<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2006.
FILE NO. 333-20345
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------
POST-EFFECTIVE AMENDMENT
NO. 11 TO FORM S-2
ON FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNION SECURITY LIFE INSURANCE COMPANY
OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
6311
(Primary Standard Industrial Classification Code Number)
13-2699219
(I.R.S. Employer Identification Number)
308 MALTBIE STREET, SUITE 200
SYRACUSE, NEW YORK 13204
315-451-0066
(Address, including zip code, and telephone number,
including area codes, of registrant's principal executive offices)
CHRISTOPHER M. GRINNELL
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(860) 843-5445
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
(APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC)
------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the
same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<Page>
PART I
<Page>
TD WATERHOUSE VARIABLE ANNUITY
SEPARATE ACCOUNT A
ISSUED BY:
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
P.O. BOX 64272
ST. PAUL, MINNESOTA 55164
ADMINISTERED BY:
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
<Table>
TELEPHONE: 1-800-862-6668 (CONTRACT OWNERS)
1-800-862-7155 (REGISTERED REPRESENTATIVES)
</Table>
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This prospectus describes information you should know before you purchase the
TD Waterhouse Variable Annuity. Please read it carefully before you purchase
your variable annuity.
TD Waterhouse Variable Annuity is a contract between you and Union Security
Life Insurance Company of New York (formerly First Fortis Life Insurance
Company) where you agree to make at least one Premium Payment and Union
Security agrees to make a series of Annuity Payouts at a later date. This
Contract is a flexible premium, tax-deferred, variable annuity offered to both
individuals and groups. It is:
X Flexible, because you may add Premium Payments at any time.
X Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
X Variable, because the value of your Contract will fluctuate with the
performance of the underlying Funds.
At the time you purchase your Contract, you allocate your Premium Payment to
"Sub-Accounts." These are subdivisions of our Separate Account, an account
that keeps your Contract assets separate from our company assets. The Sub-
Accounts then purchase shares of mutual funds set up exclusively for variable
annuity or variable life insurance products. These are not the same mutual
funds that you buy through your stockbroker or through a retail mutual fund.
They may have similar investment strategies and the same portfolio managers as
retail mutual funds. This Contract offers you Funds with investment strategies
ranging from conservative to aggressive and you may pick those Funds that meet
your investment goals and risk tolerance. The Funds are part of the following
Portfolio companies: AIM Variable Insurance Funds, AllianceBernstein Variable
Products Series Fund, Inc., American Investments Variable Portfolios, Inc.,
Federated Insurance Series, Gartmore Variable Insurance Trust, Hartford Series
Fund, Inc., ING Investors Trust, ING VP Natural Resources Trust, MFS(R)
Variable Insurance Trust, Neuberger Berman Advisers Management Trust, Pioneer
Variable Contracts Trust, Van Eck Worldwide Insurance Trust and Wells Fargo
Variable Trust Funds.
You may also allocate some or all of your Premium Payment to either the Fixed
Accumulation Feature or a Guarantee Period. The Fixed Accumulation Feature
pays an interest rate guaranteed for a certain time period from the time the
Premium Payment is made. A Guarantee Period guarantees a rate of interest
until a specified maturity date and may be subject to a Market Value
Adjustment. Premium Payments allocated to the Fixed Accumulation Feature or a
Guarantee Period are not segregated from our company assets like the assets of
the Separate Account.
If you decide to buy this Contract, you should keep this prospectus for your
records. You can also call us at 1-800-862-6668 to get a Statement of
Additional Information, free of charge. The Statement of Additional
Information contains more information about this Contract, and, like this
prospectus, the Statement of Additional Information is filed with the
Securities and Exchange Commission ("SEC").
Although we file the prospectus and the Statement of Additional Information
with the SEC, the SEC doesn't approve or disapprove these securities or
determine if the information in this prospectus is truthful or complete.
Anyone who represents that the SEC does these things may be guilty of a
criminal offense. This prospectus and the Statement of Additional Information
can also be obtained from the SEC's website (http://www.sec.gov).
This Contract IS NOT:
- - A bank deposit or obligation
- - Federally insured
- - Endorsed by any bank or governmental agency
This Contract and its features may not be available for sale in all states.
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PROSPECTUS DATED: MAY 1, 2006
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 2006
<Page>
2 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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DEFINITIONS 3
FEE TABLE 5
HIGHLIGHTS 7
GENERAL CONTRACT INFORMATION 8
Union Security Life Insurance Company of New York 8
The Separate Account 8
The Funds 8
PERFORMANCE RELATED INFORMATION 12
Guarantee Periods 12
THE CONTRACT 14
Purchases and Contract Value 14
Charges and Fees 18
Death Benefit 19
Surrenders 20
ANNUITY PAYOUTS 21
OTHER PROGRAMS AVAILABLE 23
OTHER INFORMATION 23
Legal Matters 25
More Information 25
FEDERAL TAX CONSIDERATIONS 25
INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS 31
ACCUMULATION UNIT VALUES 37
FURTHER INFORMATION ABOUT UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 41
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION 46
APPENDIX I -- SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS 47
APPENDIX II -- INVESTMENTS BY UNION SECURITY 49
FINANCIAL STATEMENTS F-1
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 3
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DEFINITIONS
These terms are capitalized when used throughout this prospectus. Please refer
to these defined terms if you have any questions as you read your prospectus.
ACCOUNT: Any of the Sub-Accounts or Guarantee Period accounts.
ACCUMULATION PERIOD: The time after you purchase the Contract until we begin to
make Annuity Payouts.
ACCUMULATION UNITS: If you allocate your Premium Payment to any of the Sub-
Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of your Contract prior to
Annuitization.
ACCUMULATION UNIT VALUE: The daily price of Accumulation Units on any Valuation
Day.
ADMINISTRATIVE OFFICE: Hartford Life Insurance Company administers these
Contracts. Our location and overnight mailing address is: 200 Hopmeadow Street,
Simsbury, Connecticut 06089. Our standard mailing address is: Investment
Product Services, P.O. Box 5085, Hartford, Connecticut 06102-5085.
ANNIVERSARY VALUE: The value equal to the Contract Value as of a Contract
Anniversary, adjusted for subsequent Premium Payments and withdrawals.
ANNUAL MAINTENANCE FEE: An annual $30 charge deducted on a Contract Anniversary
or upon full Surrender if the Contract Value at either of those times is less
than $50,000. The charge is deducted proportionately from each Account in
which you are invested.
ANNUITANT: The person on whose life the Contract is issued. The Annuitant may
not be changed after your Contract is issued.
ANNUITY CALCULATION DATE: The date we calculate the first Annuity Payout.
ANNUITY COMMENCEMENT DATE: The later of the 10th Contract Anniversary or the
date the Annuitant reaches age 90, unless you elect an earlier date or we, in
our sole discretion, agree to postpone to another date following our receipt of
an extension request.
ANNUITY PAYOUT: The money we pay out after the Annuity Commencement Date for
the duration and frequency you select.
ANNUITY PAYOUT OPTION: Any of the options available for payout after the
Annuity Commencement Date or death of the Contract Owner or Annuitant.
ANNUITY PERIOD: The time during which we make Annuity Payouts.
ANNUITY UNIT: The unit of measure we use to calculate the value of your Annuity
Payouts under a variable dollar amount Annuity Payout Option.
ANNUITY UNIT VALUE: The daily price of Annuity Units on any Valuation Day.
BENEFICIARY: The person entitled to receive benefits pursuant to the terms of
the Contract upon the death of any Contract Owner, joint Contract Owner or
Annuitant.
CHARITABLE REMAINDER TRUST: An irrevocable trust, where an individual donor
makes a gift to the trust, and in return receives an income tax deduction. In
addition, the individual donor has the right to receive a percentage of the
trust earnings for a specified period of time.
CODE: The Internal Revenue Code of 1986, as amended.
COMMUTED VALUE: The present value of any remaining guaranteed Annuity Payouts.
This amount is calculated using the Assumed Investment Return for variable
dollar amount Annuity Payouts and a rate of return determined by us for fixed
dollar amount Annuity Payouts.
CONTINGENT ANNUITANT: The person you may designate to become the Annuitant if
the original Annuitant dies before the Annuity Commencement Date. You must name
a Contingent Annuitant before the original Annuitant's death. This is only
available if you own a Non-Qualified Contract.
CONTRACT: The individual Annuity Contract and any endorsements or riders. Group
participants and some individuals may receive a certificate rather than a
Contract.
CONTRACT ANNIVERSARY: The anniversary of the date we issued your Contract. If
the Contract Anniversary falls on a Non-Valuation Day, then the Contract
Anniversary will be the next Valuation Day.
CONTRACT OWNER, OWNER OR YOU: The owner or holder of the Contract described in
this prospectus including any joint Owners. We do not capitalize "you" in the
prospectus.
CONTRACT VALUE: The total value of the Accounts on any Valuation Day.
CONTRACT YEAR: Any 12 month period between Contract Anniversaries, beginning
with the date the Contract was issued.
DEATH BENEFIT: The amount payable after the Contract Owner or the Annuitant
dies.
DOLLAR COST AVERAGING: A program that allows you to systematically make
transfers between Accounts available in your Contract.
GENERAL ACCOUNT: This account holds our company assets and any assets not
allocated to a Separate Account. The assets in this account are available to
the creditors of Union Security and/or Hartford.
<Page>
4 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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JOINT ANNUITANT: The person on whose life Annuity Payouts are based if the
Annuitant dies after Annuitization. You may name a Joint Annuitant only if your
Annuity Payout Option provides for a survivor. The Joint Annuitant may not be
changed.
MARKET VALUE ADJUSTMENT: An adjustment that either increases or decreases the
amount we pay you under certain circumstances.
NET INVESTMENT FACTOR: This is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next, and is also used to calculate
your Annuity Payout amount.
NON-VALUATION DAY: Any day the New York Stock Exchange is not open for trading.
PAYEE: The person or party you designate to receive Annuity Payouts.
PREMIUM PAYMENT: Money sent to us to be invested in your Contract.
PREMIUM TAX: A tax charged by a state or municipality on Premium Payments.
QUALIFIED CONTRACT: A Contract that is defined as a tax-qualified retirement
plan in the Code.
REQUIRED MINIMUM DISTRIBUTION: A federal requirement that individuals age 70
1/2 and older must take a distribution from their tax-qualified retirement
account by December 31, each year. For employer sponsored Qualified Contracts,
the individual must begin taking distributions at the age of 70 1/2 or upon
retirement, whichever comes later.
SUB-ACCOUNT VALUE: The value on or before the Annuity Calculation Date, which
is determined on any day by multiplying the number of Accumulation Units by the
Accumulation Unit Value for that Sub-Account.
SURRENDER: A complete or partial withdrawal from your Contract.
SURRENDER VALUE: The amount we pay you if you terminate your Contract before
the Annuity Commencement Date. The Surrender Value is equal to the Contract
Value minus any applicable Market Value Adjustment.
UNION SECURITY: Union Security Life Insurance Company of New York, the company
that issued this Contract.
VALUATION DAY: Every day the New York Stock Exchange is open for trading.
Values of the Separate Account are determined as of the close of the New York
Stock Exchange, generally 4: 00 p.m. Eastern Time.
VALUATION PERIOD: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 5
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FEE TABLE
THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY WHEN
BUYING, OWNING, AND SURRENDERING THE CONTRACT.
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU PURCHASE THE CONTRACT OR SURRENDER THE CONTRACT. CHARGES FOR STATE PREMIUM
TAXES MAY ALSO BE DEDUCTED WHEN YOU PURCHASE THE CONTRACT, UPON SURRENDER OR
WHEN WE START TO MAKE ANNUITY PAYOUTS.
CONTRACT OWNER TRANSACTION EXPENSES
<Table>
Sales Charge Imposed on Purchases (as a percentage of Premium Payments) None
Maximum Contingent Deferred Sales Charge (as a percentage of Premium Payments) None
</Table>
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY AND
ON A DAILY BASIS DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING FEES
AND EXPENSES OF THE UNDERLYING FUNDS.
<Table>
ANNUAL MAINTENANCE FEE (1) $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily Sub-Account value)
Mortality and Expense Risk Charge 0.45%
Total Separate Account Annual Expenses 0.45%
</Table>
(1) An annual $30 charge deducted on a Contract Anniversary or upon Surrender
if the Contract Value at either of those times is less than $50,000. It is
deducted proportionately from the Accounts in which you are invested at the
time of the charge.
THIS TABLE SHOWS THE MINIMUM AND MAXIMUM TOTAL FUND OPERATING EXPENSES CHARGED
BY THE UNDERLYING FUNDS THAT YOU MAY PAY ON A DAILY BASIS DURING THE TIME THAT
YOU OWN THE CONTRACT. MORE DETAIL CONCERNING EACH FUND'S FEES AND EXPENSES IS
CONTAINED IN THE PROSPECTUS FOR EACH FUND.
<Table>
<Caption>
Minimum Maximum
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TOTAL ANNUAL FUND OPERATING EXPENSES
(these are expenses that are deducted from Fund assets,
including management fees, Rule 12b-1 distribution
and/or service fees, and other expenses) 0.42% 1.67%
</Table>
<Page>
6 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
CONTRACT WITH THE COST OF INVESTING IN OTHER VARIABLE ANNUITY CONTRACTS. THESE
COSTS INCLUDE CONTRACT OWNER TRANSACTION EXPENSES, MAXIMUM SEPARATE ACCOUNT
ANNUAL EXPENSES, AND TOTAL ANNUAL FUND OPERATING EXPENSES.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE CONTRACT FOR THE TIME
PERIODS INDICATED. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5%
RETURN EACH YEAR AND ASSUMES THE MAXIMUM FEES AND EXPENSES OF ANY OF THE FUNDS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS,
YOUR COSTS WOULD BE:
(1) If you Surrender your Contract at the end of the applicable time period:
<Table>
1 year $ 225
3 years $ 694
5 years $ 1,189
10 years $ 2,550
</Table>
(2) If you annuitize at the end of the applicable time period:
<Table>
1 year $ 217
3 years $ 686
5 years $ 1,180
10 years $ 2,540
</Table>
(3) If you do not Surrender your Contract:
<Table>
1 year $ 225
3 years $ 694
5 years $ 1,189
10 years $ 2,550
</Table>
CONDENSED FINANCIAL INFORMATION
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When Premium Payments are credited to your Sub-Accounts, they are converted
into Accumulation Units by dividing the amount of your Premium Payments, minus
any Premium Taxes, by the Accumulation Unit Value for that day. For more
information on how Accumulation Unit Values are calculated see "How is the
value of my Contract calculated before the Annuity Commencement Date?". Please
refer to the "Accumulation Unit Values" Section of this Prospectus for
information regarding Accumulation Unit Values.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 7
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HIGHLIGHTS
HOW DO I PURCHASE THIS CONTRACT?
You must complete our application or order request and submit it to us for
approval with your first Premium Payment. Your first Premium Payment must be at
least $5,000 and subsequent Premium Payments must be at least $50, unless you
take advantage of our InvestEase(R) Program or are part of certain retirement
plans.
> For a limited time, usually within ten days after you receive your Contract,
you may cancel your Contract. You may bear the investment risk for your
Premium Payment prior to our receipt of your request for cancellation.
WHAT TYPE OF SALES CHARGE WILL I PAY?
You don't pay a sales charge when you purchase your Contract.
IS THERE AN ANNUAL MAINTENANCE FEE?
We deduct a $30.00 fee each year on your Contract Anniversary or when you fully
Surrender your Contract, if, on either of those dates, the value of your
Contract is less than $50,000.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
In addition to the Annual Maintenance Fee, you pay the following charges each
year:
- - MORTALITY AND EXPENSE RISK CHARGE -- This charge is deducted daily and is
equal to an annual charge of 0.45% of your Contract Value invested in the
Sub-Accounts.
- - ANNUAL FUND OPERATING EXPENSES -- These are charges for the Funds. See the
Funds' prospectuses for more complete information.
Charges and fees may have a significant impact on Contract Values and the
investment performance of Sub-Accounts. This impact may be more significant
with Contracts with lower Contract Values.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of the amounts you have invested at any time
before we start making Annuity Payouts. You may have to pay income tax on the
money you take out and, if you Surrender before you are age 59 1/2, you may
have to pay an income tax penalty. Surrenders may be subject to a Market Value
Adjustment.
IS THERE A MARKET VALUE ADJUSTMENT?
Surrenders and other withdrawals from a Guarantee Period in our General Account
may be subject to a Market Value Adjustment. The Market Value Adjustment may
increase or reduce the General Account value of your Contract. The Market Value
Adjustment is computed using a formula that is described in this prospectus
under "Market Value Adjustment."
WHAT INVESTMENT CHOICES ARE AVAILABLE?
You may allocate your Premium Payment or Contract Values among the following
investment choices:
- - The variable Sub-Accounts that invest in underlying Funds; and/or
- - One or more Guarantee Periods, which may be subject to a Market Value
Adjustment.
WILL UNION SECURITY PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner dies before we begin to make
Annuity Payouts. The Death Benefit amount will remain invested in the Sub-
Accounts according to your last instructions and will fluctuate with the
performance of the underlying Funds until we receive proof of death and
complete instructions from the Beneficiary.
If death occurs before the Annuity Commencement Date, the Death Benefit is the
greater of:
- - The total Premium Payments you have made to us minus any partial Surrenders
and any applicable negative Market Value Adjustment; or
- - The Contract Value of your Contract.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
When it comes time for us to make payouts, you may choose one of the following
Annuity Payout Options: Life Annuity, Life Annuity with Payments for 10 or 20
years, Joint and 1/2 Contingent Survivor Annuity, and Joint and Full Survivor
Annuity. We may make other Annuity Payout Options available at any time.
You must begin to take payouts by the Annuitant's 110th birthday unless you
elect a later date to begin receiving payments subject to the laws and
regulations then in effect and our approval. The date you select may have tax
consequences, so please check with a qualified tax advisor. If you do not tell
us what Annuity Payout Option you want before that time, we will make Automatic
Annuity Payouts under the Life Annuity with Payments Guaranteed for 10 Years.
Depending on the investment allocation of your Contract in effect on the
Annuity Commencement Date, we will make Automatic Annuity Payouts that are:
- - fixed dollar amount Automatic Annuity Payouts,
- - variable dollar amount Automatic Annuity Payouts, or
- - a combination of fixed dollar amount and variable dollar amount Automatic
Annuity Payouts.
<Page>
8 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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GENERAL CONTRACT INFORMATION
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
Union Security Life Insurance Company of New York ("Union Security") is the
issuer of the contracts. Union Security is a New York corporation founded in
1971. It is qualified to sell life insurance and annuity contracts in New York.
Union Security is a wholly owned subsidiary of Assurant, Inc. Assurant, Inc. is
the ultimate parent of Union Security Life Insurance Company of New York.
Assurant, Inc. is a premier provider of specialized insurance products and
related services in North America and selected other international markets. Its
stock is traded on the New York Stock Exchange under the symbol AIZ.
All of the guarantees and commitments under the contracts are general
obligations of Union Security. None of Union Security's affiliated companies
has any legal obligation to back Union Security's obligations under the
contracts.
On April 1, 2001, Union Security entered into an agreement with Hartford Life
and Annuity Insurance Company ("Hartford") to co-insure the obligations of
Union Security under the variable annuity Contracts and to provide
administration for the Contracts. Hartford was originally incorporated under
the laws of Wisconsin on January 9, 1956, and subsequently redomiciled to
Connecticut. Hartford's offices are located in Simsbury, Connecticut; however,
its mailing address is P.O. Box 2999, Hartford, CT 06104-2999. Hartford is
ultimately controlled by The Hartford Financial Services Group, Inc., one of
the largest financial service providers in the United States.
THE SEPARATE ACCOUNT
The Separate Account is where we set aside and invest the assets of some of our
annuity contracts, including this Contract. The Separate Account was
established on October 1, 1993 as "Separate Account A" and is registered as a
unit investment trust under the Investment Company Act of 1940. This
registration does not involve supervision by the SEC of the management or the
investment practices of the Separate Account, Union Security or Hartford. The
Separate Account meets the definition of "Separate Account" under federal
securities law. This Separate Account holds only assets for variable annuity
contracts. The Separate Account:
- - Holds assets for your benefit and the benefit of other Contract Owners, and
the persons entitled to the payouts described in the Contract.
- - Is not subject to the liabilities arising out of any other business Union
Security or Hartford may conduct.
- - Is not affected by the rate of return of Union Security's General Account or
Hartford's General Account or by the investment performance of any of Union
Security's or Hartford's other Separate Accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account that
holds assets of other variable annuity contracts offered by the Separate
Account, which are not described in this prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the Separate Account. There is no
assurance that the value of your Contract will equal the total of the payments
you make to us.
In a low interest rate environment, yields for Money Market Sub-Accounts, after
deduction of the Mortality and Expense Risk Charge, Administrative Expense
Charge and Charges for Optional Benefits (if applicable), may be negative even
though the underlying Fund's yield, before deducting for such charges, is
positive. If you allocate a portion of your Contract Value to a Money Market
Sub-Account or participate in an Asset Allocation Program where Contract Value
is allocated to a Money Market Sub-Account under the applicable asset
allocation model, that portion of your Contract Value may decrease in value.
THE FUNDS
<Table>
SUB-ACCOUNT/FUND ADVISOR OBJECTIVE SUMMARY
AIM V.I. CORE EQUITY FUND SUB-ACCOUNT A I M Advisors, Inc. Growth of capital
which purchases Series I shares of the
AIM V.I. Core Equity Fund of the AIM
Variable Insurance Funds
AIM V.I. GLOBAL HEALTH CARE FUND A I M Advisors, Inc. Capital growth
SUB-ACCOUNT which purchases Series I
shares of the AIM V.I. Global Health
Care Fund of the AIM Variable
Insurance Funds
AIM V.I. TECHNOLOGY FUND SUB-ACCOUNT A I M Advisors, Inc. Capital growth
which purchases Series I shares of the
AIM V.I. Technology Fund of the AIM
Variable Insurance Funds
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 9
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<Table>
SUB-ACCOUNT/FUND ADVISOR OBJECTIVE SUMMARY
ALLIANCEBERNSTEIN VP INTERNATIONAL AllianceBernstein L.P. Long-term growth of capital
RESEARCH GROWTH PORTFOLIO SUB-ACCOUNT
(formerly AllianceBernstein
International Portfolio Sub-Account)
which purchases Class A shares of
AllianceBernstein International
Research Growth Portfolio of
AllianceBernstein Variable Products
Series Fund, Inc.
ALLIANCEBERNSTEIN VP MONEY MARKET AllianceBernstein L.P. Safety of principal, maintenance of
PORTFOLIO SUB-ACCOUNT which purchases liquidity and maximum current income
Class A shares of AllianceBernstein
Money Market Portfolio of
AllianceBernstein Variable Products
Series Fund, Inc.
ALLIANCEBERNSTEIN VP LARGE CAP GROWTH AllianceBernstein L.P. Long-term growth of capital
PORTFOLIO SUB-ACCOUNT (formerly
AllianceBernstein Premier Growth
Portfolio Sub-Account) which purchases
Class A shares of AllianceBernstein
Large Cap Growth Portfolio of
AllianceBernstein Variable Products
Series Fund, Inc.
AMERICAN CENTURY INVESTMENTS VP BALANCED American Century Investment Management, Long-term capital growth and current
FUND SUB-ACCOUNT which purchases Inc. income
shares of American Century Investments
VP Balanced Fund of American
Investments Variable Portfolios, Inc.
AMERICAN CENTURY INVESTMENTS VP CAPITAL American Century Investment Management, Capital growth
APPRECIATION FUND SUB-ACCOUNT which Inc.
purchases shares of American Century
Investments VP Capital Appreciation
Fund of American Investments Variable
Portfolios, Inc.
FEDERATED AMERICAN LEADERS FUND II Federated Equity Management Company of Long-term growth of capital
SUB-ACCOUNT which purchases Primary Pennsylvania
shares of Federated American Leaders
Fund II of Federated Insurance Series
FEDERATED CAPITAL INCOME FUND II Federated Equity Management Company of High current income and moderate capital
SUB-ACCOUNT which purchases shares of Pennsylvania appreciation
Federated Capital Income Fund II of
Federated Insurance Series
FEDERATED FUND FOR U.S. GOVERNMENT Federated Investment Management Company Current income
SECURITIES II SUB-ACCOUNT which
purchases shares of Federated Fund for
U.S. Government Securities II of
Federated Insurance Series
</Table>
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10 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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<Table>
SUB-ACCOUNT/FUND ADVISOR OBJECTIVE SUMMARY
FEDERATED HIGH INCOME BOND FUND II Federated Investment Management Company High current income
SUB-ACCOUNT which purchases Primary
shares of Federated High Income Bond
Fund II of Federated Insurance Series
GARTMORE GVIT DEVELOPING MARKETS FUND Advisor: Gartmore Global Asset Long-term capital appreciation
SUB-ACCOUNT which purchases Class II Management Trust; sub-advised by
shares of Gartmore GVIT Developing Gartmore Global Partners
Markets Fund of the Gartmore Variable
Insurance Trust
HARTFORD INDEX HLS FUND SUB-ACCOUNT which HL Investment Advisors, LLC; sub-advised Seeks to provide investment results
purchases Class IA shares of Hartford by Hartford Investment Management Company which approximate the price and yield
Index HLS Fund of Hartford Series performance of publicly traded common
Fund, Inc. stocks in the aggregate
ING JPMORGAN EMERGING MARKETS EQUITY ING Investments, LLC Long term growth of capital
PORTFOLIO SUB-ACCOUNT which purchases Sub-advised by ING Investment Management
shares of the ING JPMorgan Emerging Advisers, B.V.
Markets Equity Portfolio of ING
Investors Trust
ING VP NATURAL RESOURCES TRUST ING Investments, LLC Long-term growth of capital
SUB-ACCOUNT which purchases shares of Sub-advised by Aeltus Investment
the ING VP Natural Resources Trust Management, Inc.
MFS EMERGING GROWTH SERIES SUB-ACCOUNT MFS Investment Management(R) Long-term growth of capital
which purchases Initial Class shares
of the MFS(R) Emerging Growth Series
of the MFS(R) Variable Insurance Trust
MFS HIGH INCOME SERIES SUB-ACCOUNT which MFS Investment Management(R) High current income
purchases Initial Class shares of the
MFS(R) High Income Series of the
MFS(R) Variable Insurance Trust
MFS STRATEGIC INCOME SERIES SUB-ACCOUNT MFS Investment Management(R) High current income with significant
which purchases Initial Class shares capital appreciation as its secondary
of the MFS(R) Strategic Income Series objective
of the MFS(R) Variable Insurance Trust
NEUBERGER BERMAN AMT LIMITED MATURITY Advisor: Neuberger Berman Management Inc. High current income consistent with
BOND PORTFOLIO SUB-ACCOUNT which Sub-advised by Neuberger Berman, LLC liquidity and low risk to principal;
purchases shares of the Advisers total return is a secondary goal
Management Trust Limited Maturity Bond
Portfolio of Neuberger Berman Advisers
Management Trust
NEUBERGER BERMAN AMT PARTNERS PORTFOLIO Advisor: Neuberger Berman Management Inc. Growth of capital
SUB-ACCOUNT which purchases shares of Sub-advised by Neuberger Berman, LLC
the Advisers Management Trust Partners
Portfolio of Neuberger Berman Advisers
Management Trust
PIONEER FUND VCT PORTFOLIO SUB-ACCOUNT Pioneer Investment Management, Inc. Long-term growth of capital and
which purchases Class II shares of the reasonable current income
Pioneer Fund VCT Portfolio of Pioneer
Variable Contracts Trust
</Table>
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 11
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<Table>
SUB-ACCOUNT/FUND ADVISOR OBJECTIVE SUMMARY
PIONEER GROWTH OPPORTUNITIES VCT Pioneer Investment Management, Inc. Reasonable income and capital growth
PORTFOLIO SUB-ACCOUNT which purchases
Class I shares of the Pioneer Growth
Opportunities VCT Portfolio of Pioneer
Variable Contracts Trust
VAN ECK WORLDWIDE BOND FUND SUB-ACCOUNT Van Eck Associates Corporation High total return -- income plus capital
which purchases shares of the Van Eck appreciation
Worldwide Bond Fund of Van Eck
Worldwide Insurance Trust
VAN ECK WORLDWIDE HARD ASSETS FUND Van Eck Associates Corporation Long-term capital appreciation
SUB-ACCOUNT which purchases shares of
the Van Eck Worldwide Hard Assets Fund
of Van Eck Worldwide Insurance Trust
WELLS FARGO ADVANTAGE DISCOVERY FUND(SM) Wells Fargo Fund Management, LLC, Long-term capital appreciation
SUB-ACCOUNT (formerly known as Strong sub-advised by Wells Capital Management
Mid Cap Growth Fund II Sub-Account) Incorporated
which purchases shares of the Wells
Fargo Advantage VT Discovery Fund of
Wells Fargo Variable Trust Funds
</Table>
We do not guarantee the investment results of any of the underlying Funds.
Since each underlying Fund has different investment objectives, each is subject
to different risks. These risks and the Funds' expenses are more fully
described in the Funds' prospectus, and the Funds' Statement of Additional
Information which may be ordered from us. The Funds' prospectus should be read
in conjunction with this Prospectus before investing.
The Funds may not be available in all states.
MIXED AND SHARED FUNDING -- Shares of the Funds may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of Contract Owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Funds. In the event of any
such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund
with another underlying fund. There are certain risks associated with mixed and
shared funding. These risks are disclosed in the Funds' prospectus.
VOTING RIGHTS -- We are the legal owners of all Fund shares held in the
Separate Account and we have the right to vote at the Fund's shareholder
meetings. To the extent required by federal securities laws or regulations, we
will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use to tell us
how to vote the Fund shares held for your Contract.
- - Arrange for the handling and tallying of proxies received from Contract
Owners.
