-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E1ln1dFw9/it6StrHoaP2qkje1A50CcfYSUJHXQNpY6LdXq8pX2NIFK2EcG8Nzi+ YZR42sENlNqXiCb0zYtdrQ== 0000950123-00-005110.txt : 20000516 0000950123-00-005110.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950123-00-005110 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONY LIFE INSURANCE COMPANY OF AMERICA CENTRAL INDEX KEY: 0000835357 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-65423 FILM NUMBER: 635571 BUSINESS ADDRESS: STREET 1: 1740 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10017 MAIL ADDRESS: STREET 1: 1740 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 333-65423 MONY LIFE INSURANCE COMPANY OF AMERICA (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ARIZONA 86-0222062 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1740 BROADWAY NEW YORK, NEW YORK 10019 (212) 708-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of March 31, 2000, there were 1,278 holders of the Registrant's guaranteed interest account with market value adjustment contracts. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MONY LIFE INSURANCE COMPANY OF AMERICA INDEX TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS TABLE OF CONTENTS
PAGE ---- PART 1 FINANCIAL INFORMATION ITEM 1: Unaudited interim condensed balance sheets as of March 31, 2000 and December 31, 1999.................................. 3 Unaudited interim condensed statements of income and comprehensive income for the three-month periods ended March 31, 2000 and 1999........................................... 4 Unaudited interim condensed statement of changes in shareholder's equity for the three-month period ended March 31, 2000.................................................... 5 Unaudited interim condensed statements of cash flows for the three-month periods ended March 31, 2000 and 1999........... 6 Notes to unaudited interim condensed financial statements... 7 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 Investments................................................. 15 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk........................................................ 21 PART II OTHER INFORMATION ITEM 1: Legal Proceedings........................................... 22 ITEM 2: Changes in Securities....................................... 22 ITEM 3: Defaults upon Senior Securities............................. 22 ITEM 4: Submission of Matters to a Vote of Security Holders......... 22 ITEM 5: Other Information........................................... 22 ITEM 6: Exhibits and Reports on Form 8-K............................ 23 SIGNATURES............................................................. S-1
1 3 FORWARD-LOOKING STATEMENTS The management of MONY Life Insurance Company of America ("the Company") has made in this report, and from time to time may make in its public filings and press releases as well as in oral presentations and discussions, forward-looking statements concerning the Company's operations, economic performance and financial condition. Forward-looking statements include, among other things, discussions concerning the Company's potential exposure to market risks, as well as statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by words such as "believes," "estimates," "anticipates," "expects," "projects," "forecasts," "plans," "intends," "may," "could," "possible," "will," "should," "probably," "risk," "target," "goals," "objectives," or similar expressions. The Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and assumes no duty to update any forward-looking statement. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those anticipated by forward-looking statements due to a number of important factors including those discussed elsewhere in this report and in the Company's and its parent company's other public filings, press releases, oral presentations and discussions and the following; (i) losses with respect to the Company's equity real estate, and the success of the Company's continuing process of selectively selling its equity real estate; (ii) the success of the recently implemented "tiering" of the career agency sales force of MONY Life Insurance Company ("MONY Life"), and the ability to attract and retain productive agents; (iii) the success of the restructuring of agent compensation; (iv) the Company's ability to control operating expenses; (v) the outcome of pending litigation; (vi) the performance of financial markets; (vii) the intensity of competition for other financial institutions; (viii) the Company's mortality, morbidity, persistency and claims experience; (ix) the Company's ability to develop, distribute and administer competitive products and services in a timely, cost-effective manner; (x) the Company's financial and claims paying ratings; (xi) the effect of changes in laws and regulations affecting the Company's businesses, including changes in tax laws affecting insurance and annuity products; (xii) market risks related to interest rates, equity prices, derivatives, foreign currency exchange and credit; and (xiii) the ability of the Company to identify and consummate on successful terms any future acquisitions, and to successfully integrate acquired businesses with minimal disruption. 2 4 ITEM 1: MONY LIFE INSURANCE COMPANY OF AMERICA UNAUDITED INTERIM CONDENSED BALANCE SHEETS MARCH 31, 2000 AND DECEMBER 31, 1999
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) ASSETS Investments: Fixed maturity securities available-for-sale, at fair value..................................................... $1,017.8 $1,048.8 Mortgage loans on real estate............................... 165.7 165.0 Policy loans................................................ 62.8 58.8 Real estate................................................. 7.1 6.9 Other invested assets....................................... 2.5 2.3 -------- -------- 1,255.9 1,281.8 -------- -------- Cash and cash equivalents................................... 37.9 28.9 Accrued investment income................................... 21.2 20.4 Amounts due from reinsurers................................. 18.0 18.6 Deferred policy acquisition costs........................... 431.5 406.4 Current federal income taxes receivable..................... 5.4 2.3 Other assets................................................ 21.8 24.9 Separate account assets..................................... 4,391.6 4,387.2 -------- -------- Total assets...................................... $6,183.3 $6,170.5 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Future policy benefits...................................... $ 125.1 $ 123.4 Policyholders' account balances............................. 1,122.4 1,154.1 Other policyholders' liabilities............................ 55.9 54.0 Accounts payable and other liabilities...................... 109.3 79.5 Note payable to affiliate (Note 5).......................... 48.5 49.0 Deferred federal income taxes............................... 23.9 19.4 Separate account liabilities................................ 4,391.6 4,387.2 -------- -------- Total liabilities................................. 5,876.7 5,866.6 Commitments and contingencies (Note 4) Common stock $1.00 par value; 5,000,000 shares authorized, 2,500,000 issued and outstanding.......................... 2.5 2.5 Capital in excess of par.................................... 199.7 199.7 Retained earnings........................................... 112.4 109.0 Accumulated other comprehensive loss........................ (8.0) (7.3) -------- -------- Total shareholder's equity........................ 306.6 303.9 -------- -------- Total liabilities and shareholder's equity........ $6,183.3 $6,170.5 ======== ========
