory fees from lower average assets under management in the
current period.                                                                 

Revenues decreased $61.4 million, or 48.0%, to $66.5 million for the six months 
ended June 30, 2001 from $127.9 million reported in the comparable prior year   
period. Net investment income was $9.2 million for the six months ended June 30,
2001, a decrease of $1.1 million from reported in the comparable prior year     
period, primarily due to the sale of Energy Investors Management Company and    
other related subsidiaries in 2000. Investment management revenues, commissions,
and other fees decreased $60.0 million, or 52.3%, for the six months ended June 
30, 2001, primarily due to a decrease in investment advisory fees, which        
decreased $59.1 million to $52.0 million for the six months ended June 30, 2001 
compared to $111.1 million reported in the prior year period. The decrease in   
investment advisory fees was primarily due to lower assets under management in  
the current year period, a $45.3 million incentive fee receipt in connection    
with the restructuring of a timber management contract, and a $6.1 million      
performance fee received by the mezzanine fund manager and a legal settlement   
during the prior year period associated with our timber management operation.   
Investment management revenues, commissions and other fees were 0.36% and 0.59% 
of average advisory assets under management in 2001 and 2000, respectively.     
Mortgage origination and servicing fees were $2.8 million for the six months    
ended June 30, 2001 compared to $3.7 million in 2000. Realized investment gains 
increased $0.5 million for the six months ended June 30, 2001, primarily due to 
larger collateralized mortgage-backed securitizations in the first quarter of   
2001 as compared to the first quarter of 2000.                                  

Benefits and expenses were $49.8 million for the six months ended June 30, 2001,
a decrease of $23.6 million, or 32.2%, from $73.4 million reported in the       
comparable prior year period. The decrease was primarily due to a $13.5 million 
incentive compensation payment related to the receipt of the incentive fee on   
the timber management contract, a $3.6 million performance fee paid for the     
management of the mezzanine fund and a legal settlement during the prior year   
period in our timber management operation. Other operating costs and expenses   
were 0.33% and 0.38% of average advisory assets under management in 2001 and    
2000, respectively. The Segment's effective tax rate on operating income was    
40.1% and 40.6% for the six months ended June 30, 2001 and 2000, respectively.  
The effective tax rate for the Institutional Investment Management Segment is   
higher than our other business segments primarily due to the state tax on       
certain subsidiaries.                                                           

36

10-Q
37th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 37th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Corporate and Other Segment                                                     

   The following table presents certain summary financial data relating to
the Corporate and Other Segment for the periods indicated.                      

                                                        [Enlarge/Download Table]

                                                               Three months ended         Six months ended      
                                                                    June 30,                  June 30,          
                                                                2001         2000         2001         2000     
                                                           -----------------------------------------------------
                                                                              (in millions)                     
                                                                                                                
Revenues (1)..............................................    $ 514.6      $ 452.7      $ 878.5      $ 917.5    

Benefits and expenses.....................................      497.5        410.1        840.2        848.8    

Income taxes..............................................       (5.4)        13.0         (1.6)        18.7    
                                                           -----------------------------------------------------

Segment after-tax operating income (1)....................       22.5         29.6         39.9         50.0    
                                                           -----------------------------------------------------

After-tax adjustments: (1)                                                                                      
  Realized investment and other gains                                                                           
    (losses), net.........................................       21.3         40.3         15.7         50.2    
  Restructuring charges...................................       (0.1)          --         (0.2)        (0.9)   
  Demutualization expenses................................         --          0.2           --         (0.2)   
  Other demutualization related costs.....................         --          0.1           --         (0.4)   
  Surplus tax.............................................         --          2.7           --          2.7    
                                                           -----------------------------------------------------
Total after-tax adjustments...............................       21.2         43.3         15.5         51.4    
                                                           -----------------------------------------------------

Income before cumulative effect of                                                                              
  accounting changes......................................       43.7         72.9         55.4        101.4    
Cumulative effect of accounting                                                                                 
  changes, net of tax.....................................         --           --         (2.6)          --    
                                                           -----------------------------------------------------
Net income................................................    $  43.7      $  72.9      $  52.8      $ 101.4    
                                                           =====================================================

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.        

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000   

Segment after-tax operating income from international operations was $7.9       
million for the three months ended June 30, 2001, an increase of $0.3 million   
from $7.6 million reported in the comparable prior year period. The increase in 
segment after-tax operating income is primarily due to The Maritime Life        
Assurance Company (Maritime), a majority-owned Canadian subsidiary of the       
Company. Increased benefit and claim costs/reduced fees from assets under       
management associated with equity investment, integration related expenses and  
employee benefits were more than offset by tax benefits associated with the     
reduction in Canadian tax rates.                                                

Segment after-tax operating income from corporate operations was $8.3 million   
for the three months ended June 30, 2001, a decrease of $10.6 million from $18.9
million reported in the comparable prior year period. The decrease was primarily
due to lower investment income on corporate surplus due to greater surplus      
requirements in our other business lines and decreased net investment income    
caused by dividends paid to JHFS.                                               

The Segment's effective tax rate on operating income was (31.6%) and 30.6% for  
the three months ended June 30, 2001 and 2000, respectively. This rate decreased
primarily due to a decrease in the deferred tax liability associated with       
contracts entered into to transfer the management of certain lease investment   
residuals to a foreign jurisdiction and a reduction in Maritime's deferred tax  
liability to reflect decreased Canadian tax rates.                              