- - Vote all Fund shares attributable to your Contract according to instructions
received from you, and
- - Vote all Fund shares for which no voting instructions are received in the
same proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present interpretation,
change to permit us to vote Fund shares on our own, we may decide to do so. You
may attend any Shareholder Meeting at which shares held for your Contract may
be voted. After we begin to make Annuity Payouts to you, the number of votes
you have will decrease.
SUBSTITUTIONS, ADDITIONS, OR DELETIONS OF FUNDS -- We reserve the right,
subject to any applicable law, to make certain changes to the Funds offered
under your Contract. We may, in our sole discretion, establish new Funds. New
Funds will be made available to existing Contract Owners as we determine
appropriate. We may also close one or more Funds to additional Premium Payments
or transfers from existing Sub-Accounts.
We may eliminate the shares of any of the Funds from the Contract for any
reason and we may substitute shares of another registered investment company
for the shares of any Fund already purchased or to be purchased in the future
by the Separate Account. To the extent required by the Investment Company Act
of 1940 (the "1940 Act"), substitutions of shares attributable to your interest
in a Fund will not be made until we
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12 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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have the approval of the Commission and we have notified you of the change.
In the event of any substitution or change, we may, by appropriate endorsement,
make any changes in the Contract necessary or appropriate to reflect the
substitution or change. If we decide that it is in the best interest of
Contract Owners, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be deregistered
under the 1940 Act in the event such registration is no longer required, or may
be combined with one or more other Separate Accounts.
ADMINISTRATIVE AND DISTRIBUTION SERVICES -- Union Security has entered into
agreements with the investment advisers or distributors of many of the Funds.
Under the terms of these agreements, Union Security, or its agents, provide
administrative and distribution related services and the Funds pay fees that
are usually based on an annual percentage of the average daily net assets of
the Funds. These agreements may be different for each Fund or each Fund family
and may include fees under a distribution and/or servicing plan adopted by a
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance-related information
concerning the Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
When a Sub-Account advertises its standardized total return, it will usually be
calculated since the inception of the Separate Account for one year, five
years, and ten years or some other relevant periods if the Sub-Account has not
been in existence for at least ten years. Total return is measured by comparing
the value of an investment in the Sub-Account at the beginning of the relevant
period to the value of the investment at the end of the period. Total return
calculations reflect a deduction for Total Annual Fund Operating Expenses, any
Contingent Deferred Sales Charge, Separate Account Annual Expenses without any
optional charge deductions, and the Annual Maintenance Fee.
The Separate Account may also advertise non-standardized total returns that
pre-date the inception of the Separate Account. These non-standardized total
returns are calculated by assuming that the Sub-Accounts have been in existence
for the same periods as the underlying Funds and by taking deductions for
charges equal to those currently assessed against the Sub-Accounts. Non-
standardized total return calculations reflect a deduction for Total Annual
Fund Operating Expenses and Separate Account Annual Expenses without any
optional charge deductions, and do not include deduction for Contingent
Deferred Sales Charge or the Annual Maintenance Fee. This means the non-
standardized total return for a Sub-Account is higher than the standardized
total return for a Sub-Account. These non-standardized returns must be
accompanied by standardized returns.
If applicable, the Sub-Accounts may advertise yield in addition to total
return. This yield is based on the 30-day SEC yield of the Underlying Fund less
the recurring charges at the Separate Account level.
A money market Sub-Account may advertise yield and effective yield. The yield
of a Sub-Account over a seven-day period and then annualized, i.e. the income
earned in the period is assumed to be earned every seven days over a 52-week
period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment
is compounded in the course of a 52-week period. Yield and effective yield
include the recurring charges at the Separate Account level.
We may provide information on various topics to Contract Owners and prospective
Contract Owners in advertising, sales literature or other materials. These
topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as systematic investing, Dollar Cost Averaging
and asset allocation), the advantages and disadvantages of investing in tax-
deferred and taxable instruments, customer profiles and hypothetical purchase
scenarios, financial management and tax and retirement planning, and other
investment alternatives, including comparisons between the Contract and the
characteristics of and market for such alternatives.
GUARANTEE PERIODS
Any amount you allocate to our General Account under this Contract earns a
guaranteed interest rate beginning on the date you make the allocation. The
guaranteed interest rate continues for the number of years you select, up to a
maximum of ten years. We call this a Guarantee Period. At the end of your
Guarantee Period, your Contract Value, including accrued interest, will be
allocated to a new Guarantee Period that is the same length as your original
Guaranteed Period. However, you may reallocate your Contract Value to different
Guarantee Periods or to the Sub-Accounts. If you decide to reallocate your
Contract Value, you must do so by sending us a written request. We must receive
your written request at least three business days before the end of your
Guarantee Period. The first day of your new Guarantee Period or other
reallocation will be the day after the end of your previous Guarantee Period.
We will notify you at least 45 days and not more than 75 days before the end of
your Guarantee Period.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 13
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We currently offer ten different Guarantee Periods. These Guarantee Periods
range in length from one to ten years. Each Guarantee Period has its own
guaranteed interest rate, which may differ from other Guarantee Periods. We
may, at our discretion, change the guaranteed interest rate for future
Guarantee Periods. These changes will not affect the guaranteed interest rates
we are paying on current Guarantee Periods. The guaranteed interest rate will
never be less than an effective annual rate of 3%. Union Security's Management
makes the final determination on the guaranteed interest rates to be declared.
We cannot predict or assure the level of any future guaranteed interest rates
in excess of an effective annual rate of 3%.
We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a Guarantee Period
at the time we receive a Premium Payment from you, or at the time we execute a
transfer you have requested, or at the time a Guarantee Period is renewed. You
may obtain information concerning the guaranteed interest rates that apply to
the various Guarantee Periods. You may obtain this information from our home
office or from your sales representative at any time.
We do not have a specific formula for establishing the guaranteed interest
rates for the Guarantee Periods. Guaranteed interest rates may be influenced by
the available interest rates on the investments we acquire with the amounts you
allocate for a particular Guarantee Period. Guaranteed interest rates do not
necessarily correspond to the available interest rates on the investments we
acquire with the amounts you allocate for a particular Guarantee Period. In
addition, when we determine guaranteed interest rates, we may consider:
- - the duration of a Guarantee Period;
- - regulatory and tax requirements;
- - sales and administrative expenses we bear;
- - risks we assume;
- - our profitability objectives; and
- - general economic trends.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any
General Account value that is:
- - surrendered,
- - transferred, or
- - otherwise paid out
before the end of its Guarantee Period.
For example, we will apply a Market Value Adjustment to General Account value
that we pay:
- - as an amount applied to an Annuity Payout option, or
- - as an amount paid as a single sum in lieu of an Annuity Payout.
The Market Value Adjustment reflects both the amount of time left in your
Guarantee Period and the difference between the rate of interest credited to
your current Guarantee Period and the rate of interest we are crediting to a
new Guarantee period with a duration equal to the amount to time left in your
Guarantee Period. If your Guarantee Period's rate of interest is lower than the
rate of interest we are currently crediting the new Guarantee Period, then the
application of the Market Value Adjustment will reduce the amount you receive
or transfer. Conversely, if your Guarantee period's rate of interest is higher
than the rate of interest we are crediting for the new Guarantee Period, then
the application of the Market Value Adjustment will increase the amount you
receive or transfer.
You will find sample Market Value Adjustment calculations in Appendix I.
We do not apply a Market Value Adjustment to withdrawals and transfers of
General Account value under two exceptions.
We will not apply a Market Value Adjustment to General Account value that we
pay out during a 30 day period that:
- - begins 15 days before the end date of the Guarantee Period in which the
general account value was being held, and that:
- - ends 15 days after the end date of the Guarantee Period in which the general
account value was being held.
In addition, we will not apply a Market Value Adjustment to General Account
value that is withdrawn or transferred from a Guarantee Period on a periodic,
automatic basis. This exception only applies to such withdrawals or transfers
under a formal Union Security program for the withdrawal or transfer of General
Account value.
We may impose conditions and limitations on any formal Union Security program
for the withdrawal or transfer of general account value. Ask your Union
Security representative about the availability of such a program in your state.
In addition, if such a program is available in your state, your Union Security
representative can inform you about the conditions and limitations that may
apply to that program.
DOLLAR COST AVERAGING PLUS ("DCA PLUS") PROGRAMS -- You may enroll in one or
more special pre-authorized transfer programs known as our DCA Plus Programs
(the "Programs"). Under these Programs, Contract Owners who enroll may allocate
a minimum of $5,000 of their Premium Payment into a Program (we may allow a
lower minimum Premium Payment for qualified plan transfers or rollovers,
including IRAs) and pre-authorize transfers from our Fixed Accumulation Feature
to any of the Sub-Accounts under either a 6-Month Transfer Program or 12-Month
Transfer Program subject to Program rules. The 6-Month Transfer Program and the
12-Month Transfer Program will generally have different credited interest
rates. Under the 6-Month Transfer Program, the interest rate can accrue up to 6
months and all Premium Payments and accrued interest must be transferred from
the Program to the selected Sub-Accounts in 3 to 6 months. Under the 12-Month
Transfer Program, the interest rate can accrue up to 12 months and all Premium
Payments and accrued interest must be transferred to
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14 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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the selected Sub-Accounts in 7 to 12 months. This will be accomplished by
monthly transfers for the period selected and with the final transfer of the
entire amount remaining in the Program.
The pre-authorized transfers will begin within 15 days of receipt of the
Program payment provided we receive complete enrollment instructions. If we do
not receive complete Program enrollment instructions within 15 days of receipt
of the initial Program payment, the Program will be voided and the entire
balance in the Program will be transferred to the Accounts designated by you.
If you do not designate an Account, we will return your Program payment to you
for further instruction. If your Program payment is less than the required
minimum amount, we will apply it to your Contract according to your
instructions on record for a subsequent Premium Payment.
Under the DCA Plus Programs, the credited interest rate is not earned on the
full amount of your Premium Payment for the entire length of the Program. This
is because Program transfers to the Sub-Accounts decrease the amount of your
Premium Payment remaining in the Program.
All Program payments, including any subsequent Program payment, must meet the
Program minimum. Any subsequent Program payments we receive during an active
Program transfer period which are received during the same interest rate
effective period will be credited to the current Program. Any subsequent
Program payments we receive during an active Program transfer period which are
received during a different interest rate effective period will be used to
start a new Program. That Program will be credited with the interest rate in
effect on the date we start the new Program. Unless you send us different
instructions, the new Program will be the same length of time as your current
Program and will allocate the subsequent Program payments to the same Sub-
Accounts.
The DCA Plus program may credit a higher interest rate but it does not ensure a
profit or protect you against a loss in declining markets.
Hartford may limit the total number of DCA Programs and DCA Plus Programs to 5
Programs open at any one time.
We determine, in our sole discretion, the interest rates credited to the
Program. These interest rates may vary depending on the Contract you purchased.
Please consult your Registered Representative to determine the interest rate
for your Program.
You may elect to terminate the transfers by calling or writing us of your
intent to cancel enrollment in the Program. Upon cancellation, all the amounts
remaining in the Program will be immediately transferred to the Sub-Accounts
you selected for the Program unless you provide us with different instructions.
We may discontinue, modify or amend the Programs or any other interest rate
program we establish. Any change to a Program will not affect Contract Owners
currently enrolled in the Program.
If you make systematic transfers from the Fixed Accumulation Feature under a
Dollar Cost Averaging Program or DCA Plus Program, you must wait 6 months after
your last systematic transfer before moving Sub-Account Values back to the
Fixed Accumulation Feature.
THE CONTRACT
PURCHASES AND CONTRACT VALUE
WHAT TYPES OF CONTRACTS ARE AVAILABLE?
The Contract is an individual or group tax-deferred variable annuity contract.
It is designed for retirement planning purposes and may be purchased by any
individual, group or trust, including:
- - Any trustee or custodian for a retirement plan qualified under Sections
401(a) or 403(a) of the Code;
- - Annuity purchase plans adopted by public school systems and certain tax-
exempt organizations according to Section 403(b) of the Code;
- - Individual Retirement Annuities adopted according to Section 408 of the Code;
- - Employee pension plans established for employees by a state, a political
subdivision of a state, or an agency of either a state or a political
subdivision of a state, and
- - Certain eligible deferred compensation plans as defined in Section 457 of the
Code.
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
If you are purchasing the Contract for use in an IRA or other qualified
retirement plan, you should consider other features of the Contract besides tax
deferral, since any investment vehicle used within an IRA or other qualified
plan receives tax-deferred treatment under the Code.
HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract by completing and submitting an application or an
order request along with an initial Premium Payment. For most Contracts, the
minimum initial Premium Payment is $5,000. For additional Premium Payments, the
minimum Premium Payment is $50. Under certain situations, we may allow smaller
Premium Payments, for example, if you are part of our InvestEase(R) Program or
certain tax qualified retirement plans. Prior approval is required for Premium
Payments of $1,000,000 or more.
You and your Annuitant must not be older than age 90 on the date that your
Contract is issued. You must be of legal age in the state where the Contract is
being purchased or a guardian must act on your behalf.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 15
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HOW ARE PREMIUM PAYMENTS APPLIED TO MY CONTRACT?
Your initial Premium Payment will be invested within two Valuation Days of our
receipt of a properly completed application or an order request and the Premium
Payment. If we receive your subsequent Premium Payment before the close of the
New York Stock Exchange, it will be priced on the same Valuation Day. If we
receive your Premium Payment after the close of the New York Stock Exchange, it
will be invested on the next Valuation Day. If we receive your subsequent
Premium Payment on a Non-Valuation Day, the amount will be invested on the next
Valuation Day. Unless we receive new instructions, we will invest the Premium
Payment based on your last allocation instructions on record. We will send you
a confirmation when we invest your Premium Payment.
If the request or other information accompanying the initial Premium Payment is
incomplete when received, we will hold the money in a non-interest bearing
account for up to five Valuation Days while we try to obtain complete
information. If we cannot obtain the information within five Valuation Days, we
will either return the Premium Payment and explain why the Premium Payment
could not be processed or keep the Premium Payment if you authorize us to keep
it until you provide the necessary information.
CAN I CANCEL MY CONTRACT AFTER I PURCHASE IT?
We want you to be satisfied with the Contract you have purchased. We urge you
to closely examine its provisions. If for any reason you are not satisfied with
your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states, you may be allowed more time to cancel your
Contract. We may require additional information, including a signature
guarantee, before we can cancel your Contract.
You bear the investment risk from the time the Contract is issued until we
receive your complete cancellation request.
The amount we pay you upon cancellation depends on the requirements of the
state where you purchased your Contract.
HOW IS THE VALUE OF MY CONTRACT CALCULATED BEFORE THE ANNUITY COMMENCEMENT
DATE?
The Contract Value is the sum of all Accounts. There are two things that affect
your Sub-Account value: (1) the number of Accumulation Units and (2) the
Accumulation Unit Value. The Sub-Account value is determined by multiplying the
number of Accumulation Units by the Accumulation Unit Value. On any Valuation
Day your Contract Value reflects the investment performance of the Sub-Accounts
and will fluctuate with the performance of the underlying Funds.
When Premium Payments are credited to your Sub-Accounts, they are converted
into Accumulation Units by dividing the amount of your Premium Payments, minus
any Premium Taxes, by the Accumulation Unit Value for that day. The more
Premium Payments you make to your Contract, the more Accumulation Units you
will own. You decrease the number of Accumulation Units you have by requesting
Surrenders, transferring money out of an Account, settling a Death Benefit
claim or by annuitizing your Contract.
To determine the current Accumulation Unit Value, we take the prior Valuation
Day's Accumulation Unit Value and multiply it by the Net Investment Factor for
the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Net Investment Factor for
each Sub-Account equals:
- - The net asset value per share plus applicable distributions per share of each
Fund at the end of the current Valuation Day divided by
- - The net asset value per share of each Fund at the end of the prior Valuation
Day; multiplied by
- - The daily expense factor for the mortality and expense risk charge adjusted
for the number of days in the period, and any other applicable charges.
We will send you a statement at least annually, which tells you how many
Accumulation Units you have, their value and your total Contract Value.
A Contract's Guarantee Period value is guaranteed by Union Security. We bear
the investment risk with respect to amounts allocated to a Guarantee Period,
except to the extent that (1) we may vary the guaranteed interest rate for
future Guarantee Periods (subject to the 3% effective annual minimum) and (2)
the Market Value Adjustment imposes investment risks on you. The Contract's
Guarantee Period value on any Valuation Date is the sum of its general account
values in each Guarantee Period on that date. The general account value in a
Guarantee Period is equal to the following amounts, in each case increased by
accrued interest at the applicable guaranteed interest rate:
- - The amount of Premium Payments or transferred amounts allocated to the
Guarantee Period; less
- - The amount of any transfers or Surrenders out of the Guarantee Period.
CAN I TRANSFER FROM ONE SUB-ACCOUNT TO ANOTHER?
You may make transfers between the Sub-Accounts offered in this Contract
according to our policies and procedures as amended from time to time.
WHAT IS A SUB-ACCOUNT TRANSFER?
A Sub-Account transfer is a transaction requested by you that involves
reallocating part or all of your Contract Value among the underlying Funds
available in your Contract.
You may transfer from one Sub-Account to another before and after the Annuity
Commencement Date. Your transfer request will be processed on the day that it
is received in good order as long as it is received on a Valuation Day before
the end of any Valuation Day. Otherwise, your request will be processed on the
following Valuation Day. We will send you a confirmation when we process your
transfer. You are responsible for verifying transfer confirmations and promptly
advising us of any errors within 30 days of receiving the confirmation.
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16 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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WHAT HAPPENS WHEN I REQUEST A SUB-ACCOUNT TRANSFER?
When you request a Sub-Account transfer, Hartford sells shares of the
underlying Fund that makes up the Sub-Account you are transferring from and
buys shares of the underlying Fund that makes up the Sub-Account you want to
transfer into.
Each day, many Contract Owners request Sub-Account transfers. Some request
transfers into a particular Sub-Account, and others request transfers out of a
particular Sub-Account. In addition, each day some Contract Owners allocate new
Premium Payments to Sub-Accounts, and others request Surrenders. Hartford
combines all the requests to transfer out of a Sub-Account along with all
Surrenders from that Sub-Account and determines how many shares of that Sub-
Account's underlying Fund Hartford would need to sell to satisfy all Contract
Owners' "transfer-out" requests. At the same time, Hartford also combines all
the requests to transfer into a particular Sub-Account or new Premium Payments
allocated to that Sub-Account and determines how many shares of that Sub-
Account's underlying Fund Hartford would need to buy to satisfy all Contract
Owners' "transfer-in" requests.
In addition, many of the underlying Funds that are available as investment
options in Hartford's variable annuity products are also available as
investment options in variable life insurance policies, retirement plans, group
funding agreements and other products offered by Hartford or our affiliates.
Each day, investors and participants in these other products engage in
transactions similar to the Sub-Account transfers described for variable
annuity Contract Owners.
Hartford takes advantage of its size and available technology to combine the
sales of a particular underlying Fund for many of the variable annuities,
variable life insurance policies, retirement plans, group funding agreements or
other products offered by Hartford. We also combine all the purchases of that
particular underlying Fund for many of the products we offer. We then "net"
those trades. This means that we sometimes reallocate shares of an underlying
Fund within the accounts at Hartford rather than buy new shares or sell shares
of the underlying Fund.
For example, if we combine all transfer-out requests and Surrenders of the
Stock Fund Sub-Account with all other sales of that underlying Fund from our
other products, we may have to sell $1 million dollars of that Fund on any
particular day. However, if other Contract Owners and the owners of other
products offered by Hartford, want to purchase or transfer-in an amount equal
to $300,000 of that Fund, then Hartford would send a sell order to the
underlying Fund for $700,000, which is a $1 million sell order minus the
purchase order of $300,000.
WHAT RESTRICTIONS ARE THERE ON MY ABILITY TO MAKE A SUB-ACCOUNT TRANSFER?
You should be aware that there are several important restrictions on your
ability to make a Sub-Account transfer.
FIRST, YOU MAY MAKE ONLY ONE SUB-ACCOUNT TRANSFER EACH DAY. Hartford limits
each Contract Owner to one Sub-Account Transfer each day. Hartford counts all
Sub-Account transfer activity that occurs on any one day as one Sub-Account
transfer, except you cannot transfer the same Contract Value more than once a
day.
For example, if the only transfer you make on a day is a transfer of $10,000
from the Money Market Fund Sub-Account into another Sub-Account, it would count
as one Sub-Account transfer. If, however, on a single day you transfer $10,000
out of the Money Market Fund Sub-Account into five other Sub-Accounts (dividing
the $10,000 among the five other Sub-Accounts however you chose), that day's
transfer activity would count as one Sub-Account transfer. Likewise, if on a
single day you transferred $10,000 out of the Money Market Fund Sub-Account
into ten other Sub-Accounts (dividing the $10,000 among the ten other Sub-
Accounts however you chose), that day's transfer activity would count as one
Sub-Account transfer. Conversely, if you have $10,000 in Contract Value
distributed among 10 different Sub-Accounts and you request to transfer the
Contract Value in all those Sub-Accounts into one Sub-Account that would also
count as one Sub-Account transfer.
However, you cannot transfer the same Contract Value more than once in one day.
That means if you have $10,000 in the Money Market Fund Sub-Account and you
transfer all $10,000 into the Stock Fund Sub-Account, on that same day you
could not then transfer the $10,000 out of the Stock Fund Sub-Account into
another Sub-Account.
SECOND, HARTFORD, AS THE ADMINISTRATOR FOR THE CONTRACTS ON BEHALF OF UNION
SECURITY, HAS IMPLEMENTED POLICIES DESIGNED TO RESTRICT EXCESSIVE SUB-ACCOUNT
TRANSFERS. You should not purchase this Contract if you want to make frequent
Sub-Account transfers for any reason. In particular, Hartford does not want you
to purchase this Contract if you plan to engage in "market timing," which
includes frequent transfer activity into and out of the same underlying Fund,
or engaging in frequent Sub-Account transfers in order to exploit
inefficiencies in the pricing of the underlying Fund.
Hartford attempts to curb frequent transfers in the following ways:
X 20 Transfer Rule; and
X Abusive Transfer Policy.
THE 20 TRANSFER RULE -- Hartford employs the "20 Transfer Rule" to help curb
frequent Sub-Account transfers. Under this policy, you are allowed to submit a
total of 20 Sub-Account transfer requests each Contract Year for each Contract
by any of the following methods: U.S. Mail, Voice Response Unit, Internet or
telephone. Once these 20 Sub-Account transfers have been requested, you may
submit any additional Sub-Account transfer requests only in writing by U.S.
Mail or overnight delivery service. Transfer requests by telephone, Voice
Response Unit, via the Internet or sent by same day mail or courier service
will not be accepted. If you want to cancel a written Sub-Account transfer, you
must also cancel it in writing by U.S. Mail or overnight delivery service. We
will process the cancellation request as of the day we receive it in good
order.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 17
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We actively monitor Contract Owners' compliance with this policy. We will send
you a letter after your 10th Sub-Account transfer to remind you of our Sub-
Account transfer policy. After your 20th transfer request, our computer system
will not allow you to do another Sub-Account transfer by telephone, Voice
Response Unit or via the Internet. You will be instructed to send your Sub-
Account transfer request by U.S. Mail or overnight delivery service.
Each Contract Anniversary, we reset your transfers to allow 20 new Sub-Account
transfers by any means.
We may make changes to this policy at any time.
ABUSIVE TRANSFER POLICY -- Regardless of the number of Sub-Account transfers
you have done under the 20 Transfer Rule, you still may have your Sub-Account
transfer privileges restricted if you violate the Abusive Transfer Policy,
which is designed to respond to market timing activity observed by the
underlying Funds.
Under the Abusive Transfer Policy, we rely on the underlying Funds to identify
a pattern or frequency of Sub-Account transfers that the underlying Fund wants
us to investigate. Most often, the underlying Fund will identify a particular
day where it experienced a higher percentage of shares bought followed closely
by a day where it experienced the almost identical percentage of shares sold.
Once an underlying Fund contacts us, we run a report that identifies all
Contract Owners who transferred in or out of that underlying Fund's Sub-Account
on the day or days identified by the underlying Fund. We then review the
Contracts on that list to determine whether transfer activity of each
identified Contract violates our written Abusive Transfer Policy. We don't
reveal the precise details of this policy to make it more difficult for abusive
traders to adjust their behavior to escape detection under this procedure. We
can tell you that we consider some or all of the following factors in our
review:
- - the dollar amount of the transfer;
- - the total assets of the Funds involved in the transfer;
- - the number of transfers completed in the current calendar quarter;
- - whether the transfer is part of a pattern of transfers designed to take
advantage of short term market fluctuations or market inefficiencies; or
- - the policies and procedures of a potentially affected underlying Fund
regarding frequent trading.
Separate Account investors could be precluded from purchasing Fund shares if we
reach an impasse on the execution of Fund abusive trading instructions.
If you meet the criteria established in our Abusive Transfer Policy, we will
terminate your Sub-Account transfer privileges until your next Contract
Anniversary, at which point your transfer privileges will be reinstated.
Since we combine all the purchases of a particular underlying Fund for all the
products through net trades, the underlying Fund is unable to identify
transfers of any specific Contract owner. As a result, there is the risk that
the underlying Fund may not be able to identify abusive transfers.
Upon request by an underlying Fund, and subject to applicable law, we may
provide the underlying Fund with the Tax Identification Number, and other
identifying information contained in our records, of Contract Owners that
engaged in Sub-Account transfers that resulted in our purchase, redemption,
transfer or exchange of the shares of that underlying Fund.
ARE THERE ANY EXCEPTIONS TO THESE POLICIES?
INDIVIDUAL EXCEPTIONS. Except for the exceptions listed below, Hartford does
not make any exceptions to its policies restricting frequent trading. This
means that if you request to be excused from any of the policies and to be
permitted to engage in a Sub-Account transfer that would violate any of these
policies, Hartford will refuse your request.
SOME ESTABLISHED EXCEPTIONS. You should be aware, however, that the 20 Transfer
Rule and the Abusive Transfer Policy do not apply in all circumstances, which
we describe here:
- - The 20 Transfer Rule does not apply to Sub-Account transfers that occur
automatically as part of an established asset allocation program or asset
rebalancing program that rebalances a Contract Owner's holdings on a
periodic, pre-established basis according to the prior written instructions
of the Contract Owner or as part of a DCA program, including the DCA Plus
program. That means that transfers that occur under these programs are not
counted toward the 20 transfers allowed under the 20 Transfer Rule. We don't
apply the 20 Transfer Rule to programs, like asset rebalancing, asset
allocation and DCA programs, that allow Sub-Account transfers on a regularly
scheduled basis because the underlying Funds expect these transfers and they
usually do not represent the type of Sub-Account transfers that the
underlying Funds find problematic.
- - Many of the group variable annuities or group funding agreements are offered
to retirement plans, and plan sponsors administer their plan according to
Plan documents and administrative services agreements. If these retirement
plan documents and administrative services agreements have no restrictions on
Sub-Account transfers, then Hartford cannot apply the 20 Transfer Rule and
may not be able to apply any other restriction on transfers. Hartford has
been working with plan sponsors and plan administrators to ensure that any
frequent transfer activity is identified and deterred. Hartford has had only
limited success in this area. Frequent transfers by individuals or entities
that occur in other investment or retirement products provided by Hartford
could have the same abusive affect as frequent Sub-Account transfers done by
Contract Owners of this Contract.
Other than these exceptions, the only other exceptions to the 20 Transfer Rule
impose more restrictive limitations than the 20 Transfer Rule. For example, in
Oregon, we have the contractual right to limit Sub-Account transfers to only
one Sub-Account transfer every 30 days and to require that the transfer
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18 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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request be sent in writing. We currently do not enforce this right, but should
we choose to do so, it would be an exception to the 20 Transfer Rule.
POSSIBILITY OF UNDETECTED FREQUENT TRADING IN THE UNDERLYING FUNDS. In addition
to the exceptions we have just described, you should also be aware that there
may be frequent trading in the underlying Funds that Hartford is not able to
detect and prevent, which we describe here:
- - There is a variable annuity that we offer that has no Contingent Deferred
Sales Charge. We are aware that frequent traders have used this annuity in
the past to engage in frequent Sub-Account transfers that does not violate
the precise terms of the 20 Transfer Rule. We believe that we have addressed
this practice by closing all the international and global funds available in
the annuity. However, we cannot always tell if there is frequent trading in
this product.
- - These policies apply only to individuals and entities that own this Contract
and any subsequent or more recent versions of this Contract. However, the
underlying Funds that make up the Sub-Accounts of this Contract are available
for use with many different variable life insurance policies, variable
annuity products and funding agreements, and they are offered directly to
certain qualified retirement plans. Some of these products and plans may have
less restrictive transfer rules or no transfer restrictions at all.
HOW AM I AFFECTED BY FREQUENT SUB-ACCOUNT TRANSFERS?
Frequent Sub-Account transfers often result in frequent purchases and
redemptions of shares of the underlying Fund. Frequent purchases and
redemptions of the shares of the underlying Funds may increase your costs under
this Contract and may also lower your Contract's overall performance. Your
costs may increase because the underlying Fund will pass on any increase in
fees related to the frequent purchase and redemption of the underlying Fund's
stocks. There would also be administrative costs associated with these
transactions.
Frequent transfers may also cause an underlying Fund to hold more cash than the
underlying Fund would like to hold. A large cash position means that the
underlying Fund will not be fully invested and may miss a rise in value of the
securities that the Fund would have purchased. If the underlying Fund chooses
not to hold a larger cash position, then it may have to sell securities that it
would have otherwise like to have kept, in order to meet its redemption
obligations. Both of these measures could result in lower performance of the
underlying Fund, which in turn would result in lower overall performance of
your Contract.