See accompanying notes to unaudited interim condensed financial statements. 3 5 MONY LIFE INSURANCE COMPANY OF AMERICA UNAUDITED INTERIM CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999 ------ ------ ($ IN MILLIONS) REVENUES: Universal life and investment-type product policy fees...... $38.1 $32.5 Premiums.................................................... 4.9 1.0 Net investment income....................................... 23.7 24.2 Net realized gains on investments........................... (0.1) 0.2 Other income................................................ 3.3 1.6 ----- ----- 69.9 59.5 ----- ----- BENEFITS AND EXPENSES: Benefits to policyholders................................... 12.5 9.8 Interest credited to policyholders' account balances........ 16.1 16.5 Amortization of deferred policy acquisition costs........... 12.9 10.0 Other operating costs and expenses.......................... 23.1 19.0 ----- ----- 64.6 55.3 ----- ----- Income before income taxes.................................. 5.3 4.2 Income tax expense.......................................... 1.9 1.5 ----- ----- Net income.................................................. 3.4 2.7 Other comprehensive loss, net............................... (0.7) (3.5) ----- ----- Comprehensive income........................................ $ 2.7 $(0.8) ===== =====
See accompanying notes to unaudited interim condensed financial statements. 4 6 MONY LIFE INSURANCE COMPANY OF AMERICA UNAUDITED INTERIM CONDENSED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY THREE-MONTH PERIOD ENDED MARCH 31, 2000
ACCUMULATED CAPITAL OTHER TOTAL COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S STOCK OF PAR EARNINGS INCOME/(LOSS) EQUITY ------ --------- -------- ------------- ------------- Balance, December 31, 1999............... $2.5 $199.7 $109.0 $(7.3) $303.9 Capital contribution..................... -- -- Comprehensive income: Net income............................. 3.4 3.4 Other comprehensive income: Unrealized losses on investments, net of unrealized gains, reclassification adjustments, and taxes............................. (0.7) (0.7) ------ Comprehensive income..................... 2.7 ---- ------ ------ ----- ------ Balance, March 31, 2000.................. $2.5 $199.7 $112.4 $(8.0) $306.6 ==== ====== ====== ===== ======
See accompanying notes to unaudited intermin condensed financial statements. 5 7 MONY LIFE INSURANCE COMPANY OF AMERICA UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999 ------- ------- ($ IN MILLIONS) NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES......... $ 9.7 $ (20.3) CASH FLOWS FROM INVESTING ACTIVITIES: Sales, maturities or repayments of: Fixed maturities.......................................... 56.3 47.2 Mortgage loans on real estate............................. 3.2 7.7 Other invested assets..................................... -- 0.5 Acquisitions of investments: Fixed maturities.......................................... (29.0) (89.0) Mortgage loans on real estate............................. (3.7) (13.9) Real estate............................................... (0.3) (0.2) Other invested assets..................................... (0.1) (0.1) Policy loans, net......................................... (4.1) (1.1) Other, net................................................ -- (0.2) ------- ------- Net cash provided by/(used in) investing activities......... 22.3 (49.1) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Note payable to affiliate................................... -- 50.5 Repayment of note to affiliate.............................. (0.5) -- Receipts from annuity and universal life policies credited to policyholders' account balances........................ 467.9 276.4 Return of policyholders' account balances on annuity and universal life policies................................... (490.4) (248.5) ------- ------- Net cash (used in)/provided by financing activities......... (23.0) 78.4 ------- ------- Net increase in cash and cash equivalents................... 9.0 9.0 Cash and cash equivalents, beginning of year................ 28.9 133.4 ------- ------- Cash and cash equivalents, end of period.................... $ 37.9 $ 142.4 ======= =======
See accompanying notes to unaudited interim condensed financial statements. 6 8 MONY LIFE INSURANCE COMPANY OF AMERICA NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS MONY Life Insurance Company of America (the "Company"), an Arizona stock life insurance company, is a wholly-owned subsidiary of MONY Life Insurance Company of New York ("MONY Life"), formerly The Mutual Life Insurance Company of New York, which converted from a mutual life insurance company to a stock life insurance company (the "Demutualization"). MONY Life is a wholly-owned subsidiary of The MONY Group, Inc. (the "MONY Group"). The Company's primary business is to provide asset accumulation and life insurance products to business owners, growing families, and pre-retirees. The Company's insurance and financial products are marketed and distributed directly to individuals primarily through MONY Life's career agency sales force. These products are sold in 49 states (not including New York), the District of Columbia, the U.S. Virgin Islands and Puerto Rico. 2. BASIS OF PRESENTATION The accompanying unaudited interim condensed financial statements are prepared in conformity with generally accepted accounting principles ("GAAP") which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, these statements include all adjustments which were normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 1999 in the Company's 1999 Annual Report on Form 10-K. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. 3. FEDERAL INCOME TAXES Federal income taxes for interim periods have been computed using an estimated annual effective tax rate. This rate is revised, if necessary, at the end of each successive interim period to reflect the current estimate of the annual effective tax rate. 4. COMMITMENTS AND CONTINGENCIES Since late 1995 a number of purported class actions have been commenced in various state and federal courts against the Company alleging that the Company engaged in deceptive sales practices in connection with the sale of whole and universal life insurance policies in the 1980s and 1990s. Although the claims asserted in each case are not identical, they seek substantially the same relief under essentially the same theories of recovery (i.e., breach of contract, fraud, negligent misrepresentation, negligent supervision and training, breach of fiduciary duty, unjust enrichment and violation of state insurance and/or deceptive business practice laws). Plaintiffs in these cases seek primarily equitable relief (e.g., reformation, specific performance, mandatory injunctive relief prohibiting the Company from canceling policies for failure to make required premium payments, imposition of a constructive trust and creation of a claims resolution facility to adjudicate any individual issues remaining after resolution of all class-wide issues) as opposed to compensatory damages, although they also seek compensatory damages in unspecified amounts. The Company has answered the complaints in each action (except for one being voluntarily held in abeyance), has denied any wrongdoing