<PAGE> 1
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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 SEPTEMBER 30, 1999
[ ] 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: 1-14603
THE MONY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3976138
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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 October 29, 1999 there were 47,238,189 shares of the Registrant's
common stock, par value $0.01, outstanding.
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<PAGE> 2
THE MONY GROUP INC. AND SUBSIDIARIES
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: Unaudited interim condensed consolidated balance sheets as
of September 30, 1999 and December 31, 1998............... 3
Unaudited interim condensed consolidated statements of
income and comprehensive income for the three-month
periods ended September 30, 1999 and 1998................. 4
Unaudited interim condensed consolidated statements of
income and comprehensive income for the nine-month periods
ended September 30, 1999 and 1998......................... 5
Unaudited interim condensed consolidated statement of
changes in shareholders' equity for the nine-month period
ended September 30, 1999.................................. 6
Unaudited interim condensed consolidated statements of cash
flows for the nine-month periods ended September 30, 1999
and 1998.................................................. 7
Notes to unaudited interim condensed consolidated financial
statements................................................ 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Investments................................................. 44
Item 3: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 54
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................... 55
Item 2: Changes in Securities....................................... 55
Item 3: Defaults upon Senior Securities............................. 56
Item 4: Submission of Matters to a Vote of Security Holders......... 56
Item 5: Other Information........................................... 56
Item 6: Exhibits and Reports on Form 8-K............................ 56
SIGNATURES........................................................... S-1
</TABLE>
1
<PAGE> 3
FORWARD-LOOKING STATEMENTS
The management of The MONY Group Inc. (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," "intends," "anticipates," "expects," "projects," "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 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 Company's career agency sales force, and the ability to attract
and retain productive agents; (iii) the Company's ability to control operating
expenses; (iv) a successful appeal of the order of the New York Superintendent
of Insurance approving the Company's plan of reorganization; (v) a successful
appeal of the decision and order of the New York State Appellate Division, First
Department, affirming the successful appeal of the decision and order of the New
York Supreme Court grant of summary judgement in the case of Goshen v. The
Mutual Life Insurance Company of New York; (vi) the cost of defending other
litigation and the risk of unanticipated material adverse outcomes in such
litigation; (vii) deterioration in the experience of the closed block
established in connection with the Company's Demutualization, as hereafter
defined; (viii) the performance of the stock markets; (ix) the intensity of
competition from other financial institutions; (x) the Company's mortality,
morbidity, persistency and claims experience; (xi) the Company's ability to
develop, distribute and administer competitive products and services in a
timely, cost-effective manner; (xii) the Company's financial and claims paying
ratings; (xiii) the effect of changes in laws and regulations affecting the
Company's businesses, including changes in tax laws affecting insurance and
annuity products; (xiv) market risks related to interest rates, equity prices,
derivatives, foreign currency exchange and credit; (xv) the ability of the
Company to identify and consummate on successful terms any future acquisitions,
and to successfully integrate acquired businesses with minimal disruption and
(xvi) the risks associated with Year 2000 non-compliance by the Company and
third-parties (including vendors and suppliers, reinsurers and others doing
business with the Company), unanticipated costs associated with Year 2000
compliance due to, among other things the inability to locate, correct and
successfully test all relevant computer code according to schedule, the
continued availability of resources including personnel and timely and accurate
responses and corrections by third parties.
2
<PAGE> 4
ITEM 1:
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value.................................................. $ 3,133.9 $ 3,132.0
Equity securities available-for-sale, at fair value....... 472.8 457.2
Mortgage loans on real estate............................. 1,229.0 988.3
Policy loans.............................................. 65.9 61.1
Real estate to be disposed of............................. 285.5 312.9
Real estate held for investment........................... 125.0 321.3
Other invested assets..................................... 51.0 40.7
--------- ---------
5,363.1 5,313.5
Cash and cash equivalents................................... 190.7 329.1
Accrued investment income................................... 74.7 68.9
Amounts due from reinsurers................................. 477.3 475.9
Deferred policy acquisition costs........................... 526.1 439.7
Other assets................................................ 379.4 325.6
Assets transferred in Group Pension Transaction (Note 4).... 5,173.0 5,751.8
Separate account assets..................................... 5,964.1 6,090.3
Closed Block assets (Note 6)................................ 6,153.0 6,161.2
--------- ---------
Total assets........................................... $24,301.4 $24,956.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 957.6 $ 960.0
Policyholders' account balances............................. 1,967.6 1,991.7
Other policyholders' liabilities............................ 117.8 104.8
Amounts due to reinsurers................................... 90.1 93.4
Accounts payable and other liabilities...................... 528.0 526.7
Short-term debt............................................. 97.5 --
Long-term debt.............................................. 257.9 375.4
Current federal income taxes payable........................ 132.5 79.1
Liabilities transferred in Group Pension Transaction (Note
4)........................................................ 5,157.0 5,678.5
Separate account liabilities................................ 5,962.0 6,078.1
Closed Block liabilities (Note 6)........................... 7,275.7 7,290.7
--------- ---------
Total liabilities...................................... $22,543.7 $23,178.4
Commitments and contingencies (Note 5)
Common stock, $0.01 par value; 400 million shares
authorized; 47.2 million shares issued and outstanding.... 0.5 0.5
Capital in excess of par.................................... 1,615.9 1,615.9
Retained earnings........................................... 129.6 8.8
Accumulated other comprehensive income...................... 11.7 152.4
--------- ---------
Total shareholders' equity............................. $ 1,757.7 $ 1,777.6
--------- ---------
Total liabilities and shareholders' equity............. $24,301.4 $24,956.0
========= =========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
3
<PAGE> 5
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
($ IN MILLIONS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 20.8 $167.5
Universal life and investment-type product policy fees...... 47.8 37.6
Net investment income....................................... 124.5 197.1
Net realized gains on investment............................ 22.5 12.0
Group Pension Profits (Note 4).............................. 21.5 11.4
Other income................................................ 47.2 37.1
Contribution from the Closed Block (Note 6)................. 9.5 --
----------- ------
293.8 462.7
----------- ------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 34.9 182.7
Interest credited to policyholders' account balances........ 26.4 29.3
Amortization of deferred policy acquisition costs........... 21.9 32.1
Dividends to policyholders.................................. 0.7 55.2
Other operating costs and expenses.......................... 164.9 102.7
----------- ------
248.8 402.0
----------- ------
Income before income taxes and extraordinary item........... 45.0 60.7
Income tax expense.......................................... 15.5 19.5
----------- ------
Income before extraordinary item............................ 29.5 41.2
----------- ------
Extraordinary item -- demutualization expenses, net......... 1.9 5.8
----------- ------
Net income.................................................. 27.6 35.4
Other comprehensive (loss)/income, net...................... (28.5) 44.2
----------- ------
Comprehensive (loss)/income................................. $ (0.9) $ 79.6
=========== ======
PER SHARE DATA:
Income before extraordinary items........................... $ 29.5
===========
Basic earnings per share.................................... $ 0.62
===========
Diluted earnings per share.................................. $ 0.61
===========
Net income.................................................. $ 27.6
===========
Basic earnings per share.................................... $ 0.58
===========
Diluted earnings per share.................................. $ 0.58
===========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 47,238,166
Plus: incremental shares from assumed conversion of
warrants.................................................. 750,738
-----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,988,904
===========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements.
4
<PAGE> 6
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -----------
($ IN MILLIONS, EXCEPT SHARE
DATA AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 65.0 $ 521.3
Universal life and investment-type product policy fees...... 145.7 111.9
Net investment income....................................... 322.5 554.8
Net realized gains on investment............................ 93.1 169.6
Group Pension Profits (Note 4).............................. 47.8 34.1
Other income................................................ 138.9 115.5
Contribution from the Closed Block (Note 6)................. 31.4 --
---------- --------
844.4 1,507.2
---------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 108.3 562.4
Interest credited to policyholders' account balances........ 80.7 88.0
Amortization of deferred policy acquisition costs........... 54.1 102.9
Dividends to policyholders.................................. 1.4 163.6
Other operating costs and expenses.......................... 391.9 329.7
---------- --------
636.4 1,246.6
---------- --------
Income before income taxes and extraordinary item........... 208.0 260.6
Income tax expense.......................................... 71.1 91.3
---------- --------
Income before extraordinary item............................ 136.9 169.3
---------- --------
Extraordinary item -- demutualization expenses, net......... 1.9 15.5
---------- --------
Net income.................................................. 135.0 153.8
Other comprehensive (loss)/income, net...................... (140.7) 54.1
---------- --------
Comprehensive (loss)/income................................. $ (5.7) $ 207.9
========== ========
PER SHARE DATA:
Income before extraordinary items........................... $ 136.9
==========
Basic earnings per share.................................... $ 2.90
==========
Diluted earnings per share.................................. $ 2.86
==========
Net income.................................................. $ 135.0
==========
Basic earnings per share.................................... $ 2.86
==========
Diluted earnings per share.................................. $ 2.83
==========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 47,238,166
Plus: incremental shares from assumed conversion of
warrants.................................................. 547,797
----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,785,963
==========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements.
5
<PAGE> 7
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK OF PAR EARNINGS INCOME EQUITY
------ --------- -------- ------------- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998......... $0.5 $1,615.9 $ 8.8 $ 152.4 $1,777.6
Dividends.......................... (14.2) (14.2)
Comprehensive loss
Net income....................... 135.0 135.0
Other comprehensive loss:
Unrealized losses on
investments, net of
unrealized gains,
reclassification
adjustments, and taxes...... (140.7) (140.7)
--------
Comprehensive loss................. (5.7)
---- -------- ------ ------- --------
BALANCE, SEPTEMBER 30, 1999........ $0.5 $1,615.9 $129.6 $ 11.7 $1,757.7
==== ======== ====== ======= ========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements.
6
<PAGE> 8
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
($ IN MILLIONS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 40.6 $ 126.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities.......................................... 472.5 734.2
Equity securities......................................... 168.2 158.1
Mortgage loans on real estate............................. 101.3 300.4
Real estate............................................... 257.6 516.2
Other invested assets..................................... 4.6 45.8
Acquisitions of investments:
Fixed maturities.......................................... (631.8) (1,174.0)
Equity securities......................................... (105.9) (176.2)
Mortgage loans on real estate............................. (337.8) (243.0)
Real estate............................................... (29.2) (28.2)
Other invested assets..................................... (4.7) (1.5)
Policy loans, net......................................... (28.2) (10.4)
Other, net................................................ 16.0 9.3
Property plant and equipment, net........................... (14.7) (13.0)
--------- ---------
Net cash provided by/(used in) investing activities......... (132.1) 117.7
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.......................................... (29.2) (50.8)
Receipts from annuity and universal life policies credited
to policyholder account balances.......................... 1,293.0 963.9
Return of policyholder account balances on annuity and
universal life policies................................... (1,288.4) (1,082.3)
Dividends paid to shareholders.............................. (14.2) --
Payments to eligible policyholders.......................... (8.1) --
--------- ---------
Net cash used in financing activities....................... (46.9) (169.2)
--------- ---------
Net increase in cash and cash equivalents................... (138.4) 74.7
Cash and cash equivalents, beginning of period.............. 329.1 313.4
--------- ---------
Cash and cash equivalents, end of period.................... $ 190.7 $ 388.1
========= =========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
7
<PAGE> 9
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
On November 16, 1998, pursuant to its Plan of Reorganization (the "Plan")
which was approved by the New York Superintendent of Insurance on the same day
(the "Plan Effective Date"), The Mutual Life Insurance Company of New York
("MONY") converted from a mutual life insurance company to a stock life
insurance company (the "Demutualization") and became a wholly owned subsidiary
of The MONY Group Inc., (the "MONY Group"), a Delaware corporation organized on
June 24, 1997 for the purpose of becoming the parent holding company of MONY.
The MONY Group has no other operations or subsidiaries. In connection with the
Plan, MONY established a closed block to fund the guaranteed benefits and
dividends of certain participating insurance policies, and eligible
policyholders received cash, policy credits, or shares of common stock of the
MONY Group in exchange for their membership interests in MONY. Also, on November
16, 1998, the MONY Group consummated an initial public offering (the
"Offerings") of approximately 12.9 million shares of its common stock and MONY
changed its name to MONY Life Insurance Company (MONY Life Insurance Company and
its subsidiaries are hereafter referred to as "MONY Life"). The shares of common
stock issued in the Offerings are in addition to approximately 34.3 million
shares of common stock of the MONY Group distributed to the aforementioned
policyholders.
The MONY Group, through MONY Life and its subsidiaries (hereafter
collectively referred to as the "Company"), is primarily engaged in the business
of providing a wide range of life insurance, annuity, and investment products to
higher income individuals, particularly family builders, pre-retirees, and small
business owners. The Company distributes its products primarily through its
career agency sales force and various complementary distribution channels (which
include sales of Enterprise funds through third-party broker dealers, sales of
protection products through brokerage general agencies, sales of COLI products
by the Company's corporate marketing team and sales of a variety of financial
products and services through the Company's Trusted Advisors subsidiary). The
Company primarily sells its products in all 50 of the United States, the
District of Columbia, the U.S. Virgin Islands, Guam and the Commonwealth of
Puerto Rico.