Because frequent transfers may raise the costs associated with this Contract
and lower performance, the effect may be a lower Death Benefit paid to your
Beneficiary or lower annuity payouts for your Payee.
WHAT IF A PROSPECTUS FOR THE UNDERLYING FUNDS HAS DIFFERENT POLICIES AND
PROCEDURES REGARDING FREQUENT TRADING?
While the prospectuses for the underlying Funds may describe policies and
procedures regarding frequent trading that may be different from those
described in the variable annuity prospectus, the policies and procedures
described in the variable annuity prospectus control how we administer Sub-
Account transfers.
We will continue to monitor transfer activity and Hartford may modify these
restrictions at any time.
POWER OF ATTORNEY -- You may authorize another person to make transfers on your
behalf by submitting a completed power of attorney form. Once we have the
completed form on file, we will accept transfer instructions from your
designated third party, subject to any transfer restrictions in place, until we
receive new instructions in writing from you. You will not be able to make
transfers or other changes to your Contract if you have authorized someone else
to act under a power of attorney.
CHARGES AND FEES
The following charges and fees are associated with the Contract:
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contract, we deduct a daily
charge at an annual rate of 0.45% of Sub-Account Value. The mortality and
expense risk charge is broken into charges for mortality risks and for an
expense risk:
- - MORTALITY RISK -- There are two types of mortality risks that we assume,
those made while your Premium Payments are accumulating and those made once
Annuity Payouts have begun.
During the period your Premium Payments are accumulating, we are required to
cover any difference between the Death Benefit paid and the Surrender Value.
These differences may occur during periods of declining value or in periods
where the Contingent Deferred Sales Charges would have been applicable. The
risk that we bear during this period is that actual mortality rates, in
aggregate, may exceed expected mortality rates.
Once Annuity Payouts have begun, we may be required to make Annuity Payouts as
long as the Annuitant is living, regardless of how long the Annuitant lives.
The risk that we bear during this period is that the actual mortality rates, in
aggregate, may be lower than the expected mortality rates.
- - EXPENSE RISK -- We also bear an expense risk that the Contingent Deferred
Sales Charges and the Annual Maintenance Fee collected before the Annuity
Commencement Date may not be enough to cover the actual cost of selling,
distributing and administering the Contract.
Although variable Annuity Payouts will fluctuate with the performance of the
underlying Fund selected, your Annuity Payouts will not be affected by (a) the
actual mortality experience of our Annuitants, or (b) our actual expenses if
they are greater than the deductions stated in the Contract. Because we cannot
be certain how long our Annuitants will live, we charge this percentage fee
based on the mortality tables currently in use. The mortality and expense risk
charge enables us to keep our commitments and to pay you as planned.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 19
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ANNUAL MAINTENANCE FEE
The Annual Maintenance Fee is a flat fee that is deducted from your Contract
Value to reimburse us for expenses relating to the administrative maintenance
of the Contract and the Accounts. The annual $30 charge is deducted on a
Contract Anniversary or when the Contract is fully Surrendered if the Contract
Value at either of those times is less than $50,000. The charge is deducted
proportionately from each Account in which you are invested.
WHEN IS THE ANNUAL MAINTENANCE FEE WAIVED?
We will waive the Annual Maintenance Fee if your Contract Value is $50,000 or
more on your Contract Anniversary or when you fully Surrender your Contract. We
reserve the right to waive the Annual Maintenance Fee under certain other
conditions.
PREMIUM TAXES
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Premium Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are required by applicable
law, we may deduct them from your Contract when we pay the taxes, upon
Surrender, or on the Annuity Commencement Date. The Premium Tax rate varies by
state or municipality. Currently, the maximum rate charged by any state is 3.5%
and 1% in Puerto Rico.
CHARGES AGAINST THE FUNDS
The Separate Account purchases shares of the Funds at net asset value. The net
asset value of the Fund shares reflects investment advisory fees and
administrative expenses already deducted from the assets of the Funds. These
charges are described in the Fund prospectuses.
DEATH BENEFIT
WHAT IS THE DEATH BENEFIT AND HOW IS IT CALCULATED?
The Death Benefit is the amount we will pay if the Contract Owner dies before
we begin to make Annuity Payouts. The Death Benefit is calculated when we
receive a certified death certificate or other legal document acceptable to us
along with complete instructions from all beneficiaries on how to pay the death
benefit.
Until we receive proof of death and the completed instructions from the
Beneficiary, the Death Benefit will remain invested in the same Accounts,
according to the Contract Owner's last instructions. Therefore, the Death
Benefit amount will fluctuate with the performance of the underlying Funds.
When there is more than one Beneficiary, we will calculate the Accumulation
Units for each Sub-Account for each Beneficiary's portion of the proceeds.
If death occurs before the Annuity Commencement Date, the Death Benefit is the
greater of:
- - The total Premium Payments you have made to us minus any partial Surrenders
and any applicable negative Market Value Adjustment; or
- - The Contract Value of your Contract.
HOW IS THE DEATH BENEFIT PAID?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive proof of death
and complete instructions from the Beneficiary, we will compute the Death
Benefit to be paid out or applied to a selected Annuity Payout Option. When
there is more than one Beneficiary, we will calculate the Death Benefit amount
for each Beneficiary's portion of the proceeds and then pay it out or apply it
to a selected Annuity Payout Option according to each Beneficiary's
instructions. If we receive the complete instructions on a Non-Valuation Day,
computations will take place on the next Valuation Day.
If your Beneficiary elects to receive the Death Benefit amount as a lump sum
payment, we may transfer that amount to our General Account and issue the
Beneficiary a draftbook. The Beneficiary can write one draft for the total
payment of the Death Benefit, or keep the money in the General Account and
write drafts as needed. We will credit interest at a rate determined
periodically in our sole discretion. For Federal income tax purposes, the
Beneficiary will be deemed to have received the lump sum payment on transfer of
the Death Benefit amount to the General Account. The interest will be taxable
in the tax year that it is credited. If the Beneficiary resides or the Contract
was purchased in a state that imposes restrictions on this method of lump sum
payment, we may issue a check to the Beneficiary.
The Beneficiary may elect, under the Annuity Proceeds Settlement Option, "Death
Benefit Remaining with the Company," to leave proceeds from the Death Benefit
with us for up to five years from the date of death if the death occurred
before the Annuity Commencement Date. Once we receive a certified death
certificate or other legal document acceptable to us, the Beneficiary can: (a)
make Sub-Account transfers and (b) take Surrenders.
The Beneficiary of a non-qualified Contract or IRA may also elect the Single
Life Expectancy Only option. This option allows the Beneficiary to take the
Death Benefit invested in a series of payments spread over a period equal to
the Beneficiary's remaining life expectancy. Distributions are calculated based
on IRS life expectancy tables. This option is subject to different limitations
and conditions depending on whether the Contract is non-qualified or an IRA.
REQUIRED DISTRIBUTIONS -- If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years
after death, or be distributed under a distribution option or Annuity Payout
Option that satisfies the Alternatives to the Required Distributions described
below.
If the Contract Owner dies on or after the Annuity Commencement Date under an
Annuity Payout Option that permits the Beneficiary to elect to continue Annuity
Payouts or receive the Commuted Value, any remaining value must be distributed
at least as rapidly as under the payment method being used as of the Contract
Owner's death.
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20 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
WHAT SHOULD THE BENEFICIARY CONSIDER?
ALTERNATIVES TO THE REQUIRED DISTRIBUTIONS -- The selection of an Annuity
Payout Option and the timing of the selection will have an impact on the tax
treatment of the Death Benefit. To receive favorable tax treatment, the
Annuity Payout Option selected: (a) cannot extend beyond the Beneficiary's
life or life expectancy, and (b) must begin within one year of the date of
death.
If these conditions are NOT met, the Death Benefit will be treated as a lump
sum payment for tax purposes. This sum will be taxable in the year in which it
is considered received.
SPOUSAL CONTRACT CONTINUATION -- If the Contract Owner dies and the
Beneficiary is the Contract Owner's spouse, the Beneficiary may elect to
continue the Contract as the Contract Owner, receive the death benefit in one
lump sum payment or elect an Annuity Payout Option. If the Contract continues
with the spouse as Contract Owner, we will adjust the Contract Value to the
amount that we would have paid as the Death Benefit payment, had the spouse
elected to receive the Death Benefit as a lump sum payment. Spousal Contract
Continuation will only apply one time for each Contract.
SURRENDERS
WHAT KINDS OF SURRENDERS ARE AVAILABLE?
FULL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- When you Surrender
your Contract before the Annuity Commencement Date and while the Annuitant is
living, the Surrender Value of the Contract will be made in a lump sum
payment. The Surrender Value is the Contract Value minus any applicable Market
Value Adjustment and Premium Taxes. The Surrender Value may be more or less
than the amount of the Premium Payments made to a Contract.
PARTIAL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- You may request a
partial Surrender of Contract Values at any time before the Annuity
Commencement Date and while the Annuitant is living. There are two
restrictions:
- - The partial Surrender amount must be at least equal to $1,000, our current
minimum for partial Surrenders, and
- - The Contract must have a minimum Contract Value of $1,000 after the
Surrender. We reserve the right to close your Contract and pay the full
Surrender Value if the Contract Value is under the minimum after the
Surrender. The minimum Contract Value in Texas must be $1,000 after the
Surrender with no Premium Payments made during the prior two Contract Years.
HOW DO I REQUEST A SURRENDER?
Requests for full Surrenders must be in writing. Requests for partial
Surrenders can be made in writing or by telephone. We will send your money
within seven days of receiving complete instructions. However, we may postpone
payment of Surrenders whenever: (a) the New York Stock Exchange is closed, (b)
trading on the New York Stock Exchange is restricted by the SEC, (c) the SEC
permits and orders postponement, or (d) the SEC determines that an emergency
exists to restrict valuation.
WRITTEN REQUESTS -- To request a full or partial Surrender, complete a
Surrender Form or send us a letter, signed by you, stating:
- - the dollar amount that you want to receive, either before or after we
withhold taxes and deduct for any applicable charges,
- - your tax withholding amount or percentage, if any, and
- - your mailing address.
If there are joint Contract Owners, both must authorize all Surrenders. For a
partial Surrender, specify the Accounts that you want your Surrender to come
from, otherwise, the Surrender will be taken in proportion to the value in
each Account.
TELEPHONE REQUESTS -- To request a partial Surrender by telephone, we must
have received your completed Telephone Redemption Program Enrollment Form. If
there are joint Contract Owners, both must sign this form. By signing the
form, you authorize us to accept telephone instructions for partial Surrenders
from either Contract Owner. Telephone authorization will remain in effect
until we receive a written cancellation notice from you or your joint Contract
Owner, we discontinue the program; or you are no longer the owner of the
Contract. There are some restrictions on telephone surrenders, please call us
with any questions.
We may record telephone calls and use other procedures to verify information
and confirm that instructions are genuine. We will not be liable for losses or
expenses arising from telephone instructions reasonably believed to be
genuine. WE MAY MODIFY THE REQUIREMENTS FOR TELEPHONE REDEMPTIONS AT ANY TIME.
Telephone Surrender instructions received before the close of the New York
Stock Exchange will be processed on that Valuation Day. Otherwise, your
request will be processed on the next Valuation Day.
COMPLETING A POWER OF ATTORNEY FORM FOR ANOTHER PERSON TO ACT ON YOUR BEHALF
MAY PREVENT YOU FROM MAKING SURRENDERS VIA TELEPHONE.
WHAT SHOULD BE CONSIDERED ABOUT TAXES?
There are certain tax consequences associated with Surrenders:
PRIOR TO AGE 59 1/2 -- If you make a Surrender prior to age 59 1/2, there may
be adverse tax consequences including a 10% federal income tax penalty on the
taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
WE DO NOT MONITOR SURRENDER REQUESTS. TO DETERMINE WHETHER A SURRENDER IS
PERMISSIBLE, WITH OR WITHOUT
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 21
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FEDERAL INCOME TAX PENALTY, PLEASE CONSULT YOUR PERSONAL TAX ADVISER.
MORE THAN ONE CONTRACT ISSUED IN THE SAME CALENDAR YEAR -- If you own more
than one contract issued by us or our affiliates in the same calendar year,
then these contracts may be treated as one contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. Please consult your tax adviser for additional information.
INTERNAL REVENUE CODE SECTION 403(b) ANNUITIES -- As of December 31, 1988, all
section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases
in cash value after December 31, 1988 may not be distributed unless you are:
(a) age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or (e)
experiencing a financial hardship (cash value increases may not be distributed
for hardships prior to age 59 1/2). Distributions prior to age 59 1/2 due to
financial hardship; unemployment or retirement may still be subject to a
penalty tax of 10%.
WE ENCOURAGE YOU TO CONSULT WITH YOUR QUALIFIED TAX ADVISER BEFORE MAKING ANY
SURRENDERS. PLEASE SEE THE "FEDERAL TAX CONSIDERATIONS" SECTION FOR MORE
INFORMATION.
ANNUITY PAYOUTS
THIS SECTION DESCRIBES WHAT HAPPENS WHEN WE BEGIN TO MAKE REGULAR ANNUITY
PAYOUTS FROM YOUR CONTRACT. YOU, AS THE CONTRACT OWNER, SHOULD ANSWER FIVE
QUESTIONS:
- - When do you want Annuity Payouts to begin?
- - Which Annuity Payout Option do you want to use?
- - How often do you want to receive Annuity Payouts?
- - What level of Assumed Investment Return should you choose?
- - Do you want Annuity Payouts to be fixed or variable or a combination?
Please check with your Registered Representative to select the Annuity Payout
Option that best meets your income needs.
1. WHEN DO YOU WANT ANNUITY PAYOUTS TO BEGIN?
You select an Annuity Commencement Date when you purchase your Contract or at
any time before you begin receiving Annuity Payouts. You may change the
Annuity Commencement Date by notifying us within thirty days prior to the
date. The Annuity Commencement Date cannot be deferred beyond the Annuitant's
91st birthday. The date you select may have tax consequences, so please check
with a qualified tax advisor. If this Contract is issued to the trustee of a
Charitable Remainder Trust, the Annuity Commencement Date may be deferred to
the Annuitant's 100th birthday.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected
Annuity Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of
the month as the Annuity Commencement Date. After the initial payout, if an
Annuity Payout date falls on a Non-Valuation Day, the Annuity Payout is
computed on the prior Valuation Day. If the Annuity Payout date does not occur
in a given month due to a leap year or months with only 28 days (i.e. the
31st), the Annuity Payout will be computed on the last Valuation Day of the
month.
2. WHICH ANNUITY PAYOUT OPTION DO YOU WANT TO USE?
Your Contract contains the Annuity Payout Options described below. The Annuity
Proceeds Settlement Option is an option that can be elected by the Beneficiary
and is described in the "Death Benefit" section. We may at times offer other
Annuity Payout Options. Once we begin to make Annuity Payouts, the Annuity
Payout Option cannot be changed.
LIFE ANNUITY
We make Annuity Payouts as long as the Annuitant is living. When the Annuitant
dies, we stop making Annuity Payouts. A Payee would receive only one Annuity
Payout if the Annuitant dies after the first payout, two Annuity Payouts if
the Annuitant dies after the second payout, and so forth.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS
We will make Annuity Payouts as long as the Annuitant is living, but we at
least guarantee to make Annuity Payouts for a time period you select either 10
or 20 years. If the Annuitant dies before the guaranteed number of years have
passed, then the Beneficiary may elect to continue Annuity Payouts for the
remainder of the guaranteed number of years.
JOINT AND FULL SURVIVOR ANNUITY
We will make Annuity Payouts as long as the Annuitant and Joint Annuitant are
living. When one Annuitant dies, we continue to make Annuity Payouts to the
Contract Owner until that second Annuitant dies.
JOINT AND 1/2 CONTINGENT SURVIVOR ANNUITY
We make Payouts as long as both the Annuitant and Joint Annuitant are alive.
If the Annuitant dies first, we will make Payouts equal to 1/2 the original
payout. If the Joint Annuitant dies first, we will continue to make Payouts at
the full amount.
We may offer other Annuity Payout Options available.
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22 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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IMPORTANT INFORMATION:
- - YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYOUTS BEGIN.
- - For Qualified Contracts, if you elect an Annuity Payout Option with a Period
Certain, the guaranteed number of years must be less than the life expectancy
of the Annuitant at the time the Annuity Payouts begin. We compute life
expectancy using the IRS mortality tables.
- - AUTOMATIC ANNUITY PAYOUTS -- If you do not elect an Annuity Payout Option,
Annuity Payouts will automatically begin on the Annuity Commencement Date
under the Life Annuity with Payments for a Period Certain Annuity Payout
Option with a ten-year period certain. Automatic Annuity Payouts will be
fixed dollar amount Annuity Payouts, variable dollar amount Annuity Payouts,
or a combination of fixed or variable dollar amount Annuity Payouts,
depending on the investment allocation of your Account in effect on the
Annuity Commencement Date.
3. HOW OFTEN DO YOU WANT THE PAYEE TO RECEIVE ANNUITY PAYOUTS?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- - monthly,
- - quarterly,
- - semiannually, or
- - annually.
Once you select a frequency, it cannot be changed. If you do not make a
selection, the Payee will receive monthly Annuity Payouts. You must select a
frequency that results in an Annuity Payout of at least $50. If the amount
falls below $50, we have the right to change the frequency to bring the
Annuity Payout up to at least $50.
4. WHAT IS THE ASSUMED INVESTMENT RETURN?
The Assumed Investment Return ("AIR") is the investment return before we start
to make Annuity Payouts. It is a critical assumption for calculating variable
dollar amount Annuity Payouts. The first Annuity Payout will be based upon the
AIR. The remaining Annuity Payouts will fluctuate based on the performance of
the underlying Funds. The AIR for this Contract is 3%.
For example, if the Sub-Accounts earned exactly the same as the AIR, then the
second monthly Annuity Payout Option is the same as the first. If the Sub-
Accounts earned more than the AIR, then the second monthly Annuity Payout
Option is higher than the first. If the Sub-Accounts earned less than the AIR,
then the second monthly Annuity Payout Option is lower than the first.
Level variable dollar Annuity Payouts would be produced if the investment
returns remained constant and equal to the AIR. In fact, Annuity Payouts will
vary up or down as the investment rate varies up or down from the AIR.
5. DO YOU WANT FIXED DOLLAR AMOUNT OR VARIABLE DOLLAR AMOUNT ANNUITY PAYOUTS
OR A COMBINATION OF BOTH?
You may choose an Annuity Payout Option with fixed dollar amounts, variable
dollar amounts or a combination depending on your income needs.
FIXED DOLLAR AMOUNT ANNUITY PAYOUTS -- Once a fixed dollar amount Annuity
Payout begins, you cannot change your selection to receive variable dollar
amount Annuity Payout. You will receive equal fixed dollar amount Annuity
Payouts throughout the Annuity Payout period. Fixed dollar amount Annuity
Payout amounts are determined by multiplying the Contract Value, minus any
applicable Premium Taxes, by an annuity rate. The annuity rate is set by us
and is not less than the rate specified in the fixed dollar amount Annuity
Payout Option tables in your Contract.
VARIABLE DOLLAR AMOUNT ANNUITY PAYOUTS -- A variable dollar amount Annuity
Payout is based on the investment performance of the Sub-Accounts. The
variable dollar amount Annuity Payouts may fluctuate with the performance of
the underlying Funds. To begin making variable dollar amount Annuity Payouts,
we convert the first Annuity Payout amount to a set number of Annuity Units
and then price those units to determine the Annuity Payout amount. The number
of Annuity Units that determines the Annuity Payout amount remains fixed
unless you transfer units between Sub-Accounts.
The dollar amount of the first variable Annuity Payout depends on:
- - the Annuity Payout Option chosen,
- - the Annuitant's attained age and gender (if applicable), and,
- - the applicable annuity purchase rates based on the 1983a Individual Annuity
Mortality table
- - the Assumed Investment Return
The total amount of the first variable dollar amount Annuity Payout is
determined by dividing the Contract Value minus any applicable Premium Taxes,
by $1,000 and multiplying the result by the payment factor defined in the
Contract for the selected Annuity Payout Option.
The dollar amount of each subsequent variable dollar amount Annuity Payout is
equal to the total of Annuity Units for each Sub-Account multiplied by Annuity
Unit Value for each Sub-Account.
The Annuity Unit Value of each Sub-Account for any Valuation Period is equal
to the Accumulation Unit Value Net Investment Factor for the current Valuation
Period multiplied by the Annuity Unit Factor, multiplied by the Annuity Unit
Value for the preceding Valuation Period. The Annuity Unit Factor for a 3% AIR
is 0.999919%.
COMBINATION ANNUITY PAYOUTS -- You may choose to receive a combination of
fixed dollar amount and variable dollar
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 23
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amount annuity payouts as long as they total 100% of your Annuity Payout. For
example, you may choose to receive 40% fixed dollar amount and 60% variable
dollar amount to meet your income needs.
TRANSFER OF ANNUITY UNITS -- After the Annuity Calculation Date, you may
transfer dollar amounts of Annuity Units from one Sub-Account to another four
times per year. On the day you make a transfer, the dollar amounts are equal
for both Sub-Accounts and the number of Annuity Units will be different. We
will transfer the dollar amount of your Annuity Units the day we receive your
written request if received before the close of the New York Stock Exchange.
Otherwise, the transfer will be made on the next Valuation Day. All Sub-
Account transfers must comply with our Sub-Account transfer restriction
policies. For more information on Sub-Account restrictions, please see the
sub-section entitled "Can I transfer from one Sub-Account to another?" under
the section entitled "The Contract."
OTHER PROGRAMS AVAILABLE
We may discontinue, modify or amend any of these Programs or any other
programs we establish. Any changes to a Program will not affect Contract
Owners currently enrolled in the Program. If you are enrolled in any of these
programs while a Fund merger, substitution or liquidation takes place, unless
otherwise noted in any communication from us, your Contract Value invested in
such underlying Fund will be transferred automatically to the designated
surviving Fund in the case of mergers and any available Money Market Fund in
the case of Fund liquidations. Your enrollment instructions will be
automatically updated to reflect the surviving Fund or a Money Market Fund for
any continued and future investments.
INVESTEASE(R) -- InvestEase, which was formerly called "PAC," is an electronic
transfer program that allows you to have money automatically transferred from
your checking or savings account, and invested in your Contract. It is
available for Premium Payments made after your initial Premium Payment. The
minimum amount for each transfer is $50. You can elect to have transfers occur
either monthly or quarterly, and they can be made into any Account available
in your Contract excluding the DCA Plus Programs.
AUTOMATIC INCOME PROGRAM -- The Automatic Income Program allows you to
Surrender a percentage of your total Premium Payments each Contract Year. You
can Surrender from the Accounts you select systematically on a monthly,
quarterly, semiannual, or annual basis.
ASSET ALLOCATION PROGRAM -- Asset Allocation is a program that allows you to
choose an allocation for your Sub-Accounts to help you reach your investment
goals. The Contract offers model allocations with pre-selected Sub-Accounts
and percentages that have been established for each type of investor ranging
from conservative to aggressive. Over time, Sub-Account performance may cause
your Contract's allocation percentages to change, but under the Asset
Allocation Program, your Sub-Account allocations are rebalanced to the
percentages in the current model you have chosen. You can transfer freely
between allocation models up to twelve times per year. You can also allocate a
portion of your investment to Sub-Accounts that may not be part of the model.
You can only participate in one asset allocation model at a time.
ASSET REBALANCING -- Asset Rebalancing is another type of asset allocation
program in which you customize your Sub-Accounts to meet your investment
needs. You select the Sub-Accounts and the percentages you want allocated to
each Sub-Account. Based on the frequency you select, your model will
automatically rebalance to the original percentages chosen. You can transfer
freely between models up to twelve times per year. You can also allocate a
portion of your investment to Sub-Accounts that are not part of the model. You
can only participate in one asset rebalancing model at a time.
DOLLAR COST AVERAGING PROGRAMS -- We currently offer two different types of
Dollar Cost Averaging Programs in addition to the DCA Plus Program. If you
enroll, you may select either the Fixed Amount DCA Program or the
Earnings/Interest DCA Program. The Fixed Amount DCA Program allows you to
regularly transfer an amount you select from the Fixed Accumulation Feature or
any Fund into a different Fund. The Earnings/Interest DCA Program allows you
to regularly transfer the interest from the Fixed Accumulation Feature or the
earnings from one Fund into a different Fund. For either Program, you may
select transfers on a monthly or quarterly basis, but you must at least make
three transfers during the Program. The Fixed Amount DCA Program begins at the
end of the length of the transfer period you selected plus two business days.
That means if you select a monthly transfer, your Earnings/Interest DCA
Program will begin one month plus two business days after your enrollment.
OTHER INFORMATION
ASSIGNMENT -- A Non-Qualified Contract may be assigned. We must be properly
notified in writing of an assignment. Any Annuity Payouts or Surrenders
requested or scheduled before we record an assignment will be made according
to the instructions we have on record. We are not responsible for determining
the validity of an assignment. Assigning a Non-Qualified Contract may require
the payment of income taxes and certain penalty taxes. Please consult a
qualified tax adviser before assigning your Contract.
A Qualified Contract may not be transferred or otherwise assigned, unless
allowed by applicable law.
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24 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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CONTRACT MODIFICATION -- The Annuitant may not be changed. However, if the
Annuitant is still living, the Contingent Annuitant may be changed at any time
prior to the Annuity Commencement Date by sending us written notice.
We may modify the Contract, but no modification will affect the amount or term
of any Contract unless a modification is required to conform the Contract to
applicable federal or state law. No modification will effect the method by
which Contract Values are determined.
HOW CONTRACTS ARE SOLD -- Woodbury Financial Services ("WFS") serves as
principal underwriter for the Contracts which are offered on a continuous
basis. WFS is registered with the Securities and Exchange Commission under the
1934 Act as a broker-dealer and is a member of the NASD. The principal
business address of WFS is 500 Bielenberg Drive, Woodbury, MN 55125.
Contracts will be sold by individuals who have been appointed by us as
insurance agents and who are registered representatives of broker-dealers that
have entered into selling agreements with Woodbury. We generally bear the
expenses of providing services pursuant to Contracts, including the payment of
expenses relating to the distribution of prospectuses for sales purposes as
well as any advertising or sales literature (provided, however, we may offset
some or all of these expenses by, among other things, administrative service
fees received from Fund complexes).
Commissions -- We pay compensation to broker-dealers, financial institutions
and other affiliated broker-dealers ("Financial Intermediaries") for the sale
of the Contracts according to selling agreements with Financial
Intermediaries. Affiliated broker-dealers also employ wholesalers in the sales
process. Wholesalers typically receive commissions based on the type of
Contract or optional benefits sold. Commissions are based on a specified
amount of Premium Payments or Contract Value. Your Registered Representative
may be compensated on a fee for services and/or commission basis.
We pay an up-front commission of up to 7% of your Contract Value at the time
of sale to the Financial Intermediary that your Registered Representative is
associated with. Your Registered Representative's Financial Intermediary may
also receive on-going or trail commissions of generally not more than 1% of
your Contract Value. Registered Representatives may have multiple options on
how they wish to allocate their commissions and/or compensation. Compensation
paid to your Registered Representative may also vary depending on the
particular arrangements between your Registered Representative and their
Financial Intermediary. We are not involved in determining your Registered
Representative's compensation. You are encouraged to ask your Registered
Representative about the basis upon which he or she will be personally
compensated for the advice or recommendations provided in connection with this
transaction.
Additional Payments -- In addition to commissions and any Rule 12b-1 fees, we
or our affiliates pay significant additional compensation ("Additional
Payments") to some Financial Intermediaries (who may or may not be
affiliates), in connection with the promotion, sale and distribution of our
variable annuities. Additional Payments are generally based on average net
assets (or on aged assets) of the Contracts attributable to a particular
Financial Intermediary; on sales of the Contracts attributable to a particular
Financial Intermediary and/or on reimbursement of sales expenses. Additional
Payments may take the form of, among other things: (1) sponsorship of due
diligence meetings to educate Financial Intermediaries about our variable
products; (2) payments for providing training and information relating to our
variable products; (3) expense allowances and reimbursements; (3) override
payments and bonuses; (4) personnel education or training; (5) marketing
support fees (or allowances) for providing assistance in promoting the sale of
our variable products; and/or (6) shareholder services, including sub-
accounting and the preparation of account statements and other communications.
We are among several insurance companies that pay Additional Payments to
certain Financial Intermediaries to receive "preferred" or recommended status.
These privileges include our ability to gain additional or special access to
sales staff, provide and/or attend training and other conferences; placement
of our products on customer lists ("shelf-space arrangements"); and otherwise
improve sales by featuring our products over others. We also may pay
Additional Payments to certain key Financial Intermediaries based on assets
under management.
Consistent with NASD Conduct Rules, we provide cash and non-cash compensation
in the form of: (1) occasional meals and entertainment; (2) occasional tickets
to sporting events; (3) nominal gifts (not to exceed $100 annually); (4)
sponsorship of sales contests and/or promotions in which participants receive
prizes such as travel awards, merchandise and recognition; (5) sponsorship of
training and educational events; and/or (6) due diligence meetings. In
addition to NASD rules governing limitations on these payments, we also follow
our guidelines and those of Financial Intermediaries which may be more
restrictive than NASD rules.
Additional Payments create a potential conflict of interest in the form of an
additional financial incentive to the Registered Representative and/or
Financial Intermediary to recommend the purchase of this Contract over another
variable annuity or another investment option. For the fiscal year ended
December 31, 2005, Additional Payments did not in the aggregate exceed
approximately $62,000 (excluding incidental corporate-sponsorship related
perquisites).
As of December 31, 2005, we have entered into arrangements to make Additional
Payments to the following Financial Intermediaries: Advantage Capital
Corporation, FSC Securities Corporation, Royal Alliance Associates, Sentra
Securities Corporation, Spelman & Company, and SunAmerica Securities
(collectively, the "AUG Advisors Group").