and has asserted numerous affirmative defenses. On June 7, 1996, the New York State Supreme Court certified one of those cases, Goshen v. The Mutual Life Insurance Company of New York and MONY Life Insurance Company of America, the Goshen case, being the first of the aforementioned class actions filed, as a nationwide class consisting of all persons or 7 9 MONY LIFE INSURANCE COMPANY OF AMERICA NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) entities who have, or at the time of the policy's termination had, an ownership interest in a whole life or universal life insurance policy issued by the Company and sold on an alleged "vanishing premium" basis during the period January 1, 1982 to December 31, 1995. On March 27, 1997, the Company filed a motion to dismiss or, alternatively, for summary judgement on all counts of the complaint. All of the other putative class actions have been consolidated and transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the District of Massachusetts, or are being voluntarily held in abeyance pending the outcome of the Goshen case. On October 21, 1997, the New York State Supreme Court granted the Company's motion for summary judgement and dismissed all claims filed in the Goshen case against the Company. On December 20, 1999, the New York State Court of Appeals affirmed the dismissal of all but one of the claims in the Goshen case (a claim under New York's General Business Law), which has been remanded back to the New York State Supreme Court for further proceedings consistent with the opinion. The Company intends to defend itself vigorously against the sole remaining claim. There can be no assurance that the present litigation relating to sales practices will not have a material adverse effect on the Company. In addition to the matters discussed above, the Company is involved in various other legal actions and proceedings in connection with its business. The claimants in certain of these actions and proceedings seek damages of unspecified amounts. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, any liability resulting from the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. Insurance companies are subject to assessments up to statutory limits, by state guaranty funds for losses of policyholders of insolvent insurance companies. In the opinion of management, such assessments will not have a material adverse effect on the financial position and the results of operations of the Company. At March 31, 2000, the Company had commitments outstanding of $2.7 million for fixed rate agricultural loans with periodic interest rate reset dates. The initial interest rates on such agricultural loans range from 8.65% to 8.81%. There were no commitments outstanding for commercial mortgages as of March 31, 2000. The Company had commitments outstanding to purchase $24.8 million of private fixed maturity securities as of March 31, 2000 with interest rates ranging from 6.2% to 7.9%. 5. NOTE PAYABLE TO AFFILIATE On March 5, 1999, the Company borrowed $50.5 million from MONY Benefits Management Corp. ("MBMC"), an affiliate, in exchange for a note payable in the same amount. The note bears interest at 6.75% per annum and matures on March 5, 2014. Principal and interest are payable quarterly to MBMC. The carrying value of the note as of March 31, 2000 is $48.5 million. 6. INTERCOMPANY REINSURANCE AGREEMENTS The Company entered into a modified coinsurance agreement with U.S. Financial Life Insurance Company ("USFL"), an affiliate, effective January 1, 1999, whereby the Company agrees to reinsure 90% of all level term life insurance policies written by USFL after January 1, 1999. Under the agreement, the Company will share in all premiums and benefits for such policies based on the 90% quota share percentage, after consideration of existing reinsurance agreements previously in force on this business. In addition, the Company will reimburse USFL for its quota share of expense allowances, as defined in the agreement. At March 31, 2000 the Company recorded a payable of $5.6 million to USFL in connection with this agreement which is included in Accounts Payable and Other Liabilities in the balance sheet. 8 10 MONY LIFE INSURANCE COMPANY OF AMERICA NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) Effective September 1, 1999, the Company recaptured its reinsurance agreements with MONY Life for all in force and new business. The Company simultaneously entered into new reinsurance agreements with third party reinsurers which reinsured the same block of business as that previously reinsured by MONY Life. Under the new reinsurance agreements, the Company increased its retention limits on new business for any one person for individual products from $0.5 million to $4.0 million and on last survivor products from $0.5 million to $6.0 million. 9 11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses financial condition and results of operations of the Company for the periods indicated. This discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's unaudited interim condensed financial statements and the related notes to the unaudited interim condensed financial statements included elsewhere herein, and with the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in the Company's 1999 Annual Report on Form 10-K. The Company is a stock life insurance company organized in the state of Arizona. The Company is a wholly-owned subsidiary of MONY Life Insurance Company, a stock life insurance company domiciled in the state of New York. MONY Life, formerly The Mutual Life Insurance Company of New York, which converted from a mutual life insurance company to a stock life insurance company (the "Demutualization"). MONY Life is a wholly-owned subsidiary of The MONY Group, a Delaware Corporation organized to be the parent holding company of MONY Life. The Company's primary business is to provide asset accumulation and life insurance products to business owners, growing families, and pre-retirees. The Company's insurance and financial products are marketed and distributed directly to individuals primarily through MONY Life's career agency sales force. These products are sold in 49 states (not including New York), the District of Columbia, the U.S. Virgin Islands and Puerto Rico. The following table presents the Company's results of operations for the three-month periods ended March 31, 2000 and 1999. RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, ---------------------- 2000 1999 ----- ----- ($ IN MILLIONS) REVENUES: Universal life and investment-type product policy fees...... $38.1 $32.5 Premiums.................................................... 4.9 1.0 Net investment income....................................... 23.7 24.2 Net realized gains on investments........................... (0.1) 0.2 Other income................................................ 3.3 1.6 ----- ----- Total revenues.................................... 69.9 59.5 BENEFITS AND EXPENSES: Benefits to policyholders................................... 12.5 9.8 Interest credited to policyholders' account balances........ 16.1 16.5 Amortization of deferred policy acquisition costs........... 12.9 10.0 Other operating costs and expenses.......................... 23.1 19.0 ----- ----- Total benefits and expenses....................... 64.6 55.3 ----- ----- Income before income taxes.................................. $ 5.3 $ 4.2 ===== =====