On December 31, 1998, MONY Life acquired Sagamore Financial Corporation
("Sagamore"), the parent company of U.S. Financial Life Insurance Company
("USFL") for a purchase price of $48 million. USFL is a special-risk carrier
based in Ohio, which distributes its products in 41 states through brokerage
general agencies.
2. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed consolidated financial
statements are prepared in conformity with generally accepted accounting
principles ("GAAP") which require 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 normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows of the Company for the periods presented. These
statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 1998, which are
presented in the Company's 1998 Report on Form 10-K. The results of operations
for the three-month and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year. Certain
reclassifications have been made in the amounts presented for prior periods to
conform those periods to the current presentation.
3. SEGMENT INFORMATION:
The Company's business activities consist of the following: protection
product operations, accumulation product operations, mutual fund operations,
securities broker-dealer operations, insurance brokerage
8
<PAGE> 10
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
operations, and certain insurance lines of business no longer written by the
Company (the "run-off businesses"). These business activities represent the
Company's operating segments. Except as discussed below, these segments are
managed separately because they either provide different products or services,
are subject to different regulation, require different strategies, or have
different technology requirements.
Management considers the Company's mutual fund operations to be an integral
part of the products offered by the Company's accumulation products segment,
since substantially all the mutual funds sold by the Company are offered
through, and in conjunction with, the products marketed by the accumulation
products segment. Accordingly, for management purposes (including, performance
assessment and making decisions regarding the allocation of resources), the
Company aggregates its mutual fund operations with its accumulation products
segment.
Of the aforementioned segments, only the protection products segment and
the accumulation products segment qualify as reportable segments in accordance
with FASB Statement No. 131. All of the Company's other segments are combined
and reported in an other products segment.
Products comprising the protection products segment primarily include a
wide range of individual life insurance products, including; permanent and last
survivor whole life, term life, universal life, variable universal life, group
life, and group universal life. In addition, included in the protection products
segment are: (i) the assets and liabilities transferred pursuant to the Group
Pension Transaction, as well as the Group Pension Profits (see Note 4), (ii) the
Closed Block assets and liabilities, as well as the Contribution from the Closed
Block which is reflected in "Other Income" in the table below (see Note 6), and
(iii) the Company's disability income insurance business. Products comprising
the accumulation products segment primarily include fixed annuities,
non-participating interest sensitive products (including single premium deferred
annuities, flexible premium deferred annuities, immediate annuities, and
flexible premium variable annuities), proprietary mutual funds, investment
management services, and certain other financial services products. The
Company's other products segment primarily consists of the securities
broker-dealer operation, the insurance brokerage operation, and the run-off
businesses. The securities broker-dealer operation markets the Company's
proprietary investment products and, in addition, provides customers of the
Company's protection and accumulation products access to other non-proprietary
investment products (including stocks, bonds, limited partnership interests,
tax-exempt unit investment trusts and other investment securities). The
insurance brokerage operation provides the Company's field agency force with
access to life, annuity, and small group health and specialty insurance products
written by other carriers to meet the insurance and investment needs of its
customers. The run-off businesses primarily consist of group life and health
business, as well as group pension business that was not included in the Group
Pension Transaction (see Note 4).
Set forth in the table below is certain financial information with respect
to the Company's operating segments as of September 30, 1999 and December 31,
1998 and for the three-month and nine-month periods ended September 30, 1999 and
1998, as well as amounts not allocated to the segments. The Company evaluates
the performance of each operating segment based on profit or loss from
operations before income taxes. The Company does not allocate certain
nonrecurring items to the segments (e.g. items of an unusual or infrequent
nature). All segment revenues are from external customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. Capital is allocated to each segment
in amounts sufficient to maintain a targeted regulatory risk-based capital
("RBC") level for each segment. Allocations of net investment income and net
realized gains on investments were primarily based on the amount of assets
allocated to each segment. Other costs and operating expenses were allocated to
each of the segments based on: (i) a review of the nature of such costs, (ii)
time studies analyzing the amount of employee compensation costs incurred by
each segment, and (iii) cost estimates included in the Company's product
pricing. Substantially all non-cash transactions and
9
<PAGE> 11
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
impaired real estate (including real estate acquired in satisfaction of debt)
have been allocated to the protection products segment.
Amounts reported as "unallocated amounts" in the table below primarily
relate to: (i) contracts issued by MONY Life relating to its employee benefit
plans, and (ii) assets, liabilities, revenues and expenses of the MONY Group.
SEGMENT SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Protection Products(1).................................. $ 19.0 $164.6 $ 58.3 $508.4
Accumulation Products................................... (0.2) 0.5 0.6 2.3
Other Products.......................................... 2.0 2.4 6.1 10.6
------ ------ ------ ------
$ 20.8 $167.5 $ 65.0 $521.3
====== ====== ====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products..................................... $ 29.9 $ 21.8 $ 91.5 $ 63.6
Accumulation Products................................... 17.8 15.9 53.8 47.5
Other Products.......................................... 0.1 (0.1) 0.4 0.8
------ ------ ------ ------
$ 47.8 $ 37.6 $145.7 $111.9
====== ====== ====== ======
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products(2).................................. $ 98.6 $163.9 $276.6 $560.9
Accumulation Products................................... 30.1 31.3 91.6 109.1
Other Products.......................................... 16.5 12.8 44.4 51.7
Unallocated amounts..................................... 1.8 1.1 3.0 2.7
------ ------ ------ ------
$147.0 $209.1 $415.6 $724.4
====== ====== ====== ======
OTHER INCOME:
Protection Products(3)(9)............................... $ 33.5 $ 18.7 $ 88.8 $ 49.9
Accumulation Products................................... 24.1 17.6 68.1 52.2
Other Products.......................................... 19.4 10.8 57.9 43.2
Unallocated amounts..................................... 1.2 1.4 3.3 4.3
------ ------ ------ ------
$ 78.2 $ 48.5 $218.1 $149.6
====== ====== ====== ======
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products(13)................................. $ 14.0 $ 25.0 $ 31.3 $ 80.4
Accumulation Products................................... 7.9 7.1 22.8 22.5
------ ------ ------ ------
$ 21.9 $ 32.1 $ 54.1 $102.9
====== ====== ====== ======
</TABLE>
10
<PAGE> 12
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
BENEFITS TO POLICYHOLDERS:(4)
Protection Products..................................... $ 33.7 $184.3 $107.4 $554.8
Accumulation Products................................... 17.6 19.3 54.9 59.9
Other Products.......................................... 7.5 6.1 21.9 28.7
Unallocated amounts..................................... 2.5 2.3 4.8 7.0
------ ------ ------ ------
$ 61.3 $212.0 $189.0 $650.4
====== ====== ====== ======
DIVIDENDS TO POLICYHOLDERS:
Protection Products..................................... $ 0.1 $ 54.5 $ (0.7) $161.3
Accumulation Products................................... 0.4 0.4 1.3 1.3
Other Products.......................................... 0.2 0.3 0.8 1.0
------ ------ ------ ------
$ 0.7 $ 55.2 $ 1.4 $163.6
====== ====== ====== ======
OTHER OPERATING COSTS AND EXPENSES:
Protection Products..................................... $ 59.2 $ 67.2 $190.0 $211.6
Accumulation Products................................... 24.7 20.4 75.9 59.3
Other Products.......................................... 22.0 15.1 66.5 58.8
Unallocated amounts..................................... 59.0 -- 59.5 --
------ ------ ------ ------
$164.9 $102.7 $391.9 $329.7
====== ====== ====== ======
INCOME BEFORE INCOME TAXES:
Protection Products..................................... $ 74.0 $ 38.0 $187.2 $174.7
Accumulation Products................................... 21.2 18.1 59.2 68.1
Other Products.......................................... 8.3 4.4 19.6 17.8
Unallocated amounts..................................... (58.5) 0.2 (58.0) --
------ ------ ------ ------
$ 45.0 $ 60.7 $208.0 $260.6
====== ====== ====== ======
</TABLE>
11
<PAGE> 13
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:(7)
Protection Products(5)(10).................................. $16,090.7 $16,578.7
Accumulation Products....................................... 5,911.3 6,171.3
Other Products.............................................. 1,178.9 1,256.2
Unallocated amounts......................................... 1,120.5 949.8
--------- ---------
$24,301.4 $24,956.0
========= =========
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(11)..................................... $ 1,034.6 $ 857.6
Accumulation Products....................................... 150.8 136.7
--------- ---------
$ 1,185.4 $ 994.3
========= =========
POLICYHOLDERS' LIABILITIES:
Protection Products(6)(12).................................. $10,202.3 $10,267.0
Accumulation Products....................................... 1,268.8 1,318.6
Other Products.............................................. 436.7 455.6
Unallocated amounts......................................... 18.9 17.4
--------- ---------
$11,926.7 $12,058.6
========= =========
SEPARATE ACCOUNT LIABILITIES:(7)
Protection Products(8)...................................... $ 3,768.4 $ 4,056.8
Accumulation Products....................................... 4,256.5 4,452.6
Other Products.............................................. 588.5 621.9
Unallocated amounts......................................... 781.9 776.4
--------- ---------
$ 9,395.3 $ 9,907.7
========= =========
</TABLE>
- ---------------
(1) Excludes $144.2 million and $448.6 million of revenues in individual life
related to the Closed Block for the three-month and nine-month period ended
September 30, 1999, respectively.
(2) Excludes net investment income and net realized capital gains on
investments in individual life related to the Closed Block of $96.7 million
and $288.6 million for the three-month and nine-month period ended
September 30, 1999, respectively.
(3) Includes Group Pension Profits of $21.5 million and $11.4 million for the
three-month period ended September 30, 1999 and 1998, respectively, and
$47.8 million and $34.1 million for the nine-month period ended September
30, 1999 and 1998, respectively.
(4) Includes interest credited to policyholders' account balances. Excludes
$147.6 million and $466.0 million of benefits and interest credited to
policyholders' account balances related to individual life in the Closed
Block for the three-month and nine-month period ended September 30, 1999,
respectively.
(5) Includes assets transferred in the Group Pension Transaction of $5,173.0
million and $5,751.8 million as of September 30, 1999 and December 31,
1998, respectively.
(6) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,693.5 million and $1,824.9 million as of September 30,
1999 and December 31, 1998, respectively.
(7) Each segment includes separate account assets in an amount equal to the
corresponding liability reported.
12
<PAGE> 14
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(8) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,433.3 million and $3,829.6 million as of September 30,
1999 and December 31, 1998 respectively.
(9) Includes $9.5 million and $31.4 million relating to the Contribution from
the Closed Block for the three-month and nine-month period ended September
30, 1999.
(10) Includes Closed Block assets of $6,153.0 million and $6,161.2 million as of
September 30, 1999 and December 31, 1998, respectively (see Note 6).
(11) Includes deferred policy acquisition costs allocated to the Closed Block of
$659.3 million and $554.6 million as of September 30, 1999 and December 31,
1998, respectively (see Note 6).
(12) Includes Closed Block policyholders' liabilities of $7,190.2 million and
$7,177.1 million as of September 30, 1999 and December 31, 1998,
respectively (see Note 6).
(13) Excludes $19.4 million and $54.5 million of amortization of deferred policy
acquisition costs related to the Closed Block for the three-month and
nine-month period ended September 30, 1999.
The following is a summary of premiums and universal life and
investment-type product policy fees by product for the three-month and
nine-month periods ended September 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ----------------
1999 1998 1999 1998
----- ------ ------ ------
($ IN MILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Individual life(1)....................................... $18.9 $165.1 $ 57.9 $508.2
Group insurance.......................................... 2.6 2.7 7.3 8.4
Other.................................................... (0.7) (0.3) (0.2) 4.7
----- ------ ------ ------
Total............................................... $20.8 $167.5 $ 65.0 $521.3
===== ====== ====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Universal life........................................... $17.7 $ 17.2 $ 54.4 $ 38.9
Variable universal life(2)............................... 10.1 1.8 28.8 16.7
Group universal life..................................... 2.1 2.8 8.3 8.0
Individual variable annuities............................ 17.7 15.9 53.4 47.1
Individual fixed annuities............................... 0.2 (0.1) 0.8 1.2
----- ------ ------ ------
Total............................................... $47.8 $ 37.6 $145.7 $111.9
===== ====== ====== ======
</TABLE>
- ---------------
(1) Excludes revenues from individual life in the Closed Block of $144.2 million
and $448.6 million for the three-month and six-month periods ended September
30, 1999.
(2) Includes Corporate Sponsored variable universal life products.
4. THE GROUP PENSION TRANSACTION:
On December 31, 1993 (the "Group Pension Transaction Date"), MONY entered
into an agreement (the "Agreement") with AEGON USA, Inc. ("AEGON") under which
MONY transferred a substantial portion of its group pension business (hereafter
referred to as the "Group Pension Transaction"), including its full service
group pension contracts, consisting primarily of tax-deferred annuities, 401(k)
and managed funds lines of business, to AEGON's wholly-owned subsidiary, AUSA
Life Insurance Company, Inc. ("AUSA"). The Company also transferred to AUSA the
corporate infrastructure supporting the group pension business, including data
processing systems, facilities and regional offices. AUSA was newly formed by
AEGON solely
13
<PAGE> 15
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
for the purpose of facilitating this transaction. In connection with the
transaction, the Company and AEGON have entered into certain service agreements.