37

10-Q
38th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 38th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000       

Segment after-tax operating income from international operations was $26.0      
million for the six months ended June 30, 2001, an increase of $15.3 million    
from $10.7 million reported in the comparable prior year period. The increase in
segment after-tax operating income is primarily due to Maritime where individual
life experienced favorable expense, mortality and investment margins and group  
insurance benefited from rate strengthening, favorable claims experience and    
reinsurance programs that were put in place in 2000.                            

Segment after-tax operating income from corporate operations was $10.4 million  
for the six months ended June 30, 2001, a decrease of $25.9 million from $36.3  
million reported in the comparable prior year period. The decrease was primarily
due to lower investment income on corporate surplus due to greater surplus      
requirements in our other business lines and the negative impact to net         
investment income associated with the dividends paid to JHFS.                   

The Segment's effective tax rate on operating income was (4.5%) and 27.3% for   
the six months ended June 30, 2001 and 2000, respectively. This rate decreased  
primarily due to a decrease in the deferred tax liability associated with       
contracts entered into to transfer the management of certain lease investment   
residuals to a foreign jurisdiction and a reduction in Maritime's deferred tax  
liability to reflect decreased Canadian tax rates.                              

General Account Investments                                                     

On the effective date of the Plan of Reorganization, the Company's invested     
assets were allocated between the closed block and operations outside the closed
block. In view of the similar asset quality characteristics of the major asset  
categories in the two portfolios, the invested assets in the closed block have  
been combined with the Company's invested assets outside the closed block for   
purposes of the following discussion and analysis.                              

Overall Composition of the General Account                                      

Invested assets, excluding separate accounts, totaled $55.1 billion and $52.0   
billion as of June 30, 2001 and December 31, 2000, respectively. The portfolio  
composition has not significantly changed at June 30, 2001 as compared to       
December 31, 2000. The following table shows the composition of investments in  
our general account portfolio.                                                  

                                                        [Enlarge/Download Table]

                                        As of June 30,               As of December 31,       
                                             2001                           2000              
                               ---------------------------------------------------------------
                                   Carrying          % of         Carrying         % of       
                                     Value           Total         Value          Total       
                               ---------------------------------------------------------------
                                 (in millions)                  (in millions)                 
                                                                                              
Fixed maturity securities (1)      $37,862.8          68.8%       $32,535.0        62.5%      
Mortgage loans (2)                  10,757.0          19.5         10,899.5        20.9       
Real estate                            501.5           0.9            519.0         1.0       
Policy loans (3)                     1,987.0           3.6          1,969.2         3.8       
Equity securities                    1,283.7           2.3          1,332.8         2.6       
Other invested assets                1,592.2           2.9          1,393.7         2.7       
Short-term investments                 183.6           0.3            214.0         0.4       
Cash and cash equivalents (4)          923.6           1.7          3,146.8         6.1       
                               ---------------------------------------------------------------
    Total invested assets (5)      $55,091.4         100.0%       $52,010.0       100.0%      
                               ===============================================================

(1)   In addition to bonds, the fixed maturity security portfolio contains      
  redeemable preferred stock with a carrying value of $749.4 million and
   $732.0 million as of June 30, 2001 and December 31, 2000, respectively.
      Carrying value is composed of investments categorized as held-to-maturity,
which are carried at amortized cost, and investments categorized as 
     available-for-sale, which are carried at fair value. The total fair value
of our fixed maturity security portfolio was $37,834.9 million and  
    $32,355.1 million, at June 30, 2001 and December 31, 2000, respectively.

(2)   The fair value of the mortgage loan portfolio was $11,170.3 million and   
      $11,359.0 million as of June 30, 2001 and December 31, 2000, respectively.

(3)   Policy loans are secured by the cash value of the underlying life         
    insurance policies and do not mature in a conventional sense, but expire
in conjunction with the related policy liabilities.                 

(4)   Cash and cash equivalents are included in total invested assets for the   
 purposes of calculating yields on the income producing assets for the
Company.                                                            

(5)   Total Investments on the Company's Consolidated Balance Sheets excludes   
amounts for Cash and cash equivalents of $923.6 million and $3,146.8
      million as of June 30, 2001 and December 31, 2000, and Closed Block assets
      of $8,798.6 million and $8,203.2 million as of June 30, 2001, and December
31, 2000, respectively.                                             

38

10-Q
39th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 39th
 JOHN HANCOCK LIFE INSURANCE COMPANY

Consistent with the nature of the Company's product liabilities, assets are     
heavily oriented toward fixed maturity securities. The Company determines the   
allocation of assets primarily on the basis of cash flow and return requirements
of its products and by the level of investment risk.                            