10 12 For the Three-Month Period Ended March 31, 2000 Compared to the Three-Month Period Ended March 31, 1999 Universal life ("UL") and investment-type product fees were $38.1 million for the three-month period ended March 31, 2000, an increase of $5.6 million, or 17.2%, from $32.5 million reported in the comparable prior year period. The principal reasons for the change from period to period are as follows: Flexible premium variable annuity ("FPVA") product fees were $16.9 million for the three-month period ended March 31, 2000, an increase of $1.8 million, from $15.1 million reported in the comparable prior year period. The increase in FPVA fees was primarily due to higher surrender charges of $1.7 million. Variable universal life and corporate sponsored variable universal life ("CSVUL") product fees were $12.1 million for the three-month period ended March 31, 2000, an increase of $4.8 million, from $7.3 million reported in the comparable prior year period. The increase in fees was primarily due to higher charges for the cost of insurance, loading and surrender charges of $2.9 million, $0.9 million and $0.6 million, respectively, and lower unearned revenue (amounts assigned to the policyholders for future services) of $0.8 million offset by lower administrative charges of $0.5 million. Offsetting this was a decrease in the fee income for UL of $0.7 million due to lower loading charges of $0.2 million and lower unearned revenue (amounts assigned to the policyholders for future services) of $0.5 million. Premium revenue was $4.9 million for the three-month period ended March 31, 2000, an increase of $3.9 million, or 390.0%, from $1.0 million reported in the comparable prior year period. The increase was primarily the result of a modified coinsurance treaty ("MODCO") between U.S. Financial Life and the Company, which went into effect in the fourth quarter 1999 (see Note 6 in Unaudited Interim Condensed Financial Statements). Net investment income was $23.7 million for the three-month period ended March 31, 2000, a decrease of $0.5 million, or 2.1%, from $24.2 million reported in the comparable prior year period. The decrease was primarily related to a decrease in the average balances of invested assets of $30.3 million, which was partially offset by a 1 basis point increase in portfolio yields. Net realized losses on investments were $0.1 million for the three-month period ended March 31, 2000, a decrease of $0.3 million, from a net realized gain of $0.2 million reported in the comparable prior year period. The decrease was a result of lower sales/prepayment gains on fixed maturities of $0.7 million offset by higher gains on provisions for allowances on mortgage loans of $0.2 million and lower losses on provisions for allowances on real estate of $0.2 million Other income was $3.3 million for the three-month period ended March 31, 2000, an increase of $1.7 million, or 106.3%, as compared to $1.6 million in the comparable prior year period. The increase was primarily due to higher revenues from supplementary contracts and an increase in the reinsurance allowance. Benefits to policyholders were $12.5 million for the three-month period ended March 31, 2000, an increase of $2.7 million, or 27.6%, from $9.8 million reported in the comparable prior year period. The increase was a result of the MODCO treaty with USFL (see Note 6 in Unaudited Interim Condensed Financial Statements) and lower reinsurance credits as a result of higher retention limits. Interest credited to policyholders' account balances was $16.1 million for the three-month period ended March 31, 2000, a decrease of $0.4 million, or 2.4%, from $16.5 million reported in the comparable prior year period. The decrease was primarily the result of a decrease of $0.8 million from the continued runoff of single premium deferred annuity ("SPDA") offset by an increase of $0.4 million from higher crediting rates for UL products. Amortization of deferred policy acquisition costs ("DAC") was $12.9 million for the three-month period ended March 31, 2000, an increase of $2.9 million, or 29.0%, from $10.0 million reported in the comparable prior year period. The increase primarily resulted from an increase of $0.9 million in VUL from the growth of 11 13 variable business, $0.9 million as a result of the MODCO treaty with USFL (see Note 6 in Unaudited Interim Condensed Financial Statements) and $0.5 million in UL due to better mortality experience. Other operating costs and expenses were $23.1 million for the three-month period ended March 31, 2000, an increase of $4.1 million, or 21.6%, from $19.0 million reported in the comparable year. The increase was due to higher direct expenses, premium taxes, third party administration of level term business and printing costs. LIQUIDITY AND CAPITAL RESOURCES The Company's cash inflows are provided mainly from annuity considerations and deposit funds, investment income and maturities and sales of invested assets and life insurance premiums. Cash outflows primarily relate to the liabilities associated with its various annuity and life insurance products, operating expenses, income taxes, acquisitions of invested assets, and principal and interest on its outstanding debt obligations. The annuity and life insurance liabilities relate to the Company's obligation to make benefit payments under its annuity and insurance contracts, as well as the need to make payments in connection with policy surrenders, withdrawals and loans. The Company develops an annual cash flow projection which shows expected asset and liability cash flows on a monthly basis. At the end of each quarter actual cash flows are compared to projections, projections for the balance of the year are adjusted in light of the actual results, if appropriate, and investment strategies are also changed, if appropriate. The quarterly cash flow reports contain relevant information on all of the following: new product sales and deposits versus projections, existing liability cash flow versus projections and asset portfolio cash flow versus projections. An interest rate projection is a part of the initial annual cash flow projections for both assets and liabilities. Actual changes in interest rates during the year and, to a lesser extent, changes in rate expectations will impact the changes in projected asset and liability cash flows during the course of the year. When the Company is formulating its cash flow projections it considers, among other things, its expectations about sales of the Company's products, its expectations concerning customer behavior in light of current and expected economic conditions, its expectations concerning competitors and the general outlook for the economy and interest rates. The events most likely to cause an adjustment in the Company's investment policies are: (i) a significant change in its product mix, (ii) a significant change in the outlook for either the economy in general or for interest rates in particular and (iii) a significant reevaluation of the prospective risks and returns of various asset classes. The following table sets forth the withdrawal characteristics and the surrender and withdrawal experience of the Company's total annuity reserves and deposit liabilities at March 31, 2000 and December 31, 1999. WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