These agreements, among other things, provide that the Company will continue to
manage the transferred assets, and that AUSA will continue to provide certain
administrative services to the Company's remaining group pension contracts not
included in the transfer.
The transferred group pension business consisted of approximately $6.4
billion in group pension assets and liabilities, which were comprised of
approximately $2.8 billion of general account assets and liabilities, and $3.6
billion of separate account assets and liabilities. The transfer was initially
structured in the form of indemnity reinsurance, however, the Agreement
contemplated that the transfer would be restructured in the form of assumption
reinsurance as soon as practicable following the consent of contractholders to
assumption of their contracts. Substantially all of the contractholders
consented to the assumption of their contracts by AUSA.
In addition, pursuant to the Agreement, MONY agreed to make a $200 million
capital investment in AEGON by purchasing $150 million face amount of Series A
Notes and $50 million face amount of Series B Notes (hereinafter referred to as
the "Notes"). The Series A Notes pay interest at 6.44% per annum and the Series
B Notes pay interest at 6.24% per annum. Both the Series A Notes and the Series
B Notes mature on December 31, 2002. MONY's investment in the Series A Notes was
intended to provide AEGON with the funding necessary to capitalize AUSA.
MONY retained all the profits resulting from the $6.4 billion of deposits
on contracts in force and transferred to AEGON on the Group Pension Transaction
Date (the "Existing Deposits"). As consideration for the transaction, MONY
remunerated AEGON by transferring to AUSA (i) the intangible value associated
with MONY's group pension franchise, including established customer
relationships, (ii) rights to substantially all the profits associated with any
new deposits made after the Group Pension Transaction Date on the contracts
which were in force and transferred by MONY to AUSA on the Group Pension
Transaction Date, and (iii) rights to substantially all the profits on any new
business generated subsequent to the Group Pension Transaction Date.
In accordance with GAAP, the transaction did not constitute a sale because
MONY retained substantially all the risks and rewards associated with the
Existing Deposits. Accordingly, the Company continues to reflect the transferred
assets and liabilities on its balance sheet under separate captions entitled
"Assets transferred in Group Pension Transaction" and "Liabilities transferred
in Group Pension Transaction". In addition, MONY reports in its GAAP earnings
the profits from the Existing Deposits as discussed below.
Pursuant to the Agreement, MONY receives from AUSA (i) payments on an
annual basis through December 31, 2002 (the "Group Pension Payments") equal to
all of the earnings from the Existing Deposits, (ii) a final payment (the "Final
Value Payment") at December 31, 2002 based on the remaining fair value of the
Existing Deposits, and (iii) a contingent payment (the "New Business Growth
Payment") at December 31, 2002 based on new business growth subsequent to the
Group Pension Transaction Date. However, the level of new business growth
necessary for MONY to receive the New Business Growth Payment make it unlikely
that MONY will ever receive any such payment.
With respect to the Group Pension Payments, the annual results from the
Existing Deposits are measured on a basis in accordance with the Agreement (such
basis hereafter referred to as the "Earnings Formula") which is substantially
the same as GAAP, except that: (i) asset impairments on fixed maturity
securities are only recognized when such securities are designated with a
National Association of Insurance Commissioners ("NAIC") rating of "6", and (ii)
no impairment losses are recognized on mortgage loans until such loans are
disposed of or at the time, and in the calculation, of the Final Value Payment.
14
<PAGE> 16
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Earnings which emerge from the Existing Deposits pursuant to the
application of the Earnings Formula are recorded in MONY's financial statements
only after adjustments (primarily to recognize asset impairments in accordance
with SFAS Nos. 114 and 115) to reflect such earnings on a basis entirely in
accordance with GAAP (such earnings hereafter referred to as the "Group Pension
Profits"). Losses which arise from the application of the Earnings Formula for
any annual period will be reflected in MONY's results of operations (after
adjustments to reflect such losses in accordance with GAAP) only up to the
amount for which MONY is at risk (as described below), which at any time is
equal to the then outstanding principal amount of the Series A Notes.
Operating losses reported in any annual period pursuant to the Earnings
Formula are carried forward to reduce any earnings in subsequent years reported
pursuant to the Earnings Formula. Any resultant deficit remaining at December
31, 2002 will be deducted from the Final Value Payment and New Business Growth
Payment, if any, due to MONY. If a deficit still remains, it will be applied (as
provided for in the Agreement) as an offset against the principal payment due to
MONY upon maturity of the Series A Notes.
The following tables set forth certain summarized financial information
relating to the Group Pension Transaction as of and for the periods indicated,
including information regarding: (i) the general account assets transferred to
support the Existing Deposits in the Group Pension Transaction (hereafter
referred to as the "AEGON Portfolio"), (ii) the transferred separate account
assets and liabilities and (iii) the components of revenue and expense
comprising the Group Pension Profits:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
General Account
Fixed maturities: available for sale, at estimated fair
value (amortized cost; $1,551.8 and $1,564.6,
respectively)......................................... $1,549.9 $1,620.2
Mortgage loans on real estate............................ 124.2 214.8
Real estate held for investment.......................... 16.7 37.9
Cash and cash equivalents................................ 24.3 21.7
Accrued investment income................................ 24.6 27.6
-------- --------
Total general account assets............................. 1,739.7 1,922.2
Separate account assets.................................... 3,433.3 3,829.6
-------- --------
Total assets.......................................... $5,173.0 $5,751.8
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances.......................... $1,693.5 $1,824.9
Other liabilities........................................ 30.2 24.0
-------- --------
Total general account liabilities..................... 1,723.7 1,848.9
Separate account liabilities(2)............................ 3,433.3 3,829.6
-------- --------
Total liabilities..................................... $5,157.0 $5,678.5
======== ========
</TABLE>
- ---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $117.6
million and $121.7 million as of September 30, 1999 and December 31, 1998,
respectively.
15
<PAGE> 17
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $18.4 million
and $33.3 million as of September 30, 1999 and December 31, 1998,
respectively.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
($ IN MILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Product policy fees......................................... $ 5.4 $ 5.5 $17.5 $16.6
Net investment income....................................... 31.6 38.5 98.2 119.1
Net realized gains (losses) on investments.................. 11.5 (0.9) 15.8 (3.3)
----- ----- ----- -----
Total revenues......................................... 48.5 43.1 131.5 132.4
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances........ 22.4 26.9 67.9 82.6
Other operating costs and expenses.......................... 4.6 4.8 15.8 15.7
----- ----- ----- -----
Total benefits and expenses............................ 27.0 31.7 83.7 98.3
----- ----- ----- -----
Group Pension Profits.................................. $21.5 $11.4 $47.8 $34.1
===== ===== ===== =====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
In late 1995 and thereafter, a number of purported class actions were
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/or universal life insurance policies from the early 1980s to the mid
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/or
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primary 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/or
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 seek compensatory damages in unspecified amounts. The
Company has answered the complaints in each action (except for one action 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 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 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
judgment on all counts of the complaint. All of the other putative class actions
(with one exception discussed below) 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. The Massachusetts District
Court in the Multidistrict Litigation has entered an order essentially holding
all of the federal cases in abeyance pending the action of the Goshen case.
16
<PAGE> 18
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On March 18, 1999 the order by the New York
State Supreme Court was affirmed by the New York State Appellate Division, First
Department. On June 8, 1999, plaintiffs obtained leave from the New York State
Court of Appeals to appeal the Appellate Division decision. Briefs were filed in
October 1999, and oral argument before the Court of Appeals took place on
October 14, 1999. All actions before the United States District Court for the
District of Massachusetts are still pending.
In addition, on or about February 25, 1999, a purported class action was
filed against MONY Life Insurance Company of America ("MLOA"), a subsidiary of
MONY Life in Kentucky state court covering policyholders who purchased
individual universal life insurance policies from MLOA after January 1, 1988
claiming breach of contract and violations of the Kentucky Consumer Protection
Act. On March 26, 1999, MLOA removed that action to the United States District
Court for the Eastern District of Kentucky, and on August 11, 1999 obtained an
order from the Judicial Panel on Multidistrict Litigation transfering the action
to the Multidistrict Litigation in the District of Massachusetts.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts.
With respect to all of the other aforementioned pending litigation, the
Company recorded a provision, which is reflected in Other Operating Costs and
Expenses, of $0.5 million and $11.6 million during the nine-month period ended
September 30, 1999 and 1998, respectively. While the outcome of such matters
cannot be predicted with certainty, in the opinion of management, any additional
liability beyond that recorded in the consolidated financial statements at
September 30, 1999, resulting from the resolution of these matters will not have
a material adverse effect on the Company's consolidated 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 consolidated financial position and the results
of operations of the Company.
The Company maintains two lines of credit with domestic banks aggregating
$150.0 million, with scheduled renewal dates in September 2000 and September
2003. In accordance with certain covenants under these lines of credit, the
Company is required to maintain a certain statutory tangible net worth and debt
to capitalization ratio. The purpose of these facilities is to provide
additional liquidity for any unanticipated short term cash needs the Company
might experience and also to serve as support for the Company's $250 million
commercial paper program which was activated in the second quarter of 1999. The
Company has complied with all covenants under these lines of credit, has not
borrowed against these lines of credit since their inception and does not have
any commercial paper outstanding as of September 30, 1999.
At September 30, 1999, the Company had commitments to issue $11.8 million
of fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 7.1% to 8.5%. In
addition, the Company had commitments to issue $77.2 million of fixed rate
commercial mortgage loans with interest rates ranging from 7.0% to 8.2%. The
Company also had commitments outstanding to purchase $11.0 million of private
fixed maturity securities as of September 30, 1999 with interest rates ranging
from 8.3% to 8.5%. At September 30, 1999, the Company had commitments to
contribute capital to its equity partnership investments of $122.7 million.
17
<PAGE> 19
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
6. CLOSED BLOCK:
On November 16, 1998, the Company established a closed block (the "Closed
Block") of certain participating insurance policies as defined in the Plan (the
"Closed Block Business"). In conjunction therewith, the Company allocated assets
to the Closed Block expected to produce cash flows which, together with
anticipated revenues from the Closed Block Business, are reasonably expected to
be sufficient to support the Closed Block Business, including but not limited
to, provision for payment of claims and surrender benefits, certain expenses and
taxes, and for continuation of current payable dividend scales in effect at the
date of Demutualization, assuming the experience underlying such dividend scales
continues, and for appropriate adjustments in such scales if the experience
changes. The assets allocated to the Closed Block and the aforementioned
revenues inure solely to the benefit of the owners of policies included in the
Closed Block.
The assets and liabilities allocated to the Closed Block are recorded in
the Company's financial statements at their historical carrying values. The
carrying values of the assets allocated to the Closed Block are less than the
carrying value of the Closed Block liabilities at the Plan Effective Date. The
excess of the Closed Block liabilities over the Closed Block assets at the Plan
Effective Date represents the total estimated future post-tax contribution
expected to emerge from the operation of the Closed Block, which will be
recognized in the Company's income over the period the policies and the
contracts in the Closed Block remain in force.
In determining the amount of assets to be allocated to the Closed Block,
management made certain estimates and assumptions regarding the expected cash
flows from the Closed Block assets and the Closed Block Business, including
estimates and assumptions regarding investment cash flows, mortality,
persistency, and expenses which are to be funded in the Closed Block. The
estimated net cash flows assumed in determining the Closed Block funding
consisted of premiums from policies included in the Closed Block, investment
income from Closed Block assets, proceeds from maturities and dispositions of
Closed Block assets, less benefits paid on Closed Block policies, certain
expenses (including taxes) funded in the Closed Block, and dividends on Closed
Block policies based on current payable dividend scales. To the extent that the
actual cash flows, subsequent to the Plan Effective Date, from the assets
allocated to the Closed Block and the Closed Block Business are, in the
aggregate, more favorable than assumed in establishing the Closed Block, total
dividends paid to the Closed Block policyholders in future years will be greater
than the total dividends that would have been paid to such policyholders if the
current payable dividend scales had been continued. Conversely, to the extent
that the actual cash flows, subsequent to the Plan Effective Date, from the
assets allocated to the Closed Block and the Closed Block Business are, in the
aggregate, less favorable than assumed in establishing the Closed Block, total
dividends paid to the Closed Block policyholders in future years will be less
than the total dividends that would have been paid to such policyholders if the
current payable dividend scales had been continued. Accordingly, the recognition
of the aforementioned estimated future post-tax contribution expected to emerge
from the operation of the Closed Block is not affected by the aggregate actual
experience of the Closed Block assets and the Closed Block Business subsequent
to the Plan Effective Date, except in the unlikely event that the Closed Block
assets and the actual experience of the Closed Block Business subsequent to the
Plan Effective Date are not sufficient to pay the guaranteed benefits on the
Closed Block Policies, in which case the Company will be required to fund any
such deficiency from its general account assets outside of the Closed Block.
The results of the Closed Block are presented as a single line item in the
Company's statements of income entitled, "Contribution from the Closed Block".