Inclusion on this list does not imply that these sums necessarily constitute
"special cash compensation" as defined by NASD Conduct Rule 2830(l)(4). We
will endeavor to update this listing
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 25
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annually and interim arrangements may not be reflected. We assume no duty to
notify any investor whether their Registered Representative is or should be
included in any such listing. You are encouraged to review the prospectus for
each Fund for any other compensation arrangements pertaining to the
distribution of Fund shares.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of Union Security Life Insurance Company of New York
as of December 31, 2005 and 2004 and for each of the three years in the period
ended December 31, 2005 included in this Registration Statement have been
audited by PricewaterhouseCoopers LLP and are included in reliance on the
report of PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in auditing
and accounting. The principal business address of PricewaterhouseCoopers LLP
is 225 South Sixth Street, Suite 1400, Minneapolis, MN 55402.
LEGAL MATTERS
There are no material legal proceedings pending to which the Separate Account
is a party.
Counsel with respect to federal laws and regulations applicable to the issue
and sale of the Contracts and with respect to New York law is Douglas R. Lowe,
corporate counsel, Union Security Life Insurance Company of New York, 576
Bielenberg Drive, Woodbury, MN 55125.
MORE INFORMATION
You may call your Registered Representative if you have any questions or write
or call us at the address below:
Hartford Life Insurance Company
Attn: Investment Product Services
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-862-6668 (Contract Owners)
1-800-862-7155 (Registered Representatives)
FINANCIAL STATEMENTS
You can find financial statements of the Separate Account and Union Security
in the Statement of Additional Information. To receive a copy of the Statement
of Additional Information free of charge, call your representative or complete
the form at the end of this prospectus and mail the form to us at the address
indicated on the form.
FEDERAL TAX CONSIDERATIONS
A. INTRODUCTION
The following summary of tax rules does not provide or constitute any tax
advice. It provides only a general discussion of certain of the expected
federal income tax consequences with respect to amounts contributed to,
invested in or received from a Contract, based on our understanding of the
existing provisions of the Code, Treasury Regulations thereunder, and public
interpretations thereof by the IRS (e.g., Revenue Rulings, Revenue Procedures
or Notices) or by published court decisions. This summary discusses only
certain federal income tax consequences to United States Persons, and does not
discuss state, local or foreign tax consequences. The term United States
Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships, trust or estates that are subject to
United States federal income tax, regardless of the source of their income.
See "Annuity Purchases by Nonresident Aliens and Foreign Corporations,"
regarding annuity purchases by non-U.S. citizens or residents.
This summary has been prepared by us after consultation with tax counsel, but
no opinion of tax counsel has been obtained. We do not make any guarantee or
representation regarding any tax status (e.g., federal, state, local or
foreign) of any Contract or any transaction involving a Contract. In addition,
there is always a possibility that the tax treatment of an annuity contract
could change by legislation or other means (such as regulations, rulings or
judicial decisions). Moreover, it is always possible that any such change in
tax treatment could be made retroactive (that is, made effective prior to the
date of the change). Accordingly, you should consult a qualified tax adviser
for complete information and advice before purchasing a Contract.
In addition, this discussion does not address many of the tax consequences if
you use the Contract in various arrangements, including Charitable Remainder
Trusts, tax-qualified retirement arrangements, deferred compensation plans,
split-dollar insurance arrangements, or other employee benefit arrangements.
The tax consequences of any such arrangement may vary depending on the
particular facts and circumstances of each individual arrangement and whether
the arrangement satisfies certain tax qualification or classification
requirements. In addition, the tax rules affecting such an arrangement may
have changed recently, e.g., by legislation or regulations that affect
compensatory or employee benefit arrangements. Therefore, if you are
contemplating the use of a Contract in any arrangement the value of which to
you depends in part on its tax consequences, you should consult a qualified
tax adviser regarding the tax treatment of the proposed arrangement and of any
Contract used in it.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. SPECIAL
TAX RULES MAY APPLY WITH RESPECT TO CERTAIN SITUATIONS THAT ARE NOT DISCUSSED
HEREIN. EACH POTENTIAL PURCHASER OF A CONTRACT IS ADVISED TO CONSULT WITH A
QUALIFIED TAX ADVISER AS TO THE CONSEQUENCES OF ANY AMOUNTS INVESTED IN A
CONTRACT UNDER APPLICABLE FEDERAL, STATE, LOCAL OR FOREIGN TAX LAW.
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26 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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B. TAXATION OF UNION SECURITY AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Union Security which is taxed as a
life insurance company under Subchapter L of Chapter 1 of the Code.
Accordingly, the Separate Account will not be taxed as a "regulated investment
company" under Subchapter M of Chapter 1 of the Code. Investment income and
any realized capital gains on the assets of the Separate Account are
reinvested and are taken into account in determining the value of the
Accumulation and Annuity Units. As a result, such investment income and
realized capital gains are automatically applied to increase reserves under
the Contract.
Currently, no taxes are due on interest, dividends and short-term or long-term
capital gain earned by the Separate Account with respect to the Contracts.
Union Security is entitled to certain tax benefits related to the investment
of company assets, including assets of the Separate Account. These tax
benefits, which may include the foreign tax credit and the corporate dividends
received deduction, are not passed back to you since Union Security is the
owner of the assets from which the tax benefits are derived.
C. TAXATION OF ANNUITIES -- GENERAL PROVISIONS AFFECTING CONTRACTS NOT HELD IN
TAX-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS AS OWNERS
Pursuant to Code Section 72(u), an annuity contract held by a taxpayer other
than a natural person generally is not treated as an annuity contract under
the Code. Instead, such a non-natural Contract Owner generally could be
required to include in gross income currently for each taxable year the excess
of (a) the sum of the Contract Value as of the close of the taxable year and
all previous distributions under the Contract over (b) the sum of net premiums
paid for the taxable year and any prior taxable year and the amount includable
in gross income for any prior taxable year with respect to the Contract under
Section 72(u). However, Section 72(u) does not apply to:
- - A contract the nominal owner of which is a non-natural person but the
beneficial owner of which is a natural person (e.g., where the non-natural
owner holds the contract as an agent for the natural person),
- - A contract acquired by the estate of a decedent by reason of such decedent's
death,
- - Certain contracts acquired with respect to tax-qualified retirement
arrangements,
- - Certain contracts held in structured settlement arrangements that may qualify
under Code Section 130, or
- - A single premium immediate annuity contract under Code Section 72(u)(4),
which provides for substantially equal periodic payments and an annuity
starting date that is no later than 1 year from the date of the contract's
purchase.
A non-natural Contract Owner that is a tax-exempt entity for federal tax
purposes (e.g., a tax-qualified retirement trust or a Charitable Remainder
Trust) generally would not be subject to federal income tax as a result of
such current gross income under Code Section 72(u). However, such a tax-exempt
entity, or any annuity contract that it holds, may need to satisfy certain tax
requirements in order to maintain its qualification for such favorable tax
treatment. See, e.g., IRS Tech. Adv. Memo. 9825001 for certain Charitable
Remainder Trusts.
Pursuant to Code Section 72(s), if the Contract Owner is a non-natural person,
the primary annuitant is treated as the "holder" in applying the required
distribution rules described below. These rules require that certain
distributions be made upon the death of a "holder." In addition, for a non-
natural owner, a change in the primary annuitant is treated as the death of
the "holder." However, the provisions of Code Section 72(s) do not apply to
certain contracts held in tax-qualified retirement arrangements or structured
settlement arrangements.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS).
A Contract Owner is not taxed on increases in the value of the Contract until
an amount is received or deemed received, e.g., in the form of a lump sum
payment (full or partial value of a Contract) or as Annuity payments under the
settlement option elected.
The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from Contracts obtained in a tax-free exchange for other annuity
contracts or life insurance contracts which were purchased prior to August 14,
1982.
A. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not includable in
gross income equal the "investment in the contract" under Section 72 of
the Code.
ii. To the extent that the value of the Contract (ignoring any surrender
charges except on a full surrender) exceeds the "investment in the
contract," such excess constitutes the "income on the contract." It is
unclear what value should be used in determining the "income on the
contract." We believe that the current Contract value (determined without
regard to surrender charges) is an appropriate measure. However, the IRS
could take the position that the value should be the current Contract
value (determined without regard to surrender charges) increased by some
measure of the value of certain future benefits.
iii. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any
such "income on the contract" and then from "investment in the contract,"
and for these purposes such "income on the contract" shall be computed by
reference to any aggregation rule in subparagraph 2.c. below. As a result,
any such amount received or deemed received (1) shall be includable in
gross income to the extent that such amount does
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 27
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not exceed any such "income on the contract," and (2) shall not be
includable in gross income to the extent that such amount does exceed any
such "income on the contract." If at the time that any amount is received
or deemed received there is no "income on the contract" (e.g., because the
gross value of the Contract does not exceed the "investment in the
contract" and no aggregation rule applies), then such amount received or
deemed received will not be includable in gross income, and will simply
reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or the assignment
or pledge of any portion of the value of the Contract shall be treated as
an amount received for purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not
apply, however, to certain transfers of property between spouses or
incident to divorce.
vi. In general, any amount actually received under the Contract as a Death
Benefit, including any optional Death Benefits, will be treated as an
amount received for purposes of this subparagraph a. and the next
subparagraph b. As a result, we believe that for federal tax purposes any
optional Death Benefits should be treated as an integral part of the
Contract's benefits (i.e., as an investment protection benefit) and that
any charges under the Contract for any optional Death Benefits should not
be treated as an amount received by the Contract Owner for purposes of
this subparagraph a. However, it is possible that the IRS could take a
contrary position that some or all of these charges for any optional Death
Benefits should be treated for federal tax purposes as an amount received
under the Contract (e.g., as an amount distributed from the Contract to
pay for an additional benefit that should be treated as a benefit that is
being provided by a separate contract for tax purposes, i.e., by a
separate contract that is not part of the annuity Contract for tax
purposes).
B. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE.
Annuity payments made periodically after the Annuity Commencement Date are
includable in gross income to the extent the payments exceed the amount
determined by the application of the ratio of the "investment in the contract"
to the total amount of the payments to be made after the Annuity Commencement
Date (the "exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the
Annuity Commencement Date, any additional payments (including surrenders)
will be entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from
gross income by the exclusion ratio does not exceed the investment in the
contract as of the Annuity Commencement Date, then the remaining portion
of unrecovered investment shall be allowed as a deduction for the last
taxable year of the Annuitant.
iii. Generally, nonperiodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and
shall be fully includable in gross income. However, upon a full surrender
after such date, only the excess of the amount received (after any
surrender charge) over the remaining "investment in the contract" shall be
includable in gross income (except to the extent that the aggregation rule
referred to in the next subparagraph c. may apply).
C. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS.
Contracts issued after October 21, 1988 by the same insurer (or affiliated
insurer) to the same owner within the same calendar year (other than certain
contracts held in connection with tax-qualified retirement arrangements) will
be aggregated and treated as one annuity contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new contract for this
purpose. We believe that for any Contracts subject to such aggregation, the
values under the Contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement Date.
Withdrawals will be treated first as withdrawals of income until all of the
income from all such Contracts is withdrawn. In addition, the Treasury
Department has specific authority under the aggregation rules in Code Section
72(e)(11) to issue regulations to prevent the avoidance of the income-out-
first rules for non-periodic distributions through the serial purchase of
annuity contracts or otherwise. As of the date of this prospectus, there are
no regulations interpreting these aggregation provisions.
D. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
i. If any amount is received or deemed received on the Contract (before or
after the Annuity Commencement Date), the Code applies a penalty tax equal
to ten percent of the portion of the amount includable in gross income,
unless an exception applies.
ii. The 10% penalty tax will not apply to the following distributions:
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
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28 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially
equal periodic payments (not less frequently than annually) for the
life (or life expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's designated
Beneficiary). In determining whether a payment stream designed to
satisfy this exception qualifies, it is possible that the IRS could
take the position that the entire interest in the Contract should
include not only the current Contract value, but also some measure of
the value of certain future benefits.
5. Distributions made under certain annuities issued in connection with
structured settlement agreements.
6. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
If the taxpayer avoids this 10% penalty tax by qualifying for the
substantially equal periodic payments exception and later such series of
payments is modified (other than by death or disability), the 10% penalty tax
will be applied retroactively to all the prior periodic payments (i.e.,
penalty tax plus interest thereon), unless such modification is made after
both (a) the taxpayer has reached age 59 1/2 and (b) 5 years have elapsed
since the first of these periodic payments.
E. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A TAX-FREE
EXCHANGE OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS PURCHASED PRIOR
TO AUGUST 14, 1982.
If the Contract was obtained by a tax-free exchange of a life insurance or
annuity Contract purchased prior to August 14, 1982, then any amount received
or deemed received prior to the Annuity Commencement Date shall be deemed to
come (1) first from the amount of the "investment in the contract" prior to
August 14, 1982 ("pre-8/14/82 investment") carried over from the prior
Contract, (2) then from the portion of the "income on the contract" (carried
over to, as well as accumulating in, the successor Contract) that is
attributable to such pre-8/14/82 investment, (3) then from the remaining
"income on the contract" and (4) last from the remaining "investment in the
contract." As a result, to the extent that such amount received or deemed
received does not exceed such pre-8/14/82 investment, such amount is not
includable in gross income. In addition, to the extent that such amount
received or deemed received does not exceed the sum of (a) such pre-8/14/82
investment and (b) the "income on the contract" attributable thereto, such
amount is not subject to the 10% penalty tax. In all other respects, amounts
received or deemed received from such post-exchange Contracts are generally
subject to the rules described in this subparagraph e.
F. REQUIRED DISTRIBUTIONS.
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary provisions in ii
or iii below:
1. If any Contract Owner dies on or after the Annuity Commencement Date
and before the entire interest in the Contract has been distributed,
the remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution being used as of the date
of such death;
2. If any Contract Owner dies before the Annuity Commencement Date, the
entire interest in the Contract shall be distributed within 5 years
after such death; and
3. If the Contract Owner is not an individual, then for purposes of 1. or
2. above, the primary annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The primary annuitant is
the individual, the events in the life of whom are of primary
importance in affecting the timing or amount of the payout under the
Contract.
ii. Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of a Contract Owner described in i. above
is payable to or for the benefit of a designated beneficiary, such
beneficiary may elect to have the portion distributed over a period that
does not extend beyond the life or life expectancy of the beneficiary.
Such distributions must begin within a year of the Contract Owner's death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or for
the benefit of his or her spouse, and the Annuitant or Contingent
Annuitant is living, such spouse shall be treated as the Contract Owner of
such portion for purposes of section i. above. This spousal contract
continuation shall apply only once for this Contract.
G. ADDITION OF RIDER OR MATERIAL CHANGE.
The addition of a rider to the Contract, or a material change in the
Contract's provisions, could cause it to be considered newly issued or entered
into, for tax purposes, and thus could cause the Contract to lose certain
grandfathered tax status. Please contact your tax adviser for more
information.
H. PARTIAL EXCHANGES.
The IRS in Rev. Rul. 2003-76 has confirmed that the owner of an annuity
contract can direct its insurer to transfer a portion of the contract's cash
value directly to another annuity contract (issued by the same insurer or by a
different insurer), and such a direct transfer can qualify for tax-free
exchange treatment under Code Section 1035 (a "partial exchange"). However,
Rev. Rul. 2003-76 also refers to caveats and additional guidance
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in the companion Notice 2003-51, which discusses cases in which a partial
exchange is followed by a surrender, withdrawal or other distribution from
either the old contract or the new contract. Notice 2003-51 specifically
indicates that the IRS is considering (1) under what circumstances it should
treat a partial exchange followed by such a distribution within 24 months as
presumptively for "tax avoidance" purposes (e.g., to avoid the income-out-
first rules on amounts received under Code Section 72) and (2) what
circumstances it should treat as rebutting such a presumption (e.g., death,
disability, reaching age 59 1/2, divorce or loss of employment). Accordingly,
we advise you to consult with a qualified tax adviser as to potential tax
consequences before attempting any partial exchange.
3. DIVERSIFICATION REQUIREMENTS.
The Code requires that investments supporting your Contract be adequately
diversified. Code Section 817(h) provides that a variable annuity contract
will not be treated as an annuity contract for any period during which the
investments made by the separate account or underlying fund are not adequately
diversified. If a contract is not treated as an annuity contract, the contract
owner will be subject to income tax on annual increases in cash value.
The Treasury Department's diversification regulations under Code Section
817(h) require, among other things, that:
- - no more than 55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one investment,
- - no more than 70% is represented by any two investments,
- - no more than 80% is represented by any three investments and
- - no more than 90% is represented by any four investments.
In determining whether the diversification standards are met, all securities
of the same issuer, all interests in the same real property project, and all
interests in the same commodity are each treated as a single investment. In
the case of government securities, each government agency or instrumentality
is treated as a separate issuer.
A separate account must be in compliance with the diversification standards on
the last day of each calendar quarter or within 30 days after the quarter
ends. If an insurance company inadvertently fails to meet the diversification
requirements, the company may still comply within a reasonable period and
avoid the taxation of contract income on an ongoing basis. However, either the
insurer or the contract owner must agree to pay the tax due for the period
during which the diversification requirements were not met.
We monitor the diversification of investments in the separate accounts and
test for diversification as required by the Code. We intend to administer all
contracts subject to the diversification requirements in a manner that will
maintain adequate diversification.
4. TAX OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT.
In order for a variable annuity contract to qualify for tax income deferral,
assets in the separate account supporting the contract must be considered to
be owned by the insurance company, and not by the contract owner, for tax
purposes. The IRS has stated in published rulings that a variable contract
owner will be considered the "owner" of separate account assets for income tax
purposes if the contract owner possesses sufficient incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. In circumstances where the variable contract owner is treated as the
"tax owner" of certain separate account assets, income and gain from such
assets would be includable in the variable contract owner's gross income. The
Treasury Department indicated in 1986 that, in regulations or revenue rulings
under Code Section 817(d) (relating to the definition of a variable contract),
it would provide guidance on the extent to which contract owners may direct
their investments to particular subaccounts without being treated as tax
owners of the underlying shares. Although no such regulations have been issued
to date, the IRS has issued a number of rulings that indicate that this issue
remains subject to a facts and circumstances test for both variable annuity
and life insurance contracts.
For instance, the IRS in Rev. Rul. 2003-92 reiterated its position in prior
rulings that, where shares in a fund offered in an insurer's separate account
are not available exclusively through the purchase of a variable insurance
contract (e.g., where such shares can be purchased directly by the general
public or others without going through such a variable contract), such "public
availability" means that such shares should be treated as owned directly by
the contract owner (and not by the insurer) for tax purposes, as if such
contract owner had chosen instead to purchase such shares directly (without
going through the variable contract). None of the shares or other interests in
the fund choices offered in our Separate Account for your Contract are
available for purchase except through an insurer's variable contracts or by
other permitted entities.
The IRS in Rev. Rul. 2003-91 also indicated that an insurer could provide as
many as 20 fund choices for its variable contract owners (each with a general
investment strategy, e.g., a small company stock fund or a special industry
fund) under certain circumstances, without causing such a contract owner to be
treated as the tax owner of any of the underlying fund assets. The ruling does
not specify the number of fund options, if any, that may prevent a variable
contract owner from receiving favorable tax treatment. As a result, we believe
that any owner of a Contract also should receive the same favorable tax
treatment. However, there is necessarily some uncertainty here as long as the
IRS continues to use a facts and circumstances test for investor control and
other tax ownership issues. Therefore, we reserve the right to modify the
Contract as necessary to prevent you from being treated as the tax owner of
any underlying assets.
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30 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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D. FEDERAL INCOME TAX WITHHOLDING
The portion of an amount received under a Contract that is taxable gross
income to the recipient is also subject to federal income tax withholding,
pursuant to Code Section 3405, which requires the following:
1. Non-Periodic Distributions. The portion of a non-periodic distribution
that is includable in gross income is subject to federal income tax
withholding unless the recipient elects not to have such tax withheld
("election out"). We will provide such an "election out" form at the
time such a distribution is requested. If the necessary "election out"
forms are not submitted to us in a timely manner, we are required to
withhold 10 percent of the includable amount of distribution and remit
it to the IRS.
2. Periodic Distributions (payable over a period greater than one year).
The portion of a periodic distribution that is includable in gross
income is subject to federal income tax withholding as if the recipient
were married claiming 3 exemptions, unless the recipient elects
otherwise. A recipient may elect out of such withholding, or elect to
have income tax withheld at a different rate, by providing a completed
election form. We will provide such an election form at the time such a
distribution is requested.
Regardless of any "election out" (or any amount of tax actually withheld) on
an amount received from a Contract, the recipient is generally liable for any
failure to pay the full amount of tax due on the includable portion of such
amount received. You also may be required to pay penalties under the estimated
income tax rules, if your withholding and estimated tax payments are
insufficient to satisfy your total tax liability. If the necessary "election
out" forms are not submitted to us in a timely manner, we are required to
withhold tax as if the recipient were married claiming 3 exemptions, and remit
the tax to the IRS.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of
plans for which it may be used and the general explanation of the tax features
of such plans.
F. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to annuity purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally
be subject to U.S. federal income tax and withholding on taxable annuity
distributions at a 30% rate, unless a lower treaty rate applies and any
required tax forms are submitted to us. If withholding tax applies, we are
required to withhold tax at a 30% rate, or a lower treaty rate if applicable,
and remit it to the IRS. In addition, purchasers may be subject to state
premium tax, other state and/or municipal taxes, and taxes that may be imposed
by the purchaser's country of citizenship or residence.
G. ESTATE, GIFT AND GENERATION-SKIPPING TAX AND RELATED TAX CONSIDERATIONS
Any amount payable upon a Contract Owner's death, whether before or after the
Annuity Commencement Date, is generally includable in the Contract Owner's
estate for federal estate tax purposes. Similarly, prior to the Contract
Owner's death, the payment of any amount from the Contract, or the transfer of
any interest in the Contract, to a beneficiary or other person for less than
adequate consideration may have federal gift tax consequences. In addition,
any transfer to, or designation of, a non-spouse beneficiary who either is (1)
37 1/2 or more years younger than a Contract Owner or (2) a grandchild (or
more remote further descendent) of a Contract Owner may have federal
generation-skipping-transfer ("GST") tax consequences under Code Section 2601.
Regulations under Code Section 2662 may require us to deduct any such GST tax
from your Contract, or from any applicable payment, and pay it directly to the
IRS. However, any federal estate, gift or GST tax payment with respect to a
Contract could produce an offsetting income tax deduction for a beneficiary or
transferee under Code Section 691(c) (partially offsetting such federal estate
or GST tax) or a basis increase for a beneficiary or transferee under Code
Section 691(c) or Section 1015(d). In addition, as indicated above in
"Distributions Prior to the Annuity Commencement Date," the transfer of a
Contract for less than adequate consideration during the Contract Owner's
lifetime generally is treated as producing an amount received by such Contract
Owner that is subject to both income tax and the 10% penalty tax. To the
extent that such an amount deemed received causes an amount to be includable
currently in such Contract Owner's gross income, this same income amount could
produce a corresponding increase in such Contract Owner's tax basis for such
Contract that is carried over to the transferee's tax basis for such Contract
under Code Section 72(e)(4)(C)(iii) and Section 1015.
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INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
This summary does not attempt to provide more than general information about
the federal income tax rules associated with use of a Contract by a tax-
qualified retirement plan. State income tax rules applicable to tax-qualified
retirement plans often differ from federal income tax rules, and this summary
does not describe any of these differences. Because of the complexity of the
tax rules, owners, participants and beneficiaries are encouraged to consult
their own tax advisors as to specific tax consequences.
The Contracts are available to a variety of tax-qualified retirement plans and
arrangements (a "Qualified Plan" or "Plan"). Tax restrictions and consequences
for Contracts, accounts under each type of Qualified Plan differ from each
other and from those for Non-Qualified Contracts. In addition, individual
Qualified Plans may have terms and conditions that impose additional rules.
Therefore, no attempt is made herein to provide more than general information
about the use of the Contract with the various types of Qualified Plans.
Participants under such Qualified Plans, as well as Contract Owners, annuitants
and beneficiaries, are cautioned that the rights of any person to any benefits
under such Qualified Plans may be subject to terms and conditions of the Plans
themselves or limited by applicable law, regardless of the terms and conditions
of the Contract issued in connection therewith. Qualified Plans generally
provide for the tax deferral of income regardless of whether the Qualified Plan
invests in an annuity or other investment. You should consider whether the
Contract is a suitable investment if you are investing through a Qualified
Plan.
THE FOLLOWING IS ONLY A GENERAL DISCUSSION ABOUT TYPES OF QUALIFIED PLANS FOR
WHICH THE CONTRACTS MAY BE AVAILABLE. WE ARE NOT THE PLAN ADMINISTRATOR FOR ANY
QUALIFIED PLAN. THE PLAN ADMINISTRATOR OR CUSTODIAN, WHICHEVER IS APPLICABLE,
(BUT NOT US) IS RESPONSIBLE FOR ALL PLAN ADMINISTRATIVE DUTIES INCLUDING, BUT
NOT LIMITED TO, NOTIFICATION OF DISTRIBUTION OPTIONS, DISBURSEMENT OF PLAN
BENEFITS, HANDLING ANY PROCESSING AND ADMINISTRATION OF QUALIFIED PLAN LOANS,
COMPLIANCE REGULATORY REQUIREMENTS AND FEDERAL AND STATE TAX REPORTING OF
INCOME/DISTRIBUTIONS FROM THE PLAN TO PLAN PARTICIPANTS AND, IF APPLICABLE,
BENEFICIARIES OF PLAN PARTICIPANTS AND IRA CONTRIBUTIONS FROM PLAN
PARTICIPANTS. OUR ADMINISTRATIVE DUTIES ARE LIMITED TO ADMINISTRATION OF THE
CONTRACT AND ANY DISBURSEMENTS OF ANY CONTRACT BENEFITS TO THE OWNER, ANNUITANT
OR BENEFICIARY OF THE CONTRACT, AS APPLICABLE. OUR TAX REPORTING RESPONSIBILITY
IS LIMITED TO FEDERAL AND STATE TAX REPORTING OF INCOME/DISTRIBUTIONS TO THE
APPLICABLE PAYEE AND IRA CONTRIBUTIONS FROM THE OWNER OF A CONTRACT, AS
RECORDED ON OUR BOOKS AND RECORDS. IF YOU ARE PURCHASING A QUALIFIED CONTRACT,
YOU SHOULD CONSULT WITH YOUR PLAN ADMINISTRATOR AND/OR A QUALIFIED TAX ADVISER.
YOU ALSO SHOULD CONSULT WITH A QUALIFIED TAX ADVISER AND/OR PLAN ADMINISTRATOR
BEFORE YOU WITHDRAW ANY PORTION OF YOUR CONTRACT VALUE.
The tax rules applicable to Qualified Contracts and Qualified Plans, including
restrictions on contributions and distributions, taxation of distributions and
tax penalties, vary according to the type of Qualified Plan, as well as the
terms and conditions of the Plan itself. Various tax penalties may apply to
contributions in excess of specified limits, plan distributions (including
loans) that do not comply with specified limits, and certain other transactions
relating to such Plans. Accordingly, this summary provides only general
information about the tax rules associated with use of a Qualified Contract in
such a Qualified Plan. In addition, some Qualified Plans are subject to
distribution and other requirements that are not incorporated into our
administrative procedures. Owners, participants, and beneficiaries are
responsible for determining that contributions, distributions and other
transactions comply with applicable tax (and non-tax) law. Because of the
complexity of these rules, Owners, participants and beneficiaries are advised
to consult with a qualified tax adviser as to specific tax consequences.
We do not currently offer the Contracts in connection with all of the types of
Qualified Plans discussed below, and may not offer the Contracts for all types
of Qualified Plans in the future.
1. INDIVIDUAL RETIREMENT ANNUITIES ("IRAs")
In addition to "traditional" IRAs governed by Code Sections 408(a) and (b)
("Traditional IRAs"), there are Roth IRAs governed by Code Section 408A , SEP
IRAs governed by Code Section 408(k), and SIMPLE IRAs governed by Code Section
408(p). Also, Qualified Plans under Code Section 401, 403(b) or 457(b) that
include after-tax employee contributions may be treated as deemed IRAs subject
to the same rules and limitations as Traditional IRAs. Contributions to each of
these types of IRAs are subject to differing limitations. The following is a
very general description of each type of IRA for which a Contract is available.
TRADITIONAL IRAs Traditional IRAs are subject to limits on the amounts that may
be contributed each year (which contribution limits are scheduled to increase
over the next several years), the persons who may be eligible, and the time
when minimum distributions must begin. Depending upon the circumstances of the
individual, contributions to a Traditional IRA may be made on a deductible or
non-deductible basis. Failure to make required minimum distributions ("RMDs")
when the Owner reaches age 70 1/2 or dies, as described below, may result in
imposition of a 50% penalty tax on any excess of the RMD amount over the amount
actually distributed. In addition, any amount received before the Owner reaches
age 59 1/2 or dies is subject to a 10% penalty tax on premature distributions,
unless a special exception applies, as described below. Under Code Section
408(e), an IRA may not be used for borrowing (or as security for any loan) or
in certain prohibited transactions, and such a transaction could lead to the
complete tax disqualification of an IRA.
You (or your surviving spouse if you die) may rollover funds tax-free from
certain existing Qualified Plans (such as proceeds from existing insurance
contracts, annuity contracts or securities) into your Traditional IRA under
certain circumstances, as indicated below. However, mandatory tax withholding
of 20% may apply to any eligible rollover
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32 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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distribution from certain types of Qualified Plan if the distribution is not
transferred directly to your Traditional IRA.