AMOUNT AT AMOUNT AT MARCH 31, PERCENT DECEMBER 31, PERCENT 2000 OF TOTAL 1999 OF TOTAL --------- -------- ------------ -------- ($ IN MILLIONS) Not subject to discretionary withdrawal provisions.... $ 53.8 1.2% $ 57.8 1.3% Subject to discretionary withdrawal -- with market value adjustment or at carrying value less surrender charge.............................................. 3,980.2 89.0 4,025.5 88.7 -------- ----- -------- ----- Subtotal.............................................. 4,034.0 90.2 4,083.3 90.0 Subject to discretionary withdrawal -- without adjustment at carrying value........................ 436.4 9.8 451.8 10.0 -------- ----- -------- ----- Total annuity reserves and deposit liabilities (gross of reinsurance)..................................... $4,470.4 100.0% $4,535.1 100.0% ======== ===== ======== =====
12 14 The following table sets forth by product line the actual amounts paid in connection with surrenders and withdrawals for the periods indicated. SURRENDERS AND WITHDRAWALS
FOR THE THREE- MONTH PERIOD ENDED MARCH 31, --------------- 2000 1999 ------ ------ ($ IN MILLIONS) PRODUCT LINE: Variable and universal life................................. $ 9.9 $ 10.3 Annuities(1)................................................ 209.0 152.2 ------ ------ TOTAL............................................. $218.9 $162.5 ====== ======
- --------------- (1) Excludes $326.7 million and $106.0 million for the three-month periods ended March 31, 2000 and 1999, respectively relating to surrenders associated with an exchange program offered by the Company wherein contractholders surrendered old FPVA contracts and reinvested the proceeds therefrom in a new enhanced FPVA product offered by the Company. Annuity surrenders have increased for the three-month period ended March 31, 2000 as compared to the comparable prior year period primarily due to the aging of the block of business and consequent decrease in surrender charge rates and due to an increase in replacement activity. In July 1999, the Company has responded to this trend by enhancing its variable annuity products by offering new investment fund choices. During the three-month period ended March 31, 2000, and 1999 the Company reported cash provided from operations of $9.0 million,. In 2000, net cash flow used for financing activities was $23.0 million, a decrease of $101.4 million as compared to the prior year. This decrease is primarily due to the issuance of a note payable to MBMC in the amount of $50.5 million in 1999 (see Note 5 in Unaudited Interim Condensed Financial Statements) and a decrease in policyholders account balances. The Company's liquid assets include U.S. Treasury holdings, short-term money market investments and marketable long-term fixed maturity securities. Management believes that the Company's sources of liquidity are adequate to meet its anticipated needs. As of March 31, 2000, the Company had readily marketable fixed maturity securities with a carrying value of $1,017.8 million, which were comprised of $507.5 million public and $510.2 million private fixed maturity securities. At that date, approximately 94.7% of the Company's fixed maturity securities were designated in NAIC rating categories 1 and 2 (considered investment grade, with a rating of "Baa" or higher by Moody's or "BBB" or higher by S&P). In addition, at March 31, 2000, the Company had cash and cash equivalents of $37.9 million. At March 31, 2000, the Company had commitments outstanding of $2.7 million for fixed rate agricultural loans with periodic interest rate reset dates. The initial interest rates on such agricultural loans range from 8.65% to 8.81%. There were no commitments outstanding for commercial mortgages as of March 31, 2000. The Company had commitments outstanding to purchase $24.8 million of private fixed maturity securities as of March 31, 2000 with interest rates ranging from 6.2% to 7.9%. Of the $52.8 million commercial mortgage loans in the Company's investment portfolio at March 31, 2000, $2.2 million, $4.6 million, $8.7 million, and $0.0 million are scheduled to mature in 2000, 2001, 2002 and 2003, respectively. At March 31, 2000, aggregate maturities of long-term debt based on required remaining principal payments for 2000 and the succeeding four years are $1.6 million, $2.3 million, $2.4 million, $2.6 million and $2.8 million, respectively, and $36.8 million thereafter. 13 15 Aggregate contractual debt service payments on the Company's debt at March 31, 2000, for the remainder of 2000 and the succeeding four years are $4.0 million, $5.4 million, $5.4 million, $5.4 million and $5.4 million, respectively and $49.8 million thereafter. The National Association of Insurance Commissioners ("NAIC") established Risk Based Capital ("RBC") requirements to help state regulators monitor and safeguard life insurers' financial strength by identifying those companies that may be inadequately capitalized. The RBC guidelines provide a method to measure the adjusted capital (statutory-basis capital and surplus plus the Asset Valuation Reserve ("AVR") and other adjustments) that a life insurance company should have for regulatory purposes, taking into consideration the risk characteristics of such company's investments and products. A life insurance company's RBC ratio will vary over time depending upon many factors, including its earnings, the nature, mix and credit quality of its investment portfolio and the nature and volume of the products that is sells. While the RBC guidelines are intended to be a regulatory tool only, and are not intended as a means to rank insurers generally, comparisons of RBC ratios of life insurers have become generally available. The Company's adjusted RBC capital ratio at March 31, 2000 and December 31, 1999, was in excess of the minimum required RBC. YEAR 2000 The Company successfully completed its Year 2000 Project (the "Project") to ensure Year 2000 readiness. The Company developed and implemented an enterprise-wide plan to prepare for the Year 2000 issue by ensuring compliance of all applications, operating systems and hardware on mainframe, PC and local area network ("LAN") platforms; ensuring the compliance of voice and data network software and hardware; addressing the compliance of key vendors and other third parties. The total cost of the Project was $2.4 million. The Company does not expect to incur any material future costs on the Project. The Company has not experienced any significant Year 2000 related problems post-December 31, 1999 with its operations or with any external parties with which business is conducted. Based on this experience and the amount of work and testing previously performed, the Company believes the likelihood of a Year 2000 issue that would have a material effect on the Company's financial position and results of its operations continues to be remote as the Company performs month-end, leap year, quarter-end, and year-end processing. However, there is still the possibility that future Year 2000 related failures in the Company's systems or equipment and/or failure of external parties to achieve Year 2000 compliance could have a material adverse effect on the Company's financial position and results of its operations. 14 16 INVESTMENTS The following table illustrates the net investment income yields based on average annual asset carrying values, excluding unrealized gains (losses) in the fixed maturity category. Equity real estate income is shown net of operating expenses and depreciation. Total investment income includes non-cash income from amortization, payment-in-kind distributions and undistributed equity earnings. Investment expenses include mortgage servicing fees and other miscellaneous fee income. INVESTMENT RESULTS BY ASSET CATEGORY