Fixed Maturity Securities. The fixed maturity securities portfolio is           
predominantly comprised of low risk, investment grade, publicly and privately   
traded corporate bonds and senior tranches of asset-backed securities (ABS) and 
mortgage-backed securities (MBS), with the balance invested in government bonds.
The fixed maturity securities portfolio also includes redeemable preferred      
stock. As of June 30, 2001, fixed maturity securities represented 68.8% of      
general account investment assets with a carrying value of $37.9 billion,       
roughly comprised of 55% public securities and 45% private securities. Each year
the Company directs the majority of its net cash inflows into investment grade  
fixed maturity securities. Typically between 5% and 15% of funds allocated to   
fixed maturity securities are invested in below-investment-grade bonds while    
maintaining a policy to limit the overall level of these bonds to no more than  
10% of invested assets, and the majority of that balance in the BB category.    
Allocations are based on an assessment of relative value and the likelihood of  
enhancing risk-adjusted portfolio returns. While the Company has profited from  
the below-investment-grade asset class in the past, care is taken to manage its 
growth strategically by limiting its size relative to the Company's net worth.  

The following table shows the composition by issuer of the fixed maturity       
securities portfolio.                                                           

Fixed Maturity Securities -- By Issuer

                                                        [Enlarge/Download Table]

                                                         As of June,            As of December 31,      
                                                            2001                       2000             
                                                 -------------------------------------------------------
                                                    Carrying       % of        Carrying       % of      
                                                     Value         Total        Value         Total     
                                                 -------------------------------------------------------
                                                        (in millions)              (in millions)        
                                                                                                        
Corporate securities.............................   $30,096.7      79.5%       $25,159.3       77.4%    
MBS/ABS..........................................     6,036.5      15.9          5,480.6       16.8     
U.S. Treasury securities and obligations of                                                             
    U.S. government agencies.....................       127.6       0.3            205.8        0.6     
Debt securities issued by foreign                                                                       
    governments .................................     1,465.5       3.9          1,548.7        4.8     
Obligations of states and political                                                                     
    subdivisions.................................       136.5       0.4            140.6        0.4     
                                                 -------------------------------------------------------
        Total ...................................   $37,862.8     100.0%       $32,535.0      100.0%    
                                                 =======================================================

In keeping with the investment philosophy of tightly managing interest rate risk
the Company's MBS &ABS holdings are heavily concentrated in commercial MBS where
the underlying loans are largely call protected, which means they are not       
pre-payable without penalty prior to maturity at the option of the issuer. By   
investing in MBS and ABS securities with relatively predictable repayments, The 
Company adds high quality, liquid assets to the portfolios without incurring the
risk of cash flow variability. The portion of the MBS/ABS portfolio subject to  
prepayment risk as of June 30, 2001 and December 31, 2000 was limited to 12.5%  
and 3.3% of total MBS/ABS portfolio and 2.0% and 0.6% of total fixed maturity   
securities holdings, respectively. The increase is due to a $500 million        
portfolio in a new duration neutral strategy used in the Corporate investment   
segment as a liquid alternative to a cash portfolio                             

The Securities Valuation Office (SVO) of the National Association of Insurance  
Commissioners evaluates all public and private bonds purchased as investments by
insurance companies. The SVO assigns one of six investment categories to each   
security it reviews. Category 1 is the highest quality rating, and Category 6 is
the lowest. Categories 1 and 2 are the equivalent of investment grade debt as   
defined by rating agencies such as Standard & Poor's (S&P) and Moody's (i.e.,   
BBB-/Baa3 or higher), while Categories 3-6 are the equivalent of                
below-investment grade securities. SVO ratings are reviewed and may be revised  
at least once a year.                                                           

The following table sets forth the SVO ratings for the Company's bond portfolio 
along with an equivalent S&P rating agency designation. The majority of bonds   
are investment grade, with 87.7% invested in Category 1 and 2 securities as of  
June 30, 2001. Below investment grade bonds were 8.3% of total invested assets  
as of June 30, 2001. This allocation reflects the Company's strategy of avoiding
the unpredictability of interest rate risk in favor of relying on the bond      
analysts' ability to better predict credit or default risk. The bond analysts   
operate in an industry-based, team-oriented structure that permits the          
evaluation of a wide range of below investment grade offerings in a variety of  
industries resulting in a well-diversified high yield portfolio. A majority     
(61.7%) of below investment grade bonds are in category 3, the highest quality  
below investment grade. Category 6 bonds represent securities that were         
originally acquired as long-term investments, but subsequently became           
distressed. The fair value                                                      

39

10-Q
40th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 40th
 JOHN HANCOCK LIFE INSURANCE COMPANY

of bonds in or near default was $256.7 million and $216.7 million as of June 30,
2001 and December 31, 2000, respectively. As of June 30, 2001 and December 31,  
2000, $5.9 million and $2.6 million, respectively of interest on bonds in or    
near default was included in accrued investment income, respectively. It is the 
Company's policy to reverse any accrued investment income and cease accruing    
interest income on bonds in default and accrue interest income on bonds near    
default that the Company expects to collect.                                    

