<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 2007.
FILE NO. 333-20345
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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POST-EFFECTIVE AMENDMENT
NO. 13 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)
RICHARD J. WIRTH
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(860) 843-1941
(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)
------------
/X/ 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.
/ / 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
TELEPHONE: 1-800-862-6668 (CONTRACT OWNERS)
1-800-862-7155 (REGISTERED REPRESENTATIVES)
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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, 2007
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 2007
<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 11
Guarantee Periods 12
THE CONTRACT 13
Purchases and Contract Value 13
Charges and Fees 18
Death Benefit 18
Surrenders 19
ANNUITY PAYOUTS 20
OTHER PROGRAMS AVAILABLE 22
OTHER INFORMATION 23
Legal Matters 25
More Information 25
FEDERAL TAX CONSIDERATIONS 25
INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS 30
ACCUMULATION UNIT VALUES 37
FURTHER INFORMATION ABOUT UNION SECURITY LIFE INSURANCE COMPANY OF NEW 40
YORK
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION 44
APPENDIX I -- SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS 45
APPENDIX II -- INVESTMENTS BY UNION SECURITY 47
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. Their location and overnight mailing address is: 200 Hopmeadow
Street, Simsbury, Connecticut 06089. Their standard mailing address is: U.S.
Wealth Management, 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.
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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 0.34% 1.65%
(these are expenses that are deducted from Fund assets,
including management fees, Rule 12b-1 distribution
and/or service fees, and other expenses)
</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 $245
3 years $752
5 years $1,283
10 years $2,719
</Table>
(2) If you annuitize at the end of the applicable time period:
<Table>
1 year $215
3 years $722
5 years $1,253
10 years $2,689
</Table>
(3) If you do not Surrender your Contract:
<Table>
1 year $245
3 years $752
5 years $1,283
10 years $2,719
</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. A Market Value
Adjustment will also be applied to any General Account value that is transferred
from the General Account to other Sub-Accounts before the end of the Guarantee
Period. 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.
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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>
<Caption>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
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AIM VARIABLE INSURANCE FUNDS (1)
AIM V.I. CAPITAL APPRECIATION FUND -- Growth of capital A I M Advisors, Inc.
SERIES I
AIM V.I. CORE EQUITY FUND -- SERIES I Growth of capital A I M Advisors, Inc.
AIM V.I. GLOBAL HEALTH CARE FUND -- Capital growth A I M Advisors, Inc.
SERIES I
AIM V.I. TECHNOLOGY FUND -- SERIES I Capital growth A I M Advisors, Inc.
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 9
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<Table>
<Caption>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCEBERNSTEIN VARIABLE PRODUCTS
SERIES FUND, INC.
ALLIANCEBERNSTEIN VPS INTERNATIONAL Long-term growth of capital AllianceBernstein L.P.
RESEARCH GROWTH PORTFOLIO -- CLASS A
ALLIANCEBERNSTEIN VPS LARGE CAP GROWTH Long-term growth of capital AllianceBernstein L.P.
PORTFOLIO -- CLASS A
ALLIANCEBERNSTEIN VPS MONEY MARKET Safety of principal, maintenance of AllianceBernstein L.P.
PORTFOLIO -- CLASS A liquidity and maximum current income
AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.
AMERICAN CENTURY INVESTMENTS VP BALANCED Long-term capital growth and current American Century Investment Management,
FUND income Inc.
AMERICAN CENTURY INVESTMENTS VP CAPITAL Capital growth American Century Investment Management,
APPRECIATION Inc.
FEDERATED INSURANCE SERIES
FEDERATED AMERICAN LEADERS FUND II Long-term growth of capital Federated Equity Management Company of
Pennsylvania
FEDERATED CAPITAL INCOME FUND II High current income and moderate capital Federated Equity Management Company of
appreciation Pennsylvania
FEDERATED FUND FOR U.S. GOVERNMENT Current income Federated Investment Management Company
SECURITIES II
FEDERATED HIGH INCOME BOND FUND II High current income Federated Investment Management Company
HARTFORD SERIES FUND, INC.
HARTFORD INDEX HLS FUND -- CLASS IA Seeks to provide investment results which HL Investment Advisors, LLC
approximate the price and yield Sub-advised by Hartford Investment
performance of publicly traded common Management Company
stocks in the aggregate
ING INVESTORS TRUST
ING GLOBAL RESOURCES PORTFOLIO Long-term capital appreciation Directed Services Inc.
Sub-advised by ING Investment Management
Company
ING JPMORGAN EMERGING MARKETS EQUITY Capital appreciation ING Investments, LLC
PORTFOLIO Sub-advised by
J. P. Morgan Investment Management, Inc.
MFS(R) VARIABLE INSURANCE TRUST
MFS(R) EMERGING GROWTH SERIES -- INITIAL Capital appreciation MFS Investment Management(R)
CLASS
MFS(R) HIGH INCOME SERIES -- INITIAL Total return with an emphasis on high MFS Investment Management(R)
CLASS current income, but also considering
capital appreciation
MFS(R) STRATEGIC INCOME SERIES -- Total return with an emphasis on high MFS Investment Management(R)
INITIAL CLASS current income, but also considering
capital appreciation
NATIONWIDE VARIABLE INSURANCE TRUST (2)
GARTMORE NVIT DEVELOPING MARKETS FUND -- Long-term capital appreciation Gartmore Mutual Funds Capital Trust
CLASS II (3) Sub-advised by Gartmore Global Partners
</Table>
<Page>
10 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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<Table>
<Caption>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT
TRUST
LEHMAN BROTHERS SHORT DURATION BOND Seeks high current income consistent with Neuberger Berman Management Inc.
PORTFOLIO (4) liquidity and low risk to principal; Sub-advised by Lehman Brothers Asset
total return is a secondary goal Management LLC
PARTNERS PORTFOLIO Growth of capital Neuberger Berman Management Inc.
Sub-advised by Neuberger Berman, LLC
PIONEER VARIABLE CONTRACTS TRUST
PIONEER FUND VCT PORTFOLIO -- CLASS II Long-term growth of capital and Pioneer Investment Management, Inc.
reasonable current income
PIONEER GROWTH OPPORTUNITIES VCT Capital growth Pioneer Investment Management, Inc.
PORTFOLIO -- CLASS I
VAN ECK WORLDWIDE INSURANCE TRUST
VAN ECK WORLDWIDE BOND FUND High total return -- income plus capital Van Eck Associates Corporation
appreciation
VAN ECK WORLDWIDE HARD ASSETS FUND Long-term capital appreciation Van Eck Associates Corporation
WELLS FARGO VARIABLE TRUST FUNDS (5)
WELLS FARGO ADVANTAGE VT DISCOVERY FUND Long-term capital appreciation Wells Fargo Funds Management, LLC
Sub-advised by Wells Capital Management
Incorporated
</Table>
NOTES
(1) Formerly AIM Variable Insurance Funds, Inc.
(2) Formerly Gartmore Variable Insurance Trust.
(3) Formerly Gartmore GVIT Developing Markets Fund -- Class II.
(4) Formerly Neuberger Berman AMT Limited Maturity Bond Portfolio.
(5) Formerly Strong Variable Insurance Funds, Inc.
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.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 11
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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. Unless otherwise directed, investment instructions will
be automatically updated to reflect the Fund surviving after any merger,
substitution or liquidation.
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 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.
<Page>
12 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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.
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, or
relatively the same as (due to the application of the Market Value Adjustment
factor (as described in Appendix I)), 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.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 13
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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 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.
<Page>
14 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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 through a Financial Intermediary. A Registered
Representative will work with you to complete and submit an application or an
order request form. Part of this process will include an assessment whether this
variable annuity may be suitable for you. Prior to recommending the purchase or
exchange of a deferred variable annuity, your Registered Representative shall
make reasonable efforts to obtain certain information about you and your
investment needs. This recommendation will be independently reviewed by a
principal within your Financial Intermediary before an application or order will
be sent to us. Your Premium Payment will not be invested in any Fund during this
period.
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account. When
you open an account, your Financial Intermediary will ask for your name,
address, date of birth and other information that will allow us to identify you.
They may also ask to see your driver's license or other identifying documents.
The minimum initial Premium Payment required to buy this Contract varies based
on the type of purchaser, variable annuity variation chosen and whether you
enroll in a systematic investment program such as the InvestEase(R) Program.
Financial Intermediaries may impose other requirements regarding the form of
payment they will accept. Premium Payments not actually received by us within
the time period provided below will result in the rejection of your application
or order request.
Premium Payments sent to us must be made in U.S. dollars and checks must be
drawn on U.S. banks. We do not accept cash, third party checks or double
endorsed checks. We reserve the right to limit the number of checks processed at
one time. If your check does not clear, your purchase will be cancelled and you
could be liable for any losses or fees incurred.
Premium Payments may not exceed $1 million without our prior approval. We
reserve the right to impose special conditions on anyone who seeks our approval
to exceed this limit.
You and your Annuitant must not be older than age 85 on the date that your
Contract is issued. You must be of minimum legal age in the state where the
Contract is being purchased or a guardian must act on your behalf. Optional
riders are subject to additional maximum issue age restrictions.
HOW ARE PREMIUM PAYMENTS APPLIED TO MY CONTRACT?
Your initial Premium Payment will be invested within two Valuation Days of our
receipt of both a properly completed application 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 (from the Valuation Day that we actually
receive your initial Premium Payment at our Administrative Office together with
the Premium Payment) 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?
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.
Unless otherwise required by state law, we will pay you your Contract Value as
of the Valuation Date we receive your request to cancel and will refund any
sales or contract charges incurred during the period you owned the Contract. The
Contract Value may be more or less than your Premium Payments depending upon the
investment performance of your Account. This means that you bear the risk of any
decline in your Contract Value until we receive your notice of cancellation. In
certain states, however, we are required to return your Premium Payment without
deduction for any fees or charges.
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
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 15
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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 Funds available in
your Contract. Your transfer request will be processed as of the end of the
Valuation Day that it received is in good order. 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.
WHAT HAPPENS WHEN I REQUEST A SUB-ACCOUNT TRANSFER?
Many Contract Owners request Sub-Account transfers. Some request transfers into
(purchases) a particular Sub-Account, and others request transfers out of
(redemptions) a particular Sub-Account. In addition, some Contract Owners
allocate new Premium Payments to Sub-Accounts, and others request Surrenders. We
combine all the daily requests to transfer out of a Sub-Account along with all
Surrenders from that Sub-Account and determine how many shares of that Fund we
would need to sell to satisfy all Contract Owners' "transfer-out" requests. At
the same time, we also combine all the daily requests to transfer into a
particular Sub-Account or new Premium Payments allocated to that Sub-Account and
determine how many shares of that Fund we would need to buy to satisfy all
Contract Owners' "transfer-in" requests.