AS OF THE THREE-MONTHS ENDED MARCH 31, ------------------------------------------------------------------ 2000 1999 ------------------------------- ------------------------------- NET INVESTMENT AVERAGE ASSET NET INVESTMENT AVERAGE ASSET INCOME YIELD BALANCES INCOME YIELD BALANCES -------------- ------------- -------------- ------------- Fixed Maturities.................... 7.0% $1,062.7 7.2% $1,035.3 Mortgage loans on real estate....... 7.7 165.4 7.8 123.3 Policy loans........................ 9.9 60.8 9.9 52.7 Real estate......................... 5.7 7.0 4.8 8.3 Other invested assets............... 16.7 2.4 8.7 4.6 Cash and cash equivalents........... 6.0 33.4 4.6 137.9 -------- Total invested assets before investment expenses............ 7.2% $1,331.7 7.1% $1,362.1 ======== ======== Investment expenses............... (0.1) -- Total invested assets after investment expenses............ 7.1% -- 7.1% ===== ===
The yield on general account invested assets (including net realized gains and losses on investments) was 7.1% and 7.2% for the periods ended March 31, 2000 and 1999, respectively. FIXED MATURITIES Fixed maturities consist of publicly traded debt securities and privately placed debt securities, and represented 78.7% and 80.0% of total invested assets at March 31, 2000 and December 31, 1999, respectively. The Securities Valuation Office of the NAIC evaluates the bond investments of insurers for regulatory reporting purposes and assigns securities to one of six investment categories called "NAIC Designations". The NAIC Designations closely mirror the Nationally Recognized Securities Rating Organizations' credit ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered investment grade ("Baa" or higher by Moody's, or "BBB" or higher by S&P) by such rating organizations. NAIC Designations 3 through 6 are referred to as below investment grade ("Ba" or lower by Moody's, or "BB" or lower by S&P). Of the Company's total portfolio of fixed maturity securities at March 31, 2000, 94.7% were investment grade and 5.3% were below investment grade. The Company reviews all fixed maturity securities at least once each quarter and identifies investments that management concludes require additional monitoring. Among the criteria are: (i) violation of financial covenants, (ii) public securities trading at a substantial discount as a result of specific credit concerns and (iii) other subjective factors relating to the issuer. The Company defines problem securities in the fixed maturity category as securities (i) as to which principal and/or interest payments are in default or are to be restructured pursuant to commenced negotiations or (ii) are issued by a company that went into bankruptcy subsequent to the acquisition of such securities or (iii) are deemed to have other than temporary impairments to value. 15 17 The Company defines potential problem securities in the fixed maturity category as securities that are deemed to be experiencing significant operating problems or difficult industry conditions. Typically these credits are experiencing or anticipating liquidity constraints, having difficulty meeting projections/budgets and would most likely be considered a below investment grade risk. The Company defines restructured securities in the fixed maturity category as securities where a concession has been granted to the borrower related to the borrower's financial difficulties that the Company would not have otherwise considered. The Company restructures certain securities in instances where a determination was made that greater economic value will be realized under the new terms than through liquidation or other disposition. The terms of the restructure generally involve some or all of the following characteristics: a reduction in the interest rate, an extension of the maturity date and a partial forgiveness of principal and/or interest. The following table sets forth the total carrying values of the Company's fixed maturity portfolio, as well as its problem, potential problem and restructured fixed maturities as of the dates indicated: PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES AT FAIR VALUE
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Total fixed maturities (public and private)................. $1,017.8 $1,048.8 ======== ======== Problem fixed maturities.................................... 4.7 4.8 Potential problem fixed maturities.......................... 9.8 6.4 Restructured fixed maturities............................... 0.0 0.0 -------- -------- Total problem, potential problem & restructured fixed maturities................................................ $ 14.5 $ 11.2 ======== ======== Total problem, potential problem & restructured fixed maturities as a percent of total fixed maturities......... 1.4% 1.1% ======== ========
At March 31, 2000, the Company's largest unaffiliated single concentration of fixed maturities was $59.9 million of Federal Home Loan Mortgage Corporation ("FHLMC") which represents 4.6% of total invested assets. No other individual non-government issuer represents more than 1.7% of invested assets. The Company held approximately $217.8 million and $217.5 million of mortgage-backed and asset-backed securities as of March 31, 2000 and December 31, 1999, respectively. Of such amounts, $78.4 million and $82.4 million, or 36.0% and 37.9%, respectively, represented agency-issued pass-through and collateralized mortgage obligations ("CMOs") secured by Federal National Mortgage Association, FHLMC and Government National Mortgage Association. The balance of such amounts was comprised of other types of mortgage-backed and asset-backed securities. The Company believes that its active monitoring of its portfolio of mortgage-backed securities and the limited extent of its holdings of more volatile types of mortgage-backed securities mitigate the Company's exposure to losses from prepayment risk associated with interest rate fluctuations for this portfolio. At March 31, 2000 and December 31, 1999, 79.4% and 81.9%, respectively, of the Company's mortgage-backed and asset-backed securities were assigned a NAIC Designation of 1. In addition, the Company believes that it holds a relatively low percentage of CMOs compared to other life insurance companies. 16 18 The following table presents the types of mortgage-backed securities ("MBSs"), as well as other asset-backed securities, held by the Company as of the dates indicated. MORTGAGE AND ASSET-BACKED SECURITIES
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) CMOs........................................................ $112.5 $117.0 Asset-backed securities..................................... 100.8 95.9 Commercial MBSs............................................. 4.4 4.5 Pass-through securities..................................... 0.1 0.1 ------ ------ Total MBS's and asset-backed securities........... $217.8 $217.5 ====== ======
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity dates, (excluding scheduled sinking funds) as of March 31, 2000 and December 31, 1999 is as follows: FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
AS OF AS OF MARCH 31, 2000 DECEMBER 31, 1999 ---------------------- ---------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE --------- ---------- --------- ---------- ($ IN MILLIONS) Due in one year or less...................... $ 50.8 $ 50.8 $ 75.8 $ 76.2 Due after one year through five years........ 270.0 265.6 275.8 274.9 Due after five years through ten years....... 378.7 361.7 383.8 366.5 Due after ten years.......................... 128.6 121.9 119.9 113.7 -------- -------- -------- -------- Subtotal........................... 828.1 800.0 855.3 831.3 Mortgage-backed and other asset-backed securities................................. 220.5 217.8 221.5 217.5 -------- -------- -------- -------- Total.............................. $1,048.6 $1,017.8 $1,076.8 $1,048.8 ======== ======== ======== ========