Prior to the establishment of the Closed Block the results of the assets and
policies comprising the Closed Block were reported in various line items in the
Company's income statements, including: premiums, investment income, net
realized gains and losses on investments, benefits, amortization of deferred
policy acquisition costs, etc. In addition, all assets and liabilities allocated
to the Closed Block will be reported in the Company's balance sheet separately
under the captions "Closed Block assets" and "Closed Block liabilities",
respectively. Accordingly, certain line items in the
18
<PAGE> 20
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Company's financial statements subsequent to the establishment of the Closed
Block reflect material reductions in reported amounts, as compared to years
prior to the establishment of the Closed Block, while having no effect on net
income.
The pre-tax Contribution from the Closed Block includes only those
revenues, benefit payments, dividends, premium taxes, state guaranty fund
assessments, and investment expenses considered in funding the Closed Block.
However, many expenses associated with operating the Closed Block and
administering the policies included therein were excluded from and, accordingly,
are not funded in the Closed Block. These expenses are reported in the Company's
statement of operations, outside of the Contribution from the Closed Block,
consistent with how they are funded. Such expenses are reported in the separate
line items to which they apply based on the nature of such expenses. Federal
income taxes applicable to the Closed Block, which are funded in the Closed
Block, are reflected as a component of federal income tax expense in the
Company's statement of operations. Since many expenses related to the Closed
Block are funded outside the Closed Block, operating costs and expenses outside
the Closed Block are disproportionate to the level of business outside the
Closed Block.
The following tables set forth certain summarized financial information
relating to the Closed Block, as of and for the periods indicated, and reflect
certain adjustments made to revise estimates made in connection with the
establishment of the Closed Block which resulted in a net increase to the Closed
Block deficit:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost; $3,554.7 and $3,423.0, respectively)............ $3,508.5 $3,574.0
Mortgage loans on real estate............................ 447.9 431.7
Policy loans............................................. 1,199.7 1,208.4
Real estate held for investment.......................... 21.1 --
Cash and cash equivalents................................ 78.7 134.4
Premiums receivable...................................... 7.7 16.8
Deferred policy acquisition costs........................ 659.3 554.6
Other assets............................................. 230.1 241.3
-------- --------
Total Closed Block assets............................. $6,153.0 $6,161.2
======== ========
LIABILITIES:
Future policy benefits................................... $6,734.9 $6,715.6
Policyholders' account balances.......................... 294.5 298.0
Other Policyholders' liabilities......................... 160.8 163.5
Other liabilities........................................ 85.5 113.6
-------- --------
Total Closed Block liabilities........................ $7,275.7 $7,290.7
======== ========
</TABLE>
19
<PAGE> 21
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------- ------------------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Premiums......................................... $144.2 $448.6
Net investment income and net realized gains on
investments.................................... 96.7 288.6
Other income..................................... 0.4 1.1
------ ------
Total revenues.............................. 241.3 738.3
BENEFITS AND EXPENSES:
Benefits to policyholders........................ 145.5 459.5
Interest credited to policyholders' account
balances....................................... 2.1 6.5
Amortization of deferred policy acquisition
costs.......................................... 19.4 54.5
Dividends to policyholders....................... 63.4 179.8
Other operating costs and expenses............... 1.4 6.6
------ ------
Total benefits and expenses................. 231.8 706.9
------ ------
Contribution from Closed Block................... $ 9.5 $ 31.4
====== ======
</TABLE>
At September 30, 1999 and December 31, 1998, there were no adjustments in
the value of fixed maturity securities in the Closed Block deemed to be other
than temporary or fixed maturity securities which have been non-income producing
for the twelve months preceding such dates. At September 30, 1999 and December
31, 1998, the carrying value of mortgage loans in the Closed Block that were
non-income producing for the twelve months preceding such date, were $0.6
million and $0.5 million, respectively.
7. EARLY RETIREMENT PROGRAM
On June 30, 1999, the Company announced a voluntary early retirement
program for approximately 500 eligible employees of which 300 employees elected
to participate. The program is part of an overall company-wide realignment of
staff and resources, which may also include the elimination and/or shifting of
certain job functions and the addition of employees with new skill sets. The
Company has recorded a one-time restructuring charge of $58.9 million pretax in
the third quarter of 1999.
8. EXTRAORDINARY ITEM
The condensed consolidated statements of income and comprehensive income
reflect extraordinary charges of $1.9 million and $5.8 million for the three
month periods ended September 30, 1999 and 1998, respectively, and $1.9 million
and $15.5 million for the nine-month periods ended September 30, 1999 and 1998,
respectively. Costs incurred in 1998 primarily include the fees of financial,
legal, actuarial and accounting advisors to the Company and to the New York
Insurance Department as well as printing and postage for communication with
policy holders. Costs incurred in 1999 primarily relate to expenses incurred in
connection with a commission-free sale and purchase program (the "Program")
offered to shareholders pursuant to the Plan. The Program commenced August 17,
1999 and ends on November 17, 1999. Pursuant to the Program shareholders who own
fewer than 100 shares can sell all of their shares or purchase additional shares
to round up to 100 shares without incuring commission.
20
<PAGE> 22
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the consolidated financial condition and
results of operations of the Company for the periods indicated. The discussion
of the Company's consolidated financial results of operations is based on the
results of the Closed Block for the three-month and nine-month periods ended
September 30, 1999 combined on a line by line basis with the results of
operations outside the Closed Block for such period, as further discussed below.
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 consolidated financial statements and the related notes to the
unaudited interim condensed consolidated financial statements included elsewhere
herein and the Company's 1998 Annual Report on Form 10-K.
The MONY Group was incorporated on June 24, 1997, under the laws of
Delaware, as a wholly owned subsidiary of MONY. The MONY Group was formed for
the purpose of becoming the parent holding company of MONY pursuant to the Plan.
On November 16, 1998, the Plan was approved by the New York Superintendent of
Insurance and MONY converted from a mutual life insurance company to a stock
life insurance company and became a wholly owned subsidiary of the MONY Group.
In connection with the Plan, MONY established the Closed Block to fund the
guaranteed benefits and dividends of certain participating insurance policies
(see Note 6 to the Unaudited Interim Condensed Consolidated Financial
Statements) and eligible policyholders of MONY received either cash, policy
credits, or shares of common stock in the MONY Group in exchange for their
membership interests in MONY. Also, on November 16, 1998, the MONY Group
consummated an initial public offering (the "Offerings") of approximately 12.9
million shares of its common stock (see "Liquidity and Capital Resources") and
MONY changed its name to MONY Life. The shares of common stock issued in the
Offerings are in addition to approximately 34.3 million shares of common stock
of the MONY Group distributed to the aforementioned eligible policyholders. The
MONY Group has no other operations or subsidiaries.
MONY's conversion to a stock life insurance company and the establishment
of the Closed Block have significantly affected the presentation of the
consolidated financial statements of the Company. The most significant effects
are as follows:
(i) the actual results of the Closed Block's operations are reflected as a
single line item in the Company's statements of income, entitled
"Contribution from the Closed Block", whereas, prior to the
establishment of the Closed Block the results of its operations were
reported in various line items in the Company's income statement,
including premiums, net investment income, net realized gains,
benefits, amortization of deferred policy acquisition costs, etc.
(ii) all assets and liabilities allocated to the Closed Block are reported
separately in the Company's balance sheet under the captions "Closed
Block assets" and "Closed Block liabilities", respectively, whereas
prior to the establishment of the Closed Block such assets and
liabilities were reported in various line items in the Company's
balance sheet, including fixed maturity securities, mortgage loans on
real estate, policy loans, deferred policy acquisition costs, etc.
The pre-tax contribution from the Closed Block for the three-month and
nine-month periods ended September 30, 1999 was $9.5 million and $31.4 million,
respectively. The Closed Block includes only those revenues, benefit payments,
dividends and premium taxes considered in funding the Closed Block and excludes
many costs and expenses associated with operating the Closed Block and
administering the policies included therein. Since many expenses related to the
Closed Block were excluded from the calculation of the Closed Block
contribution, the contribution from the Closed Block does not represent the
actual profitability of the business in the Closed Block. As a result, operating
costs and expenses outside the Closed Block are disproportionate to the business
outside the Closed Block.
21
<PAGE> 23
GROUP PENSION TRANSACTION
Management expects that Group Pension Payments will decline in future
periods consistent with the continuing run-off of the underlying business until
they terminate as of December 31, 2002. For a description of the Group Pension
Transaction, the Group Pension Profits and certain summary financial information
relating thereto, refer to Note 4 of the unaudited interim condensed
consolidated financial statements included herein.
NEW BUSINESS INFORMATION
The following table presents certain information with respect to the
Company's sales of protection and accumulation products during the three-month
and nine-month periods ended September 30, 1999 and 1998 by source of
distribution. Management uses this information to measure its sales production
from period to period. The amounts presented with respect to life insurance and
annuity sales represent annualized statutory-basis premiums. Statutory-basis
premiums are used in lieu of GAAP basis premiums because they provide a
consistent measure across varying product types, in contrast to GAAP which
provides different revenue recognition rules for different classes of
long-duration contracts as defined by the requirements of FASB No. 60,
Accounting and Reporting by Insurance Enterprises, FASB No. 97, Accounting and
Reporting by Insurance Enterprises for Certain Long Duration Contracts and for
Realized Gains and Losses from the Sale of Investments, and SOP 95-1, Accounting
for Certain Insurance Activities of Mutual Life Insurance Enterprises. The
amounts presented with respect to mutual funds sales represent deposits made by
customers during the periods presented. [See Consolidated Results of Operations
for further discussion of the information presented in the following table.]
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
($ IN MILLIONS) 1999 1998 1999 1998
- --------------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
PROTECTION PRODUCTS(1)
Career Agency System(2).............................. $ 21.7 $ 14.5 $ 71.3 $ 56.2
U.S. Financial Life Insurance Co.(2)................. 7.7 -- 17.5 --
Corporate-owned life insurance(3).................... 1.2 27.1 33.9 76.0
------ ------ -------- --------
Total New Annualized Life Insurance Premiums......... $ 30.6 $ 41.6 $ 122.7 $ 132.2
====== ====== ======== ========
ACCUMULATION PRODUCTS(1)
Variable Annuity(2)(4)............................... $100.3 $138.2 $ 316.8 $ 484.7
Career Agency System -- Mutual Funds................. 159.0 117.1 479.5 405.7
Third-Party Distribution -- Mutual Funds............. 262.2 227.0 807.9 594.2
------ ------ -------- --------
Total Accumulation Sales............................. $521.5 $482.3 $1,604.2 $1,484.6
====== ====== ======== ========
</TABLE>
- ---------------
(1) Annualized premiums represent the total premium scheduled to be collected on
a policy or contract over a twelve month period. Pursuant to the terms of
certain of the policies and contracts issued by the Company, premiums and
deposits may be paid or deposited on a monthly, quarterly, or semi-annual
basis. Annualized premium does not apply to COLI business or single premium
paying business. All premiums received on COLI business and single premium
paying policies during the periods presented are included.
(2) Includes premiums or deposits that have been annualized.
(3) Substantially all business generated from complementary distribution
represents sales of corporate-sponsored life insurance.
(4) Excludes annualized premiums associated with an exchange program offered by
the Company wherein contractholders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
22
<PAGE> 24
CONSOLIDATED RESULTS OF OPERATIONS
For comparability with prior periods, the table below presents the results
of operations of the Closed Block for the three-month and nine-month periods
ended September 30, 1999, combined on a line by line basis with the results of
operations outside the Closed Block. In all other respects, the financial
information herein is presented in accordance with GAAP unless otherwise noted.
Management's Discussion and Analysis, which follows this table, addresses the
results of operations of the Company on the aforementioned combined basis unless
otherwise noted.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums............................................. $165.0 $167.5 $ 513.6 $ 521.3
Universal life and investment-type product policy
fees............................................... 47.8 37.6 145.7 111.9
Net investment income................................ 219.3 197.1 603.5 554.8
Net realized gains on investments.................... 24.4 12.0 100.7 169.6
Group Pension Profits................................ 21.5 11.4 47.8 34.1
Other income......................................... 47.6 37.1 140.0 115.5
------ ------ -------- --------
Total revenues.................................. 525.6 462.7 1,551.3 1,507.2
BENEFITS AND EXPENSES:
Benefits to policyholders............................ 180.4 182.7 567.8 562.4
Interest credited to policyholders' account
balances........................................... 28.5 29.3 87.2 88.0
Amortization of deferred policy acquisition costs.... 41.3 32.1 108.6 102.9
Dividends to policyholders........................... 64.1 55.2 181.2 163.6
Other operating costs and expenses................... 166.3 102.7 398.5 329.7
------ ------ -------- --------
Total benefits and expenses..................... 480.6 402.0 1,343.3 1,246.6
Income before income taxes and extraordinary item.... $ 45.0 $ 60.7 $ 208.0 $ 260.6
====== ====== ======== ========
</TABLE>
Consolidated -- For the Three-month Period Ended September 30, 1999
Compared to the Three-month Period Ended September 30, 1998.