In addition, many of the Funds that are available as investment options in our
variable annuity products are also available as investment options in variable
life insurance policies, retirement plans, funding agreements and other products
offered by us or our affiliates. Each day, investors and participants in these
other products engage in similar transfer transactions.
We take advantage of our size and available technology to combine sales of a
particular Fund for many of the variable annuities, variable life insurance
policies, retirement plans, funding agreements or other products offered by us
or our affiliates. We also combine many of the purchases of that particular Fund
for many of the products we offer. We then "net" these trades by offsetting
purchases against redemptions. Netting trades has no impact on the net asset
value of the Fund shares that you purchase or sell. This means that we sometimes
reallocate shares of a Fund rather than buy new shares or sell shares of the
Fund.
For example, if we combine all transfer-out (redemption) requests and Surrenders
of a stock Fund Sub-Account with all other sales of that Fund from all 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 us, want to transfer-in (purchase) an amount equal to $300,000 of that same
Fund, then we would send a sell order to the Fund for $700,000 (a $1 million
sell order minus the purchase order of $300,000) rather than making two or more
transactions.
WHAT RESTRICTIONS ARE THERE ON MY ABILITY TO MAKE A SUB-ACCOUNT TRANSFER?
FIRST, YOU MAY MAKE ONLY ONE SUB-ACCOUNT TRANSFER REQUEST EACH DAY. We limit
each Contract Owner to one Sub-Account transfer request each Valuation Day. We
count all Sub-Account transfer activity that occurs on any one Valuation Day as
one "Sub-Account transfer;" however, you cannot transfer the same Contract Value
more than once a Valuation Day.
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16 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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EXAMPLES
<Table>
<Caption>
TRANSFER REQUEST PER VALUATION DAY PERMISSIBLE?
- --------------------------------------------------------------------------------
Transfer $10,000 from a money market Sub-Account to a growth Yes
Sub-Account
Transfer $10,000 from a money market Sub-Account to any number Yes
of other Sub-Accounts (dividing the $10,000 among the other
Sub-Accounts however you chose)
Transfer $10,000 from any number of different Sub-Accounts to Yes
any number of other Sub-Accounts
Transfer $10,000 from a money market Sub-Account to a growth No
Sub-Account and then, before the end of that same Valuation Day,
transfer the same $10,000 from the growth Sub-Account to an
international Sub-Account
</Table>
SECOND, YOU ARE ALLOWED TO SUBMIT A TOTAL OF 20 SUB-ACCOUNT TRANSFERS EACH
CONTRACT YEAR (THE "TRANSFER RULE") BY U.S. MAIL, VOICE RESPONSE UNIT, INTERNET
OR TELEPHONE. Once you have reached the maximum number of Sub-Account transfers,
you may only submit any additional Sub-Account transfer requests and any trade
cancellation requests in writing through U.S. Mail or overnight delivery
service. In other words, Voice Response Unit, Internet or telephone transfer
requests will not be honored. We may, but are not obligated to, notify you when
you are in jeopardy of approaching these limits. For example, we will send you a
letter after your 10th Sub-Account transfer to remind you about the Transfer
Rule. 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 then be instructed to send your Sub-Account transfer request
by U.S. Mail or overnight delivery service.
We reserve the right to aggregate your Contracts (whether currently existing or
those recently surrendered) for the purposes of enforcing these restrictions.
The Transfer Rule does not apply to Sub-Account transfers that occur
automatically as part of a Company-sponsored asset allocation or Dollar Cost
Averaging program. Reallocations made based on a Fund merger, substitution or
liquidation also do not count toward this transfer limit. Restrictions may vary
based on state law.
We make no assurances that the Transfer Rule is or will be effective in
detecting or preventing market timing.
THIRD, POLICIES HAVE BEEN 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, don't purchase this
Contract if you plan to engage in "market timing," which includes frequent
transfer activity into and out of the same Fund, or frequent Sub-Account
transfers in order to exploit any inefficiencies in the pricing of a Fund. Even
if you do not engage in market timing, certain restrictions may be imposed on
you, as discussed below:
ABUSIVE TRANSFER POLICY (EFFECTIVE UNTIL JULY 1, 2007):
Regardless of the number of Sub-Account transfers you have done under the
Transfer Rule, you still may have your Sub-Account transfer privileges
restricted if you violate the Abusive Transfer Policy.
We rely on the Funds to identify a pattern or frequency of Sub-Account transfers
that the Fund wants us to investigate. Most often, the 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 a Fund contacts us, we run a report that identifies all
Contract Owners who transferred in or out of that Fund's Sub-Account on the day
or days identified by the Fund. We may share tax identification numbers and
other shareholder identifying information contained in our records with Funds.
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 our analysis to help make it more difficult
for abusive traders to adjust their behavior to escape detection.
We consider some or all of the following factors:
- - 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 frequent trading policies and procedures of a potentially affected Fund.
If you violate the Abusive Trading Policy, we will terminate your Sub-Account
transfer privileges until your next Contract Anniversary. We do not
differentiate between Contract Owners when enforcing this policy.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 17
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FUND TRADING POLICIES (EFFECTIVE AFTER JULY 1, 2007)
You are subject to Fund trading policies, if any. We are obligated to provide,
at the Fund's request, tax identification numbers and other shareholder
identifying information contained in our records to assist Funds in identifying
any pattern or frequency of Sub-Account transfers that may violate their trading
policy. In certain instances, we have agreed to serve as a Fund's agent to help
monitor compliance with that Fund's trading policy.
We are obligated to follow each Fund's instructions regarding enforcement of
their trading policy. Penalties for violating these policies may include, among
other things, temporarily or permanently limiting or banning you from making
Sub-Account transfers into a Fund or other funds within that fund complex. We
are not authorized to grant exceptions to a Fund's trading policy. Please refer
to each Fund's prospectus for more information.
Fund trading policies do not apply or may be limited. For instance:
- - Certain types of financial intermediaries may not be required to provide us
with shareholder information.
- - "Excepted funds" such as money market funds and any Fund that affirmatively
permits short-term trading of its securities may opt not to adopt this type
of policy. This type of policy may not apply to any financial intermediary
that a Fund treats as a single investor.
- - A Fund can decide to exempt categories of contract holders whose contracts
are subject to inconsistent trading restrictions or none at all.
- - Non-shareholder initiated purchases or redemptions may not always be
monitored. These include Sub-Account transfers that are executed: (i)
automatically pursuant to a company- sponsored contractual or systematic
program such as transfers of assets as a result of "dollar cost averaging"
programs, asset allocation programs, automatic rebalancing programs, annuity
payouts, loans, or systematic withdrawal programs; (ii) as a result of the
payment of a Death Benefit; (iii) as a step-up in Contract Value pursuant to
a Contract Death Benefit or guaranteed minimum withdrawal benefit; (iv) as a
result of any deduction of charges or fees under a Contract; or (v) as a
result of payments such as loan repayments, scheduled contributions,
scheduled withdrawals or surrenders, retirement plan salary reduction
contributions, or planned premium payments.
POSSIBILITY OF UNDETECTED ABUSIVE TRADING OR MARKET TIMING. We may not be able
to detect or prevent all abusive trading or market timing activities. For
instance,
- - Since we net all the purchases and redemptions for a particular Fund for
this and many of our other products, transfers by any specific market timer
could be inadvertently overlooked.
- - Certain forms of variable annuities and types of Funds may be attractive to
market timers. We cannot provide assurances that we will be capable of
addressing possible abuses in a timely manner.
- - These policies apply only to individuals and entities that own this Contract
or have the right to make transfers (regardless of whether requests are made
by you or anyone else acting on your behalf). However, the Funds that make
up the Sub-Accounts of this Contract are also available for use with many
different variable life insurance policies, variable annuity products and
funding agreements, and 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?
We are not responsible for losses or lost investment opportunities associated
with the effectuation of these policies. Frequent Sub-Account transfers may
result in the dilution of the value of the outstanding securities issued by a
Fund as a result of increased transaction costs and lost investment
opportunities typically associated with maintaining greater cash positions. This
can adversely impact Fund performance and, as a result, the performance of your
Contract. This may also lower the Death Benefit paid to your Beneficiary or
lower Annuity Payouts for your Payee as well as reduce value of other optional
benefits available under your Contract.
Separate Account investors could be prevented from purchasing Fund shares if we
reach an impasse on the execution of a Fund's trading instructions. In other
words, a Fund complex could refuse to allow new purchases of shares by all our
variable product investors if the Fund and we cannot reach a mutually acceptable
agreement on how to treat an investor who, in a Fund's opinion, has violated the
Fund's trading policy.
In some cases, we do not have the tax identification number or other identifying
information requested by a Fund in our records. In those cases, we rely on the
Contract Owner to provide the information. If the Contract Owner does not
provide the information, we may be directed by the Fund to restrict the Contract
Owner from further purchases of Fund shares. In those cases, all participants
under a plan funded by the Contract will also be precluded from further
purchases of Fund shares.
FIXED ACCUMULATION FEATURE TRANSFERS -- During each contract year during the
Accumulation Period, you may make transfers out of the Fixed Accumulation
Feature to Sub-Account. The transfers must be for $500 or more. All transfer
allocations must be in whole numbers (e.g. 1%). You may transfer either:
- - 50% of your total amount in the Fixed Accumulation Feature, unless the
balance is less than $1000, then you may transfer the entire amount, or
- - An amount equal to the largest previous transfer.
FIXED ACCUMULATION FEATURE TRANSFER RESTRICTIONS -- We reserve the right to
defer transfers from the Fixed Accumulation Feature for up to 6 months from the
date of your request. After any transfer, you must wait 6 months before moving
Sub-Account Values back to the Fixed Accumulation Feature. After
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18 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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the Annuity Commencement Date, you may not make transfers from the Fixed
Accumulation Feature.
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.
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%.
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.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 19
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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.
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
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20 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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 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.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 21
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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.
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,
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22 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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 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
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 23
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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 PROGRAM CONSIDERATIONS
- - You may terminate your enrollment in any Program (other than Dollar Cost
Averaging Programs) at any time.
- - We may discontinue, modify or amend any of these Programs at any time. We
will automatically and unilaterally amend your enrollment instructions if:
- any Fund is merged or substituted into another Fund -- then your
allocations will be directed to the surviving Fund;
- any Fund is liquidated -- then your allocations will be directed to
any available money market Fund; or
- any Fund closes to new investments -- then your allocations to that
Fund will be pro-rated among remaining available Funds.
You may always provide us with updated instructions following any of these
events.
- - Continuous or periodic investment neither insures a profit nor protects
against a loss in declining markets. Because these Programs involve
continuous investing regardless of fluctuating price levels, you should
carefully consider your ability to continue investing through periods of
fluctuating prices.
- - 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.