MORTGAGE LOANS Mortgage loans comprised 12.8% and 12.6% of total invested assets as of March 31, 2000 and December 31, 1999, respectively. Mortgage loans consist of commercial and agricultural loans. As of March 31, 2000 and December 31, 1999, commercial mortgage loans comprised $52.8 million and $52.8 million or 31.9% and 32.0% of total mortgage loan investments, respectively. Agricultural loans comprised $112.9 million and $112.2 million, or 68.1% and 68.0% of total mortgage loan investments at March 31, 2000 and December 31, 1999, respectively. COMMERCIAL MORTGAGE LOANS For commercial mortgages, the carrying value of the largest amount loaned on any one single property aggregated $28.6 million and represented 2.2% of general account invested assets as of March 31, 2000. No other mortgage loan represents more than 0.5% of invested assets. Total mortgage loans to the 5 largest borrowers accounted in the aggregate for 82.4% of the total carrying value of the commercial loan portfolio and less than 3.4% of total invested assets at March 31, 2000. 17 19 The following table presents the Company's commercial mortgage loan maturity profile for the periods indicated. COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 ---------------- ---------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- ($ IN MILLIONS) Due in one year or less.............................. $ 5.0 9.5% $ 2.2 4.2% Due after one year through five years................ 41.2 78.0 41.6 78.8 Due after five years through ten years............... 4.6 8.7 7.0 13.2 Due after ten years.................................. 2.0 3.8 2.0 3.8 ----- ----- ----- ----- Total...................................... $52.8 100.0% $52.8 100.0% ===== ===== ===== =====
Problem, Potential Problem and Restructured Commercial Mortgages Commercial mortgage loans are stated at their unpaid principal balances, net of valuation allowances and writedowns for impairment. The Company provides valuation allowances for commercial mortgage loans considered to be impaired. Mortgage loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a valuation allowance for loss is established for the excess of the carrying value of the mortgage loan over its estimated fair value. Estimated fair value is based on either the present value of expected future cash flows discounted at the loan's original effective interest rate, the loan's observable market price or the fair value of the collateral. The provision for loss is reported as a realized loss on investment. The Company reviews its mortgage loan portfolio and analyzes the need for a valuation allowance for any loan which is delinquent for 60 days or more, in process of foreclosure, restructured, on "watchlist", or which currently has a valuation allowance. Loans which are delinquent and loans in process of foreclosure are categorized by the Company as "problem" loans. Loans with valuation allowances, but which are not currently delinquent, and loans which are on watchlist are categorized by the Company as "potential problem" loans. Loans for which the original terms of the mortgages have been modified or for which interest or principal payments have been deferred are categorized by the Company as "restructured" loans. The following table presents the carrying amounts of problem, potential problem and restructured commercial mortgage loans relative to the carrying value of all commercial mortgage loans as of the dates indicated. The table also presents the valuation allowances and writedowns recorded by the Company relative to commercial mortgages defined as problem and restructured as of each of the dates indicated. 18 20 PROBLEM AND RESTRUCTURED COMMERCIAL MORTGAGES AT CARRYING VALUE
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Total commercial mortgages.................................. $52.8 $52.8 ===== ===== Problem commercial mortgages................................ $ -- $ -- Restructured commercial mortgages........................... 11.1 11.0 ----- ----- Total problem and restructured commercial mortgages......... $11.1 $11.0 ===== ===== Valuation allowances/writedowns: Problem loans............................................... $ -- $ -- Restructured loans.......................................... 0.3 0.5 ----- ----- Total valuation allowances/writedowns....................... $ 0.3 $ 0.5 ===== ===== Total valuation allowances/writedowns as a percent of problem and restructured commercial mortgages at carrying value before valuation allowances and writedowns.......... 2.6% 4.3% ===== =====
- --------------- (1) As of March 31, 2000 and December 31, 1999, there were $0.3 million and $0.5 million of valuation allowances/writedowns relating to restructured commercial mortgages. In addition to valuation allowances and impairment writedowns recorded on specific commercial mortgage loans classified as problem, potential problem, and restructured mortgage loans, the Company records a non-specific estimate of expected losses on all other such mortgage loans based on its historical loss experience for such investments. As of March 31, 2000 and December 31, 1999, such reserves were $0.6 million and $0.6 million, respectively. AGRICULTURAL MORTGAGE LOANS Problem, Potential Problem and Restructured Agricultural Mortgages The Company defines problem, potential problem and restructured agricultural mortgages in the same manner as it does for commercial mortgages. The following table presents the carrying amounts of problem, potential problem and restructured agricultural mortgages relative to the carrying value of all agricultural mortgages as of each of the dates indicated. PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED AGRICULTURAL MORTGAGES AT CARRYING VALUE
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Total agricultural mortgages................................ $112.9 $112.2 ====== ====== Problem agricultural mortgages(1)........................... $ 5.1 $ 1.1 Potential problem agricultural mortgages.................... 0.0 0.4 Restructured agricultural mortgages......................... 0.9 0.9 ------ ------ Total problem, potential problem & restructured agricultural mortgages(2).............................................. $ 6.0 $ 2.4 ====== ====== Total problem, potential problem & restructured agricultural mortgages percent of total agricultural mortgages......... 5.3% 2.1% ====== ======