Fixed Maturity Securities -- By Credit Quality

                                                        [Enlarge/Download Table]

                                                  As of June 30,              As of December 31,      
                                         -------------------------------------------------------------
                                                       2001                          2000             
                                         -------------------------------------------------------------
SVO                   S&P Equivalent         Carrying          % of        Carrying        % of       
Rating (1)            Designation (2)        Value (3)         Total       Value (3)       Total      
------------------------------------------------------------------------------------------------------
                                           (in millions)                 (in millions)                
                                                                                                      
     1            AAA/AA/A                    $17,672.3         47.6%       $14,609.4       45.9%     
     2            BBB                          14,871.9         40.0         12,850.9       40.4      
     3            BB                            2,816.8          7.6          2,790.3        8.8      
     4            B                             1,027.2          2.8          1,066.0        3.4      
     5            CCC and lower                   468.5          1.3            269.7        0.8      
     6            In or near default              256.7          0.7            216.7        0.7      
                                         -------------------------------------------------------------
                            Total             $37,113.4        100.0%       $31,803.0      100.0%     
                                         =============================================================

(1)   With respect to securities that are awaiting an SVO rating, the Company   
     has assigned a rating based on an analysis that it believes is equivalent
to that used by the SVO.                                            

(2)   Comparisons between SVO and S&P ratings are published by the National     
Association of Insurance Commissioners.                             

(3)   Does not include redeemable preferred stock with a carrying value of      
   $749.4 million and $732.0 million as of March 31, 2001 and December 31,
2000, respectively.                                                 

Mortgage Loans. As of June 30, 2001 and December 31, 2000, the Company held     
mortgage loans with a carrying value of $10.8 billion and $10.9 billion,        
respectively, including $2.5 billion at each period end of agricultural loans,  
and $1.3 billion and $1.2 billion, respectively, of loans managed by our        
majority-owned Canadian subsidiary, The Maritime Life Assurance Company, of     
which $0.6 billion, at each period end are government-insured by the Canada     
Mortgage and Housing Corporation (CMHC).                                        

Investment Results                                                              

The following table summarizes the Company's investment results for the periods 
indicated. Overall, the yield net of investment expenses on the general account 
portfolio decreased from the three months ended and the six months ended June   
30, 2000. The lower yield was impacted by floating rate instruments which       
reflect a decrease in the three-month LIBOR of 291 basis points, and the result 
of old assets rolling over into new investments with less favorable interest    
rates and narrower acquisition spreads than those present in our 2000 fixed     
maturity portfolio. The inflow of new cash was invested at rates that were less 
than the overall portfolio earnings rate during the first half of 2000.         
Indicative of this environment, between June 2000 and June 2001, the 10-year    
U.S. Treasury rate fell 62 basis points, while Moody's seasoned BAA spreads fell
by 31 basis points.                                                             

40

10-Q
41st Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 41st
 JOHN HANCOCK LIFE INSURANCE COMPANY

                                                        [Enlarge/Download Table]

                                             Three Months Ended                         Six Months Ended              
                                          As of               As of                As of                As of         
                                      June 30, 2001       June 30, 2000        June 30, 2001        June 30, 2000     
                                  ------------------------------------------------------------------------------------
                                    Yield     Amount     Yield    Amount     Yield      Amount     Yield    Amount    
                                  ------------------------------------------------------------------------------------
                                      (in millions)       (in millions)        (in millions)        (in millions)     
                                                                                                                      
General account assets-excluding                                                                                      
policy loans                                                                                                          
  Gross income                       7.83%   $ 1,023.7    8.30%  $   990.5    7.78%    $ 2,005.7    8.42%  $ 1,997.1  
  Ending assets-excluding policy                                                                                      
     Loans                                    53,104.4            48,202.0              53,104.4            48,202.0  
Policy loans                                                                                                          
  Gross income                       6.26%        31.0    6.26%       30.5    6.29%         62.2    6.18%       60.0  
  Ending assets                                1,987.0             1,947.7               1,987.0             1,947.7  
    Total gross income               7.77%     1,054.7    8.22%    1,021.0    7.72%      2,067.9    8.34%    2,057.1  
    Less: investment expenses                    (62.1)              (55.7)               (127.6)             (187.9) 
                                            ------------        ------------          ------------        ------------
      Net investment income (1)      7.31%   $   992.6    7.77%  $   965.3    7.25%    $ 1,940.3    7.78%  $ 1,919.2  
                                            ============        ============          ============        ============

(1)   Total Company's net investment income as shown on the unaudited           
      Consolidated Statements on Income excludes amounts for the Closed Block of
      $163.5 million and $158.4 million for the three months ended June 30, 2001
and June 30, 2000, and $332.5 million and $267.3 million for the six
   months ended June 30, 2001 and the period from February 1, 2000 through
June 30, 2000, respectively.                                        

Liquidity and Capital Resources                                                 

Liquidity describes the ability of a company to generate sufficient cash flows  
to meet the cash requirements of the business operations. The assets of the     
Company consist of a diversified investment portfolio and investments in        
operating subsidiaries. The Company's cash flows consist of premiums, deposits, 
investment income and results of its operating subsidiaries, offset by benefits 
paid to contractholders, operating expenses, policyholder dividends to its      
participating policyholders and shareholder dividends to it parent company. All 
of the outstanding common stock of John Hancock Life Insurance Company is owned 
by its parent, an insurance holding company, John Hancock Financial Services,   
Inc.                                                                            