- - These Programs may be adversely affected by Fund trading policies.
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.
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
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24 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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; (4) override payments and bonuses; (5) personnel
education or training; (6) marketing support fees (or allowances) for providing
assistance in promoting the sale of our variable products; and/or (7)
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,
2006, Additional Payments did not in the aggregate exceed approximately $50,600
(excluding incidental corporate-sponsorship related perquisites) or
approximately 0.002% based on average assets.
As of December 31, 2006, we have entered into arrangements to make Additional
Payments to the following Financial Intermediaries: AIG Advisors Group, Inc.,
(Advantage Capital, AIG Financial Advisors, American General, FSC Securities
Corporation, Royal Alliance Assoc., Inc.).
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 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.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of Union Security Life Insurance Company of New York as
of December 31, 2006 and 2005 and for each of the three years in the period
ended December 31, 2006 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.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 25
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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: U.S. Wealth Management
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.
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
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26 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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 the surrender charges) generally is an appropriate measure.
However, in some instances, the IRS could take the position that the value
should be the current Contract Value (determined with-out regard to the
surrender charges) increased by some measure of the value of certain future
cash-value type benefits.
iii. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a withdrawal or 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 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.
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 27
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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)(12) 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.
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).
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.).
7. Distributions purchased by an employer upon termi-nation of certain
qualified plans and held by the employer until the employee
separates from service.
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28 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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 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.
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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, amplified by Rev. Rul. 2007-7,
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.
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.
Generally, no "election out" is permitted if the distribution is delivered
outside the United States and any possession of the
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30 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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United States. 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.
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
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UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 31
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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 distribution from certain types of
Qualified Plan if the distribution is not transferred directly to your
Traditional IRA. In addition, a non-spouse "designated beneficiary" of a
deceased Plan participant may make a tax-free "direct rollover" (in the form of
a direct transfer between Plan fiduciaries, as described below in "Rollover
Distributions") from certain Qualified Plans to a Traditional IRA for such
beneficiary, but such Traditional IRA must be designated and treated as an
"inherited IRA" that remains subject to applicable RMD rules (as if such IRA had
been inherited from the deceased Plan participant). Certain plans may not allow
such rollovers.
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.
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32 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
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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. After 2007, distributions from eligible Qualified Plans can be
"rolled over" directly (subject to tax) into a Roth IRA under certain
circumstances. 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 "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
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(e.g., $45,000 in 2007) 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); or
e. as a qualified reservist distribution upon certain calls to active
duty.
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"
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 instance, 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,
and certain exclusions may apply to certain distributions (e.g., distributions
from an eligible Government Plan to pay qualified health insurance premiums of
an eligible retired public safety officer or, during 2007, certain distributions
from an IRA for charitable purposes). 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
<Page>
34 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
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 made after age 50 in the case of a qualified public
safety employee separated from certain government plans); or
- - not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year; or
• certain qualified reservist distributions upon a call to active duty.
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 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
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 35
- -------------------------------------------------------------------------------
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 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
<Page>
36 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
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) or a non-spouse designated beneficiary, Plan distributions of
property, and obtaining a waiver of the 60-day limit for a tax-free rollover
from the IRS. The Katrina Emergency Tax Relief Act of 2005 (KETRA) allows
certain amounts to be re-contributed within three years as a rollover
contribution to a Plan from which a KETRA distribution was taken.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 37
- -------------------------------------------------------------------------------
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.
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------
AIM V.I. CORE EQUITY FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $16.804 -- -- -- --
Accumulation Unit Value at
end of period $18.311 -- -- -- --
Number of Accumulation Units
outstanding at end of period
(in thousands) 3 -- -- -- --
AIM V.I. GLOBAL HEALTH CARE
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $20.384 $18.933 $17.680 $13.899 $18.480
Accumulation Unit Value at
end of period $21.355 $20.384 $18.933 $17.680 $13.899
Number of Accumulation Units
outstanding at end of period
(in thousands) 5 7 10 11 12
AIM V.I. TECHNOLOGY FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $12.308 $12.101 $11.617 $8.032 $15.178
Accumulation Unit Value at
end of period $13.537 $12.308 $12.101 $11.617 $8.032
Number of Accumulation Units
outstanding at end of period
(in thousands) 4 12 25 31 31
ALLIANCEBERNSTEIN VP
INTERNATIONAL RESEARCH
PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $16.048 $13.528 $11.553 $8.819 $10.456
Accumulation Unit Value at
end of period $20.202 $16.048 $13.528 $11.553 $8.819
Number of Accumulation Units
outstanding at end of period
(in thousands) 9 9 10 14 18
ALLIANCEBERNSTEIN VP LARGE CAP
GROWTH PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $22.006 $19.198 $17.754 $14.421 $20.887
Accumulation Unit Value at
end of period $21.810 $22.006 $19.198 $17.754 $14.421
Number of Accumulation Units
outstanding at end of period
(in thousands) 8 9 10 15 32
ALLIANCEBERNSTEIN VP MONEY
MARKET PORFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $13.240 $12.997 $12.964 $12.954 $12.945
Accumulation Unit Value at
end of period $13.735 $13.240 $12.997 $12.964 $12.954
Number of Accumulation Units
outstanding at end of period
(in thousands) 26 24 31 80 154
AMERICAN CENTURY VP BALANCED
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $18.115 $17.341 $15.868 $13.343 $14.819
Accumulation Unit Value at
end of period $19.769 $18.115 $17.341 $15.868 $13.343
Number of Accumulation Units
outstanding at end of period
(in thousands) 8 9 12 5 5
AMERICAN CENTURY VP CAPITAL
APPRECIATION FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $13.680 $11.257 $10.511 $8.764 $11.172
Accumulation Unit Value at
end of period $15.963 $13.680 $11.257 $10.511 $8.764
Number of Accumulation Units
outstanding at end of period
(in thousands) 2 3 4 4 5
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2001 2000 1999 1998 1997
- ------------------------------- -------------------------------------------------------------------------
AIM V.I. CORE EQUITY FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period -- -- -- -- -- (a)
Accumulation Unit Value at
end of period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period
(in thousands) -- -- -- -- --
AIM V.I. GLOBAL HEALTH CARE
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $21.236 $16.342 $15.654 $11.007 $10.000
Accumulation Unit Value at
end of period $18.480 $21.236 $16.342 $15.654 $11.007
Number of Accumulation Units
outstanding at end of period
(in thousands) 13 23 6 8 --
AIM V.I. TECHNOLOGY FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $28.144 $36.917 $14.322 $11.446 $10.000
Accumulation Unit Value at
end of period $15.178 $28.144 $36.917 $14.322 $11.446
Number of Accumulation Units
outstanding at end of period
(in thousands) 46 45 31 2 --
ALLIANCEBERNSTEIN VP
INTERNATIONAL RESEARCH
PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $13.544 $16.990 $12.175 $10.818 $10.517
Accumulation Unit Value at
end of period $10.456 $13.544 $16.990 $12.175 $10.818
Number of Accumulation Units
outstanding at end of period
(in thousands) 18 21 5 6 4
ALLIANCEBERNSTEIN VP LARGE CAP
GROWTH PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $25.357 $30.515 $23.171 $15.729 $11.803
Accumulation Unit Value at
end of period $20.887 $25.357 $30.515 $23.171 $15.729
Number of Accumulation Units
outstanding at end of period
(in thousands) 39 39 33 33 18
ALLIANCEBERNSTEIN VP MONEY
MARKET PORFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period -- -- -- -- --
Accumulation Unit Value at
end of period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period
(in thousands) -- -- -- -- --
AMERICAN CENTURY VP BALANCED
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $15.456 $15.952 $14.567 $12.639 $10.972
Accumulation Unit Value at
end of period $14.819 $15.456 $15.952 $14.567 $12.639
Number of Accumulation Units
outstanding at end of period
(in thousands) 5 8 5 2 1
AMERICAN CENTURY VP CAPITAL
APPRECIATION FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at
beginning of period $15.691 $14.453 $8.825 $9.061 $9.412
Accumulation Unit Value at
end of period $11.172 $15.691 $14.453 $8.825 $9.061
Number of Accumulation Units
outstanding at end of period
(in thousands) 6 10 3 1 --
</Table>
<Page>
38 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
FEDERATED AMERICAN LEADERS FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $20.944 $20.033 $18.331 $14.420 $18.155
Accumulation Unit Value at end of
period $24.355 $20.944 $20.033 $18.331 $14.420
Number of Accumulation Units
outstanding at end of period (in
thousands) 9 9 10 9 9
FEDERATED CAPITAL INCOME FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $12.775 $12.074 $11.026 $9.178 $12.116
Accumulation Unit Value at end of
period $14.707 $12.775 $12.074 $11.026 $9.178
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- 3 3 3
FEDERATED FUND FOR U.S. GOVERNMENT
SECURITIES FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $15.489 $15.250 $14.785 $14.508 $13.364
Accumulation Unit Value at end of
period $16.058 $15.489 $15.250 $14.785 $14.508
Number of Accumulation Units
outstanding at end of period (in
thousands) 13 13 14 14 25
FEDERATED HIGH INCOME BOND FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $16.333 $15.982 $14.534 $11.946 $11.834
Accumulation Unit Value at end of
period $18.017 $16.333 $15.982 $14.534 $11.946
Number of Accumulation Units
outstanding at end of period (in
thousands) -- 1 3 5 8