Premium revenue was $165.0 million for the three-month period ended
September 30, 1999, a decrease of $2.5 million, or 1.5% from $167.5 million
reported in the comparable prior year period. The decrease consisted primarily
of lower new and renewal premiums on traditional life business of $5.4 million
and $2.0 million, respectively, offset by $5.5 million of premiums from Sagamore
which was acquired December 31, 1998, (see Notes to Unaudited Interim Condensed
Financial Statements included elsewhere herein) and a decrease of $0.4 million
related to the run-off business. Management believes that the decrease in new
and renewal traditional life premiums is consistent with trends in the industry,
particularly the continuing shift by consumers from traditional protection
products to asset accumulation and retirement income products (see also "New
Business Information").
Universal life and investment-type product policy fees were $47.8 million
for the three-month period ended September 30, 1999, an increase of $10.2
million or 27.1% from $37.6 million reported in the comparable prior year
period. This increase was primarily the result of fees earned by Sagamore of
$5.6 million and higher fees relating to the Company's VUL, Corporate Sponsored
VUL business ("CSVUL"), and FPVA business of $4.3 million, $4.0 million and 1.8
million, respectively. The increase in VUL is consistent with the growth of such
in force business. These increases were offset in part by a decrease of $2.3
million in fees from UL business. The Company reported total fees from its VUL
business for the three-month period ended September 30, 1999 of $9.2 million, as
compared to $4.9 million reported for the comparable period in the prior year.
The Company reported total fees from its FPVA business for the three-month
period
23
<PAGE> 25
ended September 30, 1999 of $17.7 million, as compared to $15.9 million reported
for the comparable prior year period. The increase in FPVA fees was primarily
due to higher surrender charges of $1.4 million for the quarter ending September
30, 1999, as compared to the comparable prior year period. Annuity sales were
$100.3 million during the three-month period ended September 30, 1999, as
compared to $138.2 million in the corresponding period in the prior-year.
Management believes that the decrease in annuity sales during the 3rd quarter of
1999 from that reported in the comparable prior year period is primarily due to
delays in state regulatory approvals (principally in New York and New Jersey) of
new products introduced by the Company in connection with its reorganization in
November 1998, as well as the limited selection of fund choices offered through
the Company's annuity products, and increased competition in the marketplace. In
response to these issues, the Company, early in the third quarter, began to
offer 11 new investment funds through its annuities, including funds managed by
Fidelity, Janus and Dreyfus. See also "New Business Information".
Net investment income was $219.3 million for the three-month period ended
September 30, 1999, an increase of $22.2 million, or 11.3%, from $197.1 million
reported for the comparable prior year period. The increase in net investment
income is primarily due to the combination of higher yields on invested assets,
higher average balances, higher equity partnership income and changes in the mix
of invested assets for the three-month period ended September 30, 1999, as
compared to the corresponding period in the prior year. Higher yields on
invested assets for the three-month period ended September 30, 1999, as compared
to the corresponding period in the prior year resulted in higher investment
income of approximately $9.0 million. In addition, an increase in the Company's
average total invested assets between the periods of approximately $418.8
million, as well as changes in the mix of invested assets from real estate to
relatively higher yielding fixed maturity securities, mortgages and equity
securities resulted in increased investment income of approximately $13.2
million. The increase in average invested assets was primarily a result of IPO
proceeds received, gains on sales of real estate, and positive cash flow from
operations and investing activities between the periods. For the three-month
period ended September 30, 1999, the Company's average investment in fixed
maturity securities (before cumulative unrealized gains or losses), mortgages,
equity securities and policy loans increased by approximately $509.8 million,
$200.9 million, $85.2 million and $12.3 million, respectively, while the
Company's average investment in real estate, cash and short term securities and
other invested assets (mostly real estate partnerships) decreased by
approximately $277.0 million, $103.1 million and $9.3 million, respectively. As
of September 30, 1999, invested assets (including assets in and outside of the
Closed Block) were $10,810.2 million (including cumulative unrealized losses of
$102.2 million for fixed maturity securities) compared to $10,718.3 million
(including cumulative unrealized gains of $338.1 million for fixed maturity
securities) as of September 30, 1998. At September 30, 1999, fixed maturity
securities, mortgage loans and real estate represented approximately 61.4%,
15.5% and 4.0%, respectively, of total invested assets, as compared to 61.2%,
13.1% and 6.3%, respectively, at September 30, 1998. The annualized yield on the
Company's invested assets before and after realized gains/(losses) on
investments was 8.1% and 9.0%, respectively, for the three-month period ended
September 30, 1999, as compared to 7.5% and 8.0%, respectively, for the
three-month period ended September 30, 1998.
Net realized gains were $24.4 million for the three-month period ended
September 30, 1999, an increase of $12.4 million, or 103.3%, from $12.0 million
for the comparable prior year period. The increase is primarily the result of
higher gains on sales of equity securities of $13.6 million, lower losses from
other than temporary impairments of fixed maturity securities of $9.9 million,
and a gain of $6.0 million relating to other miscellaneous investments, offset
by lower gains from sales of real estate of $8.5 million and lower sales and
prepayment gains on fixed maturity securities of $7.2 million. Gains on the
sales of equity securities were $3.5 million for the three-month period ended
September 30, 1999, compared to losses of $10.1 million during the corresponding
prior year period. No losses were recorded during the three-month period ended
September 30, 1999 with respect to other than temporary impairments on fixed
maturity securities, as compared to a $9.9 million loss recorded during the
corresponding period in the prior year. Gains on the sale of real estate and
real estate partnerships were $14.0 million for the three-month period ended
September 30, 1999, compared to $22.5 million during the corresponding prior
year period. For the three-month period ended September 30, 1999, a $0.7 million
loss was recorded relating to prepayments and sales of fixed maturities, as
compared to gains of $6.5 million during the corresponding prior year period.
24
<PAGE> 26
Group Pension Profits were $21.5 million for the three-month period ended
September 30, 1999, an increase of $10.1 million, or 88.6%, from $11.4 million
reported in the corresponding prior year period. The increase is primarily due
to realized gains on Group Pension assets of $11.5 million during the third
quarter of 1999, primarily due to sales of real estate properties, compared to
realized losses of $0.9 million in the prior year period. This increase was
offset by a decline in Group Pension Profits (excluding realized gains) of $2.3
million, from $12.3 million for the three months ended September 30, 1998 to
$10.0 million for the three-month period ended September 30, 1999. The decrease
in Group Pension Profits (excluding realized gains and losses) is consistent
with the runoff of the Group Pension business. See "Notes to Unaudited Interim
Condensed Consolidated Financial Statements".
Other income (which consists primarily of fees earned by the Company's
mutual fund management, broker-dealer, and insurance brokerage operations, as
well as revenues from interest on deposits held under financial reinsurance
arrangements, certain other asset management fees, and other miscellaneous
revenues) was $47.6 million for the three-month period ended September 30, 1999,
an increase of $10.5 million, or 28.3%, as compared to $37.1 million reported in
the corresponding prior year period. The increase was primarily the result of
higher fees earned by the Company's mutual fund management operations of $6.0
million and higher commission of $7.1 million earned by the Company's
broker-dealer operations. The Company's mutual fund management operations
reported $22.0 million in fees from advisory, underwriting and distribution
services, as compared to $16.0 million reported in the corresponding prior year
period, as its assets under management increased to approximately $7.6 billion
at September 30, 1999 from $5.8 billion at September 30, 1998. During the
three-month period ended September 30, 1999, the Company's broker-dealer
operations reported commission earnings of $15.1 million, as compared to $8.0
million reported in the corresponding prior year period. Sales of mutual funds
offered by the Enterprise Group of Funds increased 22% to $421.2 million during
the three-month period ended September 30, 1999, as compared to $344.1 million
in the corresponding period in the prior year. Enterprise mutual fund sales
through third-party broker-dealers were $262.2 million during the three-month
period ended September 30, 1999, up 16% from $227.0 million in the corresponding
prior year period. Enterprise mutual fund sales through the Company's career
agency system were $159.0 million during the three-month period ended September
30, 1999, up 36% from $117.1 million in the corresponding period in the prior
year.
Benefits to policyholders were $180.4 million for the three-month period
ended September 30, 1999, a decrease of $2.3 million, or 1.3%, as compared to
$182.7 million reported in the corresponding prior year period. The decrease was
due to lower death claims of $7.6 million, which includes a decrease of $0.8
million related to the Company's international operations, a $1.8 million
decrease in benefits related to traditional products and a decrease of $1.2
million in immediate annuities due to a declining volume of business, offset by
the addition of $7.3 million of benefits related to Sagamore.
Interest credited to policyholders' account balances was $28.5 million for
the three-month period ended September 30, 1999, a decrease of $0.8 million, or
2.7%, as compared to $29.3 million reported in the corresponding prior year
period. The decrease was primarily due to (i) lower interest crediting of $1.7
million relating to CSVUL due to a transfer of CSVUL liabilities from the
general account, which earned interest in 1998, to the separate account, (ii)
lower interest crediting of $0.9 million relating to SPDA products due to
declining fund balances and, (iv) a $0.3 million decrease in interest crediting
relating to certain group deferred annuities, offset in part by $1.1 million
relating to Sagamore and higher interest credited on supplementary contracts of
$0.7 million. Declines in fund balances in accumulation products and modestly
lower interest crediting rates contributed to declines in overall interest
crediting.
Amortization of deferred policy acquisition ("DAC") costs was $41.3 million
for the three-month period ended September 30, 1999, an increase of $9.2
million, or 28.7%, as compared to $32.1 million reported in the corresponding
prior year period. The increase primarily resulted from: (i) higher amortization
of approximately $2.3 million relating to traditional life business due to
favorable mortality experience, (ii) higher amortization of $1.2 related to VUL
business due to favorable mortality experience and (iii) higher amortization of
$3.4 million related to the Company's international operations due to higher
lapses.
25
<PAGE> 27
Dividends to policyholders was $64.1 million for the three-month period
ended September 30, 1999 an increase of $8.9 million, or 16.1%, as compared to
$55.2 million reported in the corresponding prior year period. The increase
relates to the accrual of an additional dividend liability in the Closed Block
reflecting results that were more favorable than assumed in the funding of the
Closed Block. As further discussed in Note 6 to the Unaudited Interim Condensed
Consolidated Financial Statements included elsewhere herein, all the assets in
the Closed Block inure solely to the benefit of the Closed Block policyholders,
and to the extent that the results of the Closed Block are more favorable than
assumed in establishing the Closed Block, total dividends paid to Closed Block
policyholders will be increased and are, accordingly, accrued as an additional
dividend liability. Only the excess of the Closed Block liabilities over the
Closed Block assets at the date of the establishment of the Closed Block will be
recognized in the Company's income over the period the policies and contracts in
the Closed Block remain in force.
Other operating costs and expenses were $166.3 million for the three-month
period ended September 30, 1999, an increase of $63.6 million, or 61.9%, as
compared to $102.7 million reported in the comparable prior year period. The
increase primarily consisted of: (i) a one time restructuring charge of $58.9
million in connection to the early retirement program, (ii) $4.5 million of
higher sub-advisory fees and other expenses incurred by the Company's mutual
fund management operations, (iii) $4.0 million from Sagamore, (iv) $4.1 million
of higher staffing, increased commissions resulting from increased sales in the
Company's broker-dealer operations, and (v) a $3.0 million increase in the
Company's international life insurance subsidiary, MONY Life Insurance Company
of the Americas, Ltd. due to increase in the number of agents hired and other
miscellaneous selling expenses, offset by: (i) lower Year 2000 costs of $2.2
million, (ii) lower compensation expenses of $7.5 million relating to a
restructuring of field underwriter compensation structure in the third quarter
of 1998, and (iii) lower guaranty assessments of $2.5 million.
Consolidated -- For the Nine-month Period Ended September 30, 1999
Compared to the Nine-month Period Ended September 30, 1998
Premium revenue was $ 513.6 million for the nine-month period ended
September 30, 1999, a decrease of $7.7 million, or 1.5% from $521.3 million
reported in the corresponding prior year period. The decrease resulted primarily
from lower renewal premiums on traditional life business of $20.6 million
resulting from a decrease in such in-force business as well as a decrease of
$4.5 million related to the run-off businesses, offset primarily by $13.1
million of premiums from Sagamore, which was acquired December 31, 1998, (see
Notes to Unaudited Interim Condensed Financial Statements included elsewhere
herein), $2.1 million of higher single premiums, and higher new premiums of
approximately $3.7 million. Management believes that the overall decrease in
premium revenue from traditional life business is consistent with trends in the
industry, particularly the continuing shift by consumers from traditional
protection products to asset accumulation and retirement income products (see
also "New Business Information").