State insurance laws generally restrict the ability of insurance companies to   
pay cash dividends in excess of prescribed limitations without prior approval.  
The Company's limit is the greater of 10% of the statutory surplus at prior     
year-end or the prior calendar year's statutory net gain from operations of the 
Company. The ability of the Company to pay shareholder dividends is and will    
continue to be subject to restrictions set forth in the insurance laws and      
regulations of Massachusetts, it domiciliary state. The Massachusetts insurance 
law limits how and when the Company can pay shareholder dividends. The Company, 
in the future could also be viewed as being commercially domiciled in New York. 
If so, dividend payments may also be subject to New York's holding company act  
as well as Massachusetts' law. The Company currently does not expect such       
regulatory requirements to impair its ability to meet its liquidity and capital 
needs.                                                                          

In March 2001, in accordance with a file made with the Commissioner of Insurance
for the Commonwealth of Massachusetts, the Company paid a dividend to its       
parent, John Hancock Financial Services, Inc., in the amount of $250.0 million. 
None of this dividend was classified as extraordinary by state regulators.      

Sources of cash for the Company include premiums, deposits and charges on       
policies and contracts, investment income, maturing investments, and proceeds   
from sales of investment assets. In addition to the need for cash flow to meet  
operating expenses, our liquidity requirements relate principally to the        
liabilities associated with various life insurance, annuity, and structured     
investment products, and to the funding of investments in new products,         
processes, and technologies. Product liabilities include the payment of benefits
under life insurance, annuity and structured investment products and the payment
of policy surrenders, withdrawals and policy loans. The Company periodically    
adjusts its investment policy to respond to changes in short-term and long-term 
cash requirements and provide adequate funds to pay benefits without forced     
sales of investments.                                                           

The liquidity of our insurance operations is also related to the overall quality
of our investments. As of June 30, 2001, $32,544.2 million, or 87.7% of the     
fixed maturity securities held by us and rated by Standard & Poor's Ratings     
Services, a division of the McGraw-Hill Companies, Inc. (S&P) or the National   
Association of Insurance Commissioners were rated investment grade (BBB or      
higher by S&P or 1 or 2 by the National Association of Insurance Commissioners).
The remaining $4,569.2 million, or 12.3%, of fixed maturity investments, and    
8.3% of invested assets, were rated non-investment grade. For additional        
discussion of our investment portfolio see the                                  

41

10-Q
42nd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 42nd
 JOHN HANCOCK LIFE INSURANCE COMPANY

General Account Investments section above in this Management's Discussion and   
Analysis of Financial Condition and Results of Segment Operations.              

We employ an asset/liability management approach tailored to the specific       
requirements of each of our product lines. Each product line has an investment  
strategy based on the specific characteristics of the liabilities in the product
line. As part of this approach, we develop investment policies and operating    
guidelines for each portfolio based upon the return objectives, risk tolerance, 
liquidity, and tax and regulatory requirements of the underlying products and   
business segments.                                                              

Net cash provided by operating activities was $1,045.5 million and $619.0       
million for the six months ended June 30, 2001 and 2000, respectively. The      
increase in the six months ended June 30, 2001 compared to 2000 resulted        
primarily from an increase in other liabilities net of other assets and a       
non-recurring cash transfer to the closed block of $158.6 million in the prior  
year period.                                                                    

Net cash used in investing activities was $3,854.1 million compared to net cash 
provided by investing activities of $12.2 million for the six months ended June 
30, 2001 and 2000, respectively. The increase in cash used in the six months    
ended June 30, 2001 as compared to 2000 is primarily due to more acquisitions of
fixed maturities than sales, maturities or pre-payments of these assets during  
the period. The Company increased acquisition of fixed maturities by $11,486.5  
million, while sales, maturities and pre-payments of these securities increased 
$7,800.5 million.                                                               

Net cash provided by financing activities was $886.5 million and $48.8 million  
for the six months ended June 30, 2001 and 2000, respectively. The increase in  
net cash provided by financing activities for the six months ended June 30, 2001
as compared to 2000 was driven by an increase in deposits in universal life and 
investment-type contracts in 2001 net of maturities and withdrawals as compared 
to the prior year period. The increased net deposits on universal life and      
investment type contracts was partially offset by a $250.0 million dividend     
payment to John Hancock Financial Services, Inc., the parent holding company of 
John Hancock Life Insurance Company.                                            

Cash flow requirements also are supported by a committed line of credit of $1.0 
billion. The line of credit agreement provides for two facilities: one for $500 
million pursuant to a 364-day commitment (renewed as of August 3, 2001) and a   
second for $500 million pursuant to a five-year facility. The line of credit is 
available for general corporate purposes. The line of credit agreement contains 
various covenants, among these being that statutory total capital and surplus   
plus asset valuation reserve meet certain requirements. To date, we have not    
borrowed any amounts under the line of credit.                                  