GARTMORE GVIT DEVELOPING MARKETS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $15.794 $12.063 $10.115 $7.285 --
Accumulation Unit Value at end of
period $21.160 $15.794 $12.063 $10.115 --
Number of Accumulation Units
outstanding at end of period (in
thousands) 7 7 10 8 --
HARTFORD INDEX HLS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $17.444 $16.767 $15.257 $11.961 $15.493
Accumulation Unit Value at end of
period $20.049 $17.444 $16.767 $15.257 $11.961
Number of Accumulation Units
outstanding at end of period (in
thousands) 15 17 20 24 22
ING JPMORGAN EMERGING MARKETS EQUITY
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $10.270 $10.077 -- -- --
Accumulation Unit Value at end of
period $13.923 $10.270 -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) 3 1 -- -- --
ING VP NATURAL RESOURCES TRUST
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $23.276 $16.367 $14.593 $11.230 $11.522
Accumulation Unit Value at end of
period $28.206 $23.276 $16.367 $14.593 $11.230
Number of Accumulation Units
outstanding at end of period (in
thousands) 4 6 4 2 2
MFS(R) EMERGING GROWTH SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $17.930 $16.495 $14.668 $11.314 $17.158
Accumulation Unit Value at end of
period $19.258 $17.930 $16.495 $14.668 $11.314
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- -- 1 6
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2001 2000 1999 1998 1997
- -------------------------------------- --------------------------------------------------------------------
FEDERATED AMERICAN LEADERS FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $19.046 $18.671 $17.577 $15.012 $11.395
Accumulation Unit Value at end of
period $18.155 $19.046 $18.671 $17.577 $15.012
Number of Accumulation Units
outstanding at end of period (in
thousands) 9 8 1 4 --
FEDERATED CAPITAL INCOME FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $14.115 $15.561 $15.375 $13.550 $10.748
Accumulation Unit Value at end of
period $12.116 $14.115 $15.561 $15.375 $13.550
Number of Accumulation Units
outstanding at end of period (in
thousands) 3 7 4 3 --
FEDERATED FUND FOR U.S. GOVERNMENT
SECURITIES FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $12.542 $11.352 $11.473 $10.705 $10.000
Accumulation Unit Value at end of
period $13.364 $12.542 $11.352 $11.473 $10.705
Number of Accumulation Units
outstanding at end of period (in
thousands) 35 21 8 4 2
FEDERATED HIGH INCOME BOND FUND II
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $11.733 $12.956 $12.720 $12.441 $10.978
Accumulation Unit Value at end of
period $11.834 $11.733 $12.956 $12.720 $12.441
Number of Accumulation Units
outstanding at end of period (in
thousands) 7 11 9 32 30
GARTMORE GVIT DEVELOPING MARKETS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period -- -- -- -- --
Accumulation Unit Value at end of
period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- -- -- --
HARTFORD INDEX HLS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $17.748 $19.700 $16.424 $12.883 $9.759
Accumulation Unit Value at end of
period $15.493 $17.748 $19.700 $16.424 $12.883
Number of Accumulation Units
outstanding at end of period (in
thousands) 42 28 43 2 --
ING JPMORGAN EMERGING MARKETS EQUITY
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period -- -- -- -- --
Accumulation Unit Value at end of
period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- -- -- --
ING VP NATURAL RESOURCES TRUST
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $13.768 $11.684 $10.288 $12.853 $12.050
Accumulation Unit Value at end of
period $11.522 $13.768 $11.684 $10.288 $12.853
Number of Accumulation Units
outstanding at end of period (in
thousands) 9 1 1 -- --
MFS(R) EMERGING GROWTH SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $25.912 $32.324 $18.374 $13.756 $11.335
Accumulation Unit Value at end of
period $17.158 $25.912 $32.324 $18.374 $13.756
Number of Accumulation Units
outstanding at end of period (in
thousands) 12 14 13 7 11
</Table>
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 39
- -------------------------------------------------------------------------------
<Table>
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
MFS(R) HIGH INCOME SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $16.261 $15.989 $14.715 $12.531 $12.272
Accumulation Unit Value at end of
period $17.867 $16.261 $15.989 $14.715 $12.531
Number of Accumulation Units
outstanding at end of period (in
thousands) 1 2 2 5 12
MFS(R) STRATEGIC INCOME SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $15.005 $14.793 $13.794 $12.553 $11.633
Accumulation Unit Value at end of
period $15.934 $15.005 $14.793 $13.794 $12.553
Number of Accumulation Units
outstanding at end of period (in
thousands) 1 1 2 2 2
NEUBERGER BERMAN AMT LIMITED MATURITY
BOND FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $13.749 $13.614 $13.570 $13.309 $12.691
Accumulation Unit Value at end of
period $14.262 $13.749 $13.614 $13.570 $13.309
Number of Accumulation Units
outstanding at end of period (in
thousands) 2 2 4 10 13
NEUBERGER BERMAN AMT PARTNERS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $18.972 $16.144 $13.630 $10.135 $13.422
Accumulation Unit Value at end of
period $21.198 $18.972 $16.144 $13.630 $10.135
Number of Accumulation Units
outstanding at end of period (in
thousands) 2 2 2 5 4
PIONEER FUND VCT PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $10.871 $10.285 $10.063 -- --
Accumulation Unit Value at end of
period $12.622 $10.871 $10.285 -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) 2 2 8 -- --
PIONEER GROWTH OPPORTUNITIES VCT
PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $20.279 $19.094 $15.679 $11.019 $17.757
Accumulation Unit Value at end of
period $21.318 $20.279 $19.094 $15.679 $11.019
Number of Accumulation Units
outstanding at end of period (in
thousands) 8 10 11 10 14
VAN ECK WORLDWIDE BOND FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $15.473 $16.029 $14.751 $12.540 $10.354
Accumulation Unit Value at end of
period $16.402 $15.473 $16.029 $14.751 $12.540
Number of Accumulation Units
outstanding at end of period (in
thousands) 3 1 3 1 2
VAN ECK WORLDWIDE HARD ASSETS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $20.871 $13.823 $11.199 $7.754 $8.016
Accumulation Unit Value at end of
period $25.866 $20.871 $13.823 $11.199 $7.754
Number of Accumulation Units
outstanding at end of period (in
thousands) 5 7 5 1 --
WELLS FARGO ADVANTAGE VT DISCOVERY
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $20.317 $16.799 -- -- --
Accumulation Unit Value at end of
period $23.188 $20.317 -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) 1 2 -- -- --
<Caption>
AS OF DECEMBER 31,
SUB-ACCOUNT 2001 2000 1999 1998 1997
- -------------------------------------- --------------------------------------------------------------------
MFS(R) HIGH INCOME SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $12.077 $12.998 $12.266 $12.342 $10.912
Accumulation Unit Value at end of
period $12.272 $12.077 $12.998 $12.266 $12.342
Number of Accumulation Units
outstanding at end of period (in
thousands) 11 15 14 43 39
MFS(R) STRATEGIC INCOME SERIES
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $11.154 $10.685 $11.008 $10.249 $10.411
Accumulation Unit Value at end of
period $11.633 $11.154 $10.685 $11.008 $10.249
Number of Accumulation Units
outstanding at end of period (in
thousands) 4 6 2 -- --
NEUBERGER BERMAN AMT LIMITED MATURITY
BOND FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $11.718 $11.023 $10.911 $10.498 $9.879
Accumulation Unit Value at end of
period $12.691 $11.718 $11.023 $10.911 $10.498
Number of Accumulation Units
outstanding at end of period (in
thousands) 8 4 3 5 --
NEUBERGER BERMAN AMT PARTNERS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $13.880 $13.835 $12.946 $12.478 $9.593
Accumulation Unit Value at end of
period $13.422 $13.880 $13.835 $12.946 $12.478
Number of Accumulation Units
outstanding at end of period (in
thousands) 6 8 3 4 1
PIONEER FUND VCT PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period -- -- -- -- --
Accumulation Unit Value at end of
period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- -- -- --
PIONEER GROWTH OPPORTUNITIES VCT
PORTFOLIO
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $14.973 $16.023 $15.237 $14.993 $10.398
Accumulation Unit Value at end of
period $17.757 $14.973 $16.023 $15.237 $14.993
Number of Accumulation Units
outstanding at end of period (in
thousands) 28 13 8 14 1
VAN ECK WORLDWIDE BOND FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $10.954 $10.807 $11.778 $10.493 $10.293
Accumulation Unit Value at end of
period $10.354 $10.954 $10.807 $11.778 $10.493
Number of Accumulation Units
outstanding at end of period (in
thousands) 1 2 2 1 4
VAN ECK WORLDWIDE HARD ASSETS FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period $8.992 $8.108 $6.731 $9.775 $9.992
Accumulation Unit Value at end of
period $8.016 $8.992 $8.108 $6.731 $9.775
Number of Accumulation Units
outstanding at end of period (in
thousands) 3 3 1 -- --
WELLS FARGO ADVANTAGE VT DISCOVERY
FUND
WITHOUT ANY OPTIONAL BENEFITS
Accumulation Unit Value at beginning
of period -- -- -- -- --
Accumulation Unit Value at end of
period -- -- -- -- --
Number of Accumulation Units
outstanding at end of period (in
thousands) -- -- -- -- --
</Table>
(a) Inception date May 1, 2006.
<Page>
40 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
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" and "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.
PART I
ITEM 1. BUSINESS
LEGAL ORGANIZATION
Union Security Life Insurance Company of New York (formerly known as 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.
In this report, references to the "Union Security Life," "we," "us" or "our"
refer to Union Security Life Insurance Company of New York.
Dollar amounts are presented in U.S. dollars and all amounts are in thousands,
except number of shares and number of employees.
BUSINESS ORGANIZATION
Union Security Life is licensed to sell life, health and annuity insurance only
in New York. We write insurance products that are marketed in New York primarily
by two of Assurant's business segments, Assurant Employee Benefits and Assurant
Solutions (see Assurant's annual report on Form 10-K for the fiscal year ended
December 31, 2006 for a full description of each of these businesses). 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 2006,
approximately 79% was from the Assurant Employee Benefits segment, approximately
11% was from the Assurant Solutions segment, and the remaining 10% from two
other business segments of Assurant, Assurant Health and Corporate and Other. 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 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. We offer administrative services for
debt protection programs on behalf of the lender which generates 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 under the
Securities Act of 1933, as amended (the "Securities Act"). Effective April 1,
2001, Assurant exited this line of business and sold the business segment, then
referred to as Fortis Financial Group ("FFG"), to The Hartford Financial
Services Group, Inc. and certain of its subsidiaries ("The Hartford"). This sale
was accomplished by means of reinsurance 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.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 41
- -------------------------------------------------------------------------------
As of February 15, 2007, we had thirteen employees in our sales offices in New
York, New York. In addition, two Assurant employees spent at least a portion of
their time working for us at our headquarters in Syracuse, New York.
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
Securities and Exchange Commission ("SEC") website at www.sec.gov.
For additional information that relates to our business, we refer you to
Assurant's annual report on Form 10-K for the fiscal year ended December 31,
2006 filed with the SEC and available on the SEC's website at www.sec.gov or
through Assurant's website at www.assurant.com.
ITEM 1A. 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, Assurant 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, we will be obligated to make these payments and administer this
business in the event of a default by the reinsurer. In 2000 Assurant
divested our long-term care ("LTC") operations to John Hancock Life
Insurance Company ("John Hancock") through a reinsurance agreement. If John
Hancock fails to fulfill its obligations we would be obligated to make these
payments.
For additional risks that relate to our business, we refer you to Assurant's
annual report on Form 10-K for the fiscal year ended December 31, 2006 filed
with the SEC and available on the SEC's website at www.sec.gov or through
Assurant's website at www.assurant.com.
ITEM 2. 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not required under reduced disclosure format.
<Page>
42 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
ITEM 5. 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 February 15, 2007,
we had 100,000 shares of common stock outstanding, all of which are owned
directly by Assurant. We paid $10,000, $4,100, and $40,000 in dividends to our
stockholder in 2006, 2005 and 2004, respectively.