IRAs generally may not invest in life insurance contracts. However, an annuity
contract that is used as an IRA may provide a death benefit that equals the
greater of the premiums paid or the contract's cash value. The Contract offers
an enhanced death benefit that may exceed the greater of the Contract Value or
total premium payments. The tax rules are unclear as to what extent an IRA can
provide a death benefit that exceeds the greater of the IRA's cash value or the
sum of the premiums paid and other contributions into the IRA. Please note that
the IRA rider for the Contract has provisions that are designed to maintain the
Contract's tax qualification as an IRA, and therefore could limit certain
benefits under the Contract (including endorsement, rider or option benefits)
to maintain the Contract's tax qualification.
SEP IRAs Code Section 408(k) provides for a Traditional IRA in the form of an
employer-sponsored defined contribution plan known as a Simplified Employee
Pension ("SEP") or a SEP IRA. A SEP IRA can have employer, employee and salary
reduction contributions, as well as higher overall contribution limits than a
Traditional IRA, but a SEP is also subject to special tax-qualification
requirements (e.g., on participation, nondiscrimination and withdrawals) and
sanctions. Otherwise, a SEP IRA is generally subject to the same tax rules as
for a Traditional IRA, which are described above. Please note that the IRA
rider for the Contract has provisions that are designed to maintain the
Contract's tax qualification as an IRA, and therefore could limit certain
benefits under the Contract (including endorsement, rider or option benefits)
to maintain the Contract's tax qualification.
SIMPLE IRAs The Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE Plan") is a form of an employer-sponsored Qualified Plan that provides
IRA benefits for the participating employees ("SIMPLE IRAs"). Depending upon
the SIMPLE Plan, employers may make plan contributions into a SIMPLE IRA
established by each eligible participant. Like a Traditional IRA, a SIMPLE IRA
is subject to the 50% penalty tax for failure to make a full RMD, and to the
10% penalty tax on premature distributions, as described below. In addition,
the 10% penalty tax is increased to 25% for amounts received during the 2-year
period beginning on the date you first participated in a qualified salary
reduction arrangement pursuant to a SIMPLE Plan maintained by your employer
under Code Section 408(p)(2). Contributions to a SIMPLE IRA may be either
salary deferral contributions or employer contributions, and these are subject
to different tax limits from those for a Traditional IRA. Please note that the
SIMPLE IRA rider for the Contract has provisions that are designed to maintain
the Contract's tax qualification as an SIMPLE IRA, and therefore could limit
certain benefits under the Contract (including endorsement, rider or option
benefits) to maintain the Contract's tax qualification.
A SIMPLE Plan may designate a single financial institution (a Designated
Financial Institution) as the initial trustee, custodian or issuer (in the case
of an annuity contract) of the SIMPLE IRA set up for each eligible participant.
However, any such Plan also must allow each eligible participant to have the
balance in his SIMPLE IRA held by the Designated Financial Institution
transferred without cost or penalty to a SIMPLE IRA maintained by a different
financial institution. Absent a Designated Financial Institution, each eligible
participant must select the financial institution to hold his SIMPLE IRA, and
notify his employer of this selection.
If we do not serve as the Designated Financial Institution for your employer's
SIMPLE Plan, for you to use one of our Contracts as a SIMPLE IRA, you need to
provide your employer with appropriate notification of such a selection under
the SIMPLE Plan. If you choose, you may arrange for a qualifying transfer of
any amounts currently held in another SIMPLE IRA for your benefit to your
SIMPLE IRA with us.
ROTH IRAs Code Section 408A permits eligible individuals to establish a Roth
IRA. Contributions to a Roth IRA are not deductible, but withdrawals of amounts
contributed and the earnings thereon that meet certain requirements are not
subject to federal income tax. In general, Roth IRAs are subject to limitations
on the amounts that may be contributed by the persons who may be eligible to
contribute, certain Traditional IRA restrictions, and certain RMD rules on the
death of the Contract Owner. Unlike a Traditional IRA, Roth IRAs are not
subject to RMD rules during the Contract Owner's lifetime. Generally, however,
upon the Owner's death the amount remaining in a Roth IRA must be distributed
by the end of the fifth year after such death or distributed over the life
expectancy of a designated beneficiary. The Owner of a Traditional IRA may
convert a Traditional IRA into a Roth IRA under certain circumstances. The
conversion of a Traditional IRA to a Roth IRA will subject the fair market
value of the converted Traditional IRA to federal income tax. In addition to
the amount held in the converted Traditional IRA, the fair market value may
include the value of additional benefits provided by the annuity contract on
the date of conversion, based on reasonable actuarial assumptions. Tax-free
rollovers from a Roth IRA can be made only to another Roth IRA and under
limited circumstances, as indicated below. Anyone considering the purchase of a
Qualified Contract as a Roth IRA or a "conversion" Roth IRA should consult with
a qualified tax adviser. Please note that the Roth IRA rider for the Contract
has provisions that are designed to maintain the Contract's tax qualification
as a Roth IRA, and therefore could limit certain benefits under the Contract
(including endorsement, rider or option benefits) to maintain the Contract's
tax qualification.
2. QUALIFIED PENSION OR PROFIT-SHARING PLAN OR SECTION 401(k) PLAN
Provisions of the Code permit eligible employers to establish a tax-qualified
pension or profit sharing plan (described in Section 401(a), and Section 401(k)
if applicable, and exempt from taxation under Section 501(a)). Such a Plan is
subject to limitations on the amounts that may be contributed, the persons who
may be eligible to participate, the amounts of
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"incidental" death benefits, and the time when RMDs must commence. In addition,
a Plan's provision of incidental benefits may result in currently taxable
income to the participant for some or all of such benefits. Amounts may be
rolled over tax-free from a Qualified Plan to another Qualified Plan under
certain circumstances, as described below. Anyone considering the use of a
Qualified Contract in connection with such a Qualified Plan should seek
competent tax and other legal advice.
In particular, please note that these tax rules provide for limits on death
benefits provided by a Qualified Plan (to keep such death benefits "incidental"
to qualified retirement benefits), and a Qualified Plan (or a Qualified
Contract) often contains provisions that effectively limit such death benefits
to preserve the tax qualification of the Qualified Plan (or Qualified
Contract). In addition, various tax-qualification rules for Qualified Plans
specifically limit increases in benefit once RMDs begin, and Qualified
Contracts are subject to such limits. As a result, the amounts of certain
benefits that can be provided by any option under a Qualified Contract may be
limited by the provisions of the Qualified Contract or governing Qualified Plan
that are designed to preserve its tax qualification.
3. TAX SHELTERED ANNUITY UNDER SECTION 403(b) ("TSA")
Code Section 403(b) permits public school employees and employees of certain
types of charitable, educational and scientific organizations described in Code
Section 501(c)(3) to purchase a "tax-sheltered annuity" contract ("TSA") and,
subject to certain limitations, exclude employer contributions to a TSA from
such an employee's gross income. Generally, such contributions may not exceed
the lesser of an annual dollar limit (e.g., $44,000 in 2006) or 100% of the
employee's "includable compensation" for his most recent full year of service,
subject to other adjustments. Special provisions may allow certain employees to
elect a different overall limitation.
A TSA is subject to a prohibition against distributions from the TSA
attributable to contributions made pursuant to a salary reduction agreement,
unless such distribution is made:
a. after the employee reaches age 59 1/2;
b. upon the employee's separation from service;
c. upon the employee's death or disability; or
d. in the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).
Please note that the TSA rider for the Contract has provisions that are
designed to maintain the Contract's tax qualification as an TSA, and therefore
could limit certain benefits under the Contract (including endorsement, rider
or option benefits) to maintain the Contract's tax qualification. In
particular, please note that tax rules provide for limits on death benefits
provided by a Qualified Plan (to keep such death benefits "incidental" to
qualified retirement benefits), and a Qualified Plan (or a Qualified Contract)
often contains provisions that effectively limit such death benefits to
preserve the tax qualification of the Qualified Plan (or Qualified Contract).
In addition, various tax-qualification rules for Qualified Plans specifically
limit increases in benefits once RMDs begin, and Qualified Contracts are
subject to such limits. As a result, the amounts of certain benefits that can
be provided by any option under a Qualified Contract may be limited by the
provisions of the Qualified Contract or governing Qualified Plan that are
designed to preserve its tax qualification.
Amounts may be rolled over tax-free from a TSA to another TSA or Qualified Plan
(or from a Qualified Plan to a TSA) under certain circumstances, as described
below.
4. DEFERRED COMPENSATION PLANS UNDER SECTION 457 ("SECTION 457 PLANS")
Certain governmental employers, or tax-exempt employers other than a
governmental entity, can establish a Deferred Compensation Plan under Code
Section 457. For these purposes, a "governmental employer" is a State, a
political subdivision of a State, or an agency or an instrumentality of a State
or political subdivision of a State. A Deferred Compensation Plan that meets
the requirements of Code Section 457(b) is called an "Eligible Deferred
Compensation Plan" or "Section 457(b) Plan." Code Section 457(b) limits the
amount of contributions that can be made to an Eligible Deferred Compensation
Plan on behalf of a participant. In addition, under Code Section 457(d) a
Section 457(b) Plan may not make amounts available for distribution to
participants or beneficiaries before (1) the calendar year in which the
participant attains age 70 1/2, (2) the participant has a severance from
employment (including death), or (3) the participant is faced with an
unforeseeable emergency (as determined in accordance with regulations).
All of the assets and income of an Eligible Deferred Compensation Plan for a
governmental employer must be held in trust for the exclusive benefit of
participants and their beneficiaries. This trust requirement does not apply to
amounts under an Eligible Deferred Compensation Plan of a tax-exempt (non-
governmental) employer. In addition, this trust requirement does not apply to
amounts held under a Deferred Compensation Plan of a governmental employer that
is not a Section 457(b) Plan. However, where the trust requirement does not
apply, amounts held under a Section 457 Plan must remain subject to the claims
of the employer's general creditors.
5. TAXATION OF AMOUNTS RECEIVED FROM QUALIFIED PLANS
Except under certain circumstances in the case of Roth IRAs, amounts received
from Qualified Contracts or Plans generally are taxed as ordinary income under
Code Section 72, to the extent that they are not treated as a tax-free recovery
of after-tax contributions or other "investment in the contract." For annuity
payments and other amounts received after the Annuity Commencement Date from a
Qualified Contract or Plan, the tax rules for determining what portion of each
amount received represents a tax-free recovery of "investment in the contract"
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34 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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are generally the same as for Non-Qualified Contracts, as described above.
For non-periodic amounts from certain Qualified Contracts or Plans, Code
Section 72(e)(8) provides special rules that generally treat a portion of each
amount received as a tax-free recovery of the "investment in the contract,"
based on the ratio of the "investment in the contract" over the Contract Value
at the time of distribution. However, in determining such a ratio, certain
aggregation rules may apply and may vary, depending on the type of Qualified
Contract or Plan. For instances, all Traditional IRAs owned by the same
individual are generally aggregated for these purposes, but such an aggregation
does not include any IRA inherited by such individual or any Roth IRA owned by
such individual.
In addition, penalty taxes, mandatory tax withholding or rollover rules may
apply to amounts received from a Qualified Contract or Plan, as indicated
below. Accordingly, you are advised to consult with a qualified tax adviser
before taking or receiving any amount (including a loan) from a Qualified
Contract or Plan.
6. PENALTY TAXES FOR QUALIFIED PLANS
Unlike Non-Qualified Contracts, Qualified Contracts are subject to federal
penalty taxes not just on premature distributions, but also on excess
contributions and failures to make required minimum distributions ("RMDs").
Penalty taxes on excess contributions can vary by type of Qualified Plan and
which person made the excess contribution (e.g., employer or an employee). The
penalty taxes on premature distributions and failures to make timely RMDs are
more uniform, and are described in more detail below.
a. PENALTY TAXES ON PREMATURE DISTRIBUTIONS Code Section 72(t) imposes a
penalty income tax equal to 10% of the taxable portion of a distribution from
certain types of Qualified Plans that is made before the employee reaches age
59 1/2. However, this 10% penalty tax does not apply to a distribution that is
either:
- - made to a beneficiary (or to the employee's estate) on or after the
employee's death;
- - attributable to the employee's becoming disabled under Code Section 72(m)(7);
- - part of a series of substantially equal periodic payments (not less
frequently than annually -- "SEPPs") made for the life (or life expectancy)
of the employee or the joint lives (or joint life expectancies) of such
employee and a designated beneficiary ("SEPP Exception"), and for certain
Qualified Plans (other than IRAs) such a series must begin after the employee
separates from service;
- - (except for IRAs) made to an employee after separation from service after
reaching age 55; or
- - not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an IRA
that is either:
- - made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
- - not in excess of the amount of certain qualifying higher education expenses,
as defined by Code Section 72(t)(7); or
- - for a qualified first-time home buyer and meets the requirements of Code
Section 72(t)(8).
If the taxpayer avoids this 10% penalty tax by qualifying for the SEPP
Exception and later such series of payments is modified (other than by death or
disability), the 10% penalty tax will be applied RETROACTIVELY TO ALL THE PRIOR
PERIODIC PAYMENTS (i.e., penalty tax plus interest thereon), unless such
modification is made after both (a) the employee has reached age 59 1/2 and (b)
5 years have elapsed since the first of these periodic payments.
For any premature distribution from a SIMPLE IRA during the first 2 years that
an individual participates in a salary reduction arrangement maintained by that
individual's employer under a SIMPLE Plan, the 10% penalty tax rate is
increased to 25%.
b. RMDS AND 50% PENALTY TAX If the amount distributed from a Qualified Contract
or Plan is less than the amount of the required minimum distribution ("RMD")
for the year, the participant is subject to a 50% penalty tax on the amount
that has not been timely distributed.
An individual's interest in a Qualified Plan generally must be distributed, or
begin to be distributed, not later than the Required Beginning Date. Generally,
the Required Beginning Date is April 1 of the calendar year following the later
of:
- - the calendar year in which the individual attains age 70 1/2, or
- - (except in the case of an IRA or a 5% owner, as defined in the Code) the
calendar year in which a participant retires from service with the employer
sponsoring a Qualified Plan that allows such a later Required Beginning Date.
The entire interest of the individual must be distributed beginning no later
than the Required Beginning Date over --
(a) the life of the individual or the lives of the individual and a
designated beneficiary (as specified in the Code), or
(b) over a period not extending beyond the life expectancy of the individual
or the joint life expectancy of the individual and a designated beneficiary.
If an individual dies before reaching the Required Beginning Date, the
individual's entire interest generally must be distributed within 5 years after
the individual's death. However, this RMD rule will be deemed satisfied if
distributions begin before the close of the calendar year following the
individual's death to a designated beneficiary and distribution is over the
life of such designated beneficiary (or over a period not extending beyond the
life expectancy of such beneficiary). If such beneficiary is the
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 35
- ----------------------------------------------------------------------------
individual's surviving spouse, distributions may be delayed until the deceased
individual would have attained age 70 1/2.
If an individual dies after RMDs have begun for such individual, any remainder
of the individual's interest generally must be distributed at least as rapidly
as under the method of distribution in effect at the time of the individual's
death.
The RMD rules that apply while the Contract Owner is alive do not apply with
respect to Roth IRAs. The RMD rules applicable after the death of the Owner
apply to all Qualified Plans, including Roth IRAs. In addition, if the Owner of
a Traditional or Roth IRA dies and the Owner's surviving spouse is the sole
designated beneficiary, this surviving spouse may elect to treat the
Traditional or Roth IRA as his or her own.
The RMD amount for each year is determined generally by dividing the account
balance by the applicable life expectancy. This account balance is generally
based upon the account value as of the close of business on the last day of the
previous calendar year. RMD incidental benefit rules also may require a larger
annual RMD amount. RMDs also can be made in the form of annuity payments that
satisfy the rules set forth in Regulations under the Code relating to RMDs.
In addition, in computing any RMD amount based on a contract's account value,
such account value must include the actuarial value of certain additional
benefits provided by the contract. As a result, electing an optional benefit
under a Qualified Contract may require the RMD amount for such Qualified
Contract to be increased each year, and expose such additional RMD amount to
the 50% penalty tax for RMDs if such additional RMD amount is not timely
distributed.
7. TAX WITHHOLDING FOR QUALIFIED PLANS
Distributions from a Qualified Contract or Qualified Plan generally are subject
to federal income tax withholding requirements. These federal income tax
withholding requirements, including any "elections out" and the rate at which
withholding applies, generally are the same as for periodic and non-periodic
distributions from a Non-Qualified Contract, as described above, except where
the distribution is an "eligible rollover distribution" (described below in
"ROLLOVER DISTRIBUTIONS"). In the latter case, tax withholding is mandatory at
a rate of 20% of the taxable portion of the "eligible rollover distribution,"
to the extent it is not directly rolled over to an IRA or other Eligible
Retirement Plan (described below in "ROLLOVER DISTRIBUTIONS"). Payees cannot
elect out of this mandatory 20% withholding in the case of such an "eligible
rollover distribution."
Also, special withholding rules apply with respect to distributions from non-
governmental Section 457(b) Plans, and to distributions made to individuals who
are neither citizens or resident aliens of the United States.
Regardless of any "election out" (or any actual amount of tax actually
withheld) on an amount received from a Qualified Contract or Plan, the payee is
generally liable for any failure to pay the full amount of tax due on the
includable portion of such amount received. A payee also may be required to pay
penalties under estimated income tax rules, if the withholding and estimated
tax payments are insufficient to satisfy the payee's total tax liability.
8. ROLLOVER DISTRIBUTIONS
The current tax rules and limits for tax-free rollovers and transfers between
Qualified Plans vary according to (1) the type of transferor Plan and
transferee Plan, (2) whether the amount involved is transferred directly
between Plan fiduciaries (a "direct transfer" or a "direct rollover") or is
distributed first to a participant or beneficiary who then transfers that
amount back into another eligible Plan within 60 days (a "60-day rollover"),
and (3) whether the distribution is made to a participant, spouse or other
beneficiary. Accordingly, we advise you to consult with a qualified tax adviser
before receiving any amount from a Qualified Contract or Plan or attempting
some form of rollover or transfer with a Qualified Contract or Plan.
For instance, generally any amount can be transferred directly from one type of
Qualified Plan (e.g., a TSA) to the same type of Plan for the benefit of the
same individual, without limit (or federal income tax), if the transferee Plan
is subject to the same kinds of restrictions as the transferor Plan (e.g., a
TSA that is subject to the same kinds of salary reduction restrictions). Such a
"direct transfer" between the same kind of Plan is generally not treated as any
form of "distribution" out of such a Plan for federal income tax purposes.
By contrast, an amount distributed from one type of Plan (e.g., a TSA) into a
different type of Plan (e.g., a Traditional IRA) generally is treated as a
"distribution" out of the first Plan for federal income tax purposes, and
therefore to avoid being subject to such tax, such a distribution must qualify
either as a "direct rollover" (made directly to another Plan fiduciary) or as a
"60-day rollover." The tax restrictions and other rules for a "direct rollover"
and a "60-day rollover" are similar in many ways, but if any "eligible rollover
distribution" made from certain types of Qualified Plan is not transferred
directly to another Plan fiduciary by a "direct rollover," then it is subject
to mandatory 20% withholding, even if it is later contributed to that same Plan
in a "60-day rollover" by the recipient.
Under Code Sections 402(f)(2)(A) and 3405(c)(3) an "eligible rollover
distribution" (which is both eligible for rollover treatment and subject to 20%
mandatory withholding absent a "direct rollover") is generally any distribution
to an employee of any portion (or all) of the balance to the employee's credit
in any of the following types of "Eligible Retirement Plan": (1) a Qualified
Plan under Code Section 401(a) ("Qualified 401(a) Plan"), (2) a qualified
annuity plan under Code Section 403(a) ("Qualified Annuity Plan"), (3) a TSA
under Code Section 403(b), or (4) a governmental Section 457(b) Plan. However,
an "eligible rollover distribution" does not include any distribution that is
either:
a. an RMD amount;
b. one of a series of substantially equal periodic payments (not less
frequently than annually) made either (i) for the
<Page>
36 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary, or (ii)
for a specified period of 10 years or more; or
c. any distribution made upon hardship of the employee.
Before making an "eligible rollover distribution," a Plan administrator
generally is required under Code Section 402(f) to provide the recipient with
advance written notice of the "direct rollover" and "60-day rollover" rules and
the distribution's exposure to the 20% mandatory withholding if it is not made
by "direct rollover." Generally, under Code Sections 402(c), 403(b)(8) and
457(e)(16), a "direct rollover" or a "60-day rollover" of an "eligible rollover
distribution" can be made to a Traditional IRA or to another Eligible
Retirement Plan that agrees to accept such a rollover. However, the maximum
amount of an "eligible rollover distribution" that can qualify for a tax-free
"60-day rollover" is limited to the amount that otherwise would be includable
in gross income. By contrast, a "direct rollover" of an "eligible rollover
distribution" can include after-tax contributions as well, if the direct
rollover is made either to a Traditional IRA or to another form of Eligible
Retirement Plan that agrees to account separately for such a rollover,
including accounting for such after-tax amounts separately from the otherwise
taxable portion of this rollover. Separate accounting also is required for all
amounts (taxable or not) that are rolled into a governmental Section 457(b)
Plan from either a Qualified Section 401(a) Plan, Qualified Annuity Plan, TSA
or IRA. These amounts, when later distributed from the governmental Section
457(b) Plan, are subject to any premature distribution penalty tax applicable
to distributions from such a "predecessor" Qualified Plan.
Rollover rules for distributions from IRAs under Code Sections 408(d)(3) and
408A(d)(3) also vary according to the type of transferor IRA and type of
transferee IRA or other Plan. For instance, generally no tax-free "direct
rollover" or "60-day rollover" can be made between a "NonRoth IRA"
(Traditional, SEP or SIMPLE IRA) and a Roth IRA, and a transfer from NonRoth
IRA to a Roth IRA, or a "conversion" of a NonRoth IRA to a Roth IRA, is subject
to special rules. In addition, generally no tax-free "direct rollover" or "60-
day rollover" can be made between an "inherited IRA" (NonRoth or Roth) for a
beneficiary and an IRA set up by that same individual as the original owner.
Generally, any amount other than an RMD distributed from a Traditional or SEP
IRA is eligible for a "direct rollover" or a "60-day rollover" to another
Traditional IRA for the same individual. Similarly, any amount other than an
RMD distributed from a Roth IRA is generally eligible for a "direct rollover"
or a "60-day rollover" to another Roth IRA for the same individual. However, in
either case such a tax-free 60-day rollover is limited to 1 per year (365-day
period); whereas no 1-year limit applies to any such "direct rollover." Similar
rules apply to a "direct rollover" or a "60-day rollover" of a distribution
from a SIMPLE IRA to another SIMPLE IRA or a Traditional IRA, except that any
distribution of employer contributions from a SIMPLE IRA during the initial 2-
year period in which the individual participates in the employer's SIMPLE Plan
is generally disqualified (and subject to the 25% penalty tax on premature
distributions) if it is not rolled into another SIMPLE IRA for that individual.
Amounts other than RMDs distributed from a Traditional or SEP IRA (or SIMPLE
IRA after the initial 2-year period) also are eligible for a "direct rollover"
or a "60-day rollover" to an Eligible Retirement Plan (e.g., a TSA) that
accepts such a rollover, but any such rollover is limited to the amount of the
distribution that otherwise would be includable in gross income (i.e., after-
tax contributions are not eligible).
Special rules also apply to transfers or rollovers for the benefit of a spouse
(or ex-spouse), Plan distributions of property, and obtaining a waiver of the
60-day limit for a tax-free rollover from the IRS.
9. QUALIFIED HURRICANE RELIEF
The Katrina Emergency Tax Relief Act of 2005 ("KETRA"), signed by the President
on September 23, 2005, contains several provisions regarding distributions from
qualified plans for participants who were affected by Hurricane Katrina.
Generally, KETRA allows eligible persons to take distributions from their
retirement plans without being subject to the 10% penalty on early
distributions and permits the income portion of such distribution to be
included in taxable income ratably over a three-year period. KETRA also allows
such distributed amounts to be recontributed to the retirement plan within
three years and such re-contribution will be treated as a rollover
contribution, thus avoiding taxation of the distributed amounts. The total
amount of qualified KETRA distributions that an eligible person may receive
from all qualified plans is limited to $100,000. KETRA also provides relief for
certain qualified plan withdrawals made in connection with home purchases which
were cancelled because of Hurricane Katrina and modifies the qualified plan
loan rules for certain loans taken by eligible persons. These qualified plan
provisions of KETRA were extended to certain victims of Hurricanes Rita and
Wilma through the enactment of the Gulf Opportunity Zone Act signed by the
President on December 21, 2005. The IRS is preparing further guidance regarding
these relief provisions for the victims of the Hurricanes and is drafting Form
8915 for use by eligible persons for reporting qualified plan distributions and
determining the amount to be included in taxable income. You should check the
IRS's web site to determine if your residence was in an area of hurricane
impact which entitles you to the relief being sought. KETRA and the Gulf
Opportunity Zone Act contain tax relief provisions in addition to the qualified
plan provisions described above and the IRS has designated areas in the
hurricane impacted states for different types of tax relief.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 37
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ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
The following information should be read in conjunction with the financial
statements for the Separate Account included in the Statement of Additional
Information, which is incorporated by reference in this prospectus.
There is no information for AIM V.I. Core Equity Fund Sub-Account because as
of December 31, 2005, the Sub-Account had not commenced operations.