Universal life and investment-type product policy fees were $145.7 million
for the nine-month period ended September 30, 1999, an increase of $33.8 million
or 30.2% from $111.9 million reported in the corresponding prior year. This
increase was primarily the result of fees earned by Sagamore of $15.9 million,
higher fees relating to the Company's VUL business of $10.2 million and higher
fees relating to the Company's FPVA business of $6.3 million. The Company
reported total fees from its VUL business during the period of $25.8 million, as
compared to $15.6 million reported for the corresponding period in the prior
year. This increase is consistent with the growth of such in force business. The
Company reported total fees from its FPVA business during the nine-month period
ended September 30, 1999 of $53.4 million, as compared to $47.1 million reported
during the corresponding prior year period. The increase was primarily due to an
increase in surrender charges of $4.8 million from the corresponding prior year
period. Annuity sales were $316.8 million during the three-month period ended
September 30, 1999, as compared to $484.7 million in the corresponding period in
the prior-year. Management believes that the decrease in annuity sales during
the nine month period ended September 30, 1999 from that reported in the
corresponding prior year period is primarily due to delays in state regulatory
approvals (principally in New York and New Jersey) of new products introduced by
the Company in connection with its reorganization in November 1998, as well as
the limited selection of fund choices offered through the Company's annuity
products, and increased competition
26
<PAGE> 28
in the marketplace. In response to these issues, the Company, early in the third
quarter, began to offer 11 new investment funds through its annuities, including
funds managed by Fidelity, Janus and Dreyfus. See also "New Business
Information".
Net investment income was $603.5 million for the nine-month period ended
September 30, 1999, an increase of $48.7 million, or 8.8%, from $554.8 million
reported for the corresponding prior year period. The increase in net investment
income is primarily due to the combination of higher yields on invested assets,
higher average balances, higher equity partnership income and changes in the mix
of invested assets for the nine-month period ended September 30, 1999 compared
to the corresponding prior year period. Higher yields on invested assets for the
nine-month period ended September 30, 1999, as compared to the corresponding
prior year period, resulted in higher investment income of approximately $11.1
million. In addition, an increase in the Company's average total invested assets
between the periods of approximately $496.1 million, as well as changes in the
mix of invested assets from real estate to relatively higher yielding fixed
maturity securities, mortgages and equity securities resulted in increased
investment income of approximately $37.6 million. The increase in average
invested assets was primarily a result of IPO proceeds received, gains on sales
of real estate, and positive cash flow from operations and investing activities.
For the nine-month period ended September 30, 1999, the Company's average
investment in fixed maturity securities (before cumulative unrealized gains or
losses), mortgages, equity securities and cash and short term securities
increased by approximately $609.7 million, $131.3 million, $107.0 million and
$15.7 million, respectively, while the Company's average investment in real
estate and other invested assets (mostly real estate partnerships) decreased by
approximately $366.0 million, and $16.8 million, respectively. As of September
30, 1999, invested assets were $10,810.2 million (including cumulative
unrealized losses of $102.2 million for fixed maturity securities) compared to
$10,718.3 million (including cumulative unrealized gains of $338.1 million for
fixed maturity securities) at September 30, 1998. At September 30, 1999, fixed
maturity securities, mortgage loans and real estate represented approximately
61.4%, 15.5% and 4.0%, respectively, of total invested assets, as compared to
61.2%, 13.1% and 6.3%, respectively, at September 30, 1998. The annualized yield
on the Company's invested assets before and after realized gains/(losses) on
investments was 7.5% and 8.7%, respectively, for the nine-month periods ended
September 30, 1999, as compared to 7.2% and 9.4%, respectively, for the
nine-month period ended September 30, 1998.
Net realized gains were $100.7 million for the nine-month period ended
September 30, 1999, a decrease of $68.9 million, or 40.6%, from $169.6 million
for the corresponding prior year period. The decrease is primarily due to lower
gains from the sale of real estate and real estate partnerships of $89.5
million, lower gains from prepayments and sales of fixed maturities securities
and mortgages of $15.5 million, higher valuation allowances on mortgages of $4.2
million, higher valuation allowances relating to additions to the real estate to
be disposed of category of $3.6 million, offset by higher gains from the sale
equity securities of $35.1 million and lower losses from other than temporary
impairments of fixed maturities securities of $10.7 million. Gains on the sale
of real estate and real estate partnerships were $55.6 million for the
nine-month period ended September 30, 1999, compared to $145.1 million for the
corresponding prior year period. Prepayment/ sales gains for fixed maturities
and mortgages were $10.4 million for the nine-month period ended September 30,
1999, compared to $25.9 million for the corresponding prior year period. The
provision for mortgage loan valuation allowances was $1.7 million for the
nine-month period ended September 30, 1999, compared to gains of $2.5 million
from the reversal of such allowances for the corresponding prior year period.
Additional provisions for valuation allowances on real estate to be disposed of
were $6.1 million for the nine-month period ended September 30, 1999, compared
to $2.5 million for the corresponding prior year period. Gains on sales of
equity securities were $43.4 million for the nine-month period ended September
30, 1999, compared to $8.3 million for the corresponding prior year period.
Losses from other than temporary impairments of fixed maturity securities we
$1.9 million for the nine-month period ended September 30, 1999, compared to
$12.6 million for the corresponding prior year period.
Group Pension Profits were $47.8 million for the nine month period ended
September 30, 1999, an increase of $13.7 million, or 40.2%, from $34.1 million
reported in the corresponding prior year period. The increase is primarily due
to realized gains of $15.8 million for the nine month period ended September 30,
1999, primarily due to sales of real estate properties, compared to realized
losses of $3.3 million in the prior
27
<PAGE> 29
year period due to increases in mortgage valuation allowances. This increase was
offset by a decline in Group Pension Profits (excluding realized gains) of $5.4
million, from $37.4 million for the nine month period ended September 30, 1998
to $32.0 million for the nine month ended September 30, 1999. The decrease in
Group Pension Profits (excluding realized gains and losses) is consistent with
the runoff of the Group Pension business. See "Notes to Unaudited Interim
Condensed Consolidated Financial Statements".
Other income (which consists primarily of fees earned by the Company's
mutual fund management, broker-dealer, and insurance brokerage operations, as
well as revenues from interest on deposits held under financial reinsurance
arrangements, certain other asset management fees, and other miscellaneous
revenues) was $140.0 million for the nine-month period ended September 30, 1999,
an increase of $24.5 million, or 21.2%, as compared to $115.5 million reported
in the corresponding prior year period. The increase was primarily the result of
higher fees earned by the Company's mutual fund management operations of $15.7
million and $13.6 million of higher commissions earned by the Company's
broker-dealer operations. For the nine-month period ended September 30, 1999,
the Company's mutual fund management operations reported $61.2 million in fees
from advisory, underwriting and distribution services, as compared to $45.5
million reported in the corresponding prior year period, as assets under
management increased to approximately $7.6 billion at September 30, 1999 from
$5.8 billion at September 30, 1998. During the nine-month period ended September
30, 1999, the Company's broker-dealer operations reported commission earnings of
$45.8 million, as compared to $32.2 million reported in the corresponding prior
year period. Sales of mutual funds offered by the Enterprise Group of Funds
increased 29.0% to $1,287.4 million during the nine-month period ended September
30, 1999, as compared to $999.9 million in the corresponding period in the prior
year. Enterprise mutual fund sales through third-party broker-dealers were
$807.9 million during the nine-month period ended September 30, 1999, up 36.0%
from $594.2 million in the corresponding prior year period. Enterprise mutual
fund sales the Company's career agency system were $479.5 million during the
nine-month period ended September 30, 1999, up 18.0% from $405.7 million in the
corresponding period in the prior year.
Benefits to policyholders were $567.8 million for the nine-month period
ended September 30, 1999, an increase of $5.4 million, or 1.0%, as compared to
$562.4 million reported in the corresponding prior year period. The increase was
primarily due to $18.1 million of benefits related to Sagamore and an increase
in death benefits of $4.0 million, offset by a $5.5 million decrease in benefits
related to traditional products, a $1.8 million decline in benefits relating to
immediate annuities consistent with a declining volume of such business and a
decrease of $7.3 million in benefits related the Company's runoff business.
Interest credited to policyholders' account balances was $87.2 million for
the nine-month period ended September 30, 1999, a decrease of $0.8 million as
compared to $88.0 million reported in the corresponding prior year period. The
decrease primarily resulted from lower interest crediting of (i) $5.1 million
relating to SPDA products due to declining fund balances, (ii) $1.2 million
relating to certain group deferred annuities, (iii) $1.3 million relating to
CSVUL business due to a transfer of CSVUL liabilities from the general account,
which earned interest in 1998, to the separate account, offset by higher
interest crediting of (i) $3.4 million relating to Sagamore, (ii) $0.7 million
relating to traditional life business, and (iii) $1.5 million related to
supplementary contracts. Declines in fund balances and modestly lower interest
crediting rates contributed to declines in overall interest crediting.
Amortization of DAC was $108.6 million for the nine-month period ended
September 30, 1999, an increase of $5.7 million, or 5.5%, as compared to $102.9
million reported in the corresponding prior year period. The increase primarily
resulted from: (i) higher amortization of $4.6 million relating to the Company's
international operations due to higher lapses and, (ii) a $3.7 million increase
in amortization relating to the growth of the Company's VUL business due to
favorable mortality experience, offset by (i) lower amortization of
approximately $2.3 million relating to traditional life insurance due to lower
realized gains on investments and, (ii) lower amortization of approximately $1.4
million related to the Company's UL business.
Dividends to policyholders of $181.2 million for the nine-month period
ended September 30, 1999, an increase of $17.6 million, or 10.8% from $163.6
million reported in the corresponding prior year period. The increase relates to
the accrual of an additional dividend liability in the Closed Block reflecting
results that were more favorable than assumed in the funding of the Closed
Block. As further discussed in Note 6 to the
28
<PAGE> 30
Unaudited Interim Condensed Consolidated Financial Statements included elsewhere
herein, all the assets in the Closed Block inure solely to the benefit of the
Closed Block policyholders, and to the extent that the results of the Closed
Block are more favorable than assumed in establishing the Closed Block, total
dividends paid to Closed Block policyholders will be increased and are,
accordingly, accrued as an additional dividend liability. Only the excess of the
Closed Block liabilities over the Closed Block assets at the date of the
establishment of the Closed Block will be recognized in the Company's income
over the period the policies and contracts in the Closed Block remain in force.
Other operating costs and expenses were $398.5 million for the nine-month
period ended September 30, 1999, an increase of $68.8 million, or 20.9%, as
compared to $329.7 million reported in the comparable prior year period. The
increase primarily consisted of: (i) a one time restructuring charge of $58.9
million in connection to the early retirement plan, (ii) $12.9 million of higher
sub-advisory fees and other expenses incurred by the Company's mutual fund
management operations, (iii) $11.0 million from Sagamore, (iv) $10.7 million of
higher commissions and other miscellaneous expenses incurred by Company's
broker-dealer operations, and (v) $6.0 million increase in the Company's
international life insurance subsidiary, MONY Life Insurance Company of the
Americas, Ltd. due to increase in the number of agents hired and other
miscellaneous selling expenses, offset by: (i) lower Year 2000 costs of $7.4
million, (ii) lower compensation expenses of $7.5 million relating to a
restructuring of field underwriter compensation structure, (iii) lower guaranty
assessments of $3.5 million, (iv) lower incentive compensation of $4.5 million,
and (v) lower employee benefit expenses of $7.0 million.
RESULTS OF OPERATIONS BY SEGMENT
Presented below is a discussion and analysis of the results of operations
of the Company's reportable segments. For a discussion of such segments and a
reconciliation of the amounts reported in the segments with the amounts reported
in the Unaudited Interim Condensed Consolidated Financial Statements, see Note 3
to the Unaudited Interim Condensed Consolidated Financial Statements.
The following table presents certain summary financial data relating to the
Company's Protection Products segment for the periods indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1998 1999
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums............................................. $163.2 $164.6 $ 506.9 $ 508.4
Universal life policy fees........................... 29.9 21.8 91.5 63.6
Net investment income and net realized gains on
investments........................................ 195.3 163.9 565.2 560.9
Group Pension Profits................................ 21.5 11.4 47.8 34.1
Other income......................................... 2.9 7.3 10.7 15.8
------ ------ -------- --------
Total revenues.................................. 412.8 369.0 1,222.1 1,182.8
BENEFITS AND EXPENSES:
Benefits to policyholders............................ 169.3 171.5 537.1 521.3
Interest credited to policyholders' account
balances........................................... 12.0 12.8 36.3 33.5
Amortization of deferred policy acquisition costs.... 33.4 25.0 85.8 80.4
Dividends to policyholders........................... 63.5 54.5 179.1 161.3
Other operating costs and expenses................... 60.6 67.2 196.6 211.6
------ ------ -------- --------
338.8 331.0 1,034.9 1,008.1
------ ------ -------- --------
Income before income taxes........................... $ 74.0 $ 38.0 $ 187.2 $ 174.7
====== ====== ======== ========
</TABLE>
29
<PAGE> 31
Protection Products Segment -- For the Three-month Period Ended September
30, 1999
Compared to the Three-month Period Ended September 30, 1998
Premium revenue was $163.2 million for the three-month period ended
September 30, 1999, a decrease of $1.4 million, or 0.9%, from $164.6 million
reported in the comparable prior year period. The decrease consisted primarily
of lower new and renewal premiums on traditional life business of $5.4 million
and $2.0 million, respectively, offset by $5.5 million of premiums from Sagamore
which was acquired December 31, 1998, (see Notes to Unaudited Interim Condensed
Financial Statements included elsewhere herein). Management believes that the
decrease in new and renewal traditional life premiums is consistent with trends
in the industry, particularly the continuing shift by consumers from traditional
protection products to asset accumulation and retirement income products (see
also "New Business Information").