ITEM 6. SELECTED FINANCIAL DATA
Not required under reduced disclosure format.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our 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>
FOR THE YEAR ENDED
DECEMBER 31,
(IN THOUSANDS) 2006 2005
- --------------------------------------------------------------------------------
REVENUES:
Net earned premiums and other considerations $61,338 $59,598
Net investment income 9,175 8,756
Net realized (losses) gains on investments (173) 146
Amortization of deferred gains on disposal of 200 1,038
businesses
Fees and other income 47 31
--------- ---------
Total revenues 70,587 69,569
--------- ---------
BENEFITS, LOSSES AND EXPENSES:
Policyholder benefits 32,284 34,571
Selling, underwriting and general expenses (1) 17,781 17,637
--------- ---------
Total benefits, losses and expenses 50,065 52,208
--------- ---------
INCOME BEFORE INCOME TAXES 20,522 17,361
Income taxes 7,081 5,957
--------- ---------
NET INCOME $13,441 $11,404
- --------------------------------------------------------------------------------
</Table>
(1) Includes amortization of deferred acquisition costs ("DAC") and
underwriting, general and administrative expenses.
YEAR ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005
NET INCOME
Net income increased $2,037, or 18%, to $13,441 for the year ended December 31,
2006 from $11,404 for the year ended December 31, 2005. This increase was
primarily driven by growth in business written through our Disability
Reinsurance Management Services ("DRMS") distribution channel and approximately
$1,400 of income related to a refund of previously paid policyholder benefits.
These increases were offset by a reduction in amortization of deferred gains on
disposal of businesses.
TOTAL REVENUES
Total revenues increased by $1,018, or 1%, to $70,587 for the year ended
December 31, 2006 from $69,569 for the year ended December 31, 2005. This
increase was primarily driven by higher net earned premiums and other
considerations of $1,740 due to an increase in premiums related to a closed
block of disability business written though our DRMS channel partially offset by
decreases in our group life and group dental businesses. In addition, as a
result of our annual review of estimates affecting the deferred gain on disposal
of businesses we took an additional charge of approximately $600 over the prior
year.
TOTAL BENEFITS, LOSSES AND EXPENSES
Total benefits, losses and expenses decreased by $2,143, or 4%, to $50,065 for
the year ended December 31, 2006 from $52,208 for the year ended December 31,
2005. This decrease was driven by favorable experience in our group dental and
group life business, the continued decline in our domestic credit business and a
refund of previously paid policyholder benefits which was accounted for as a
reduction of policyholder benefits. Partially offsetting these decreases was the
assumption of reserves related to a closed block of disability business through
our DRMS channel.
ITEM 7A. 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
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 43
- -------------------------------------------------------------------------------
from various market risks, in particular interest rate risk, credit risk and
inflation risk.
Interest rate risk is the possibility that 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 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
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,
2006, we held $111,522 of fixed maturity securities at fair market value and
$21,686 of commercial mortgages at amortized cost for a combined total of 90% of
total invested assets. 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.
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 $101,283 of reinsurance recoverables at December 31,
2006, 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 creditworthiness 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.
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.
<Page>
44 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 45
- -------------------------------------------------------------------------------
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).
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 (J) 7%*
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 (J) 9%*
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
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
<Page>
46 UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
SAMPLE CALCULATION 4: NEUTRAL 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) 8%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment = $10,000 x [[(1 + .08)/(1 + .08 + .0025)]TO THE POWER OF 60/12
-1]
= -$114.94
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment): $
9,885.06
* Assumed for illustrative purposes only.
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK 47
- -------------------------------------------------------------------------------
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>
<Page>
To obtain a Statement of Additional Information, please complete the form below
and mail to:
Union Security Life Insurance Company of New York
c/o Hartford Life and Annuity Insurance Company
Attn: U.S. Wealth Management
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:
- ----------------------------------------------------------------
Name
- ----------------------------------------------------------------
Address
- ----------------------------------------------------------------
City/State Zip Code
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
2006 ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
DECEMBER 31, 2006
CONTENTS
<Table>
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Shareholder's Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
</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 wholly owned subsidiary of Assurant, Inc.
at December 31, 2006 and 2005, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2006 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.
PricewaterhouseCoopers LLP
March 1, 2007
Minneapolis, Minnesota
F-1
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
AT DECEMBER 31, 2006 AND 2005
<Table>
<Caption>
AS OF DECEMBER 31,
2006 2005
(IN THOUSANDS EXCEPT
NUMBER OF SHARES)
- --------------------------------------------------------------------------------
ASSETS
Investments:
Fixed maturities available for sale, at fair value
(amortized cost -- $107,827 in 2006 and $113,980
in 2005) $111,522 $119,604
Equity securities available for sale, at fair
value (cost -- $9,455 in 2006 and $9,046 in 2005) 9,381 8,790
Commercial mortgage loans on real estate at
amortized cost 21,686 13,996
Policy loans 120 98
Short-term investments 2,401 3,341
Other investments 2,524 3,028
---------- ----------
TOTAL INVESTMENTS 147,634 148,857
---------- ----------
Cash and cash equivalents 5,600 2,863
Premiums and accounts receivable 3,383 3,359
Reinsurance recoverables 101,283 94,660
Due from affiliates -- 327
Accrued investment income 1,581 1,605
Tax receivable 1,273 122
Deferred acquisition costs 1,188 1,437
Deferred income taxes, net 1,485 1,999
Goodwill 2,038 2,038
Other assets 85 84
Assets held in separate accounts 21,948 25,343
---------- ----------
TOTAL ASSETS $287,498 $282,694
---------- ----------
LIABILITIES
Future policy benefits and expenses $40,381 $35,762
Unearned premiums 10,979 14,008
Claims and benefits payable 138,880 135,176
Commissions payable 4,634 4,463
Reinsurance balances payable 514 2,596
Funds held under reinsurance 76 83
Deferred gain on disposal of businesses 5,254 5,454
Accounts payable and other liabilities 4,507 3,366
Due to affiliates 1,576 --
Liabilities related to separate accounts 21,948 25,343
---------- ----------
TOTAL LIABILITIES $228,749 $226,251
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 15) -- --
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 11,389 7,948
Accumulated other comprehensive income 2,354 3,489
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 58,749 56,443
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $287,498 $282,694
---------- ----------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-2
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
2006 2005 2004
(IN THOUSANDS)
- --------------------------------------------------------------------------------
REVENUES
Net earned premiums and other
considerations $61,338 $59,598 $65,593
Net investment income 9,175 8,756 9,738
Net realized (losses) gains on
investments (173) 146 819
Amortization of deferred gains on
disposal of businesses 200 1,038 1,575
Fees and other income 47 31 305
--------- --------- ---------
TOTAL REVENUES 70,587 69,569 78,030
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 32,284 34,571 42,732
Amortization of deferred acquisition
costs 1,084 981 247
Underwriting, general and
administrative expenses 16,697 16,656 18,442
--------- --------- ---------
TOTAL BENEFITS, LOSSES AND EXPENSES 50,065 52,208 61,421
--------- --------- ---------
Income before income taxes 20,522 17,361 16,609
Income taxes 7,081 5,957 4,632
--------- --------- ---------
NET INCOME $13,441 $11,404 $11,977
--------- --------- ---------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-3
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
<Table>
<Caption>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
- ---------------------------------------------------------------------------------------
Balance, January 1, 2004 $2,000 $43,006
Dividends on common stock -- --
Comprehensive income:
Net income -- --
Net change in unrealized gains on
securities -- --
Other -- --
Total comprehensive income
Balance, December 31, 2004 2,000 43,006
Dividends on common stock -- --
Comprehensive income:
Net income -- --
Net change in unrealized gains on
securities -- --
Total comprehensive income
Balance, December 31, 2005 2,000 43,006
Dividends on common stock -- --
Comprehensive income:
Net income -- --
Net change in unrealized gains on
securities -- --
Total comprehensive income
Balance, December 31, 2006 $2,000 $43,006
---------- -----------
<Caption>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
RETAINED
EARNINGS TOTAL
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
- -------------------------------------- ---------------------------------------------------------
Balance, January 1, 2004 $28,663 $7,082 $80,751
Dividends on common stock (40,000) -- (40,000)
Comprehensive income:
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 644 5,839 51,489
Dividends on common stock (4,100) -- (4,100)
Comprehensive income:
Net income 11,404 -- 11,404
Net change in unrealized gains on
securities -- (2,350) (2,350)
---------
Total comprehensive income 9,054
---------
Balance, December 31, 2005 7,948 3,489 56,443
Dividends on common stock (10,000) -- (10,000)
Comprehensive income:
Net income 13,441 -- 13,441
Net change in unrealized gains on
securities -- (1,135) (1,135)
---------
Total comprehensive income 12,306
---------
Balance, December 31, 2006 $11,389 $2,354 $58,749
--------- --------------- ---------
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-4
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
2006 2005 2004
(IN THOUSANDS)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $13,441 $11,404 $11,977
Adjustments to reconcile net
income to net cash provided by
operating activities:
Change in reinsurance
recoverables (6,623) (1,053) 6,844
Change in premiums and accounts
receivable 303 1,754 (2,663)
Change in deferred acquisition
costs 249 (314) (181)
Change in accrued investment
income 24 96 484
Change in insurance policy
reserves and expenses 5,294 (4,394) (7,834)
Change in accounts payable and
other liabilities 2,880 (1,107) (2,313)
Change in commissions payable 171 (538) 1,190
Change in reinsurance balances
payable (2,082) 87 574
Change in funds held under
reinsurance (7) (6) (5)
Amortization of deferred gains
on disposal of businesses (200) (1,038) (1,575)
Change in income taxes (25) 1,875 (794)
Net realized losses (gains) on
investments 173 (146) (819)
Other 135 57 (166)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 13,733 6,677 4,719
--------- --------- ---------
INVESTING ACTIVITIES
Sales of:
Fixed maturities available for
sale 12,994 18,531 57,159
Equity securities available for
sale 3,812 1,143 4,376
Maturities, prepayments, and
scheduled redemption of:
Fixed maturities available for
sale 8,635 15,909 11,035
Purchase of:
Fixed maturities available for
sale (15,827) (35,839) (26,454)
Equity securities available for
sale (4,342) (1,700) (3,330)
Change in commercial mortgage
loans on real estate (7,690) (4,871) (5,325)
Change in short-term
investments 940 1,234 3,516
Change in other invested assets 504 537 (1,353)
Change in policy loans (22) (18) (43)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (996) (5,074) 39,581
--------- --------- ---------
FINANCING ACTIVITIES
Dividends paid (10,000) (4,100) (40,000)
--------- --------- ---------
NET CASH (USED IN) FINANCING
ACTIVITIES (10,000) (4,100) (40,000)
--------- --------- ---------
Change in cash and cash
equivalents 2,737 (2,497) 4,300
Cash and cash equivalents at
beginning of period 2,863 5,360 1,060
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $5,600 $2,863 $5,360
--------- --------- ---------
Supplemental information:
Income taxes paid (net of
refunds) 7,107 4,081 5,428
</Table>
SEE THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-5
<Page>
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
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 insurance
products. The Company is a wholly owned subsidiary of Assurant, Inc. (the
"Parent"). Assurant, Inc.'s common stock 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
credit insurance, group disability insurance, group dental insurance and group
life insurance.