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2005 2004 2003 2002 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. CORE EQUITY FUND
Accumulation Unit Value at beginning of period $15.346 $14.788 $12.117 $15.047 $16.592 $15.922 $13.928 $12.137 $10.000
Accumulation Unit Value at end of period $15.789 $15.346 $14.788 $12.117 $15.047 $16.592 $15.922 $13.928 $12.137
Number of Accumulation Units outstanding at end
of period (in thousands) 3 4 9 -- -- -- -- -- --
AIM V.I. GLOBAL HEALTH CARE FUND
Accumulation Unit Value at beginning of period $18.933 $17.680 $13.899 $18.480 $21.236 $16.342 $15.654 $11.007 $10.000
Accumulation Unit Value at end of period $20.384 $18.933 $17.680 $13.899 $18.480 $21.236 $16.342 $15.654 $11.007
Number of Accumulation Units outstanding at end
of period (in thousands) 7 10 11 12 13 23 6 8 --
AIM V.I. TECHNOLOGY FUND
Accumulation Unit Value at beginning of period $12.101 $11.617 $8.032 $15.178 $28.144 $36.917 $14.322 $11.446 $10.000
Accumulation Unit Value at end of period $12.308 $12.101 $11.617 $8.032 $15.178 $28.144 $36.917 $14.322 $11.446
Number of Accumulation Units outstanding at end
of period (in thousands) 12 25 31 31 46 45 31 2 --
ALLIANCEBERNSTEIN MONEY MARKET PORFOLIO
Accumulation Unit Value at beginning of period $12.997 $12.964 $12.954 $12.945 -- -- -- -- --
Accumulation Unit Value at end of period $13.240 $12.997 $12.964 $12.954 -- -- -- -- --
Number of Accumulation Units outstanding at end
of period (in thousands) 24 31 80 154 -- -- -- -- --
ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH PORTFOLIO
Accumulation Unit Value at beginning of period $13.528 $11.553 $8.819 $10.456 $13.544 $16.990 $12.175 $10.818 $10.517
Accumulation Unit Value at end of period $16.048 $13.528 $11.553 $8.819 $10.456 $13.544 $16.990 $12.175 $10.818
Number of Accumulation Units outstanding at end
of period (in thousands) 9 10 14 18 18 21 5 6 4
ALLIANCEBERNSTEIN LARGE CAP GROWTH PORTFOLIO
Accumulation Unit Value at beginning of period $19.198 $17.754 $14.421 $20.887 $25.357 $30.515 $23.171 $15.729 $11.803
Accumulation Unit Value at end of period $22.006 $19.198 $17.754 $14.421 $20.887 $25.357 $30.515 $23.171 $15.729
Number of Accumulation Units outstanding at end
of period (in thousands) 9 10 15 32 39 39 33 33 18
AMERICAN CENTURY VP BALANCED FUND
Accumulation Unit Value at beginning of period $17.341 $15.868 $13.343 $14.819 $15.456 $15.952 $14.567 $12.639 $10.972
Accumulation Unit Value at end of period $18.115 $17.341 $15.868 $13.343 $14.819 $15.456 $15.952 $14.567 $12.639
Number of Accumulation Units outstanding at end
of period (in thousands) 9 12 5 5 5 8 5 2 1
AMERICAN CENTURY VP CAPITAL APPRECIATION FUND
Accumulation Unit Value at beginning of period $11.257 $10.511 $8.764 $11.172 $15.691 $14.453 $8.825 $9.061 $9.412
Accumulation Unit Value at end of period $13.680 $11.257 $10.511 $8.764 $11.172 $15.691 $14.453 $8.825 $9.061
Number of Accumulation Units outstanding at end
of period (in thousands) 3 4 4 5 6 10 3 1 --
</Table>
<Page>
38 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2005 2004 2003 2002 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERATED AMERICAN LEADERS FUND II
Accumulation Unit Value at beginning of period $20.033 $18.331 $14.420 $18.155 $19.046 $18.671 $17.577 $15.012 $11.395
Accumulation Unit Value at end of period $20.944 $20.033 $18.331 $14.420 $18.155 $19.046 $18.671 $17.577 $15.012
Number of Accumulation Units outstanding at end
of period (in thousands) 9 10 9 9 9 8 1 4 --
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES FUND
II
Accumulation Unit Value at beginning of period $15.250 $14.785 $14.508 $13.364 $12.542 $11.352 $11.473 $10.705 $10.000
Accumulation Unit Value at end of period $15.489 $15.250 $14.785 $14.508 $13.364 $12.542 $11.352 $11.473 $10.705
Number of Accumulation Units outstanding at end
of period (in thousands) 13 14 14 25 35 21 8 4 2
FEDERATED HIGH INCOME BOND FUND II
Accumulation Unit Value at beginning of period $15.982 $14.534 $11.946 $11.834 $11.733 $12.956 $12.720 $12.441 $10.978
Accumulation Unit Value at end of period $16.333 $15.982 $14.534 $11.946 $11.834 $11.733 $12.956 $12.720 $12.441
Number of Accumulation Units outstanding at end
of period (in thousands) 1 3 5 8 7 11 9 32 30
FEDERATED CAPITAL INCOME FUND II
Accumulation Unit Value at beginning of period $12.074 $11.026 $9.178 $12.116 $14.115 $15.561 $15.375 $13.550 $10.748
Accumulation Unit Value at end of period $12.775 $12.074 $11.026 $9.178 $12.116 $14.115 $15.561 $15.375 $13.550
Number of Accumulation Units outstanding at end
of period (in thousands) -- 3 3 3 3 7 4 3 --
HARTFORD INDEX HLS FUND
Accumulation Unit Value at beginning of period $16.767 $15.257 $11.961 $15.493 $17.748 $19.700 $16.424 $12.883 $9.759
Accumulation Unit Value at end of period $17.444 $16.767 $15.257 $11.961 $15.493 $17.748 $19.700 $16.424 $12.883
Number of Accumulation Units outstanding at end
of period (in thousands) 17 20 24 22 42 28 43 2 --
GARTMORE GVIT DEVELOPING MARKETS FUND
Accumulation Unit Value at beginning of period $12.063 $10.115 $7.285 -- -- -- -- -- --
Accumulation Unit Value at end of period $15.794 $12.063 $10.115 -- -- -- -- -- --
Number of Accumulation Units outstanding at end
of period (in thousands) 7 10 8 -- -- -- -- -- --
MFS EMERGING GROWTH SERIES
Accumulation Unit Value at beginning of period $16.495 $14.668 $11.314 $17.158 $25.912 $32.324 $18.374 $13.756 $11.335
Accumulation Unit Value at end of period $17.930 $16.495 $14.668 $11.314 $17.158 $25.912 $32.324 $18.374 $13.756
Number of Accumulation Units outstanding at end
of period (in thousands) -- -- 1 6 12 14 13 7 11
MFS HIGH INCOME SERIES
Accumulation Unit Value at beginning of period $15.989 $14.715 $12.531 $12.272 $12.077 $12.998 $12.266 $12.342 $10.912
Accumulation Unit Value at end of period $16.261 $15.989 $14.715 $12.531 $12.272 $12.077 $12.998 $12.266 $12.342
Number of Accumulation Units outstanding at end
of period (in thousands) 2 2 5 12 11 15 14 43 39
MFS STRATEGIC INCOME SERIES
Accumulation Unit Value at beginning of period $14.793 $13.794 $12.553 $11.633 $11.154 $10.685 $11.008 $10.249 $10.411
Accumulation Unit Value at end of period $15.005 $14.793 $13.794 $12.553 $11.633 $11.154 $10.685 $11.008 $10.249
Number of Accumulation Units outstanding at end
of period (in thousands) 1 2 2 2 4 6 2 -- --
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 39
- ----------------------------------------------------------------------------
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2005 2004 2003 2002 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN AMT LIMITED MATURITY BOND FUND
Accumulation Unit Value at beginning of
period $13.614 $13.570 $13.309 $12.691 $11.718 $11.023 $10.911 $10.498 $9.879
Accumulation Unit Value at end of period $13.749 $13.614 $13.570 $13.309 $12.691 $11.718 $11.023 $10.911 $10.498
Number of Accumulation Units outstanding at
end of period (in thousands) 2 4 10 13 8 4 3 5 --
NEUBERGER BERMAN AMT PARTNERS FUND
Accumulation Unit Value at beginning of
period $16.144 $13.630 $10.135 $13.422 $13.880 $13.835 $12.946 $12.478 $9.593
Accumulation Unit Value at end of period $18.972 $16.144 $13.630 $10.135 $13.422 $13.880 $13.835 $12.946 $12.478
Number of Accumulation Units outstanding at
end of period (in thousands) 2 2 5 4 6 8 3 4 1
ING VP NATURAL RESOURCES TRUST
Accumulation Unit Value at beginning of
period $16.367 $14.593 $11.230 $11.522 $13.768 $11.684 $10.288 $12.853 $12.050
Accumulation Unit Value at end of period $23.276 $16.367 $14.593 $11.230 $11.522 $13.768 $11.684 $10.288 $12.853
Number of Accumulation Units outstanding at
end of period (in thousands) 6 4 2 2 9 1 1 -- --
ING JPMORGAN EMERGING MARKETS EQUITY FUND
Accumulation Unit Value at beginning of
period $10.000 -- -- -- -- -- -- -- --(b)
Accumulation Unit Value at end of period $10.270 -- -- -- -- -- -- -- --
Number of Accumulation Units outstanding at
end of period (in thousands) 1 -- -- -- -- -- -- -- --
PIONEER FUND VCT PORTFOLIO
Accumulation Unit Value at beginning of
period $10.285 $10.063 -- -- -- -- -- -- --
Accumulation Unit Value at end of period $10.871 $10.285 -- -- -- -- -- -- --
Number of Accumulation Units outstanding at
end of period (in thousands) 2 8 -- -- -- -- -- -- --
PIONEER GROWTH OPPORTUNITIES VCT PORTFOLIO
Accumulation Unit Value at beginning of
period $19.094 $15.679 $11.019 $17.757 $14.973 $16.023 $15.237 $14.993 $10.398
Accumulation Unit Value at end of period $20.279 $19.094 $15.679 $11.019 $17.757 $14.973 $16.023 $15.237 $14.993
Number of Accumulation Units outstanding at
end of period (in thousands) 10 11 10 14 28 13 8 14 1
VAN ECK WORLDWIDE BOND FUND
Accumulation Unit Value at beginning of
period $16.029 $14.751 $12.540 $10.354 $10.954 $10.807 $11.778 $10.493 $10.293
Accumulation Unit Value at end of period $15.473 $16.029 $14.751 $12.540 $10.354 $10.954 $10.807 $11.778 $10.493
Number of Accumulation Units outstanding at
end of period (in thousands) 1 3 1 2 1 2 2 1 4
VAN ECK WORLDWIDE HARD ASSETS FUND
Accumulation Unit Value at beginning of
period $13.823 $11.199 $7.754 $8.016 $8.992 $8.108 $6.731 $9.775 $9.992
Accumulation Unit Value at end of period $20.871 $13.823 $11.199 $7.754 $8.016 $8.992 $8.108 $6.731 $9.775
Number of Accumulation Units outstanding at
end of period (in thousands) 7 5 1 -- 3 3 1 -- --
</Table>
<Page>
40 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2005 2004 2003 2002 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE DISCOVERY FUND
Accumulation Unit Value at beginning of
period $16.799 -- -- -- -- -- -- -- --(a)
Accumulation Unit Value at end of period $20.317 -- -- -- -- -- -- -- --
Number of Accumulation Units outstanding at
end of period (in thousands) 2 -- -- -- -- -- -- -- --
</Table>
(a) Inception date April 20, 2005.
(b) Inception date December 2, 2005.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 41
- ----------------------------------------------------------------------------
FURTHER INFORMATION ABOUT UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
FORWARD-LOOKING STATEMENTS
Some of the statements under "Business," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this
report may contain forward-looking statements which reflect our current views
with respect to, among other things, future events and financial performance.
You can identify these forward-looking statements by the use of forward-
looking words such as "outlook," "believes," "expects," "potential,"
"continues," "may," "will," "should," "seeks," "approximately," "predicts,"
"intends," "plans," "estimates," "anticipates" or the negative version of
those words or other comparable words. Any forward-looking statements
contained in this report are based upon our historical performance and on
current plans, estimates and expectations. The inclusion of this forward
looking information should not be regarded as a representation by us or any
other person that the future plans, estimates or expectations contemplated by
us will be achieved. Such forward-looking statements are subject to various
risks and uncertainties. Accordingly, there are or will be important factors
that could cause our actual results to differ materially from those indicated
in this report. We believe that these factors include but are not limited to
those described under the subsection entitled "Risk Factors" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
These factors should not be construed as exhaustive and should be read in
conjunction with the other cautionary statements that are included in this
report. We undertake no obligation to publicly update or review any forward-
looking statement, whether as a result of new information, future developments
or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary
materially from what we projected. Any forward-looking statements you read in
this report reflect our current views with respect to future events and are
subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, financial condition, growth strategy
and liquidity.
BUSINESS
Union Security Life Insurance Company of New York, formerly First Fortis Life
Insurance Company, is a stock life insurance company formed in 1971 and
organized under the laws of the State of New York. It is a direct wholly owned
subsidiary of Assurant, Inc. ("Assurant"), which owns and operates companies
that provide specialty insurance products and related services in North
America and selected other markets. Assurant is traded on the New York Stock
Exchange under the symbol AIZ.
Effective September 6, 2005, Union Security Life Insurance Company of New York
changed its name from First Fortis Life Insurance Company in association with
Assurant's initial public offering on February 5, 2004.
In this report, references to the "Company," "Union Security Life," "we," "us"
or "our" refer to Union Security Life Insurance Company of New York.
Assurant organizes and manages their specialized businesses through four
operating business segments:
<Table>
<Caption>
OPERATING BUSINESS SEGMENT PRINCIPAL PRODUCTS AND SERVICES PRINCIPAL DISTRIBUTION CHANNELS
- -----------------------------------------------------------------------------------------------------------------------------------
ASSURANT SOLUTIONS
SPECIALTY PROPERTY - Creditor-placed homeowners insurance - Mortgage lenders and services
(including tracking services)
- Manufactured housing homeowners insurance - Manufactured housing lenders, dealers and
vertically integrated builders
- Debt protection administration
CONSUMER PROTECTION - Financial institutions (including credit
- Credit insurance card issuers) and retailers
- Warranties and extended service contracts
- Consumer electronics and appliance retailers
- Appliances - Vehicle dealerships
- Automobiles and recreational vehicles
- Consumer electronics
- Wireless devices
ASSURANT HEALTH
INDIVIDUAL HEALTH - Preferred Provider Organizations (PPO) - Independent agents
- National accounts
- Short-term medical insurance - Associations and trusts
- Student medical insurance - Internet
SMALL EMPLOYER GROUP HEALTH - PPO - Independent agents
</Table>
<Page>
42 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
<Table>
<Caption>
OPERATING BUSINESS SEGMENT PRINCIPAL PRODUCTS AND SERVICES PRINCIPAL DISTRIBUTION CHANNELS
- -----------------------------------------------------------------------------------------------------------------------------------
ASSURANT EMPLOYEE BENEFITS Employer and employee-paid: - Employee benefit advisors
- Group dental insurance
- Group disability insurance - Brokers
- Disability RMS(1)
- Group term life insurance
ASSURANT PRENEED - Pre-funded funeral insurance - Service Corporation International (SCI)
- Canadian independent and Corporate funeral
homes
</Table>
(1) Disability RMS refers to Disability Reinsurance Management Services, Inc.,
one of Assurant's wholly owned subsidiaries that provides a turnkey
facility to other insurers to write principally group disability insurance.
Union Security Life, which is licensed to sell life, health and annuity
insurance only in New York, writes insurance products that are marketed in New
York by the Assurant Employee Benefits and Assurant Solutions business
segments. Within the Assurant Employee Benefits segment, we write group life,
group dental, group long-term disability and group short-term disability
insurance products. Within the Assurant Solutions segment, we market, sell and
issue credit life and credit disability products. Of our total gross revenues
generated during 2005, approximately 88% were from the Assurant Employee
Benefits segment, approximately 10% from the Assurant Solutions segment and
approximately 2% were from the Assurant Corporate and Other segment. It is
possible that our sales of credit life for the Assurant Solutions segment will
decline, as almost all of the largest credit card issuing institutions in the
United States have switched from offering credit insurance to their credit
card customers to offering their own banking-approved debt protection
programs. Debt protection is not an insurance product, but rather a service
that is voluntarily added by retail customers as an addendum to a loan. These
administrative services we perform on behalf of the lender generate fee income
rather than the earned premiums that a credit insurance policy generates.
As a direct wholly owned subsidiary of Assurant, Union Security Life does not
have any publicly issued equity or debt securities. We are, however, subject
to certain filing requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), because we have issued certain variable and
market value adjusted insurance contracts, which are required to be registered
with the Securities and Exchange Commission (the "SEC") as securities.
Effective April 1, 2001, Assurant exited this line of business and sold the
business segment, then referred to as Fortis Financial Group, to The Hartford
Financial Services Group, Inc. and certain of its subsidiaries ("The
Hartford"). This sale was accomplished by means of coinsurance and modified
coinsurance. As a result, The Hartford is contractually responsible for
servicing the insurance contracts, including the payment of benefits,
oversight of investment management, overall contract administration and
funding of reserves. If The Hartford fails to fulfill its obligations,
however, we will be obligated to perform the services and make the required
payments and funding.
In addition, effective March 1, 2000, Assurant sold all of its long term care
insurance operations to John Hancock Life Insurance Company ("John Hancock"),
now a subsidiary of Manulife Financial Corporation. In connection with that
sale, we reinsured our existing block of long-term care insurance policies to
John Hancock on a coinsurance basis. Under the coinsurance agreement, we
transferred 100% of the policy reserves and related assets on this block of
business to John Hancock, and John Hancock agreed to be responsible for 100%
of the policy benefits. The assets backing the liabilities on this business
are held in a trust and John Hancock is obligated to fund the trust if the
value of the assets is deemed insufficient to fund the liabilities. If John
Hancock fails to fulfill these obligations, we will be obligated to make these
payments.
In 2001, another indirect wholly owned subsidiary of Assurant, Bankers
American Life Assurance Company ("BALAC") merged into Union Security Life.
Pursuant to that merger, Union Security Life acquired all assets and
liabilities of BALAC, which had been licensed to write insurance business only
in the State of New York.
As of December 31, 2005, we had approximately 7 employees in our sales offices
in New York, New York. In addition, approximately 12 Assurant employees,
subject to a lease arrangement, spent at least a portion of their time working
for us at our headquarters in Syracuse, New York.
In 2004, we initiated the consolidation of the Syracuse, New York customer
relations support functions, accounting and other support functions to our
Kansas City, Missouri and Birmingham, Alabama offices. As a result,
approximately 20 positions were eliminated in the Syracuse, New York office
during 2004 and 2005.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to such reports, filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of
charge at the SEC website at www.sec.gov. These documents are also available
free of charge through our website at www.assurant.com.
Dollar amounts are presented in U.S. dollars and all amounts are in thousands,
except number of shares.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 43
- ----------------------------------------------------------------------------
RISK FACTORS
Union Security Life is subject to risks associated with our business. These
risks include, among others:
- - Reliance on Relationships with Significant Clients, Distributors and Other
Parties. If our significant clients, distributors and other parties with
which we do business decline to renew or seek to terminate our relationships
or contractual arrangements, our results of operations and financial
condition could be materially adversely affected. We are also subject to the
risk that these parties may face financial difficulties, reputational issues
or problems with respect to their own products and services, which may lead
to decreased sales of products and services.
- - Failure to Attract and Retain Sales Representatives or Develop and Maintain
Distribution Sources. Our sales representatives interface with clients and
third party distributors. Our inability to attract and retain our sales
representatives or an interruption in, or changes to, our relationships with
various third-party distributors could impair our ability to compete and
market our insurance products and services and materially adversely affect
our results of operations and financial condition. In addition, our ability
to market our products and services depends on our ability to tailor our
channels of distribution to comply with changes in the regulatory
environment.
- - Effect of General Economic, Financial Market and Political Conditions. Our
results of operations and financial condition may be materially adversely
affected by general economic, financial market and political conditions,
including:
- insurance industry cycles;
- levels of employment;
- levels of inflation and movements of the financial markets;
- fluctuations in interest rates;
- monetary policy;
- demographics; and
- legislative and competitive factors.
- - Failure to Predict Accurately Benefits and Other Costs and Claims. We may be
unable to predict accurately benefits, claims and other costs or to manage
such costs through our loss limitation methods, which could have a material
adverse effect on our results of operations and financial condition if claims
substantially exceed our expectations.
- - Changes in Regulation. Legislation or other regulatory reform that increases
the regulatory requirements imposed on us or that changes the way we are able
to do business may significantly harm our business or results of operations
in the future.
- - Reinsurers' Failure to Fulfill Obligations. In 2001, the Company entered into
a reinsurance agreement with The Hartford for the sale of its FFG division.
Under the reinsurance agreement, The Hartford is obligated to contribute
funds to increase the value of the separate account assets relating to
modified guaranteed annuity business sold if such value declines below the
value of the associated liabilities. If The Hartford fails to fulfill these
obligations, the Company will be obligated to make these payments. The
Company would be responsible to administer this business in the event of a
default by the reinsurer. In 2000, the Company divested its LTC operations to
John Hancock through a reinsurance agreement. If John Hancock fails to
fulfill its obligations, the Company would be obligated to make these
payments.
- - Credit Risk of Some of Our Agents. We advance agents' commissions as part of
our pre-funded funeral insurance product offerings. These advances are a
percentage of the total face amount of coverage as opposed to a percentage of
the first-year premium paid, the formula that is more common in other life
insurance markets. There is a one-year payback provision against the agency
if death or lapse occurs within the first policy year. As a result of the
sale of the independent United States pre-funded funeral business
distribution, the Company will incur losses on chargebacks from agents who
have been terminated who will be unable to repay their obligation.
For additional risks that relate to our business, we refer you to Assurant's
Annual Report on Form 10-K filed with the SEC and available on the SEC's
website at www.sec.gov or through Assurant's website at www.assurant.com.
PROPERTIES
We lease office space in Syracuse, New York that serves as our headquarters.
We also lease office space in New York City that serves as our sales office.
We believe that our leased properties are adequate for our current business
operations.
LEGAL PROCEEDINGS
We are regularly involved in litigation in the ordinary course of business,
both as a defendant and as a plaintiff. We may from time to time be subject to
a variety of legal and regulatory actions relating to our current and past
business operations. While we cannot predict the outcome of any pending or
future litigation, examination or investigation and although no assurances can
be given, we do not believe that any pending matter will have a material
adverse effect on our financial condition or results of operations.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
There is no public trading market for our common stock. As of March 1, 2006,
we had 100,000 shares of common stock outstanding, all of which are owned
directly by Assurant. We paid $4,100, $40,000, and $0 in dividends to our
stockholder in 2005, 2004 and 2003, respectively.
<Page>
44 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our consolidated financial
statements and accompanying notes which appear elsewhere in this report. It
contains forward-looking statements that involve risks and uncertainties.
Please see "Forward-Looking Statements" for more information. Our actual
results could differ materially from those anticipated in these forward-
looking statements as a result of various factors, including those discussed
below and elsewhere in this report.
The table below presents information regarding our results of operations:
<Table>
<Caption>
OR THE YEAR ENDED
F DECEMBER 31,
--------------------
2005 2004
- ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
REVENUES:
Net earned premiums and other considerations $ 59,598 $ 65,593
Net investment income 8,756 9,738
Net realized gains on investments 146 819
Amortization of deferred gain on disposal of businesses 1,039 1,575
Fees and other income 30 305
Total revenues 69,569 78,030
BENEFITS, LOSSES AND EXPENSES:
Policyholder benefits 34,571 42,732
Selling, underwriting and general expenses(1) 17,637 18,689
Total benefits, losses and expenses 52,208 61,421
INCOME BEFORE INCOME TAXES 17,361 16,609
Income taxes 5,957 4,632
NET INCOME $ 11,404 $ 11,977
</Table>
(1) Includes amortization of deferred acquisition costs ("DAC") and value of
business required ("VOBA") and underwriting, general and administrative
expenses.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO DECEMBER 31, 2004
NET INCOME
Net income decreased $573, or 5%, to $11,404 for the year ended December 31,
2005 from $11,977 for the year ended December 31, 2004. The decrease is
primarily attributable to lower net earned premiums and other considerations
and a $1,000 reduction in our 2004 tax liability, partially offset by a
decline in policyholder benefits.
TOTAL REVENUES
Total revenues decreased by $8,461, or 11%, to $69,569 for the year ended
December 31, 2005 from $78,030 for the year ended December 31, 2004. This
decrease was primarily driven by lower net earned premiums and other
considerations of $5,995 due to a decrease in our group dental business and
lower group disability business written though our alternate distribution
sources as well as the continued decline in our domestic credit insurance
products. Also contributing to the decrease was lower net investment income of
$982 due to lower invested assets, lower net realized gains on investments by
$673 and a decrease of $536 in amortization of deferred gain on disposal of
businesses, which is consistent with the anticipated run-off of the businesses
ceded to The Hartford in 2001 and John Hancock in 2000.
TOTAL BENEFITS, LOSSES AND EXPENSES
Total benefits, losses and expenses decreased by $9,213, or 15%, to $52,208
for the year ended December 31, 2005 from $61,421 for the year ended December
31, 2004. This decrease of $8,161 was primarily driven by lower policyholder
benefits in our group disability business written through alternate
distribution sources. Also contributing to the decrease were lower selling,
underwriting and general expenses of $1,052 due to a decrease in commission
expense and one-time interest and severance costs that occurred in the prior
period in our credit life business.
INCOME TAXES
Income taxes increased $1,325, or 29%, to $5,957 for the year ended December
31, 2005 from $4,632 for the year ended December 31, 2004. The increase was
partly due to an increase in pre-tax income. In addition, during the fourth
quarter of 2004, an analysis of the federal tax liability resulted in a $1,000
reduction of our tax expense.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a provider of insurance products, effective risk management is fundamental
to our ability to protect both our customers' and our stockholder's interests.
We are exposed to potential loss from various market risks, in particular
interest rate risk, credit risk and inflation risk.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 45
- ----------------------------------------------------------------------------
Inflation risk is the possibility that a change in domestic price levels
produces an adverse effect on earnings. This typically happens when only one
of invested assets or liabilities is indexed to inflation.
Interest rate risk is the possibility the fair value of liabilities will
change more or less than the market value of investments in response to
changes in interest rates, including changes in the slope or shape of the
yield curve and changes in spreads due to credit risks and other factors.
Credit risk is the possibility that counterparties may not be able to meet
payment obligations when they become due. We assume counterparty credit risk
in many forms. A counterparty is any person or entity from which cash or other
forms of consideration are expected to extinguish a liability or obligation to
us. Primarily, our credit risk exposure is concentrated in our fixed income
investment portfolio and, to a lesser extent, in our reinsurance recoverables.
INFLATION RISK
Inflation risk arises as we invest substantial funds in nominal assets which
are not indexed to the level of inflation, whereas the underlying liabilities
are indexed to the level of inflation. We have inflation risk in our
individual and small employer group health insurance businesses to the extent
that medical costs increase with inflation and we have not been able to
increase premiums to keep pace with inflation.
INTEREST RATE RISK
Interest rate risk arises as we invest substantial funds in interest-sensitive
fixed income assets, such as fixed maturity investments, mortgage-backed and
asset-backed securities and commercial mortgage loans. There are two forms of
interest rate risk -- price risk and reinvestment risk. Price risk occurs when
fluctuations in interest rates have a direct impact on the market valuation of
these investments. As interest rates rise, the market value of these
investments falls, and conversely, as interest rates fall, the market value of
these investments rises. Reinvestment risk occurs when fluctuations in
interest rates have a direct impact on expected cash flows from mortgage-
backed and asset-backed securities. As interest rates fall, an increase in
prepayments on these assets results in earlier than expected receipt of cash
flows forcing us to reinvest the proceeds in an unfavorable lower interest
rate environment, and conversely as interest rates rise, a decrease in
prepayments on these assets results in later than expected receipt of cash
flows forcing us to forgo reinvesting in a favorable higher interest rate
environment. As of December 31, 2005, we held $119,604 of fixed maturity
securities at fair market value and $13,996 of commercial mortgages at
amortized cost for a combined total of 90% of total invested assets. As of
December 31, 2004, we held $125,201 of fixed maturity securities at fair
market value and $9,125 of commercial mortgages at amortized cost for a
combined total of 89% of total invested assets.
We expect to manage interest rate risk by selecting investments with
characteristics such as duration, yield, currency and liquidity tailored to
the anticipated cash outflow characteristics of our insurance and reinsurance
liabilities.
Our group long-term disability and group term life waiver of premium reserves
are also sensitive to interest rates. These reserves are discounted to the
valuation date at the valuation interest rate. The valuation interest rate is
determined by taking into consideration actual and expected earned rates on
our asset portfolio, with adjustments for investment expenses and provisions
for adverse deviation.
CREDIT RISK
We have exposure to credit risk primarily as a holder of fixed income
securities and by entering into reinsurance cessions.
Our risk management strategy and investment policy is to invest in debt
instruments of high credit quality issuers and to limit the amount of credit
exposure with respect to any one issuer. We attempt to limit our credit
exposure by imposing fixed maturity portfolio limits on individual issuers
based upon credit quality. Currently our portfolio limits are 1.5% for issuers
rated AA-and above, 1% for issuers rated A- to A+, 0.75% for issuers rated
BBB- to BBB+ and 0.38% for issuers rated BB- to BB+. These portfolio limits
are further reduced for certain issuers with whom we have credit exposure on
reinsurance agreements.
We use the lower of Moody's or Standard & Poor's ratings to determine an
issuer's rating.
We are also exposed to the credit risk of our reinsurers. When we reinsure, we
are still liable to our insureds regardless of whether we get reimbursed by
our reinsurer. As part of our overall risk and capacity management strategy,
we purchase reinsurance for certain risks that we underwrite.
For at least 50% of our $94,660 million of reinsurance recoverables at
December 31, 2005, we are protected from the credit risk by using some type of
risk mitigation mechanism such as a trust, letter of credit or by withholding
the assets in a modified coinsurance or co-funds-withheld arrangement. For
recoverables that are not protected by these mechanisms, we are dependent
solely on the credit of the reinsurer. Occasionally, the credit worthiness of
the reinsurer becomes questionable. Reinsurance may not be available or
adequate to protect us against losses, and we are subject to the credit risk
of reinsurers.
<Page>
46 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION
<Table>
GENERAL INFORMATION
Safekeeping of Assets
Experts
Independent Registered Public Accounting Firm
Non-Participating
Misstatement of Age or Sex
Principal Underwriter
PERFORMANCE RELATED INFORMATION
Total Return for all Sub-Accounts
Yield for Sub-Accounts
Money Market Sub-Accounts
Additional Materials
Performance Comparisons
FINANCIAL STATEMENTS
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 47
- ----------------------------------------------------------------------------
APPENDIX I -- SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
We will determine the Market Value Adjustment by multiplying the General
Account value that is withdrawn or transferred from the existing Guarantee
Period (after deduction of any applicable surrender charge) by the following
factor:
[(1 + I)/(1 + J + .0025)] TO THE POWER OF n/12 - 1
where,
- - I is the guaranteed interest rate we credit to the general account value that
is withdrawn or transferred from the existing Guarantee Period.
- - J is the guaranteed interest rate we are then offering for new Guarantee
Periods with durations equal to the number of years remaining in the existing
Guarantee Period (rounded up to the next higher number of years).
- - N is the number of months remaining in the existing Guarantee Period (rounded
up to the next higher number of months).
However, if we stop offering a guaranteed interest rate for a Guarantee
Period, we determine I and J with a different method. In these cases, we
determine I and J by using the "bond equivalent yield" on applicable U.S.
Treasury Bills or U.S. Treasury Notes. We determine this yield on either the
1st or the 15th of the applicable month. Therefore, if we stop offering a
guaranteed interest rate for a Guarantee Period, I and J will be as follows:
- - I is the bond equivalent yield that was available on applicable U.S. Treasury
Bills or U.S. Treasury Notes at the beginning of the existing Guarantee
Period. The applicable U.S. Treasury Bills or U.S. Treasury Notes will be
those that have maturities equal in length to that of the existing Guarantee
Period.
- - J is the bond equivalent yield on applicable U.S. Treasury Bills or U.S.
Treasury Notes that is available at the time we calculate the Market Value
Adjustment. The applicable U.S. Treasury Bills or U.S. Treasury Notes will be
those that have maturities equal in length to the length of time remaining in
the existing Guarantee Period.
SAMPLE CALCULATION 1: POSITIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee 7%*
(J)
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 x [[(1 + .08)/(1 + .07 + .0025)] TO THE POWER
OF 60/12 - 1]
= $354.57
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,354.57
SAMPLE CALCULATION 2: NEGATIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee 9%*
(J)
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 x [[(1 + .08)/(1 + .09 + .0025)] TO THE POWER
OF 60/12 - 1]
= -$559.14
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,440.86
<Page>
48 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- ----------------------------------------------------------------------------
SAMPLE CALCULATION 3: NEGATIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 x [[(1 + .08)/(1 + .0775 + .0025)] TO THE POWER OF
60/12 - 1]
= 0
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,000
* Assumed for illustrative purposes only.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 49
- ----------------------------------------------------------------------------
APPENDIX II -- INVESTMENTS BY UNION SECURITY
Fortis' legal obligations with respect to the Guarantee Periods are supported
by our general account assets. These general account assets also support our
obligations under other insurance and annuity contracts. Investments purchased
with amounts allocated to the Guarantee Periods are the property of Union
Security, and you have no legal rights in such investments. Subject to
applicable law, we have sole discretion over the investment of assets in our
general account. Neither our general account nor the Guarantee Periods are
subject to registration under the Investment Company Act of 1940.
We will invest amounts in our general account in compliance with applicable
state insurance laws and regulations concerning the nature and quality of
investments for the general account. Within specified limits and subject to
certain standards and limitations, these laws generally permit investment in:
- - federal, state and municipal obligations,
- - preferred and common stocks,
- - corporate bonds,
- - real estate mortgages and mortgage backed securities,
- - real estate, and
- - certain other investments, including various derivative investments.
See the Financial Statements for information on our investments.