As of June 30, 2001, we had $807.2 million of debt outstanding consisting of    
$66.6 million of debt classified as short-term and $740.6 million classified as 
long-term, including $447.3 million of surplus notes. A new commercial paper    
program has been established at John Hancock Financial Services, Inc., the      
Company's parent, that has replaced the commercial paper program that was in    
place at John Hancock Capital Corporation, the Company's subsidiary. As of May  
1, 2001, all commercial paper issued by John Hancock Capital Corporation had    
been retired.                                                                   

The risk-based capital standards for life insurance companies, as prescribed by 
the National Association of Insurance Commissioners, establish a risk-based     
capital ratio comparing adjusted surplus to required surplus for the Company and
each of our United States domiciled insurance subsidiaries. If the risk-based   
capital ratio falls outside of acceptable ranges, regulatory action may be taken
ranging from increased information requirements to mandatory control by the     
domiciliary insurance department. The Company's risk-based capital ratios of all
our insurance subsidiaries as of year end were above the ranges that would      
require regulatory action.                                                      

We maintain reinsurance programs designed to protect against large or unusual   
losses. Based on our review of our reinsurers' financial statements and         
reputations in the reinsurance marketplace, we believe that our reinsurers are  
financially sound, and, therefore, that we have no significant exposure to      
uncollectible reinsurance in excess of uncollectible amounts already recognized 
in our unaudited consolidated financial statements.                             

Given the historical cash flow of our subsidiaries and current financial        
results, management believes that the cash flow from the operating activities   
over the next year will provide sufficient liquidity for our operations, as well
as to satisfy debt service obligations and to pay other operating expenses.     
Although we anticipate that we will be able to meet our cash requirements, we   
can give no assurances in this regard.                                          

42

10-Q
43rd Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 43rd
 JOHN HANCOCK LIFE INSURANCE COMPANY

Important Factors that May Affect Future Results                                

The following are some of the factors that could affect our future  
results. They should be considered in connection with evaluating forward-looking
statements contained in this report and otherwise made by us or on our behalf,  
because these factors could cause actual results and conditions to differ       
materially from those projected in forward-looking statements.                  

    Our future results are subject to risks and uncertainties including, but
not limited to, the risks that (1) a significant downgrade in our ratings for   
claims-paying ability and financial strength may lead to policy and contract    
withdrawals and materially harm our ability to market our products, (2)         
elimination of Federal tax benefits for our products and other changes in laws  
and regulations may adversely affect sales of our insurance and investment      
advisory products, (3) we face increasing competition in our retail and         
institutional businesses from mutual fund companies, banks and investment       
management firms as well as from other insurance companies, (4) a decline or    
increased volatility in the securities markets, and other economic factors, may 
adversely affect our business, particularly our variable life insurance, mutual 
fund, variable annuity and investment business, (5) our life insurance sales are
highly dependent on a third party distribution relationship, (6) interest rate  
volatility may adversely affect our profitability, (7) our net income and       
revenues will suffer if customers surrender annuities and variable and universal
life insurance policies or redeem shares of our open-end mutual funds, (8) the  
independent directors of our variable series trusts and of our mutual funds     
could reduce the compensation paid to us or could terminate our contracts to    
manage the funds, (9) under our Plan of Reorganization, we were required to     
establish the closed block, a special arrangement for the benefit of a group of 
our policyholders, and we may have to fund deficiencies in our closed block, and
any over-funding of the closed block will benefit only the holders of policies  
included in the closed block, not our stockholders, (10) there are a number of  
provisions in our Plan of Reorganization, our Restated Certificate of           
incorporation and by-laws, laws applicable to us, agreements that we have       
entered into with our senior management, and our stockholder rights plan, that  
will prevent or discourage takeovers and business combinations that our         
stockholders might otherwise consider to be in their best interests, (11) we    
will face losses if the claims on our insurance products, or reductions in rates
of mortality on our annuity products, are greater than we projected, (12) we    
face risks relating to our investment portfolio, (13) we may experience         
volatility in net income due to changes in standards for accounting for         
derivatives and other changes, (14) our United States insurance companies are   
subject to risk-based capital requirements and possible guaranty fund           
assessments, (15) the National Association of Insurance Commissioners'          
codification of statutory accounting practices adversely affected the statutory 
surplus of the Company, (16) we may be unable to retain personnel who are key to
our business, (17) we face risks from assumed reinsurance business in respect of
personal accident insurance and the occupational accident component of workers  
compensation insurance, (18) litigation and regulatory proceedings may result in
financial losses, harm our reputation and divert management resources, and (19) 
we face unforeseen liabilities arising from our acquisitions and dispositions of
businesses.                                                                     

    Readers are also directed to other risks and uncertainties discussed, as
well as to further discussion of the risks described above, in other documents  
filed by the Company with the Securities and Exchange Commission. The Company   
specifically disclaims any obligation to update or revise any forward-looking   
information, whether as a result of new information, future developments, or    
otherwise.                                                                      

43

10-Q
44th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 44th
 JOHN HANCOCK LIFE INSURANCE COMPANY

ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK              

Capital Markets Risk Management                                                 

The Company maintains a disciplined, comprehensive approach to managing capital 
market risks inherent in its business operations. To mitigate these risks, and  
effectively support Company objectives, investment operations are organized and 
staffed to focus investment management expertise on specific classes of         
investments, with particular emphasis placed on private placement markets. In   
addition, a dedicated unit of asset / liability risk management (ALM)           
professionals centralizes the implementation of its interest rate risk          
management program. As an integral component of its ALM program, derivative     
instruments are used in accordance with risk reduction techniques established   
through Company policy and with formal approval granted from the New York       
Insurance Department. The Company's use of derivative instruments is monitored  
on a regular basis by senior management and reviewed quarterly with the         
Company's Committee of Finance.                                                 