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.
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 gains on disposal of businesses, 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 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 2006
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. The
allowance is based on management's analysis of factors including actual loan
loss experience, specific events based on geographical, political or economic
conditions, industry experience and individually impaired loan analysis. A loan
is considered individually impaired when it becomes probable the Company will be
unable to collect all amounts due, including principal and interest. Changes in
the allowance for loan losses are recorded in net realized gains and 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.
F-6
<Page>
Other investments consist primarily of investments in certified capital
companies ("CAPCOs"). The Company's CAPCOs consist of debt instruments that are
recorded at amortized cost, which approximates fair value.
The Company monitors its investment portfolio to identify investments that may
be other than temporarily impaired. 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 quarterly 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 length of time and the extent to which the market value has been less
than cost, the financial condition and rating of the issuer, whether any
collateral is held and the intent and ability of the Company to retain the
investment for a period of time sufficient to allow for recovery. 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 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.
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
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 the Parent. 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.
F-7
<Page>
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 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.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over estimated useful lives
with a maximum of 7 years for furniture and a maximum of 5 years for equipment.
Expenditures for maintenance and repairs are charged to income and reported as
incurred. Expenditures for improvements are capitalized and depreciated over the
remaining useful life of the asset.
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 Standards ("FAS 142") No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, on January 1, 2002. As part of the adoption of FAS 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 2006 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 the 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.
F-8
<Page>
Prior to April 2, 2001, FFG 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
FFG 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.
Long Duration Contracts
Future policy benefits and expense reserves on long-term care, 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 reserves 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. 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.
F-9
<Page>
DEFERRED GAINS ON DISPOSAL OF BUSINESSES
The Company reports deferred gains on disposal of businesses for disposals
utilizing reinsurance. On March 1, 2000, the Parent sold its LTC business using
a coinsurance contract. On April 1, 2001, the Parent sold its FFG business using
a modified coinsurance contract. Since the form of sale did not discharge the
Company's primary liability to the insureds, the gains on these disposals were
deferred and reported as a liability and decreased as recognized and reported as
revenue over the estimated life of the contracts' terms. The Company reviews and
evaluates the estimates affecting the deferred gains 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 FFG
are recognized and reported as revenue when due from the policyholder. For
universal life insurance and investment-type annuity contracts within FFG,
revenues consist of charges assessed against policy balances. For the FFG 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("FAS 5"), which
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 Company include litigation matters which are
inherently difficult to evaluate and are subject to significant changes.
RECENT ACCOUNTING PRONOUNCEMENTS ADOPTED
On January 1, 2006, the Parent adopted Statement of Financial Accounting
Standards ("FAS") No. 123 (revised 2004), SHARE-BASED PAYMENT ("FAS 123R") which
replaces Statement of Financial Accounting Standards No. 123, SHARE-BASED
PAYMENTand 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 are no longer an alternative to financial
statement recognition. Under FAS 123R, companies 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 Parent adopted FAS 123R using the modified prospective method
which requires that compensation expense be recorded for all unvested stock
options at the beginning of the first quarter of adoption of FAS 123R. The
adoption of FAS 123R did not have a material impact on the Company's financial
statements.
On January 1, 2006, the Company adopted FAS No. 154, ACCOUNTING CHANGES AND
ERROR CORRECTIONS ("FAS 154"), a replacement of APB Opinion No. 20, ACCOUNTING
CHANGES, and Statement No. 3, REPORTING ACCOUNTING CHANGES IN INTERIM FINANCIAL
STATEMENTS. 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. The adoption of FAS 154 did not have a material effect on
the Company's financial position or results of operations.
On September 29, 2006 the FASB issued FAS 158, EMPLOYERS' ACCOUNTING FOR DEFINED
BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS("FAS 158"). This standard
requires companies to recognize a net liability or asset to report the funded
status of their defined benefit pension and other postretirement plans on their
balance sheet with an offsetting adjustment to accumulated other comprehensive
income. FAS 158 requires companies to make additional disclosures, but does not
change how
F-10
<Page>
pensions and postretirement benefits are accounted for and reported in the
income statement. 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. The Company has no
legal obligation for benefits under these plans. The adoption of FAS 158 did not
have a material impact on the Company's financial statements.
In September 2006, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 108, CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS
WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS ("SAB 108").
SAB 108 provides guidance for how errors should be evaluated to assess
materiality from a quantitative perspective. SAB 108 permits companies to
initially apply its provisions by either restating prior financial statements or
recording the cumulative effect of initially applying the approach as
adjustments to the carrying values of assets and liabilities as of January 1,
2006 with an offsetting adjustment to retained earnings. The Company adopted SAB
108 as of December 31, 2006. The adoption of SAB 108 did not have a material
impact on the Company's financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS OUTSTANDING
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 adoption of SOP 05-1 will not have a
material impact on the Company's financial statements.
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN
INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN 48"). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The Interpretation is effective for fiscal years beginning after
December 15, 2006 and, therefore, the Company is required to adopt FIN 48 by the
first quarter of 2007. The adoption of FIN 48 will not have a material impact on
the Company's financial statements.
On September 15, 2006, the FASB issued FAS 157, FAIR VALUE MEASUREMENTS ("FAS
157"). FAS 157 defines fair value, addresses how companies should measure fair
value when they are required to use a fair value measure for recognition or
disclosure purposes under GAAP, and expands disclosures about fair value
measurements. FAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Therefore, the Company is required to adopt FAS 157 by the first quarter
of 2008. The Company is currently evaluating the requirements of FAS 157 and the
potential impact on the Company's financial statements.
In February, 2007, the FASB issued FAS 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES ("FAS 159"). FAS 159 permits entities to choose
to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Therefore, the Company is required to adopt
FAS 159 by the first quarter of 2008. The Company is currently evaluating the
requirements of FAS 159 and the potential impact on the Company's financial
statements.
F-11
<Page>
3. INVESTMENTS
The amortized cost and fair value of fixed maturities and equity securities as
of December 31, 2006 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 $2,857 $398 $ -- $3,255
States, municipalities and political
subdivisions 2,280 167 -- 2,447
Foreign governments 3,335 199 (38) 3,496
Public utilities 15,048 642 (78) 15,612
All other corporate bonds 61,405 2,743 (303) 63,845
Mortgage backed securities 22,902 129 (164) 22,867
----------- -------- ------- -----------
TOTAL FIXED MATURITIES $107,827 $4,278 $(583) $111,522
----------- -------- ------- -----------
EQUITY SECURITIES
NON-REDEEMABLE PREFERRED STOCKS:
Non-sinking fund preferred stocks 9,455 109 (183) 9,381
----------- -------- ------- -----------
TOTAL EQUITY SECURITIES $9,455 $109 $(183) $9,381
----------- -------- ------- -----------
</Table>
The amortized cost and fair value of fixed maturities 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 $4,160 $571 $(13) $4,718
States, municipalities and political
subdivisions 2,779 214 -- 2,993
Foreign governments 3,346 255 (18) 3,583
Public utilities 15,493 987 (20) 16,460
All other corporate bonds 66,089 3,955 (264) 69,780
Mortgage backed securities 22,113 158 (201) 22,070
----------- -------- ------- -----------
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 at December 31, 2006 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 $1,708 $1,719
Due after one year through five years 19,809 20,336
Due after five years through ten years 29,421 29,764
Due after ten years 33,987 36,836
----------- -----------
TOTAL 84,925 88,655
Mortgage and asset backed securities 22,902 22,867
----------- -----------
TOTAL $107,827 $111,522
----------- -----------
</Table>
F-12
<Page>
Proceeds from sales of available for sale securities were $16,806, $19,674, and
$61,535 during 2006, 2005 and 2004, respectively. Gross gains of $91, $498 and
$1,474 and gross losses of $419, $332 and $427 were realized on dispositions in
2006, 2005 and 2004, respectively.
Major categories of net investment income were as follows:
<Table>
Years Ended December 31,
-----------------------------------
2006 2005 2004
------- ------- -------
Fixed maturities $6,951 $7,135 $8,517
Equity securities 596 581 719
Commercial mortgage loans on real
estate 1,075 645 337
Policy loans 9 7 4
Short-term investments 206 158 98
Other investments 242 275 185
Cash and cash equivalents 355 180 --
------- ------- -------
Investment income 9,434 8,981 9,860
Investment expenses (259) (225) (122)
------- ------- -------
NET INVESTMENT INCOME $9,175 $8,756 $9,738
------- ------- -------
</Table>
The net realized (losses) gains recorded in income for 2006, 2005 and 2004 are
summarized as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
2006 2005 2004
- --------------------------------------------------------------------------------
Fixed maturities $(219) $172 $1,060
Equity securities (121) (26) (13)
------ ----- -------
Total marketable securities (340) 146 1,047
Other 167 -- (228)
------ ----- -------
TOTAL $(173) $146 $819
------ ----- -------
</Table>
The Company recorded $12, $20 and $0 of pre-tax realized losses in 2006, 2005
and 2004, 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, 2006 were as follows:
<Table>
<Caption>
LESS THAN 12 MONTHS 12 MONTHS OR MORE
UNREALIZED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITIES
BONDS:
Foreign governments $966 $(34) $526 $(4)
Public utilities 2,940 (66) 191 (12)
All other corporate bonds 16,768 (277) 774 (26)
Mortgage backed securities 10,782 (152) 495 (12)
---------- -------- -------- --------
TOTAL FIXED MATURITIES $31,456 $(529) $1,986 $(54)
---------- -------- -------- --------
EQUITY SECURITIES
NON-REDEEMABLE PREFERRED STOCKS:
Non-sinking fund preferred stocks 2,893 (63) 2,310 (120)
---------- -------- -------- --------
TOTAL EQUITY SECURITIES $2,893 $(63) $2,310 $(120)
---------- -------- -------- --------
<Caption>
TOTAL
UNREALIZED
FAIR VALUE LOSSES
- -------------------------------------- -------------------------------------------
FIXED MATURITIES
BONDS:
Foreign governments $1,492 $(38)
Public utilities 3,131 (78)
All other corporate bonds 17,542 (303)
Mortgage backed securities 11,277 (164)
---------- --------
TOTAL FIXED MATURITIES $33,442 $(583)
---------- --------
EQUITY SECURITIES
NON-REDEEMABLE PREFERRED STOCKS:
Non-sinking fund preferred stocks 5,203 (183)
---------- --------
TOTAL EQUITY SECURITIES $5,203 $(183)
---------- --------
</Table>
F-13
<Page>
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
UNREALIZED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES
- --------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITIES
BONDS:
United States Government and
government agencies and authorities $913 $(13) $ -- $ --
Foreign governments 1,516 (18) -- --
Public utilities 1,030 (17) 48 (3)
All other corporate bonds 10,151 (221) 706 (43)
Mortgage backed securities 10,525 (188) 497 (13)
---------- -------- -------- --------
TOTAL FIXED MATURITIES $24,135 $(457) $1,251 $(59)
---------- -------- -------- --------
EQUITY SECURITIES
NON-REDEEMABLE PREFERRED STOCKS:
Non-sinking fund preferred stocks 5,168 (176) 1,878 (140)
---------- -------- -------- --------
TOTAL EQUITY SECURITIES $5,168 $(176) $1,878 $(140)
---------- -------- -------- --------
<Caption>
TOTAL
UNREALIZED
FAIR VALUE LOSSES
- -------------------------------------- -----------------------------------------------------
FIXED MATURITIES
BONDS:
United States Government and
government agencies and authorities $913 $(13)
Foreign governments 1,516 (18)
Public utilities 1,078 (20)
All other corporate bonds 10,857 (264)
Mortgage backed securities 11,022 (201)
---------- --------
TOTAL FIXED MATURITIES $25,386 $(516)
---------- --------
EQUITY SECURITIES
NON-REDEEMABLE PREFERRED STOCKS:
Non-sinking fund preferred stocks 7,046 (316)
---------- --------
TOTAL EQUITY SECURITIES $7,046 $(316)
---------- --------
</Table>
The total unrealized losses represent less than 2% and 3% of the aggregate fair
value of the related securities at December 31, 2006 and 2005, respectively.