When we establish guaranteed interest rates, we will consider the available
return on the instruments in which we invest amounts allocated to the general
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guarantee Periods."
Generally, we expect to invest amounts allocated to the Guarantee Periods in
debt instruments. We expect that these debt instruments will approximately
match our liabilities with regard to the Guarantee Periods. We also expect
that these debt instruments will primarily include:
(1) securities issued by the United States Government or its agencies or
instrumentalities. These securities may or may not be guaranteed by the
United States Government;
(2) debt securities that, at the time of purchase, have an investment grade
within the four highest grades assigned by Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), or any
other nationally recognized rating service. Moody's four highest grades
are: Aaa, Aa, A, and Baa. Standard & Poor's four highest grades are: AAA,
AA, A, and BBB;
(3) other debt instruments including, but not limited to, issues of, or
guaranteed by, banks or bank holding companies and corporations. Although
not rated by Moody's or Standard & Poor's, we deem these obligations to
have an investment quality comparable to securities that may be purchased
as stated above;
(4) other evidences of indebtedness secured by mortgages or deeds of trust
representing liens upon real estate.
Except as required by applicable state insurance laws and regulations, we are
not obligated to invest amounts allocated to the general account according to
any particular strategy.
The Contracts are reinsured by Hartford Life Insurance Company. As part of
this reinsurance arrangement, the assets supporting the General Account under
the Contracts are held by Union Security; however, these assets are managed by
Hartford Investment Management Company ("HIMCO"), an affiliate of Hartford
Life and Annuity Insurance Company. HIMCO generally invests those assets as
described above for the Contract General Account related investments of Union
Security.
<Page>
To obtain a Statement of Additional Information, please complete the form
below and mail to:
Union Security Life Insurance Company of New York
Attn: Investment Product Services
P.O. Box 5085
Hartford, Connecticut 06102-5085
Please send a Statement of Additional Information for TD Waterhouse Variable
Annuity to me at the following address:
<Table>
- ----------------------------------------------------------------
Name
- ----------------------------------------------------------------
Address
- ----------------------------------------------------------------
City/State Zip Code
</Table>
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Union Security Life Insurance Company of New York:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholder's equity and cash flows present fairly, in
all material respects, the financial position of Union Security Life Insurance
Company of New York (the "Company"), a direct wholly owned subsidiary of
Assurant, Inc. at December 31, 2005 and 2004, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2005 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with standards of the Public Company Accounting
Oversight Board (United States), which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
March 10, 2006
Minneapolis, Minnesota
F-1
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
AT DECEMBER 31, 2005 AND 2004
<Table>
<Caption>
DECEMBER 31,
--------------------------
2005 2004
--------------------------
(in thousands except
number of shares)
ASSETS
Investments:
Fixed maturities available for sale, at fair value (amortized cost - $113,980 in 2005 119,604 125,201
and $116,275 in 2004) $ $
Equity securities available for sale, at fair value (cost - $9,046 in 2005 and $8,514
in 2004) 8,790 8,571
Commercial mortgage loans on real estate at amortized cost 13,996 9,125
Policy loans 98 80
Short-term investments 3,341 4,575
Other investments 3,028 3,565
--------------------------
TOTAL INVESTMENTS 148,857 151,117
--------------------------
Cash and cash equivalents 2,863 5,360
Premiums and accounts receivable, net 3,359 4,858
Reinsurance recoverables 94,660 93,607
Due from affiliates 327 582
Accrued investment income 1,605 1,701
Tax receivable 122 1,250
Deferred acquisition costs 1,437 1,123
Deferred income taxes, net 1,999 1,481
Goodwill 2,038 2,038
Other assets 84 95
Assets held in separate accounts 25,343 32,446
--------------------------
TOTAL ASSETS $ 282,694 $ 295,658
--------------------------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-2
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
AT DECEMBER 31, 2005 AND 2004
<Table>
<Caption>
DECEMBER 31,
--------------------------
2005 2004
--------------------------
(in thousands except
number of shares)
LIABILITIES
Future policy benefits and expenses $ 35,762 $ 29,168
Unearned premiums 14,008 20,902
Claims and benefits payable 135,176 139,270
Commissions payable 4,463 5,001
Reinsurance balances payable 2,596 2,509
Funds held under reinsurance 83 89
Deferred gain on disposal of businesses 5,454 6,492
Accounts payable and other liabilities 3,366 8,292
Liabilities related to separate accounts 25,343 32,446
--------------------------
TOTAL LIABILITIES 226,251 244,169
--------------------------
Commitments and contingencies (Note 14) $ -- $ --
STOCKHOLDER'S EQUITY
Common stock, par value $20 per share, 100,000 shares authorized, issued, and
outstanding 2,000 2,000
Additional paid-in capital 43,006 43,006
Retained earnings 7,948 644
Accumulated other comprehensive income 3,489 5,839
--------------------------
TOTAL STOCKHOLDER'S EQUITY 56,443 51,489
--------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 282,694 $ 295,658
--------------------------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-3
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
-------------------------------------
2005 2004 2003
-------------------------------------
(in thousands)
REVENUES
Net earned premiums and other considerations $ 59,598 $ 65,593 $ 69,206
Net investment income 8,756 9,738 10,315
Net realized gain on investments 146 819 646
Amortization of deferred gain on disposal of businesses 1,038 1,575 1,896
Fees and other income 31 305 306
-------------------------------------
TOTAL REVENUES 69,569 78,030 82,369
-------------------------------------
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 34,571 42,732 45,114
Amortization of deferred acquisition costs 981 247 774
Underwriting, general and administrative expenses 16,656 18,442 23,237
-------------------------------------
TOTAL BENEFITS, LOSSES AND EXPENSES 52,208 61,421 69,125
-------------------------------------
Income before income taxes 17,361 16,609 13,244
Income taxes 5,957 4,632 4,507
-------------------------------------
NET INCOME $ 11,404 $ 11,977 $ 8,737
-------------------------------------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-4
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
<Table>
<Caption>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
------------------------------------------------------------------------
(in thousands except number of shares)
Balance, January 1, 2003 $ 2,000 $ 43,006 $ 20,139 $ 5,928 $ 71,073
Comprehensive income (loss):
Net income -- -- 8,737 -- 8,737
Net change in unrealized gains on
securities -- -- -- 941 941
Other -- -- (213) 213 --
------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME 9,678
-------------------------------------------------------------------------
Balance, December 31, 2003 2,000 43,006 28,663 7,082 80,751
Dividends on common stock -- -- (40,000) -- (40,000)
Comprehensive income (loss):
Net income -- -- 11,977 -- 11,977
Net change in unrealized gains on
securities -- -- -- (1,239) (1,239)
Other 4 (4) --
------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME 10,738
-------------------------------------------------------------------------
Balance, December 31, 2004 2,000 43,006 644 5,839 51,489
Dividends on common stock -- -- (4,100) -- (4,100)
Comprehensive income (loss): -- -- -- -- --
Net income -- -- 11,404 -- 11,404
Net change in unrealized gains on
securities -- -- -- (2,350) (2,350)
Other -- -- -- -- --
------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME 9,054
------------------------------------------------------------------------
Balance, December 31, 2005 $ 2,000 $ 43,006 $ 7,948 $ 3,489 $ 56,443
------------------------------------------------------------------------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-5
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
--------------------------------------
2005 2004 2003
--------------------------------------
(in thousands)
OPERATING ACTIVITIES
Net income $ 11,404 $ 11,977 $ 8,737
Adjustments to reconcile net income to net cash provided by operating
activities:
Change in reinsurance recoverable (1,053) 6,844 9,677
Change in premiums and accounts receivable 1,754 (2,663) 1,527
Change in deferred acquisition costs (314) (181) 628
Change in accrued investment income 96 484 148
Change in insurance policy reserves and expenses (4,394) (7,834) (13,537)
Change in accounts payable and other liabilities (4,926) (379) 716
Change in commissions payable (538) 1,190 (37)
Change in reinsurance balances payable 87 574 (872)
Change in funds held under reinsurance (6) (5) (167)
Amortization of deferred gain on disposal of businesses (1,038) (1,575) (1,896)
Change in income taxes 1,875 (794) (83)
Net realized gains on investments (146) (819) (646)
Other 57 (166) 18
--------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,858 6,653 4,213
--------------------------------------
INVESTING ACTIVITIES
Sales of:
Fixed maturities available for sale 18,531 57,159 30,892
Equity securities available for sale 1,143 4,376 2,486
Other invested assets 537 454 284
Maturities, prepayments, and scheduled redemption of:
Fixed maturities available for sale 15,909 11,035 22,010
Purchase of:
Fixed maturities available for sale (32,020) (28,388) (43,359)
Equity securities available for sale (1,700) (3,330) (8,986)
Other invested assets -- (1,807) --
Change in commercial mortgage loans on real estate (4,871) (5,325) (3,800)
Change in short term investments 1,234 3,516 (4,697)
Change in policy loans (18) (43) (13)
--------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (1,255) $ 37,647 $ (5,183)
--------------------------------------
FINANCING ACTIVITIES
Dividends paid $ (4,100) $ (40,000) --
--------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (4,100) (40,000) --
--------------------------------------
Change in cash and cash equivalents (2,497) 4,300 (970)
Cash and cash equivalents at beginning of period 5,360 1,060 2,030
--------------------------------------
Cash and cash equivalents at end of period $ 2,863 $ 5,360 $ 1,060
--------------------------------------
Supplemental information:
Income taxes paid $ 4,081 $ 5,428 $ 4,544
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-6
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004 AND 2003
(IN THOUSANDS EXCEPT SHARE DATA)
- ------------------------------------------------------------------------------
NOTE 1. NATURE OF OPERATIONS
Union Security Life Insurance Company of New York (the "Company"), formerly
known as First Fortis Life Insurance Company, is a provider of life and health
insurance products. The Company is a wholly owned subsidiary of Assurant, Inc.
(the "Parent"). Assurant, Inc. is traded on the New York Stock Exchange under
the symbol AIZ.
The Company is domiciled in New York and is qualified to sell life, health and
annuity insurance in the state of New York. The Company's revenues are derived
principally from group employee benefits and credit products. The Company
offers insurance products, including life insurance policies, annuity
contracts, and group life, accident and health insurance policies.
Effective September 6, 2005, the Company changed its name from First Fortis
Life Insurance Company in association with the Parent's initial public offering
on February 5, 2004.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). Dollar
amounts are presented in U.S. dollars and all amounts are in thousands except
for number of shares and per share amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities. The most significant items on the Company's balance
sheet affected by the use of estimates are investments, reinsurance
recoverables, deferred acquisition costs ("DAC"), deferred income taxes,
goodwill, future policy benefits and expenses, unearned premiums, claims and
benefits payable, deferred gain on disposal of business, and commitments and
contingencies. The estimates are sensitive to market conditions, investment
yields, mortality, morbidity, commissions and other acquisition expenses,
policyholder behavior and other factors. Actual results could differ from the
estimates reported. The Company believes the amounts reported are reasonable
and adequate.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income,
which includes foreign currency translation and unrealized gains and losses on
securities classified as available for sale, less deferred income taxes.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the 2005
presentation.
REVENUE RECOGNITION
The Company recognizes and reports revenue when realized or realizable and
earned. Revenue generally is realized or realizable and earned when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable, and collectibility is reasonably
assured.
INVESTMENTS
Fixed maturities and equity securities are classified as available-for-sale and
reported at fair value. If the fair value is higher than the amortized cost for
debt securities or the purchase cost for equity securities, the excess is an
unrealized gain; and if lower than cost, the difference is an unrealized loss.
The net unrealized gains and losses, less deferred income taxes are included in
accumulated other comprehensive income.
Commercial mortgage loans on real estate are reported at unpaid balances,
adjusted for amortization of premium or discount, less allowance for losses.
Policy loans are reported at unpaid principal balances, which do not exceed the
cash surrender value of the underlying policies.
Short-term investments include all investment cash and short maturity
investments. These amounts are reported at cost, which approximates fair value.
Other investments consist primarily of investments in joint ventures,
partnerships, and invested assets associated with a modified coinsurance
arrangement. The joint ventures and partnerships are valued according to the
equity method of accounting. The invested assets related to a modified
coinsurance arrangements are classified as trading securities and are reported
at fair value.
The Company monitors its investment portfolio to identify investments that may
be other than temporarily impaired. Changes in individual security values are
monitored in order to identify potential credit problems. In addition,
securities whose market price is equal to 85% or less of their original
purchase price are added to the impairment watchlist, which is discussed at
monthly meetings attended by members of the Company's investment, accounting
and finance departments. Any security whose price decrease is deemed other-
than-temporary is written down to its then current market level with the amount
of the writedown reported as a realized loss in that period. Assessment factors
include, but are not limited to, the financial condition and rating of the
issuer, any collateral held and the length of
F-7
<Page>
time the market value of the security has been below cost. Realized gains and
losses on sales of investments and declines in value judged to be other-than-
temporary are recognized on the specific identification basis.
Investment income is reported as earned net of investment expenses.
The Company anticipates prepayments of principal in the calculation of the
effective yield for mortgage-backed securities and structured securities. The
majority of the Company's mortgage-backed securities and structured securities
are of high credit quality. The retrospective method is used to adjust the
effective yield.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, all operating cash and working capital cash
to be cash equivalents. These amounts are carried principally at cost, which
approximates fair value. Cash balances are reviewed at the end of each
reporting period to determine if negative cash balances exist. If negative cash
balances do exist, the cash accounts are netted with other positive cash
accounts of the same bank providing the right of offset exists between the
accounts. If the right of offset does not exist, the negative cash balances are
reclassified to accounts payable.
RECEIVABLES
The Company reports a receivable when revenue has been recognized and reported
but not collected. The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability to collect payments.
REINSURANCE
Reinsurance recoverables include amounts related to paid benefits and estimated
amounts related to unpaid policy and contract claims, future policyholder
benefits and policyholder contract deposits. The cost of reinsurance is
recognized over the terms of the underlying reinsured policies using
assumptions consistent with those used to account for the policies. Amounts
recoverable from reinsurers are estimated in a manner consistent with claim and
claim adjustment expense reserves or future policy benefits reserves and are
reported in the balance sheets. The cost of reinsurance related to long-
duration contracts is recognized over the life of the underlying reinsured
policies. The ceding of insurance does not discharge the Company's primary
liability to insureds. An estimated allowance for doubtful accounts is recorded
on the basis of periodic evaluations of balances due from reinsurers, reinsurer
solvency, management's experience, and current economic conditions.
Reinsurance balances payable are reported for reinsurance assumed based upon
ceding entities' estimations.
Funds held under reinsurance represent amounts contractually held from assuming
companies in accordance with reinsurance agreements.
Reinsurance premiums assumed are calculated based upon payments received from
ceding companies together with accrual estimates, which are based on both
payments received and in force policy information received from ceding
companies. Any subsequent differences arising on such estimates are recorded in
the period in which they are determined.
INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Assurant. Income tax expense
or credit is allocated among the affiliated subsidiaries by applying corporate
income tax rates to taxable income or loss determined on a separate return
basis according to a tax allocation agreement.
Current federal income taxes are charged to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations for
the current year. Deferred income taxes are recognized for temporary
differences between the financial reporting basis and income tax basis of
assets and liabilities, based on enacted tax laws and statutory tax rates
applicable to the periods in which we expect the temporary differences to
reverse. The Company is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred tax assets and, therefore, no
such valuation allowance has been established.
DEFERRED ACQUISITION COSTS
The costs of acquiring new business that vary with and are primarily related to
the production of new business are deferred to the extent that such costs are
deemed recoverable from future premiums or gross profits. Acquisition costs
primarily consist of commissions, policy issuance expenses, and certain direct
marketing expenses.
Loss recognition testing is performed annually and reviewed quarterly. Such
testing involves the use of best estimate assumptions including the
anticipation of interest income to determine if anticipated future policy
premiums are adequate to recover all DAC and related claims, benefits and
expenses. To the extent a premium deficiency exists, it is recognized
immediately by a charge to the statement of operations and a corresponding
reduction in DAC. If the premium deficiency is greater than unamortized DAC, a
liability will be accrued for the excess deficiency.
Long Duration Contracts
Acquisition costs on the Fortis Financial Group ("FFG") and Long-Term Care
("LTC") disposed businesses were written off when the businesses were sold.
Short Duration Contracts
Acquisition costs relating to monthly pay credit insurance business consist
mainly of direct marketing costs and are deferred and amortized over the
estimated average terms and balances of the underlying contracts.
Acquisition costs relating to group term life, group disability and group
dental consist primarily of new business underwriting, field sales support,
commissions to agents and
F-8
<Page>
brokers, and compensation to sales representatives. These acquisition costs are
front-end loaded; thus they are deferred and amortized over the estimated terms
of the underlying contracts.
GOODWILL
Goodwill represents the excess of acquisition costs over the net fair values of
identifiable assets acquired and liabilities assumed in a business combination.
Goodwill is deemed to have an indefinite life and is not amortized, but rather
tested at least annually for impairment. The goodwill impairment test has two
steps. The first identifies potential impairments by comparing the fair value
of a reporting unit with its book value, including goodwill. If the fair value
of the reporting unit exceeds the carrying amount, goodwill is not impaired and
the second step is not required. If the carrying value exceeds the fair value,
the second step calculates the possible impairment loss by comparing the
implied fair value of goodwill with the carrying amount. If the implied
goodwill is less than the carrying amount, a write down is recorded. The fair
value is based on an evaluation of ranges of future discounted earnings, public
company trading multiples and acquisitions of similar companies. Certain key
assumptions considered include forecasted trends in revenues, operating
expenses and effective tax rates.
The Company adopted the Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, on January 1, 2002. As part of the adoption of SFAS 142, the
Company is required to test goodwill on at least an annual basis. The Company
performed a January 1, 2005 impairment test during the first quarter and
concluded that goodwill is not impaired. Effective September 30, 2005, the
Company changed the date of its annual goodwill impairment test to the fourth
quarter based on actual data through October 1st. The Company determined this
change in accounting principle is preferable because it will allow management
to incorporate this test into the normal flow of the financial planning and
reporting cycle and provide more timely analysis on the recoverability of
goodwill. The Company's fourth quarter 2005 impairment test also concluded that
goodwill is not impaired.
OTHER ASSETS
Other assets include prepaid items and intangible assets. Identifiable
intangible assets with finite lives, including costs capitalized relating to
developing software for internal use, are amortized on a straight-line basis
over their estimated useful lives. The Company tests the intangible assets for
impairment whenever circumstances warrant, but at least annually. If impairment
exists, then excess of the unamortized balance over the fair value of the
intangible assets will be charged to earnings at that time.
SEPARATE ACCOUNTS
Assets and liabilities associated with separate accounts relate to premium and
annuity considerations for variable life and annuity products for which the
contract-holder, rather than the Company, bears the investment risk. Separate
account assets are reported at fair value. Revenues and expenses related to the
separate account assets and liabilities, to the extent of benefits paid or
provided to the separate account policyholders, are excluded from the amounts
reported in the accompanying statements of operations.
Prior to April 2, 2001, the Company had issued variable insurance products
registered as securities under the Securities Act of 1933. These products
featured fixed premiums, a minimum death benefit, and policyholder returns
linked to an underlying portfolio of securities. The variable insurance
products issued by the Company have been 100% reinsured with The Hartford
Financial Services Group Inc. ("The Hartford").
RESERVES
Reserves are established according to GAAP, using generally accepted actuarial
methods and are based on a number of factors. These factors include experience
derived from historical claim payments and actuarial assumptions to arrive at
loss development factors. Such assumptions and other factors include trends,
the incidence of incurred claims, the extent to which all claims have been
reported, and internal claims processing charges. The process used in computing
reserves cannot be exact, particularly for liability coverages, since actual
claim costs are dependent upon such complex factors as inflation, changes in
doctrines of legal liabilities and damage awards. The methods of making such
estimates and establishing the related liabilities are periodically reviewed
and updated.
Reserves do not represent an exact calculation of exposure, but instead
represent our best estimates, generally involving actuarial projections at a
given time, of what we expect the ultimate settlement and administration of a
claim or group of claims will cost based on our assessment of facts and
circumstances then known. The adequacy of reserves will be impacted by future
trends in claims severity, frequency, judicial theories of liability and other
factors. These variables are affected by both external and internal events,
such as: changes in the economic cycle, changes in the social perception of the
value of work, emerging medical perceptions regarding physiological or
psychological causes of disability, emerging health issues and new methods of
treatment or accommodation, inflation, judicial trends, legislative changes and
claims handling procedures.
Many of these items are not directly quantifiable, particularly on a
prospective basis. Reserve estimates are refined as experience develops.
Adjustments to reserves, both positive and negative, are reflected in the
statement of operations of the period in which such estimates are updated.
Because establishment of reserves is an inherently uncertain process involving
estimates of future losses, there can be no certainty that ultimate losses will
not exceed existing claims reserves. Future loss development could require
reserves to be increased, which could have a material adverse effect on our
earnings in the periods in which such increases are made.
F-9
<Page>
Long Duration Contracts
Future policy benefits and expense reserves on LTC, life insurance policies and
annuity contracts that are no longer offered and the traditional life insurance
contracts within the Company are reported at the present value of future
benefits to be paid to policyholders and related expenses less the present
value of the future net premiums. These amounts are estimated and include
assumptions as to the expected investment yield, inflation, mortality,
morbidity and withdrawal rates as well as other assumptions that are based on
the Company's experience. These assumptions reflect anticipated trends and
include provisions for possible unfavorable deviations.
Future policy benefits and expense reserves for universal life insurance
policies and investment-type annuity contracts no longer offered and the
variable life insurance and investment-type annuity contracts in the Company
consist of policy account balances before applicable surrender charges and
certain deferred policy initiation fees that are being recognized in income
over the terms of the policies. Policy benefits charged to expense during the
period include amounts paid in excess of policy account balances and interest
credited to policy account balances.
Changes in the estimated liabilities are reported as a charge or credit to
policyholder benefits as the estimates are revised.
Short Duration Contracts
For short duration contracts, claims and benefits payable reserves are reported
when insured events occur. The liability is based on the expected ultimate cost
of settling the claims. The claims and benefits payable reserves include (1)
case reserves for known but unpaid claims as of the balance sheet date; (2)
incurred but not reported ("IBNR") reserves for claims where the insured event
has occurred but has not been reported to the Company as of the balance sheet
date; and (3) loss adjustment expense reserves for the expected handling costs
of settling the claims.
For group disability, the case reserves and the IBNR are reported at an amount
equal to the net present value of the expected claims future payments. Group
long-term disability and group term life waiver of premiums reserves are
discounted to the valuation date at the valuation interest rate. The valuation
interest rate is reviewed quarterly by taking into consideration actual and
expected earned rates on our asset portfolio, with adjustments for investment
expenses and provisions for adverse deviation. Group long term disability and
group term life reserve adequacy studies are performed annually, and morbidity
and mortality assumptions are adjusted where appropriate.
Unearned premium reserves are maintained for the portion of the premiums on
short duration contracts that is related to the unexpired period of the
policies.
Changes in the estimated liabilities are reported as a charge or credit to
policyholder benefits as estimates are revised.
DEFERRED GAIN ON DISPOSAL OF BUSINESSES
The Company reports deferred gain on disposal of businesses for disposals
utilizing reinsurance. On March 1, 2000, the Company sold its LTC business
using a coinsurance contract. On April 2, 2001, the Company sold its annuity
business using a modified coinsurance contract. Since the form of sale did not
discharge the Company's primary liability to the insureds, the gain on these
disposals was deferred and reported as a liability and decreased as it is
recognized and reported as revenue over the estimated life of the contracts'
terms. The Company reviews and evaluates the estimates affecting the deferred
gain on disposal of businesses annually or when significant information
affecting the estimates becomes known to the Company.
PREMIUMS
Long Duration Contracts
Premiums for LTC insurance and traditional life insurance contracts within the
annuity business are recognized and reported as revenue when due from the
policyholder. For universal life insurance and investment-type annuity
contracts within the annuity business, revenues consist of charges assessed
against policy balances. For the annuity business and LTC businesses previously
sold, all revenue is ceded.
Short Duration Contracts
The Company's short duration contracts are those on which the Company
recognizes and reports revenue on a pro-rata basis over the contract term. The
Company's short duration contracts primarily include group term life, group
disability, dental, and credit life and disability.
FEE INCOME
The Company primarily derives income from fees received from providing
administrative services. Fee income is recognized and reported when services
are performed.
UNDERWRITING, GENERAL AND ADMINISTRATIVE EXPENSES
Underwriting, general and administrative expenses consist primarily of
commissions, premium taxes, licenses, fees, amortization of DAC, salaries and
personnel benefits and other general operating expenses. These expenses are
reported as incurred.
LEASES
The Company reports expenses for operating leases on a straight-line basis over
the lease term.
CONTINGENCIES
The Company follows SFAS No. 5, ACCOUNTING FOR CONTINGENCIES ("SFAS No. 5").
This requires the Company to evaluate each contingent matter separately. A loss
is reported if reasonably estimable and probable. The Company establishes
reserves for these contingencies at the best estimate, or if no one estimated
number within the range of possible losses is more probable than any other, the
Company reports an estimated reserve at the low end of the estimated range.
Contingencies affecting the
F-10
<Page>
Company include litigation matters which are inherently difficult to evaluate
and are subject to significant changes.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004), SHARE-BASED PAYMENT ("FAS 123R") which replaces Statement
of Financial Accounting Standards No. 123, SHARE-BASED PAYMENT and supersedes
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. FAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values. The pro forma disclosures previously permitted
under FAS 123 no longer will be an alternative to financial statement
recognition. Under FAS 123R, the company must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization
method for compensation cost, and the transition method to be used at date of
adoption. The permitted transition methods include either retrospective or
prospective adoption. Under the retrospective option, prior periods may be
restated either as of the beginning of the year of adoption or for all periods
presented for all unvested stock options beginning with the first period
presented. The prospective method requires that compensation expense be
recorded for all unvested stock options at the beginning of the first quarter
of adoption of FAS 123R. In April 2005, the Securities and Exchange Commission
approved a new rule for public companies which delays the effective date of FAS
123R. Under the new rule, public companies are required to adopt FAS 123R in
the first annual period after June 15, 2005, and, therefore, the Company is
required to adopt FAS 123R by the first quarter of 2006. Except for this
deferral of the effective date, the guidance in FAS 123R is unchanged. The
Company does not expect the adoption of FAS 123R to have a material impact on
the Company's financial statements.
In June 2005, the FASB issued Statement of Financial Accounting Standards No.
154, ACCOUNTING CHANGES AND ERROR CORRECTIONS, A REPLACEMENT OF APB OPINION NO.
20, ACCOUNTING CHANGES, AND STATEMENT NO. 3, REPORTING ACCOUNTING CHANGES IN
INTERIM FINANCIAL STATEMENTS" ("FAS 154"). FAS 154 changes the accounting and
reporting of a change in accounting principle. Prior to FAS 154, the majority
of voluntary changes in accounting principles were required to be recognized as
a cumulative effect adjustment within net income during the period of the
change. FAS 154 requires retrospective application to prior period financial
statements unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. FAS 154 is effective for
accounting changes made in fiscal years beginning after December 15, 2005 but
does not change the transition provisions of any existing accounting
pronouncements. The Company does not believe the adoption of FAS 154 will have
a material effect on our consolidated financial position or results of
operations.
In September 2005, the AICPA issued Statement of Position 05-1, ACCOUNTING BY
INSURANCE ENTERPRISES FOR DEFERRED ACQUISITION COSTS IN CONNECTION WITH
MODIFICATIONS OR EXCHANGES OF INSURANCE CONTRACTS, ("SOP 05-1"). SOP 05-1
provides guidance on internal replacements of insurance and investment
contracts. An internal replacement is a modification in product benefits,
features, rights or coverages that occurs by the exchange of a contract for a
new contract, or by amendment, endorsement, or rider to a contract, or by the
election of a feature or coverage within a contract. Modifications that result
in a new contract that is substantially different from the replaced contract
are accounted for as an extinguishment of the replaced contract, and the
associated unamortized DAC, unearned revenue liabilities and deferred sales
inducements from the replaced contract must be reported as an expense
immediately. Modifications resulting in a new contract that is substantially
the same as the replaced contract are accounted for as a continuation of the
replaced contract. SOP 05-1 is effective for internal replacements occurring in
fiscal years beginning after December 15, 2006. The Company is currently
evaluating the requirements of SOP 05-1 and the potential impact on the
Company's financial statements.
In February 2006, the FASB issued SFAS No. 155, ACCOUNTING FOR CERTAIN HYBRID
FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140 ("SFAS
155"). This statement resolves issues addressed in SFAS 133 Implementation
Issue No. D1, APPLICATION OF STATEMENT 133 TO BENEFICIAL INTEREST IN
SECURITIZED FINANCIAL ASSETS. SFAS 155 (a) permits fair value remeasurement for
any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; (b) clarifies which interest-only strips
and principal-only strips are not subject to the requirements of SFAS 133; (c)
establishes a requirement to evaluate beneficial interests in securitized
financial assets to identify interests that are freestanding derivatives or
that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation; (d) clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives; and (e) eliminates
restrictions on a qualifying special-purpose entity's ability to hold passive
derivative financial instruments that pertain to beneficial interests that are
or contain a derivative financial instrument. SFAS 155 also requires
presentation within the financial statements that identifies those hybrid
financial instruments for which the fair value election has been applied and
information on the income statement impact of the changes in fair value of
those instruments. The Company is required to apply SFAS 155 to all financial
instruments acquired, issued or subject to a remeasurement event beginning
January 1, 2007. The Company does not expect the adoption of SFAS 155 to have a
material impact on the Company's financial statements.
