4. MONY CLOSED BLOCK OF BUSINESS

In 1998, 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 MONY acquisition as discussed in Note 3, Significant Acquisitions.

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 Insurance Department (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 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 has 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 December 31, 2013 and June 30, 2014 is as follows:

	As of
	June 30, 2014		December 31, 2013
	(Dollars In Thousands)
Closed block liabilities
Future policy benefits, policyholders’ account balances and other	$	6,195,402	$	6,261,819
Policyholder dividend obligation	328,872		190,494
Other liabilities	59,751		1,259
Total closed block liabilities	6,584,025		6,453,572
Closed block assets
Fixed maturities, available-for-sale, at fair value	$	4,402,851	$	4,109,142
Equity securities, available-for-sale, at fair value	5,369		5,223
Mortgage loans on real estate	512,800		601,959
Policy loans	787,348		802,013
Cash and other invested assets	70,954		140,577
Other assets	237,931		207,265
Total closed block assets	6,017,253		5,866,179
Excess of reported closed block liabilities over closed block assets	566,772		587,393
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses) net of deferred tax benefit of $0 and $1,074 net of policyholder dividend obligation of $86,196 and $12,720	—		(1,994		)
Future earnings to be recognized from closed block assets and closed block liabilities	$	566,772	$	585,399

Reconciliation of the policyholder dividend obligation from December 31, 2013 through June 30, 2014 is as follows:

	For The
	Six Months Ended
	June 30, 2014
	(Dollars In Thousands)
Policyholder dividend obligation, at December 31, 2013	$	190,494
Applicable to net revenue (losses)	(6,951		)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation	145,329
Policyholder dividend obligation, end of period	$	328,872

Closed Block revenues and expenses were as follows:

	For The		For The
	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
	(Dollars In Thousands)
Revenues
Premiums and other income	$	53,073	$	102,846
Net investment income	60,416		112,623
Net investment gains	1,086		6,105
Total revenues	114,575		221,574
Benefits and other deduction
Benefits and settlement expense	103,209		199,535
Other operating expense	383		90
Total benefits and other deductions	103,592		199,625
Net revenues before income taxes	10,983		21,949
Income tax expense	3,844		7,682
Net revenues	$	7,139	$	14,267