Universal life policy fees were $29.9 million for the three-month period
ended September 30, 1999, an increase of $8.1 million or 37.2% from $21.8
million reported in the comparable prior year period. This increase was
primarily the result of fees earned by Sagamore of $5.6 million and higher fees
relating to the Company's VUL and Corporate Sponsored VUL business ("CSVUL") of
$4.3 million and $4.0 million, respectively. These increases were offset in part
by a decrease of $2.3 million in fees from UL business. The Company reported
total fees from its VUL business during the period of $9.2 million, as compared
to $4.9 million reported for the comparable prior year period.
Net investment income and net realized gains on investments were $195.3
million for the three-month period ended September 30, 1999, an increase of
$31.4 million, or 19.2%, from $163.9 million reported in the comparable prior
year period. The increase was primarily due to higher net investment income from
equity partnerships, increased net investment income primarily attributable to
the investment of IPO proceeds and higher realized gains on sales of equity
securities.
Group Pension Profits were $21.5 million for the three-month period ended
September 30, 1999, an increase of $10.1 million, or 88.6%, from $11.4 million
reported in the corresponding prior year period. The increase is primarily due
to realized gains on Group Pension assets of $11.5 million during the third
quarter of 1999, primarily due to sales of real estate properties, compared to
realized losses of $0.9 million in the prior year period. This increase was
offset by a decline in Group Pension Profits (excluding realized gains) of $2.3
million, from $12.3 million for the three months ended September 30, 1998 to
$10.0 million for the three-month period ended September 30, 1999. The decrease
in Group Pension Profits (excluding realized gains and losses) is consistent
with the runoff of the Group Pension business. See "Notes to Unaudited Interim
Condensed Consolidated Financial Statements".
Benefits to policyholders were $169.3 million for the three-month period
ended September 30, 1999, a decrease of $2.2 million, or 1.3%, as compared to
$171.5 million reported in the comparable prior year period. The decrease was
due to lower death claims of $7.6 million, which includes a decrease $0.8
million related to the Company's international operations, and a $1.8 million
decrease in benefits related to traditional products, offset by the addition of
$7.2 million of benefits related to Sagamore.
Interest credited to policyholders' account balances was $12.0 million for
the three-month period ended September 30, 1999, a decrease of $0.8 million, or
6.2%, as compared to $12.8 million reported in the comparable prior year period.
The decrease was primarily due to lower interest crediting of $1.7 million
relating to CSVUL due to a transfer of CSVUL liabilities from the general
account, which earned interest in 1998, to the separate account. This was offset
in part by additional interest crediting of $1.2 million from Sagamore.
Amortization of DAC was $33.4 million for the three-month period ended
September 30, 1999, an increase of $8.4 million, or 33.6%, as compared to $25.0
million reported in the comparable prior year period. The increase primarily
resulted from: (i) higher amortization of approximately $2.3 million relating to
traditional life business due to favorable mortality experience, (ii) higher
amortization of $1.2 million related to VUL business due to favorable mortality
experience and (iii) higher amortization of $3.4 million related to the
Company's international operations due to higher lapses.
30
<PAGE> 32
Dividends to policyholders was $63.5 million for the three-month period
ended September 30, 1999 an increase of $9.0 million, or 16.5%, as compared to
$54.5 million reported in the comparable prior year period. The increase relates
to the accrual of an additional dividend liability in the Closed Block
reflecting results that were more favorable than assumed in the funding of the
Closed Block. As further discussed in Note 6 to the Unaudited Interim Condensed
Consolidated Financial Statements included elsewhere herein, all the assets in
the Closed Block inure solely to the benefit of the Closed Block policyholders,
and to the extent that the results of the Closed Block are more favorable than
assumed in establishing the Closed Block, total dividends paid to Closed Block
policyholders will be increased and are, accordingly accrued as an additional
dividend liability. Only the excess of the Closed Block liabilities over the
Closed Block assets at the date of the establishment of the Closed Block will be
recognized in the Company's income over the period the policies and contracts in
the Closed Block remain in force.
Other operating costs and expenses were $60.6 million for the three-month
period ended September 30, 1999, a decrease of $6.6 million, or 9.8%, as
compared to $67.2 million reported in the comparable prior year period. The
decrease primarily consists of: (i) lower Year 2000 costs of $2.2 million, (ii)
lower compensation expenses of $6.3 million relating to a restructuring of field
underwriter compensation structure in the third quarter of 1998, (iii) lower
guaranty assessments of $2.0 million, and (iv) lower employee benefit of $2.5
million, offset by: (i) higher expenses of $4.0 million from Sagamore, and (ii)
$3.0 million increase in the Company's international life insurance subsidiary,
MONY Life Insurance Company of the Americas, Ltd. due to increase in the number
of agents hired and other miscellaneous expenses.
Protection Products Segment -- For the Nine-month Period Ended September 30,
1999
Compared to the Nine-month Period Ended September 30, 1998
Premium revenue was $506.9 million for the nine-month period ended
September 30, 1999, a decrease of $1.5 million, or 0.3% as compared to $508.4
million reported in the comparable prior year period. The decrease resulted
primarily from lower renewal premiums on traditional life business of $20.6
million resulting from the decrease in such in-force business, offset primarily
by $13.1 million of premiums from Sagamore, which was acquired December 31,
1998, (see Notes to Unaudited Interim Condensed Financial Statements included
elsewhere herein), $2.1 million of higher single premiums, and higher new
premiums of approximately $3.7 million. Management believes that the overall
decrease in premium revenue excluding Sagamore, is consistent with trends in the
industry, particularly the continuing shift by consumers from traditional
protection products to asset accumulation and retirement income products (see
also "New Business Information").
Universal life policy fees were $91.5 million for the nine-month period
ended September 30, 1999, an increase of $27.9 million or 43.9% from $63.6
million reported in the comparable prior year period. This increase was
primarily the result of fees earned by Sagamore of $15.9 million, and higher
fees relating to the Company's VUL business of $10.2 million. The Company
reported total fees from its VUL business during the period of $25.8 million, as
compared to $15.6 million reported for the corresponding period in the prior
year. This increase is consistent with the growth of such in force business.
Net investment income and net realized gains on investments were $565.2
million for the nine-month period ended September 30, 1999, an increase of $4.3
million, or 0.8%, from $560.9 million reported in the comparable prior year
period. The increase was primarily due to higher net investment income from
equity partnerships and increased net investment income primarily attributable
to the investment of IPO proceeds, offset by lower realized gains resulting from
a decrease in real estate sales.
Group Pension Profits were $47.8 million for the nine month period ended
September 30, 1999, an increase of $13.7 million, or 40.2% from $34.1 million
reported in the corresponding prior year period. The increase is primarily due
to realized gains of $15.8 million for the nine month period ended September 30,
1999, primarily due to sales of real estate properties, compared to realized
losses of $3.3 million in the prior year period due to increases in mortgage
valuation allowances. This increase was offset by a decline in Group Pension
Profits (excluding realized gains) of $5.4 million, from $37.4 million for the
nine month period ended September 30, 1998 to $32.0 million for the nine month
period ended September 30, 1999. The decrease in
31
<PAGE> 33
Group Pension Profits (excluding realized gains and losses) is consistent with
the runoff of the Group Pension business. See "Notes to Unaudited Interim
Condensed Consolidated Financial Statements".
Benefits to policyholders were $537.1 million for the nine-month period
ended September 30, 1999, an increase of $15.8 million, or 3.0%, as compared to
$521.3 million reported in the comparable prior year period. The increase was
primarily due to $17.3 million of benefits related to Sagamore, and a $4.0
million increase in death benefits, offset by a $5.5 million decrease in
benefits related to traditional products.
Interest credited to policyholders' account balances was $36.3 million for
the nine-month period ended September 30, 1999, an increase of $2.8 million, or
8.4%, as compared to $33.5 million reported in the comparable prior year period.
This increase was primarily due to $3.1 million relating to Sagamore and an
increase of $0.7 million relating to traditional life business, offset by a $1.3
million decrease in CSVUL business due to a transfer of CSVUL liabilities from
the general account, which earned interest in 1998, to the separate account.
Amortization of DAC was $85.8 million for the nine-month period ended
September 30, 1999, an increase of $5.4 million, or 6.7%, as compared to $80.4
million reported in the comparable prior year period. The increase primarily
resulted from: (i) higher amortization of $4.6 million relating to the Company's
international operations due to higher lapses and, (ii) a $3.7 million increase
in amortization relating to the growth of the Company's VUL business due to
favorable mortality experience, offset by (i) lower amortization of
approximately $2.3 million relating to traditional life insurance due to lower
realized gains on investments and, (ii) lower amortization of approximately $1.3
million related to the Company's UL business.
Dividends to policyholders was $179.1 million for the nine-month period
ended September 30, 1999 an increase of $17.8 million, or 11.0% from $161.3
million reported in the comparable prior year period. Substantially all of the
increase relates to the accrual of an additional dividend liability in the
Closed Block reflecting results that were more favorable than assumed in the
funding of the Closed Block. As further discussed in Note 6 to the Unaudited
Interim Condensed Consolidated Financial Statements included elsewhere herein,
all the assets in the Closed Block inure solely to the benefit of the Closed
Block policyholders, and to the extent that the results of the Closed Block are
more favorable than assumed in establishing the Closed Block, total dividends
paid to Closed Block policyholders will be increased and are, accordingly
accrued as an additional dividend liability. Only the excess of the Closed Block
liabilities over the Closed Block assets at the date of the establishment of the
Closed Block will be recognized in the Company's income over the period the
policies and contracts in the Closed Block remain in force.
Other operating costs and expenses were $196.6 million for the nine-month
period ended September 30, 1999, a decrease of $15.0 million, or 7.1%, as
compared to $211.6 million reported in the comparable prior year period. The
decrease primarily consists of: (i) lower Year 2000 costs of $7.4 million, (ii)
lower compensation expenses of $6.3 million relating to a restructuring of field
underwriter compensation structure in the third quarter of 1998, (iii) lower
guaranty assessments of $3.0 million, (iv) lower employee benefit expenses of
$5.9 million, and (iv) lower incentive compensation of $4.2 million, and (v)
$3.0 million in savings due to the outsourcing of certain benefit administration
functions, offset by: (i) higher expenses of $11.0 million from Sagamore, and
(ii) $6.0 million increase in the Company's international life insurance
subsidiary, MONY Life Insurance Company of the Americas, Ltd. due to increase in
the number of agents hired and other miscellaneous expenses.
32
<PAGE> 34
Accumulation Products Segment
The following table presents certain summary financial data relating to the
Company's Accumulation Products segment for the periods indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1998 1999 1998 1999
------- ------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums............................................. $(0.2) $ 0.5 $ 0.6 $ 2.3
Investment-type product fees......................... 17.8 15.9 53.8 47.5
Net investment income and net realized gains on
investments........................................ 30.1 31.3 91.6 109.1
Other income......................................... 24.1 17.6 68.1 52.2
----- ----- ------ ------
Total revenues.................................. 71.8 65.3 214.1 211.1
BENEFITS AND EXPENSES:
Benefits to policyholders............................ 4.0 5.1 13.1 14.0
Interest credited to policyholders' account
balances........................................... 13.6 14.2 41.8 45.9
Amortization of deferred policy acquisition costs.... 7.9 7.1 22.8 22.5
Dividends to policyholders........................... 0.4 0.4 1.3 1.3
Other operating costs and expenses................... 24.7 20.4 75.9 59.3
----- ----- ------ ------
50.6 47.2 154.9 143.0
----- ----- ------ ------
Income before income taxes........................... $21.2 $18.1 $ 59.2 $ 68.1
===== ===== ====== ======
</TABLE>
Accumulation Products Segment -- For the Three-month Period Ended September
30, 1999
Compared to the Three-month Period Ended September 30, 1998
Investment-type product policy fees were $17.8 million for the three-month
period ended September 30, 1999, an increase of $1.9 million, or 11.9%, from
$15.9 million reported in the comparable prior year period. This increase was
primarily the result of higher fees relating to the Company's FPVA business of
$1.8 million. The Company reported total fees from its FPVA business for the
three-month period ended September 30, 1999 of $17.7 million, as compared to
$15.9 million reported for the comparable prior year period. The increase in
FPVA fees was primarily due to higher surrender charges of $1.4 million for the
quarter ending September 30, 1999 as compared to the comparable prior year
period. Annuity sales were $100.3 million during the three-month period ended
September 30, 1999, as compared to $138.2 million in the corresponding period in
the prior-year. Management believes that the decrease in annuity sales during
the 3rd quarter of 1999 from that reported in the comparable prior year period
is primarily due to delays in state regulatory approvals (principally in New
York and New Jersey) of new products introduced by the Company in connection
with its reorganization in November 1998, as well as the limited selection of
fund choices offered through the Company's annuity products, and increased
competition in the marketplace. In response to these issues, the Company, early
in the third quarter, began to offer 11 new investment funds through its
annuities, including funds managed by Fidelity, Janus and Dreyfus. (See also
"New Business Information.")