F-11
<Page>
NOTE 3. INVESTMENTS
The amortized cost and fair value of fixed maturities and equity securities as
of December 31, 2005 were as follows:
<Table>
<Caption>
Cost or Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------------------------------------------------------
FIXED MATURITIES
BONDS:
United States Government and government agencies and
authorities $ 21,735 $ 716 $ (167) $ 22,284
States, municipalities and political subdivisions 3,326 250 -- 3,576
Foreign governments 2,798 218 (18) 2,998
Public utilities 15,493 987 (20) 16,460
All other corporate bonds 70,628 3,969 (311) 74,286
----------------------------------------------------------
TOTAL FIXED MATURITIES 113,980 6,140 (516) 119,604
----------------------------------------------------------
EQUITY SECURITIES
Non-redeemable preferred stocks:
Non-sinking fund preferred stocks 9,046 60 (316) 8,790
----------------------------------------------------------
TOTAL EQUITY SECURITIES $ 9,046 $ 60 $ (316) $ 8,790
----------------------------------------------------------
</Table>
The amortized cost and fair value of fixed maturities as of December 31, 2004
were as follows:
<Table>
<Caption>
Cost or Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------------------------------------------------------
FIXED MATURITIES
BONDS:
United States Government and government agencies and
authorities $ 21,001 $ 698 $ (22) $ 21,677
States, municipalities and political subdivisions 2,777 276 -- 3,053
Foreign governments 2,842 209 (5) 3,046
Public utilities 16,376 1,670 (1) 18,045
All other corporate bonds 73,279 6,172 (71) 79,380
----------------------------------------------------------
TOTAL FIXED MATURITIES $ 116,275 $ 9,025 $ (99) $ 125,201
----------------------------------------------------------
EQUITY SECURITIES
Non-redeemable preferred stocks:
Non-sinking fund preferred stocks $ 8,514 $ 142 $ (85) $ 8,571
----------------------------------------------------------
TOTAL EQUITY SECURITIES $ 8,514 $ 142 $ (85) $ 8,571
----------------------------------------------------------
</Table>
The amortized cost and fair value of fixed maturities at December 31, 2005 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because issuers of the securities may have the right to
call or prepay obligations with or without call or prepayment penalties.
<Table>
<Caption>
Amortized Cost Fair Value
--------------------------------
Due in one year or less $ 3,719 $ 3,762
Due after one year through five years 17,855 18,468
Due after five years through ten years 32,776 33,734
Due after ten years 36,590 40,656
--------------------------------
Total 90,940 96,620
Mortgage and asset backed securities 23,040 22,984
--------------------------------
TOTAL $ 113,980 $ 119,604
--------------------------------
</Table>
Proceeds from sales of available for sale securities were $19,674, $61,535, and
$33,378 during 2005, 2004 and 2003, respectively. Gross gains of $498, $1,474
and $1,247 and gross losses of $332, $427 and $560 were realized on sales of
fixed maturities and equity securities in 2005, 2004 and 2003, respectively.
F-12
<Page>
Major categories of net investment income were as follows:
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
----------------------------------
2005 2004 2003
----------------------------------
Fixed maturities $ 7,135 $ 8,517 $ 9,677
Equity securities 581 719 528
Commercial mortgage loans on real estate 645 337 --
Policy loans 7 4 3
Short-term investments 158 98 61
Other investments 275 185 185
Cash and cash equivalents 180 -- --
Investment expenses (225) (122) (139)
----------------------------------
NET INVESTMENT INCOME $ 8,756 $ 9,738 $ 10,315
----------------------------------
</Table>
The net realized gains (losses) recorded in income for 2005, 2004 and 2003 are
summarized as follows:
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
----------------------------
2005 2004 2003
----------------------------
Fixed maturities $ 172 $ 1,060 $ 628
Equity securities (26) (13) 21
----------------------------
Total marketable securities 146 1,047 649
Other -- (228) (3)
----------------------------
TOTAL $ 146 $ 819 $ 646
----------------------------
</Table>
The Company recorded $20, $0 and $38 of pre-tax realized losses in 2005, 2004
and 2003, respectively, associated with other-than-temporary declines in value
of available for sale securities.
The investment category and duration of the Company's gross unrealized losses
on fixed maturities and equity securities at December 31, 2005 were as follows:
<Table>
<Caption>
Less than 12 months 12 Months or More Total
-------------------------------------------------------------------------------------
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
-------------------------------------------------------------------------------------
FIXED MATURITIES
BONDS:
United States Government
and government agencies
and authorities $ 8,996 $ (154) $ 496 $ (13) $ 9,492 $ (167)
States, municipalities and
political subdivisions -- -- -- -- -- --
Foreign governments 1,516 (18) -- -- 1,516 (18)
Public utilities 1,030 (17) 48 (3) 1,078 (20)
All other corporate bonds 12,593 (268) 707 (43) 13,300 (311)
-------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 24,135 $ (457) $ 1,251 $ (59) $ 25,386 $ (516)
-------------------------------------------------------------------------------------
EQUITY SECURITIES
COMMON STOCKS:
Public utilities $ -- $ -- $ -- $ -- $ -- $ --
Banks, trusts and
insurance companies -- -- -- -- -- --
Industrial, miscellaneous
and all other -- -- -- -- -- --
NON-REDEEMABLE PREFERRED
STOCKS:
Non-sinking fund preferred
stocks 5,168 (176) 1,878 (140) 7,046 (316)
-------------------------------------------------------------------------------------
TOTAL EQUITY SECURITIES $ 5,168 $ (176) $ 1,878 $ (140) $ 7,046 $ (316)
-------------------------------------------------------------------------------------
</Table>
F-13
<Page>
The total unrealized loss represents less than 3% of the aggregate fair value
of the related securities. Approximately 76% of these securities in an
unrealized loss position have been in a continuous loss position for less than
twelve months. The total unrealized losses on securities that were in a
continuous unrealized loss position for longer than six months but less than 12
months were approximately $158, with no security with a book value greater than
$1,000 having a market value below 98% of book value.
As part of the Company's ongoing monitoring process, the Company regularly
reviews its investment portfolio to ensure that investments that may be other
than temporarily impaired are identified on a timely basis and that any
impairment is charged against earnings in the proper period. The Company has
reviewed these securities and concluded that there were no additional other
than temporary impairments as of December 31, 2005. Due to issuers' continued
satisfaction of the securities' obligations in accordance with their
contractual terms and their continued expectations to do so, as well as the
Company's evaluation of the fundamentals of the issuers' financial condition,
the Company believes that the securities in an unrealized loss status are not
impaired and intends to hold them until recovery.
The Company has made commercial mortgage loans, collateralized by the
underlying real estate, on properties located throughout the United States. At
December 31, 2005, approximately 71% of the outstanding principal balance of
commercial mortgage loans was concentrated in the states of New York,
Washington, and Minnesota. A potential loss reserve based on historical data
adjusted for current expectations is maintained and is typically between 1.25%
and 2.25% of commercial mortgage loans on real estate. As of December 31, 2005
the reserve was approximately 1.4% of the unpaid principal of our commercial
mortgage loans, or $200.
The Company had fixed maturities carried at $438 and $959 at December 31, 2005
and 2004, respectively, on deposit with various governmental authorities as
required by law.
NOTE 4. INCOME TAXES
The Company is subject to U.S. taxes. Starting in 2003, it is part of the U.S.
consolidated federal income tax return with its parent, Assurant, Inc.
Information about the Company's current and deferred tax expense is as follows:
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
---------------------------------
2005 2004 2003
---------------------------------
CURRENT EXPENSE:
Federal $ 5,209 $ 2,406 $ 3,837
---------------------------------
TOTAL CURRENT EXPENSE 5,209 2,406 3,837
---------------------------------
DEFERRED EXPENSE
Federal 748 2,226 670
---------------------------------
TOTAL DEFERRED EXPENSE 748 2,226 670
---------------------------------
TOTAL INCOME TAX EXPENSE $ 5,957 $ 4,632 $ 4,507
---------------------------------
</Table>
A reconciliation of the federal income tax rate to the Company's effective
income tax rate is as follows:
<Table>
<Caption>
DECEMBER 31,
----------------------------------
2005 2004 2003
----------------------------------
FEDERAL INCOME TAX RATE 35.0% 35.0% 35.0%
RECONCILING ITEMS:
Tax exempt interest (0.2) (0.3) (0.2)
Dividends received deduction (0.2) (0.4) (0.7)
Permanent nondeductible expenses 0.3 -- 0.2
Change in reserve for prior year taxes (0.4) (6.0) --
Other (0.2) (0.4) (0.3)
----------------------------------
EFFECTIVE INCOME TAX RATE: 34.3% 27.9% 34.0%
----------------------------------
</Table>
F-14
<Page>
The tax effects of temporary differences that result in significant deferred
tax assets and deferred tax liabilities are as follows:
<Table>
<Caption>
DECEMBER 31,
---------------------
2005 2004
---------------------
DEFERRED TAX ASSETS:
Policyholder and separate account reserves $ -- $ 404
Accrued liabilities 136 166
Deferred acquisition costs 1,073 1,300
Deferred gains on reinsurance 1,909 2,272
Investment adjustment 115 19
Other assets 723 464
---------------------
GROSS DEFERRED TAX ASSETS 3,956 4,625
---------------------
DEFERRED TAX LIABILITIES:
Policyholder and separate account reserves 78 --
Unrealized gains on fixed maturities and equities 1,879 3,144
---------------------
GROSS DEFERRED TAX LIABILITIES 1,957 3,144
---------------------
NET DEFERRED INCOME TAX ASSET $ 1,999 $ 1,481
---------------------
</Table>
As of December 31, 2005, the Company had capital loss carryforwards for U.S.
federal income tax purposes. Capital loss carryforwards related to other assets
in the table above total $2,065 and will expire in 2010 if unused.
NOTE 5. STOCKHOLDER'S EQUITY
The Board of Directors of the Company has authorized 100,000 shares of common
stock with a stated value of $20 per share. All the shares are issued and
outstanding as of December 31, 2005 and 2004. All the outstanding shares at
December 31, 2005 are owned by Assurant, Inc. (see Note 1). The Company paid
dividends of $4,100, $40,000, and $0 at December 31, 2005, 2004 and 2003,
respectively.
The maximum amount of dividends which can be paid by the State of New York
insurance companies to shareholders without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus (see Note
6).
NOTE 6. STATUTORY INFORMATION
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by the New York Department of Commerce.
Prescribed SAP includes the Accounting Practices and Procedures Manual of the
National Association of Insurance Commissioners ("NAIC") as well as state laws,
regulations and administrative rules.
The principal differences between statutory accounting principles ("SAP") and
GAAP are: 1) policy acquisition costs are expensed as incurred under SAP, but
are deferred and amortized under GAAP; 2) the value of business acquired is not
capitalized under SAP but is under GAAP; 3) amounts collected from holders of
universal life-type and annuity products are recognized as premiums when
collected under SAP, but are initially recorded as contract deposits under
GAAP, with cost of insurance recognized as revenue when assessed and other
contract charges recognized over the periods for which ervices are provided; 4)
the classification and carrying amounts of investments in certain securities
are different under SAP than under GAAP; 5) the criteria for providing asset
valuation allowances, and the methodologies used to determine the amounts
thereof, are different under SAP than under GAAP; 6) the timing of establishing
certain reserves, and the methodologies used to determine the amounts thereof,
are different under SAP than under GAAP; 7) certain assets are not admitted for
purposes of determining surplus under SAP; 8) methodologies used to determine
the amounts of deferred taxes and goodwill are different under SAP than under
GAAP; and 9) the criteria for obtaining reinsurance accounting treatment is
different under SAP than under GAAP.
F-15
<Page>
Reconciliations of net income and stockholder's equity on the basis of
statutory accounting to the related amounts presented in the accompanying
statements were as follows:
<Table>
<Caption>
Net Income Shareholder's Equity
--------------------------------------------------------------
2005 2004 2003 2005 2004
--------------------------------------------------------------
Based on statutory accounting practices $ 10,538 $ 11,088 $ 10,190 $ 49,026 $ 43,039
Deferred policy acquisition costs 314 181 (628) 1,437 1,123
Deferred and uncollected premiums (87) 1,006 (932) 162 104
Policy reserves 602 591 (798) 2,614 2,002
Investment valuation difference -- -- -- 5,035 8,636
Commissions 534 99 426 (11) (134)
Deferred taxes -- -- -- -- (1,305)
Deferred gain on disposal of businesses 211 320 1,896 (5,451) (6,492)
Unearned ceding fee 147 612 -- (448) (827)
Amounts payable reinsurance ceded -- -- -- 942 25
Funds held under reinsurance treaty unauthorized
reinsurer -- -- -- -- --
Realized gains (losses) on investments 118 497 547 -- --
Amortization of goodwill -- -- -- 2,038 2,038
Income taxes (747) (2,226) (339) 681 1,481
Pension (149) (154) (61) (450) (300)
Amortization of IMR (77) (37) (5) -- --
Reinsurance in unauthorized companies -- -- -- -- 48
Interest maintenance reserve -- -- -- 596 569
Asset valuation reserve -- -- -- 1,012 1,182
Agents balances -- -- -- (3) 54
Other -- -- (1,559) (737) 246
--------------------------------------------------------------
BASED ON GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES $ 11,404 $ 11,977 $ 8,737 $ 56,443 $ 51,489
--------------------------------------------------------------
</Table>
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital (RBC) requirements developed by the NAIC. The
Company exceeds the minimum RBC requirements.
Dividend distributions to the Parent are restricted as to the amount by state
regulatory requirements. A dividend is extraordinary when combined with all
other dividends and distributions made with in the preceding 12 months exceeds
the greater of 10% of the insurers surplus as regards to policyholders on
December 31 of the next preceding year, or the net gain from operations. In
2005, the Company declared and paid dividends of $4,100, all of which were
ordinary. In 2004, the Company declared and paid dividends of $40,000, of which
$7,160 was ordinary and $32,840 was extraordinary. In 2003, the Company
declared no dividends. The Company has the ability, under state regulatory
requirements, to dividend up to $4,703 to its parent in 2006 without permission
from New York regulators.
NOTE 7. REINSURANCE
In the ordinary course of business, the Company is involved in both the
assumption and cession of reinsurance with non-affiliated companies. The
following table provides details of the reinsurance recoverables balance for
the years ended December 31:
<Table>
<Caption>
2005 2004
------------------------
Ceded future policy holder benefits and expense $ 35,688 $ 29,085
Ceded unearned premium 12,167 18,139
Ceded claims and benefits payable 44,225 44,291
Ceded paid losses 2,580 2,092
------------------------
TOTAL $ 94,660 $ 93,607
------------------------
</Table>
F-16
<Page>
The changes in direct premiums and premiums ceded were as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
2005 2004 2003
--------------------------------------------------------------------------------------------
Long Short Long Short Long Short
Duration Duration Total Duration Duration Total Duration Duration Total
--------------------------------------------------------------------------------------------
- ---------------------------
Gross earned
Premiums and
considerations $11,247 $70,879 $82,126 $10,930 $79,285 $90,215 $11,442 $97,379 $108,821
Premiums assumed -- 11,402 11,402 -- 13,174 13,174 -- 6,513 6,513
Premiums ceded (11,247) (22,683) (33,930) (10,930) (26,866) (37,796) (11,442) (34,686) (46,128)
--------------------------------------------------------------------------------------------
NET EARNED PREMIUMS AND $ -- $59,598 $59,598 $ -- $65,593 $65,593 $ -- $69,206 $69,206
OTHER CONSIDERATIONS
- --------------------------- --------------------------------------------------------------------------------------------
Gross policyholder $17,931 $44,880 $62,811 $19,628 $46,939 $66,567 $22,637 $61,514 $84,151
benefits
- ---------------------------
Benefits assumed -- 8,384 8,384 -- 15,304 15,304 -- 6,785 6,785
Benefits ceded (17,925) (18,699) (36,624) (19,619) (19,520) (39,139) (22,628) (23,194) (45,822)
--------------------------------------------------------------------------------------------
NET POLICYHOLDER BENEFITS $ 6 $34,565 $34,571 $ 9 $42,723 $42,732 $ 9 $45,105 $45,114
- --------------------------- --------------------------------------------------------------------------------------------
</Table>
The Company utilizes ceded reinsurance for loss protection and capital
management and business divestitures.
LOSS PROTECTION AND CAPITAL MANAGEMENT
As part of the Company's overall risk and capacity management strategy, the
Company purchases reinsurance for certain risks underwritten by the Company,
including significant individual or catastrophic claims, and to free up capital
to enable the Company to write additional business.
Under indemnity reinsurance transactions in which the Company is the ceding
insurer, the Company remains liable for policy claims if the assuming company
fails to meet its obligations. To limit this risk, the Company has control
procedures in place to evaluate the financial condition of reinsurers and to
monitor the concentration of credit risk to minimize this exposure. The
selection of reinsurance companies is based on criteria related to solvency and
reliability and, to a lesser degree, diversification as well as on developing
strong relationships with the Company's reinsurers for the sharing of risks.
BUSINESS DIVESTITURES
The Company has used reinsurance to exit certain businesses. Assets backing
ceded liabilities related to this business are held in trust for the benefit of
the Company and are reflected in the Company's balance sheet.
In 2001, the Company entered into a reinsurance agreement with the Hartford for
the sale of its annuity business. The reinsurance recoverable from the Hartford
was $5,840 and $5,559 as of December 31, 2005 and 2004, respectively. The
Company would be responsible to administer this business in the event of a
default by reinsurers. In addition, under the reinsurance agreement, the
Hartford is obligated to contribute funds to increase the value of the separate
account assets relating to modified guaranteed annuity business sold if such
value declines below the value of the associated liabilities. If the Hartford
fails to fulfill these obligations, the Company will be obligated to make these
payments.
In 2000, the Company divested its LTC operations to John Hancock. Reinsurance
recoverable from John Hancock was $36,278 and $28,862 as of December 31, 2005
and 2004, respectively.
NOTE 8. RESERVES
The following table provides reserve information by major lines of business as
of:
<Table>
<Caption>
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------------------------------------------------------------------------------
Future Policy Claims and Future Policy Claims and
Benefits and Unearned Benefits Benefits and Unearned Benefits
Examples Premiums Payable Expenses Premiums Payable
----------------------------------------------------------------------------------------
LONG DURATION CONTRACTS:
FFG and other disposed
businesses $ 35,762 $ 4,125 $ 4,038 $ 29,168 $ 2,648 $ 2,689
SHORT DURATION CONTRACTS:
Group term life -- 63 18,632 -- 103 20,045
Group disability -- 218 93,253 -- 129 92,641
Medical -- 4 1,279 -- 6 2,144
Dental -- 33 1,598 -- 95 1,939
Credit Life and Disability -- 9,565 16,376 -- 17,921 19,389
Other -- -- -- -- -- 423
----------------------------------------------------------------------------------------
TOTAL $ 35,762 $ 14,008 $ 135,176 $ 29,168 $ 20,902 $ 139,270
- ------------------------------ ----------------------------------------------------------------------------------------
</Table>
F-17
<Page>
The Company's short duration contract group disability category includes short
and long term disability products. Claims and benefits payable for long-term
disability have been discounted at 5.25%. The December 31, 2005 and 2004
liabilities include $63,686 and $64,386, respectively, of such reserves. The
amount of discounts deducted from outstanding reserves as of December 31, 2005
and 2004 are $20,946 and $20,747, respectively.
NOTE 9. FAIR VALUE DISCLOSURES
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS ("FAS 107") requires disclosure of fair value
information about financial instruments, as defined therein, for which it is
practicable to estimate such fair value. These financial instruments may or may
not be recognized in the balance sheets. In the measurement of the fair value
of certain financial instruments, if quoted market prices were not available
other valuation techniques were utilized. These derived fair value estimates
are significantly affected by the assumptions used. Additionally, FAS 107
excludes certain financial instruments including those related to insurance
contracts.
In estimating the fair value of the financial instruments presented, the
Company used the following methods and assumptions:
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: the carrying amount reported
approximates fair value because of the short maturity of the instruments.
FIXED MATURITY SECURITIES: the fair value for fixed maturity securities is
based on quoted market prices, where available. For fixed maturity securities
not actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
EQUITY SECURITIES: fair value of equity securities and non-sinking fund
preferred stocks is based upon quoted market prices.
COMMERCIAL MORTGAGE LOANS AND POLICY LOANS: the fair values of mortgage loans
are estimated using discounted cash flow analyses, based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Mortgage loans with similar characteristics are aggregated for
purposes of the calculations. The carrying amounts of policy loans are reported
in the balance sheets at amortized cost, which approximates fair value.
OTHER INVESTMENTS: the fair values of joint ventures are based on financial
statements provided by partnerships or members. The invested assets related to
a modified coinsurance arrangement and the AIP are classified as trading
securities and are reported at fair value. The carrying amounts of the
remaining other investments approximate fair value.
POLICY RESERVES UNDER INVESTMENT PRODUCTS: the fair values for the Company's
policy reserves under the investment products are determined using cash
surrender value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: separate account assets and
liabilities are reported at their estimated fair values in the balance sheet.
<Table>
<Caption>
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------
FINANCIAL ASSETS
Cash and cash equivalents $ 2,863 $ 2,863 $ 5,360 $ 5,360
Fixed maturities 119,604 119,604 125,201 125,201
Equity securities 8,790 8,790 8,571 8,571
Commercial mortgage loans on real estate 13,996 14,355 9,125 9,627
Policy loans 98 98 80 80
Short-term investments 3,341 3,341 4,575 4,575
Other investments 3,028 3,028 3,565 3,565
Assets held in separate accounts 25,343 25,343 32,446 32,446
FINANCIAL LIABILITIES
Policy reserves under investment products (Individual and
group annuities, subject to discretionary withdrawal) $ 5,462 $ 5,402 $ 5,286 $ 5,177
Liabilities related to separate accounts 25,343 25,343 32,446 32,446
----------------------------------------------------
</Table>
The fair value of the Company's liabilities for insurance contracts other than
investment-type contracts are not required to be disclosed. However, the fair
values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate risk, such
that the Company's exposure to changing interest rates is minimized through the
matching of investment maturities with amounts due under insurance contracts.
F-18
<Page>
NOTE 10. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Parent sponsors a defined benefit pension plan and certain other post
retirement benefits covering employees and certain agents who meet eligibility
requirements as to age and length of service. Plan assets of the defined
benefit plans are not specifically identified by each participating subsidiary.
Therefore, a breakdown of plan assets is not reflected in these financial
statements. The Company has no legal obligation for benefits under these plans.
The benefits are based on years of service and career compensation. The
Parent's pension plan funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus additional amounts as the Parent
may determine to be appropriate from time to time up to the maximum permitted,
and to charge each subsidiary an allocable amount based on its employee census.
Pension cost allocated to the Company amounted to approximately $124, $108 and
$61 for 2005, 2004 and 2003, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
our Parent, covering employees and certain agents who meet eligibility
requirements as to age and length of service. Benefits are payable to
participants on retirement or disability and to the beneficiaries of
participants in the event of death. For employees hired on or before December
31, 2000, the first 3% of an employee's contribution is matched 200% by the
Company. The second 2% is matched 50% by the Company. For employees hired after
December 31, 2000, the first 3% of an employee's contribution is matched 100%
by the Company. The second 2% is matched 50% by the Company. The amount
expensed was approximately $33, $15 and $42 for 2005, 2004 and 2003,
respectively.
With respect to retirement benefits, the Company participates in other health
care and life insurance benefit plans (postretirement benefits) for retired
employees, sponsored by our Parent. Health care benefits, either through the
Parent's sponsored retiree plan for retirees under age 65 or through a cost
offset for individually purchased Medigap policies for retirees over age 65,
are available to employees who retire on or after January 1, 1993, at age 55 or
older, with 10 years or more service. Life insurance, on a retiree pay all
basis, is available to those who retire on or after January 1, 1993. During
2005, 2004 and 2003 the Company incurred expenses related to retirement
benefits of $25, $37 and $23, respectively.
NOTE 11. DEFERRED POLICY ACQUISITION COSTS
Information regarding deferred policy acquisition costs follows:
<Table>
<Caption>
DECEMBER 31,
-------------------------------
2005 2004 2003
-------------------------------
Beginning Balance $ 1,123 $ 942 $ 1,570
Costs deferred 1,295 428 146
Amortization (981) (247) (774)
-------------------------------
ENDING BALANCE $ 1,437 $ 1,123 $ 942
-------------------------------
</Table>
NOTE 12. GOODWILL
Information regarding goodwill follows:
<Table>
<Caption>
DECEMBER 31,
---------------------------------
2005 2004 2003
---------------------------------
Beginning Balance $ 2,038 $ 2,038 $ 1,971
Acquisitions -- -- 67
---------------------------------
ENDING BALANCE $ 2,038 $ 2,038 $ 2,038
---------------------------------
</Table>
NOTE 13. RELATED PARTY TRANSACTIONS
The Company received various services from the Parent. These services include
assistance in benefit plan administration, corporate insurance, accounting,
tax, auditing, investment, information systems, actuarial and other
administrative functions. The fees paid for these services for years ended
December 31, 2005, 2004 and 2003 were $9,137, $4,192 and $4,236, respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating as a separate
company.
The Company cedes group liability business to its affiliate, Union Security
Insurance Company ("USIC"). The Company has ceded $6,588, $6,526 and $5,847 of
premium to USIC in 2005, 2004 and 2003, respectively. The Company has ceded
$24,879, $23,533 and $22,096 of reserves in 2005, 2004 and 2003, respectively,
to USIC.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under operating lease
arrangements. Certain facility leases contain escalation clauses based on
increases in the lessors' operating expenses. At December 31, 2005, the
aggregate future minimum lease payment under operating lease agreements that
have initial or non-cancelable terms in excess of one year are:
<Table>
2006 $ 718
2007 555
2008 558
2009 179
2010 and thereafter 119
--------
TOTAL MINIMUM FUTURE LEASE PAYMENTS $ 2,129
--------
</Table>
Rent expense was $623, $333 and $405 for 2005, 2004 and 2003 respectively.
The Company is regularly involved in litigation in the ordinary course of
business, both as a defendant and as a plaintiff. The Company may from time to
time be subject to a variety of legal and regulatory actions relating to the
Company's current and past business operations. While the Company cannot
predict the outcome of any pending or future litigation, examination or
investigation, the Company does not believe that any pending matter will have a
material adverse effect on the Company's business, financial condition or
results of operations.
F-19
<Page>
PART II
<Page>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
First Fortis' By-Laws provide for indemnity and payment of expenses of
First Fortis' officers and directors in connection with certain legal
proceedings, judgments, and settlements arising by reason of their service
as such, all to the extent and in the manner permitted by law. Applicable
New York law generally permits payment of such indemnification and expenses
if the person seeking indemnification has acted in good faith and for a
purpose that he reasonably believed to be in, or not opposed to, the best
interests of the Company, and, in a criminal proceeding, if the person
seeking indemnification also has no reasonable cause to believe his conduct
was unlawful. No indemnification is further permitted to an individual if
there has been an adjudication, and a judgement rendered adverse to the
individual seeking indemnification, finding that the acts were committed in
bad faith, as the result of active and deliberate dishonesty, or that there
was personal gain, financial profit, or other advantage which he or she was
not otherwise legally entitled.
There are agreements in place under which the underwriter and affiliated
persons of the Registrant may be indemnified against liabilities arising
out of acts or omissions in connection with the offer of the Contracts;
provided however, that so such indemnity will be made to the underwriter or
affiliated persons of the Registrant for liabilities to which they would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
<Page>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- --------------- ------------------------------------------------ ------------------------------------------------
1 Underwriting Agreement Incorporated by reference to
Post-Effective Amendment No. 8 to the
Registration Statement File No. 33-14761 filed
with the Commission on
April 15, 2005.
3(a) Amended and Restated Charter Incorporated by reference to Post-Effective
Amendment No. 14 to the Registration Statement
File No. 333-79701 filed with the Commission
on October 21, 2005.
3(b) By-laws Incorporated by reference to Post-Effective
Amendment No. 14 to the Registration Statement
File No. 333-79701 filed with the Commission
on October 21, 2005.
4 Variable Annuity Contract Incorporated by reference to
Pre-Effective Amendment No. 1 to the
Registration Statement File No. 333-20343
filed with the Commission on
May 9, 1997.
5 Opinion re legality Filed herewith.
21 Subsidiaries of the Registrant Incorporated by reference to Post-Effective
Amendment No. 15 to Registration Statement
File No. 333-79701 filed with the Commission
on April 7, 2006.
23(a) Legal Consent Filed herewith as Exhibit 5.
23(b) Consent of PricewaterhouseCoopers LLP, Filed herewith.
Independent Registered Public
Accounting Firm
24 Copy of Power of Attorney Filed herewith.
</Table>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the
<Page>
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Simsbury, State of
Connecticut on this 7th day of April, 2006.
<Table>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
By: P. Bruce Camacho *By: /s/ Christopher M. Grinnell
-------------------------------------------- --------------------------------------------
P. Bruce Camacho, Christopher M. Grinnell
President, Chief Executive Officer and Attorney-In-Fact
Chairman of the Board*
</Table>
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons, in the
capacities and on the date indicated.
<Table>
P. Bruce Camacho President,
Chief Executive Officer, Chairman of the Board
and Director*
Terry J. Kryshak
Sr. Vice President and Director*
Ranell M. Jacobson
Treasurer, Director and Principal Financial
Officer*
Melissa T. Hall
Assistant Treasurer, Director*
Leslie G. Silvester,
Director*
Allen R. Freedman
Director*
Dale E. Gardner
Director* *By: /s/ Christopher M. Grinnell
--------------------------------------------
Esther L. Nelson, Christopher M. Grinnell
Director* Attorney-in-Fact
H. Carroll Mackin,
Director* Date: April 7, 2006
</Table>
333-
<Page>
EXHIBIT INDEX
<Table>
5 Opinion and Consent of Douglas R. Lowe, Esq., corporate counsel of Union Security Life Insurance
Company of New York.
23(a) Legal Consent filed as part of Exhibit 5.
23(b) Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
24 Copy of Power of Attorney.
</Table>