- --------------- (1) Problem agricultural mortgages included delinquent mortgage loans of $5.1 million and $1.1 million at March 31, 2000 and December 31, 1999, respectively. There were no mortgage loans in the process of foreclosure at March 31, 2000 and December 31, 1999, respectively. 19 21 (2) As of March 31, 2000 and December 31, 1999, there were $0.1 million and $0.1 million valuation allowances/writedowns relating to problem, potential problem and restructured agricultural mortgages. In addition to valuation allowances and impairments writedowns recorded on specific agricultural mortgage loans classified as problem, potential problem, and restructured mortgage loans, the Company records a non-specific estimate of expected losses on all other agricultural mortgage loans based on its historical loss experience for such investments. As of March 31, 2000 and December 31, 1999, such reserves were $1.1 million and $1.1 million, respectively. EQUITY REAL ESTATE The Company holds real estate as part of its general account investment portfolio. The Company has adopted a policy of not investing new funds in equity real estate except to safeguard values in existing investments or to honor outstanding commitments. As of March 31, 2000 and December 31, 1999, the carrying value of the Company's real estate investments was $7.1 million and $6.9 million, respectively, or 0.5% and 0.5%, respectively, of general account invested assets. The Company owns investment real estate, real estate acquired upon foreclosure and minority owned joint ventures. Equity real estate is categorized as either "Real estate held for investment" or "Real estate to be disposed of ". Real estate to be disposed of consists of properties for which the Company has commenced marketing efforts. The carrying value of real estate held for investment totaled $5.5 million and $5.3 million as of March 31, 2000 and December 31, 1999, respectively. The carrying value of real estate to be disposed of was $1.6 million and $1.6 million as of March 31, 2000 and December 31, 1999, respectively. INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES The cumulative asset specific impairment adjustments and provisions for valuation allowances that were recorded as of the end of each period are shown in the table below and are reflected in the corresponding asset values discussed above. CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Fixed maturities............................................ $0.5 $0.5 Real estate(1).............................................. 1.4 1.4 ---- ---- Total............................................. $1.9 $1.9 ==== ====
- --------------- (1) Includes $1.2 million and $1.2 million as of March 31, 2000 and December 31, 1999, respectively, relating to impairments taken upon foreclosure of mortgage loans. CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Mortgages................................................... $2.0 $2.3 Real estate................................................. 0.3 0.3 ---- ---- Total............................................. $2.3 $2.6 ==== ====
20 22 TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
AS OF AS OF MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ($ IN MILLIONS) Fixed maturities............................................ $0.5 $0.5 Mortgages................................................... 2.0 2.3 Real estate................................................. 1.7 1.7 ---- ---- Total............................................. $4.2 $4.5 ==== ====
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to the Company's 1999 Annual Report on Form 10-K for a description of the Company's exposures to market risk, as well as the Company's objectives, policies and strategies relating to the management of such risks. The relative sensitivity to changes in fair value from interest rates and equity prices at March 31, 2000 is not materially different from that presented in the Company's 1999 Annual Report on Form 10-K at December 31, 1999. 21 23 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Since late 1995 a number of purported class actions have been commenced in various state and federal courts against the Company alleging that the Company engaged in deceptive sales practices in connection with the sale of whole and universal life insurance policies in the 1980s and 1990s. Although the claims asserted in each case are not identical, they seek substantially the same relief under essentially the same theories of recovery (i.e., breach of contract, fraud, negligent misrepresentation, negligent supervision and training, breach of fiduciary duty, unjust enrichment and violation of state insurance and/or deceptive business practice laws). Plaintiffs in these cases seek primarily equitable relief (e.g., reformation, specific performance, mandatory injunctive relief prohibiting the Company from canceling policies for failure to make required premium payments, imposition of a constructive trust and creation of a claims resolution facility to adjudicate any individual issues remaining after resolution of all class-wide issues) as opposed to compensatory damages, although they also seek compensatory damages in unspecified amounts. The Company has answered the complaints in each action (except for one being voluntarily held in abeyance), has denied any wrongdoing and has asserted numerous affirmative defenses. On June 7, 1996, the New York State Supreme Court certified one of those cases, Goshen v. The Mutual Life Insurance Company of New York and MONY Life Insurance Company of America, the Goshen case, being the first of the aforementioned class actions filed, as a nationwide class consisting of all persons or entities who have, or at the time of the policy's termination had, an ownership interest in a whole life or universal life insurance policy issued by the Company and sold on an alleged "vanishing premium" basis during the period January 1, 1982 to December 31, 1995. On March 27, 1997, the Company filed a motion to dismiss or, alternatively, for summary judgement on all counts of the complaint. All of the other putative class actions have been consolidated and transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the District of Massachusetts, or are being voluntarily held in abeyance pending the outcome of the Goshen case. On October 21, 1997, the New York State Supreme Court granted the Company's motion for summary judgement and dismissed all claims filed in the Goshen case against the Company. On December 20, 1999, the New York State Court of Appeals affirmed the dismissal of all but one of the claims in the Goshen case (a claim under New York's General Business Law), which has been remanded back to the New York State Supreme Court for further proceedings consistent with the opinion. The Company intends to defend itself vigorously against the sole remaining claim. There can be no assurance that the present litigation relating to sales practices will not have a material adverse effect on the Company. In addition to the foregoing, from time to time the Company is party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 22 24 ITEM 6. EXHIBITS AND REPORTS ON 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter covered by this report. 23 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MONY LIFE INSURANCE COMPANY OF AMERICA By: /s/ RICHARD DADDARIO ------------------------------------ Richard Daddario Director, Vice President and Controller (Authorized Financial Officer) Signatory and Principal Date: May 15, 2000 S-1 EX-27.1 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED INTERIM BALANCE SHEETS AND STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORMS 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 OF MONY LIFE INSURANCE COMPANY OF AMERICA. 1,000,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,018 0 0 0 166 7 1,256 38 18 432 6,183 125 0 56 1,122 49 0 0 3 304 6,183 43 24 0 3 13 13 23 5 2 3 0 0 0 3 0 0 0 0 0 0 0 0 0 INCLUDES REINSURANCE RECOVERABLE ON PAID AND UNPAID LOSSES. INCLUDES PREMIUMS AND UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES. CONSISTS OF OTHER OPERATING COSTS AND EXPENSES. CONSISTS OF LONG-TERM DEBT ONLY.
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