Approximately 77% and 76% of these unrealized losses have been in a continuous
loss position for less than twelve months in 2006 and 2005, respectively. The
total unrealized losses are comprised of 166 and 183 individual securities with
100% of the individual securities having an unrealized loss of less than $200 in
2006 and 2005, respectively. The total unrealized losses on securities that were
in a continuous unrealized loss position for greater than six months but less
than 12 months were approximately $22 and $158 in 2006 and 2005, respectively.
There were no securities with an unrealized loss of greater than $200 at
December 31, 2006 and 2005.
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 recorded $12, $20 and $0 of additional
other-than-temporary impairments as of December 31, 2006, 2005 and 2004,
respectively. 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 prices of the
securities in an unrealized loss position as of December 31, 2006 in the sectors
discussed above were temporarily depressed primarily as a result of the
prevailing level of interest rates at the time the securities were purchased.
The company has the intent and ability to hold these assets until the date of
recovery.
The Company has made commercial mortgage loans, collateralized by the underlying
real estate, on properties located throughout the United States. At December 31,
2006, approximately 60% of the outstanding principal balance of commercial
mortgage loans was concentrated in the states of New York, Washington, and
Texas. Although the company has a diversified loan portfolio, an economic
downtown could have an adverse impact on the ability of its debtors to repay
their loans. The outstanding balance of commercial mortgage loans range in size
from $621 to $1,762 at December 31, 2006 and from $641 to $1,820 at December 31,
2005. The mortgage loan valuation allowance for losses was $33 and $200 at
December 31, 2006 and 2005, respectively.
At December 31, 2006 loan commitments outstanding totaled approximately $450.
The Company has short term investments and fixed maturities carried at $440 and
$438 at December 31, 2006 and 2005, respectively, on deposit with various
governmental authorities as required by law.
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 the Parent. Information about the
Company's current and deferred tax expense is as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
2006 2005 2004
- --------------------------------------------------------------------------------
Current expense:
Federal $5,955 $5,209 $2,406
------- ------- -------
TOTAL CURRENT EXPENSE 5,955 5,209 2,406
------- ------- -------
Deferred expense
Federal 1,126 748 2,226
------- ------- -------
TOTAL DEFERRED EXPENSE 1,126 748 2,226
------- ------- -------
TOTAL INCOME TAX EXPENSE $7,081 $5,957 $4,632
------- ------- -------
</Table>
F-14
<Page>
A reconciliation of the federal income tax rate to the Company's effective
income tax rate is as follows:
<Table>
December 31,
-----------------------------------------------------------
2006
2005 2004
- -----------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX RATE 35.0% 35.0% 35.0%
RECONCILING ITEMS:
Tax exempt interest (0.1) (0.2) (0.3)
Dividends received deduction (0.3) (0.2) (0.4)
Permanent nondeductible expenses 0.1 0.3 --
Change in reserve for prior year taxes -- (0.4) (6.0)
Other (0.2) (0.2) (0.4)
----- ----- -----
EFFECTIVE INCOME TAX RATE: 34.5% 34.3% 27.9%
----- ----- -----
</Table>
The tax effects of temporary differences that result in significant deferred tax
assets and deferred tax liabilities are as follows:
<Table>
<Caption>
DECEMBER 31,
2006 2005
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Accrued liabilities $327 $136
Deferred acquisition costs 1,055 1,073
Deferred gains on reinsurance 1,839 1,909
Investment adjustment 1 115
Other assets -- 723
------- -------
GROSS DEFERRED TAX ASSETS 3,222 3,956
------- -------
DEFERRED TAX LIABILITIES:
Policyholder and separate account reserves 470 78
Unrealized gains on fixed maturities and equities 1,267 1,879
------- -------
GROSS DEFERRED TAX LIABILITIES 1,737 1,957
------- -------
NET DEFERRED INCOME TAX ASSET $1,485 $1,999
------- -------
</Table>
As of December 31, 2006, the Company had no capital loss carryforwards for U.S.
federal income tax purposes.
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, 2006 and 2005. All the outstanding shares at
December 31, 2006 are owned by the Parent (see Note 1). The Company paid
dividends of $10,000, $4,100, and $40,000 at December 31, 2006, 2005 and 2004,
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).
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 statutory accounting principles ("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 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 services 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
2006 2005 2004 2006 2005
- ---------------------------------------------------------------------------------------------------------------------------------
Based on statutory accounting practices $14,471 $10,538 $11,088 $52,054 $49,026
Deferred policy acquisition costs (249) 314 181 1,188 1,437
Deferred and uncollected premiums (8) (87) 1,612 47 55
Policy reserves 490 602 (15) 3,104 2,614
Investment valuation difference 10 14 17 3,464 5,035
Commissions (38) 534 99 2 (11)
Deferred taxes -- -- -- 948 681
Deferred gain on disposal of businesses 41 211 320 (5,254) (5,454)
Unearned ceding fee 82 -- 612 (367) (448)
Amounts payable reinsurance ceded -- -- -- 4 (9)
Realized (losses) gains on investments (43) 104 480 -- --
Amortization of goodwill -- -- -- 2,038 2,038
Income taxes (1,093) (747) (2,226) 32 --
Pension (150) (149) (154) (600) (450)
Amortization of interest maintenance reserve (29) (77) (37) -- --
Reinsurance in unauthorized companies -- -- -- 424 2
Interest maintenance reserve -- -- -- 357 596
Asset valuation reserve -- -- -- 1,143 1,012
Agents balances -- -- -- 40 (3)
Other (43) 147 -- 125 322
--------- --------- --------- --------- ---------
Based on generally accepted accounting principles $13,441 $11,404 $11,977 $58,749 $56,443
--------- --------- --------- --------- ---------
</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
2006, the Company declared and paid dividends of $10,000, of which $4,703 was
ordinary and $5,297 was extraordinary. 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. The Company has the ability, under state regulatory requirements,
to dividend up to $5,005 to its parent in 2007 without permission from New York
regulators.
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>
2006 2005
- --------------------------------------------------------------------------------
Ceded future policyholder benefits and expense $40,686 $35,688
Ceded unearned premium 9,625 12,167
Ceded claims and benefits payable 48,312 44,225
Ceded paid losses 2,660 2,580
---------- ---------
TOTAL $101,283 $94,660
---------- ---------
</Table>
F-16
<Page>
The changes in direct premiums and premiums ceded were as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
2006
LONG SHORT
DURATION DURATION TOTAL
- -------------------------------------------------------------------------
Gross earned
Premiums and other
considerations $10,820 $60,482 $71,302
Premiums assumed -- 19,384 19,384
Premiums ceded (10,820) (18,528) (29,348)
------- -------- ------
NET EARNED
PREMIUMS AND
OTHER
CONSIDERATIONS $ -- $61,338 $61,338
------- -------- ------
Gross policyholder
benefits $18,125 $34,334 $52,459
Benefits assumed -- 17,335 17,335
Benefits ceded (18,116) (19,394) (37,510)
------- -------- ------
NET POLICYHOLDER
BENEFITS $9 $32,275 $32,284
------- -------- ------
<Caption>
YEARS ENDED DECEMBER 31,
2005 2004
LONG SHORT LONG SHORT
DURATION DURATION TOTAL DURATION DURATION TOTAL
- ------------------ --------------------------------------------------------------------------------------------------------------
Gross earned
Premiums and other
considerations $11,247 $70,879 $82,126 $10,930 $79,285 $90,215
Premiums assumed -- 11,402 11,402 -- 13,174 13,174
Premiums ceded (11,247) (22,683) (33,930) (10,930) (26,866) (37,796)
-------- -------- ------ -------- -------- ------
NET EARNED
PREMIUMS AND
OTHER
CONSIDERATIONS $ -- $59,598 $59,598 $ -- $65,593 $65,593
-------- -------- ------ -------- -------- ------
Gross policyholder
benefits $17,931 $44,880 $62,811 $19,628 $46,939 $66,567
Benefits assumed -- 8,384 8,384 -- 15,304 15,304
Benefits ceded (17,925) (18,699) (36,624) (19,619) (19,520) (39,139)
-------- -------- ------ -------- -------- ------
NET POLICYHOLDER
BENEFITS $6 $34,565 $34,571 $9 $42,723 $42,732
-------- -------- ------ -------- -------- ------
</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 Parent 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 Parent entered into a reinsurance agreement with the Hartford for
the sale of its annuity business. The Company's reinsurance recoverable from the
Hartford was $4,185 and $5,840 as of December 31, 2006 and 2005, 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 Parent divested its LTC operations to John Hancock. The Company's
reinsurance recoverable from John Hancock was $46,115 and $36,278 as of December
31, 2006 and 2005, respectively.
