MONY CLOSED BLOCK OF BUSINESS

In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.

Assets allocated to the Closed Block inure solely to the benefit of each Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.

The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income (loss) (“AOCI”)) at the acquisition date of October 1, 2013, represented the estimated maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. In connection with the acquisition of MONY, the Company developed an actuarial calculation of the expected timing of MONY’s Closed Block’s earnings as of October 1, 2013.

If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.

Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.

Summarized financial information for the Closed Block as of September 30, 2017, and December 31, 2016 is as follows:



	As of
	September 30, 2017		December 31, 2016
	(Dollars In Thousands)
Closed block liabilities
Future policy benefits, policyholders’ account balances and other policyholder liabilities	$	5,814,527	$	5,896,355
Policyholder dividend obligation	136,004		31,932
Other liabilities	76,176		40,007
Total closed block liabilities	6,026,707		5,968,294
Closed block assets
Fixed maturities, available-for-sale, at fair value	$	4,549,322	$	4,440,105
Mortgage loans on real estate	130,521		201,088
Policy loans	707,293		712,959
Cash	148,612		108,270
Other assets	141,740		135,794
Total closed block assets	5,677,488		5,598,216
Excess of reported closed block liabilities over closed block assets	349,219		370,078
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses) net of policyholder dividend obligation: $(55,231) and $(197,450); and net of income tax: $19,331 and $69,107	—		—
Future earnings to be recognized from closed block assets and closed block liabilities	$	349,219	$	370,078

Reconciliation of the policyholder dividend obligation is as follows:



	For The Nine Months Ended September 30,
	2017			2016
	(Dollars In Thousands)
Policyholder dividend obligation, beginning of period	$	31,932		$	—
Applicable to net revenue (losses)	(38,147		)	(36,707		)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation	142,219			300,814
Policyholder dividend obligation, end of period	$	136,004		$	264,107

Closed Block revenues and expenses were as follows:



	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2017		2016		2017		2016
	(Dollars In Thousands)
Revenues
Premiums and other income	$	40,962	$	44,043	$	128,697	$	135,282
Net investment income	50,780		53,582		153,481		156,458
Net investment gains	341		326		448		963
Total revenues	92,083		97,951		282,626		292,703
Benefits and other deductions
Benefits and settlement expenses	81,721		88,143		249,319		260,227
Other operating expenses	621		537		1,216		2,214
Total benefits and other deductions	82,342		88,680		250,535		262,441
Net revenues before income taxes	9,741		9,271		32,091		30,262
Income tax expense	3,409		3,245		11,232		10,591
Net revenues	$	6,332	$	6,026	$	20,859	$	19,671