The Company's principal capital market exposures are credit and interest rate   
risk, although we have certain exposures to changes in equity prices and foreign
currency exchange rates. Credit risk pertains to the uncertainty associated with
the ability of an obligor or counterparty to continue to make timely and        
complete payments of contractual principal and/or interest. Interest rate risk  
pertains to the market value fluctuations that occur within fixed maturity      
securities or liabilities as market interest rates move. Equity and foreign     
currency risk pertain to price fluctuations, associated with the Company's      
ownership of equity investments or non-US dollar denominated investments, driven
by dynamic market environments.                                                 

Credit Risk                                                                     

The Company manages the credit risk inherent in its fixed maturity  
securities by applying strict credit and underwriting standards, with specific  
limits regarding the proportion of permissible below investment grade holdings. 
We also diversify our fixed maturity securities with respect to investment      
quality, issuer, industry, geographical, and property-type concentrations. Where
possible, consideration of external measures of creditworthiness, such as       
ratings assigned by nationally recognized rating agencies, supplement our       
internal credit analysis. The Company uses simulation models to examine the     
probability distribution of credit losses to ensure that it can readily         
withstand feasible adverse scenarios. In addition, the Company periodically     
examines, on various levels of aggregation, its actual default loss experience  
on significant asset classes to determine if the losses are consistent with the 
(1) levels assumed in product pricing, (2) ACLI loss experience and (3) rating  
agencies' quality-specific cohort default data. These tests have generally found
the Company's aggregate experience to be favorable relative to these external   
benchmarks and consistent with priced for levels.                               

     As of June 30, 2001, the Company's fixed maturity portfolio was comprised
of 87.7% investment grade securities and 12.3% below-investment-grade           
securities. These percentages are consistent with recent experience and         
indicative of the Company's long-standing investment philosophy of pursuing     
moderate amounts of credit risk in return for higher expected returns. We       
believe that credit risk can be successfully managed given our proprietary      
credit evaluation models and experienced personnel.                             

Interest Rate Risk                                                              

The Company maintains a tightly controlled approach to managing its 
potential interest rate risk. Interest rate risk arises from many of our primary
activities, as we invest substantial funds in interest-sensitive assets to      
support the issuance of our various interest-sensitive liabilities, primarily   
within our Protection, Asset Gathering and Guaranteed & Structured Financial    
Products Segments.                                                              

     The Company manages interest rate sensitive segments of the business, and
the supporting investments, under one of two broadly defined risk management    
methods designed to provide an appropriate matching of assets and liabilities.  
For guaranteed rate products, where contractual liability cash flows are highly 
predictable (e.g., GICs or immediate annuities) sophisticated duration-matching 
techniques are utilized to manage the segment's exposure to both parallel and   
non-parallel yield curve movements. Typically this type of management is        
expressed as a duration tolerance of only +/- .05 years, with other measures    
used for limiting exposure to non-parallel risk. For non-guaranteed rate        
products, such as whole life insurance or single premium deferred annuities,    
liability cash flows are less predictable. Therefore, a conventional            
duration-matching strategy is less effective at managing the inherent risk. For 
these products, we manage interest rate risk based on scenario-based portfolio  
modeling that seeks to identify the most appropriate investment strategy given  
probable policyholder behavior and liability crediting needs under a wide range 
of interest rate environments.                                                  

44

10-Q
45th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 45th
 JOHN HANCOCK LIFE INSURANCE COMPANY

    As of June 30, 2001, there have been no material changes to the interest
rate exposures as reported in the Company's 2000 Form 10-K, as amended.         

Derivative Instruments                                                          

     The Company uses a variety of derivative financial instruments, including
swaps, caps, floors, and exchange traded futures contracts, in accordance with  
Company policy. Permissible derivative applications include the reduction of    
economic risk (i.e., hedging) related to changes in yields, price, cash flows,  
and currency exchange rates. In addition, certain limited applications of       
"income generation" are allowed. Examples of this type of use include the       
purchase of call options to offset the sale of embedded options in Company      
liability issuance or the purchase of swaptions to offset the purchase of       
embedded put options in certain investments. The Company does not make a market 
or trade derivatives for the purpose of speculation.                            

      The Company's Investment Compliance Unit monitors all derivatives activity
for consistency with internal policies and guidelines. All derivatives trading  
activity is reported monthly to the Company's Committee of Finance for review,  
with a comprehensive governance report provided jointly each quarter by the     
Company's Derivatives Supervisory Officer and Chief Investment Compliance       
Officer. The table below reflects the Company's derivative positions that are   
managing interest rate risk as of June 30, 2001. The notional amounts in the    
table represent the basis on which pay or receive amounts are calculated and are
not reflective of credit risk. These exposures represent only a point in time   
and will be subject to change as a result of ongoing portfolio and risk         
management activities.                                                          

                                                        [Enlarge/Download Table]

                                                      As of June 30, 2001                                  
                            -------------------------------------------------------------------------------
                                                                            Fair Value                     
                                                         --------------------------------------------------
                                              Weighted                                                     
                               Notional     Average Term     -100 Basis          As of        +100 Basis   
                                Amount        (Years)       Point Change        3/31/01      Point Change  
                            -------------------------------------------------------------------------------
                                            (in millions, except for Weighted Average Term)                
                                                                                                           