8. RESERVES
The following table provides reserve information by major lines of business as
of December 31, 2006 and 2005:
<Table>
<Caption>
DECEMBER 31, 2006
FUTURE INCURRED
POLICY BUT NOT
BENEFITS AND UNEARNED CASE REPORTED
EXPENSES PREMIUMS RESERVE RESERVES
- -------------------------------------------------------------------------------------------------------------
LONG DURATION CONTRACTS:
FFG and other disposed
businesses $40,381 $3,949 $6,963 $1,477
SHORT DURATION CONTRACTS:
Group term life -- 75 14,864 1,765
Group disability -- 306 94,242 6,352
Medical -- 4 849 24
Dental -- 48 51 1,176
Credit Life and Disability -- 6,597 6,255 4,862
------ ------ ------- ------
TOTAL $40,381 $10,979 $123,224 $15,656
------ ------ ------- ------
<Caption>
DECEMBER 31, 2005
FUTURE INCURRED
POLICY BUT NOT
BENEFITS AND UNEARNED CASE REPORTED
EXPENSES PREMIUMS RESERVE RESERVES
- ------------------------------- ----------------------------------------------------------------------------
LONG DURATION CONTRACTS:
FFG and other disposed
businesses $35,762 $4,125 $3,790 $248
SHORT DURATION CONTRACTS:
Group term life -- 63 16,651 1,981
Group disability -- 218 86,841 6,412
Medical -- 4 1,233 46
Dental -- 33 66 1,532
Credit Life and Disability -- 9,565 8,314 8,062
------ ------ ------- ------
TOTAL $35,762 $14,008 $116,895 $18,281
------ ------ ------- ------
</Table>
F-17
<Page>
The following table provides a roll-forward of the claims and benefits payable
for the Company's group term life and group disability lines of business. These
are the Company's product lines with the most significant short duration claims
and benefits payable balances.
<Table>
<Caption>
GROUP GROUP
TERM LIFE DISABILITY
- --------------------------------------------------------------------------------
BALANCE AS OF JANUARY 1, 2004, GROSS OF
REINSURANCE $20,936 $85,956
Less: Reinsurance ceded and other(1) -- (25,120)
--------- ----------
Balance as of January 1, 2004, net of
reinsurance 20,936 60,836
Incurred losses related to:
Current year 7,373 19,664
Prior year's interest 730 2,664
Prior year(s) (2,360) (5,201)
--------- ----------
Total incurred losses 5,743 17,127
Paid losses related to:
Current year 4,213 2,241
Prior year(s) 2,421 9,652
--------- ----------
Total paid losses 6,634 11,893
Balance as of December 31, 2004, net of
reinsurance 20,045 66,070
Plus: Reinsurance ceded and other(1) -- 26,571
--------- ----------
BALANCE AS OF DECEMBER 31, 2004, GROSS OF
REINSURANCE $20,045 $92,641
--------- ----------
Less: Reinsurance ceded and other(1) -- (26,571)
--------- ----------
Balance as of January 1, 2005, net of
reinsurance 20,045 66,070
Incurred losses related to:
Current year $6,875 $12,776
Prior year's interest 686 3,059
Prior year(s) (3,104) (1,938)
--------- ----------
Total incurred losses 4,457 13,897
Paid losses related to:
Current year 4,380 2,663
Prior year(s) 1,897 11,628
--------- ----------
Total paid losses 6,277 14,291
Balance as of December 31, 2005, net of
reinsurance 18,225 65,676
Plus: Reinsurance ceded and other(1) 407 27,577
--------- ----------
BALANCE AS OF DECEMBER 31, 2005, GROSS OF
REINSURANCE $18,632 $93,253
--------- ----------
Less: Reinsurance ceded and other(1) (407) (27,577)
--------- ----------
Balance as of January 1, 2006, net of
reinsurance 18,225 65,676
Incurred losses related to:
Current year 5,817 21,472
Prior year's interest 642 2,853
Prior year(s) (3,166) (6,089)
--------- ----------
Total incurred losses 3,293 18,236
Paid losses related to:
Current year 4,092 4,707
Prior year(s) 1,198 10,281
--------- ----------
Total paid losses 5,290 14,988
Balance as of December 31, 2006, net of
reinsurance 16,228 68,924
Plus: Reinsurance ceded and other(1) 401 31,670
--------- ----------
BALANCE AS OF DECEMBER 31, 2006, GROSS OF
REINSURANCE $16,629 $100,594
--------- ----------
</Table>
(1) Reinsurance ceded and other includes claims and benefits payable balance
that have either been [a] reinsured to third parties, [b] established for
claims related expenses whose subsequent payment is not recorded as a paid
claim, or [c] reserves established for obligations that would persist even
if contracts were cancelled (such as extension of benefits), which cannot
be analyzed appropriately under a roll-forward approach.
Claims and benefits payable include claims in process as well as provisions for
incurred but not reported claims. Such amounts are developed using actuarial
principles and assumptions that consider, among other things, contractual
requirements, historical utilization trends and payment patterns, benefit
changes, medical inflation, seasonality, membership, product mix, legislative
and regulatory environment, economic factors, disabled life mortality and claim
termination rates and other relevant factors. The Company consistently applies
the principles and assumptions listed above from year to year, while also giving
due consideration to the potential variability of these factors.
F-18
<Page>
Since claims and benefits payable include estimates developed from various
actuarial methods, the Company's actual losses incurred may be more or less than
the Company's previously developed estimates. As shown in the table above, if
the amounts listed on the line labeled "Incurred losses related to: Prior year"
are negative (redundant) this means that the Company's actual losses incurred
related to prior years for these lines were less than the estimates previously
made by the Company. If the line labeled "Incurred losses related to: Prior
year" are positive (deficient) this means that the Company's actual losses
incurred related to prior years for these lines were greater than the estimates
previously made by the Company.
The Group Term Life redundancies in all years are due to actual mortality rates
running below those assumed in prior year reserves, and actual recovery rates
running higher than those assumed in prior year reserves.
Group Disability claims and benefits payable show redundancies in all years due
to actual claim recovery rates exceeding those assumed in prior year reserves.
LONG DURATION CONTRACTS
The Company's long duration contracts are comprised of FFG and LTC disposed
businesses. The principal products and services included in these categories are
described in the summary of significant accounting polices (see Note 2).
The reserves for FFG and LTC are included in the company's reserves in
accordance with FAS 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts. The Company maintains an offsetting
reinsurance recoverable related to these reserves (see note 7).
SHORT DURATION CONTRACTS
The Company's short duration contracts are comprised of group term life, group
disability, medical, dental, and credit life. The principal products and
services included in these categories are described in the summary of
significant accounting polices (see note 2).
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, 2006 and 2005
liabilities include $67,656 and $63,686, respectively, of such reserves. The
amount of discounts deducted from outstanding reserves as of December 31, 2006
and 2005 are $21,166 and $20,946, respectively.
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, which
includes both public and 144A securities, is based on quoted market prices,
where available. For fixed maturity securities that are not actively traded,
fair values are estimated using values obtained from independent pricing
services or, in the case of private placements, excluding 144A securities, 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: the 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 reported in the
balance sheets approximate fair value.
OTHER INVESTMENTS: The carrying amounts of 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.
F-19
<Page>
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, 2006 DECEMBER 31, 2005
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and cash equivalents $5,600 $5,600 $2,863 $2,863
Fixed maturities 111,522 111,522 119,604 119,604
Equity securities 9,381 9,381 8,790 8,790
Commercial mortgage loans on real estate 21,686 21,566 13,996 14,355
Policy loans 120 120 98 98
Short-term investments 2,401 2,401 3,341 3,341
Other investments 2,524 2,524 3,028 3,028
Assets held in separate accounts 21,948 21,948 25,343 25,343
FINANCIAL LIABILITIES
Policy reserves under investment products
(Individual and group annuities, subject to
discretionary withdrawal) $3,859 $3,842 $5,462 $5,402
Liabilities related to separate accounts 21,948 21,948 25,343 25,343
</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.
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, $124 and $108 for 2006,
2005 and 2004, respectively.
The Company participates in a contributory profit sharing plan, sponsored by the
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 $48, $33 and
$15 for 2006, 2005 and 2004, 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
2006, 2005 and 2004 the Company incurred expenses related to retirement benefits
of $26, $25 and $37, respectively.
11. DEFERRED POLICY ACQUISITION COSTS
Information regarding deferred policy acquisition costs follows:
<Table>
<Caption>
DECEMBER 31,
2006 2005 2004
- --------------------------------------------------------------------------------
Beginning Balance $1,437 $1,123 $942
Costs deferred 835 1,295 428
Amortization (1,084) (981) (247)
-------- ------- -------
ENDING BALANCE $1,188 $1,437 $1,123
-------- ------- -------
</Table>
F-20
<Page>
12. GOODWILL
Information regarding goodwill follows:
<Table>
<Caption>
DECEMBER 31,
2006 2005 2004
- --------------------------------------------------------------------------------
Beginning Balance $2,038 $2,038 $2,038
Acquisitions -- -- --
------- ------- -------
ENDING BALANCE $2,038 $2,038 $2,038
------- ------- -------
</Table>
13. OTHER COMPREHENSIVE INCOME
The Company's components of other comprehensive income (loss) net of tax
December 31 are as follows:
<Table>
<Caption>
UNREALIZED GAINS ACCUMULATED OTHER
(LOSSES) ON SECURITIES COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
Balance at January 1,
2004 $7,082 $7,082
Activity in 2004 (1,243) (1,243)
-------- --------
Balance at December
31, 2004 5,839 5,839
Activity in 2005 (2,350) (2,350)
-------- --------
Balance at December
31, 2005 3,489 3,489
Activity in 2006 (1,135) (1,135)
-------- --------
Balance at December
31, 2006 $2,354 $2,354
-------- --------
</Table>
14. 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, 2006,
2005 and 2004 were $4,471, $9,137 and $4,192, 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 $6,916, $6,588 and $6,526 of
premium to USIC in 2006, 2005 and 2004, respectively. The Company has ceded
$29,151, $24,879 and $23,533 of reserves in 2006, 2005 and 2004, respectively,
to USIC.
15. 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, 2006, the
aggregate future minimum lease payment under operating lease agreements that
have initial or non-cancelable terms in excess of one year are:
<Table>
2007 $611
2008 569
2009 228
2010 172
2011 and thereafter --
-------
TOTAL MINIMUM FUTURE LEASE PAYMENTS $1,580
-------
</Table>
Rent expense was $564, $623 and $333 for 2006, 2005 and 2004 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-21
<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 9th day of April, 2007.
UNION SECURITY LIFE INSURANCE COMPANY OF NEW YORK
<Table>
By: P. Bruce Camacho *By: /s/ Richard J. Wirth
----------------------------------- -----------------------------------
P. Bruce Camacho, Richard J. Wirth
President, Chief Executive Officer Attorney-In-Fact
and 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* *By: /s/ Richard J. Wirth
-----------------------------------
Dale E. Gardner Director* Richard J. Wirth
Esther L. Nelson, Director* Attorney-in-Fact
H. Carroll Mackin, Director* Date: April 9, 2007
</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>