Interest rate swaps........    $ 11,571.5         7.9        $ (440.6)         $ (207.8)        $ 18.2     
CMT swaps..................         458.0         1.2             5.3               5.3            5.3     
Futures contracts .........       1,379.8         9.7           (45.1)             (2.2)          41.9     
Interest rate caps.........         337.0         5.3             1.3               3.0            6.0     
Interest rate floors.......       8,328.0         8.9            83.3              34.6           15.1     
Swaptions..................          30.0        23.9            (2.2)             (0.9)          (0.3)    
                            ----------------             --------------------------------------------------
    Totals.................    $ 22,104.3                    $ (398.0)         $ (168.0)        $ 86.2     
                            ================             ==================================================

      Our non-exchange-traded derivatives are exposed to the possibility of loss
from a counterparty failing to perform its obligations under terms of the       
derivative contract. We believe the risk of incurring losses due to             
nonperformance by our counterparties is remote. To manage this risk, Company    
procedures include the (a) on-going evaluation of each counterparty's credit    
ratings, (b) the application of credit limits and monitoring procedures based on
an internally developed, scenario-based, risk assessment system, (c) monthly    
reporting of each counterparty's "potential exposure", (d) master netting       
agreements and, where appropriate, (e) collateral agreements. Futures contracts 
trade on organized exchanges and, therefore, have effectively no credit risk.   

45

10-Q
46th Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 46th
 JOHN HANCOCK LIFE INSURANCE COMPANY

PART II OTHER INFORMATION                                                       

ITEM 6. EXHIBITS and REPORTS on FORM 8-K                                        

(a) Exhibits                                                                    

Exhibit                                                                         
Number                               Description                                
------                               -----------                                

10.16    First Amendment dated as of July 27, 2001 to the Credit Agreement dated
        as of August 3, 2000 among John Hancock Financial Services, Inc., John
 Hancock Life Insurance Company, The Banks listed therein, Fleet
         National Bank, as Co-Administrative Agent, The Chase Manhattan Bank, as
    Co-Administrative Agent, Citicorp USA, Inc., as Syndication Agent,
       BankOne, NA as Documentation Agent (Multi-Year Revolver), The Bank of
        New York, as Co-Documentation Agent (364-Day Revolver) and The Bank of
    Nova Scotia, as Co-Documentation Agent (364-Day Revolver)and Fleet
   Securities, Inc., and J.P. Morgan Securities, Inc., as Joint Book
Managers and Joint Lead Arrangers.                            

10.17    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Kathleen M. Graveline.(+)(*)                              

10.18    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Thomas E. Moloney.(+)(*)                                  

10.19    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and David F. D'Alessandro.(+)(*)                              

10.20    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Derek Chilvers.(+)(*)                                     

10.21    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Maureen Ford.(+)(*)                                       

10.22    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Robert Walters.(+)(*)                                     

10.23    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and John M. DeCiccio.(+)(*)                                   

10.24    Amended and Restated Employment Continuation Agreement between John    
       Hancock Life Insurance Company, John Hancock Financial Services, Inc.
and Wayne A. Budd.(+)(*)                                      

----------------                                                                
(+)   Management Contract or Compensatory Plan or Arrangement.                  
(*)   Previously filed as an exhibit to the JHFS, Inc.'s quarterly report on    
     Form 10-Q for the quarter ended June 30, 2001, and incorporated herein by
reference.                                                          

b) Reports on Form 8-K.                                                         

No reports on Form 8-K were required to be filed during is period.              

46

10-Q
Last Page of 47
TOC
1st
Previous
Next
↓Bottom
Just 47th
 JOHN HANCOCK LIFE INSURANCE COMPANY

SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf  
by the undersigned thereunto duly authorized.                                   

                                   JOHN HANCOCK LIFE INSURANCE COMPANY

Date: August 13, 2001                   By: /s/Thomas E. Moloney                
                            --------------------
                 Thomas E. Moloney
                       Chief Financial Officer

47

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
		12/31/02		10					10-K,  13F-HR,  13F-HR/A
		3/1/02		16
		1/1/02		10
		12/31/01		9		11			10-K/A,  10-K405,  13F-HR,  13F-HR/A
		10/1/01		11
Filed on:		8/14/01
		8/13/01		47
		8/3/01		1		42
		7/27/01		46
For Period End:		6/30/01		1		46			13F-HR,  13F-HR/A
		6/18/01		11
		5/1/01		42
		4/2/01		11
		4/1/01		5
		3/31/01		40					10-Q,  10-Q/A
		3/1/01		16
		1/1/01		6		20
		12/31/00		9		40			10-K,  10-K/A,  13F-HR,  13F-HR/A
		12/15/00		10
		8/3/00		46
		6/30/00		4		42			4
		6/27/00		9
		6/15/00		10
		4/1/00		5
		3/1/00		11
		2/1/00		9		41			SC 13G
		1/1/00		6		10
		8/31/99		21
		12/31/97		16					5
		2/28/97		16
									List all Filings