Net investment income and net realized gains on investments were $30.1
million for the three-month period ended September 30, 1999, a decrease of $1.2
million, or 3.8%, from $31.3 million reported in the comparable period ended
September 30, 1998. The decrease was primarily due to lower net investment
income resulting from lower invested assets in the accumulation segment.
Other income (which consists primarily of fees earned by the Company's
mutual fund management and supplementary contracts) was $24.1 million for the
three-month period ended September 30, 1999, an increase of $6.5 million, or
36.9%, as compared to $17.6 million reported in the comparable prior year
period. The increase was primarily the result of higher fees earned by the
Company's mutual fund management
33
<PAGE> 35
operations of $6.0 million. The Company's mutual fund management operations
reported $22.0 million in fees from advisory, underwriting and distribution
services, as compared to $16.0 million reported in the comparable prior year
period, as its assets under management increased to approximately $7.6 billion
at September 30, 1999 from $5.8 billion at September 30, 1998. (See also "New
Business Information.")
Benefits to policyholders were $4.0 million for the three month period
ended September 30, 1999, a decrease of $1.1 million, or 21.6% from $5.1 million
reported in the comparable prior year period due primarily to a $1.2 million
decrease in immediate annuities due to a declining volume of business.
Interest credited to policyholders' account balances was $13.6 million for
the three-month period ended September 30, 1999, a decrease of $0.6 million, or
4.2%, as compared to $14.2 million reported in the comparable prior year period.
The decrease was primarily due to lower interest crediting of $0.9 million
relating to SPDA products due to declining fund balances and $0.3 million
relating to certain group deferred annuities, offset in part by higher interest
credited on supplementary contracts of $0.7 million. Declines in fund balances
in these products and modestly lower interest crediting rates contributed to
declines in overall interest crediting.
Other operating costs and expenses were $24.7 million for the three-month
period ended September 30, 1999, an increase of $4.3 million, or 21.1%, as
compared to $20.4 million reported in the comparable prior year period. The
increase primarily consists of higher sub-advisory fees and commissions incurred
by the Company's mutual fund management operations of approximately $4.5
million.
Accumulation Products Segment -- For the Nine-month period Ended September
30, 1999
Compared to the Nine-month Period Ended September 30, 1998.
Investment-type product policy fees were $53.8 million for the nine-month
period ended September 30, 1999, an increase of $6.3 million, or 13.3%, from
$47.5 million reported in the comparable period ended September 30, 1998. This
increase was primarily the result of higher fees relating to the Company's FPVA
business of $6.3 million. The Company reported total fees from its FPVA business
during the nine-month period ended September 30, 1999 of $53.4 million, as
compared to $47.1 million reported for the corresponding prior year period. The
increase was primarily due to an increase in surrender charges of $4.8 million
from the corresponding prior year period. Annuity sales were $316.8 million
during the nine-month period ended September 30, 1999, as compared to $484.7
million in the corresponding period in the prior-year. Management believes that
the decrease in annuity sales during the nine month period ended September 30,
1999 from that reported in the corresponding prior year period is primarily due
to delays in state regulatory approvals (principally in New York and New Jersey)
of new products introduced by the Company in connection with its reorganization
in November 1998, as well as the limited selection of fund choices offered
through the Company's annuity products, and increased competition in the
marketplace. In response to these issues, the Company, early in the third
quarter, began to offer 11 new investment funds through its annuities, including
funds managed by Fidelity, Janus and Dreyfus. (See also "New Business
Information.")
Net investment income and net realized gains on investments were $91.6
million for the nine-month period ended September 30, 1999, a decrease of $17.5
million, or 16.0%, from $109.1 million reported in the comparable period ended
September 30, 1998. The decrease was primarily due to lower invested assets in
the accumulation segment.
Other income was $68.1 million for the nine-month period ended September
30, 1999, an increase of $15.9 million, or 30.5%, as compared to $52.2 million
reported in the comparable prior year period. The increase was primarily the
result of higher fees earned by the Company's mutual fund management operations
of $15.7 million. For the nine-month period ended September 30, 1999, the
Company's mutual fund management operations reported $61.2 million in fees from
advisory, underwriting and distribution services, as compared to $45.5 million
reported in the corresponding prior year period, as its assets under management
increased to approximately $7.6 billion at September 30, 1999 from $5.8 billion
at September 30, 1998. Sales of mutual funds offered by the Enterprise Group of
Funds increased 29.0% to $1,287.4 million during the nine-month period ended
September 30, 1999, as compared to $999.9 million in the corresponding period in
the prior year. Enterprise mutual fund sales through third-party broker-dealers
were $807.9 million during the
34
<PAGE> 36
nine-month period ended September 30, 1999, up 36.0% from $594.2 million in the
corresponding prior year period. Enterprise mutual fund sales the Company's
career agency system were $479.5 million during the nine-month period ended
September 30, 1999, up 18.0% from $405.7 million in the corresponding period in
the prior year.
Benefits to policyholders were $13.1 million for the nine-months period
ended September 30, 1999, a decrease of $0.9 million, or 6.4%, as compared to
$14.0 million reported in the comparable prior year period. The decrease was
primarily due to a $1.8 million decline in immediate annuities due to a
declining volume of business offset in part by an increase of $0.8 million
relating to Sagamore.
Interest credited to policyholder account balances was $41.8 million for
the nine-month period ended September 30, 1999, a decrease of $4.1 million, or
8.9%, as compared to $45.9 million reported in the comparable prior year period.
The decrease primarily resulted from lower interest crediting of $5.1 million
relating to SPDA products due to declining fund balances and $1.2 million
relating to certain group deferred annuities, offset by higher interest credited
on supplementary contract of $1.5 million. Declines in SPDA fund balances and
modestly lower interest rates in accumulation products contributed to declines
in overall interest crediting.
Other operating costs and expenses were $75.9 million for the nine-month
period ended September 30, 1999, an increase of $16.6 million, or 28.0%, as
compared to $59.3 million reported in the comparable prior year period. The
increase primarily consists of higher sub-advisory fees and commissions incurred
by the Company's mutual fund management operations of approximately $12.9
million and an increase in trailer commissions incurred of $3.2 million.
Other Products Segment
The following table presents certain summary financial data relating to the
Company's Other Products segment for the periods indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- ---------------
1999 1998 1999 1998
----- ----- ------ -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums................................................... $ 2.0 $ 2.4 $ 6.1 $10.6
Investment-type product policy fees........................ 0.1 (0.1) 0.4 0.8
Net investment income and net realized gains on
investments.............................................. 16.5 12.8 44.4 51.7
Other income............................................... 19.4 10.8 57.9 43.2
----- ----- ------ -----
Total revenue......................................... 38.0 25.9 108.8 106.3
BENEFITS AND EXPENSES:
Benefits to policyholders.................................. 4.6 3.8 12.8 20.1
Interest credited to policyholders' account balances....... 2.9 2.3 9.1 8.6
Dividends to policyholders................................. 0.2 0.3 0.8 1.0
Other operating costs and expenses......................... 22.0 15.1 66.5 58.8
----- ----- ------ -----
29.7 21.5 89.2 88.5
----- ----- ------ -----
Income before income taxes................................. $ 8.3 $ 4.4 $ 19.6 $17.8
===== ===== ====== =====
</TABLE>
Other Products Segment -- For the Three-month Period Ended September 30,
1999
Compared to the Three-month Period Ended September 30, 1998
Premium revenue was $2.0 million for the three-month period ended September
30, 1999, a decrease of $0.4 million, or 16.7%, from $2.4 million reported in
the comparable period ended September 30, 1998. The decrease relates to a
decrease in premiums on the run-off business.
35
<PAGE> 37
Net investment income and net realized gains on investments were $16.5
million for the three-month period ended September 30, 1999, an increase of $3.7
million, or 28.9%, from $12.8 million reported in the comparable period ended
September 30, 1998. The increase was primarily due to higher realized gains on
sales of equity securities.
Other income was $19.4 million for the three-month period ended September
30, 1999, an increase of $8.6 million, or 79.6%, as compared to $10.8 million
reported in the comparable prior year period. The increase was primarily the
result of $7.1 million of higher commissions earned by the Company's broker-
dealer operations. During the three-month period ended September 30, 1999, the
Company's broker-dealer operations reported commission earnings of $15.1
million, as compared to $8.0 million reported in the corresponding prior year
period.
Other operating costs and expenses were $22.0 million for the three-month
period ended September 30, 1999, an increase of $6.9 million, or 45.7%, as
compared to $15.1 million reported in the comparable prior year period. The
increase was primarily due to higher commission and other expenses incurred by
the Company's broker-dealer operations of $4.1 million and an increase in
certain miscellaneous expenses.
Other Products Segment -- For the Nine-month period Ended September 30, 1999
Compared to the Nine-month Period Ended September 30, 1998
Premium revenue was $6.1 million for the nine-month period ended September
30, 1999, a decrease of $4.5 million, or 42.5%, from $10.6 million reported in
the comparable period ended September 30, 1998. The decrease was mainly due to a
$3.4 million decrease in the group pension.
Net investment income and net realized gains on investments were $44.4
million for the nine-month period ended September 30, 1999, a decrease of $7.3
million, or 14.1%, from $51.7 million reported in the comparable period ended
September 30, 1998. The decrease was primarily due to lower realized gains on
sales of real estate and real estate partnership equities.
Other income was $57.9 million for the nine-month period ended September
30, 1999, an increase of $14.7 million, or 34.0%, as compared to $43.2 million
reported in the comparable prior year period. The increase was primarily the
result of $13.6 million in higher commissions earned by the Company's broker-
dealer operations. During the nine-month period ended September 30, 1999, the
Company's broker-dealer operations reported commission earnings of $45.8
million, as compared to $32.2 million reported in the corresponding prior year
period.
Benefits to policyholders were $12.8 million for the nine-month period
ended September 30, 1999, a decrease of $7.3 million, or 36.3%, as compared to
$20.1 million reported in the comparable prior year period. The decrease was due
to decreases in the runoff business.
Other operating costs and expenses were $66.5 million for the nine-month
period ended September 30, 1999, an increase of $7.7 million, or 13.1%, as
compared to $58.8 million reported in the comparable prior year period. The
increase primarily consists of higher commission and other expenses incurred by
the Company's broker-dealer operations of $10.7 million.
EARLY RETIREMENT PROGRAM
On June 30, 1999, the Company announced a voluntary retirement program for
approximately 500 eligible employees of which 300 employees elected to
participate. The program is part of a company wide realignment of staff and
resources, which may also include the elimination and/or shifting of certain job
functions and the addition of employees with new skill sets. The Company has
recorded a one time restructuring charge of $58.9 million, pretax, in the third
quarter of 1999 related to this program.
36
<PAGE> 38
EXTRAORDINARY CHARGE FOR DEMUTUALIZATION
The $1.9 million and $15.5 million reflected as after-tax demutualization
expenses on the Company's consolidated statements of income for the nine-month
periods ended September 30, 1999 were direct nonrecurring costs specifically
related to the demutualization of MONY.
Costs incurred in 1998 primarily include the fees of financial, legal,
actuarial and accounting advisors to the Company and to the New York Insurance
Department, as well as printing and postage for communication with
policyholders.
Costs incurred in 1999 primarily relate to expenses incurred in connection
with a commission-free sale and purchase program (the "Program") offered to
shareholders pursuant to the Plan. The Program commenced August 17, 1999 and
ends on November 17, 1999. Pursuant to the Program shareholders who own fewer
than 100 shares can sell all of their shares or purchase additional shares to
round up to 100 shares without incurring commissions.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company
The MONY Group's cash flow consists of investment income from its invested
assets, as well as dividends from MONY Life, if declared and paid, offset by
expenses incurred in connection with the administration of the MONY Group's
affairs, including salaries and other expenses. As a holding company, the MONY
Group's ability to meet its cash requirements and pay dividends on its common
stock substantially depends upon the receipt of dividends and other payments
from MONY Life. The payment of dividends from MONY Life to the MONY Group is
regulated under state insurance law. Under the New York Insurance Law, MONY Life
will be permitted to pay shareholder dividends and other payments to the MONY
Group only if it files notice of its intention to declare such a dividend and
the amount thereof with the New York Superintendent and the New York
Superintendent does not disapprove the distribution. Under the New York
Insurance Law, the New York Superintendent has broad discretion in determining
whether the financial condition of a stock life insurance company would support
the payment of dividends to its shareholders. The New York Insurance Department
has established informal guidelines for the New York Superintendent's
determinations that focus on, among other things, overall financial condition
and profitability under statutory accounting practices. Management believes
these guidelines may limit the ability of MONY Life to pay dividends to the MONY
Group. There can be no assurance that MONY Life will have statutory earnings to
support the payment of dividends to the MONY Group in an amount sufficient to
fund its cash requirements and pay cash dividends. In addition, state insurance
laws contain similar restrictions on the ability of the life insurance
subsidiaries to pay dividends to MONY Life. There can be no assurance that state
insurance laws will in the future permit the payment by the life insurance
subsidiaries to MONY Life in an amount sufficient to support the ability of MONY
Life to pay dividends to the MONY Group.
On December 30, 1997, the Investors entered into the Investment Agreement
with MONY, pursuant to which among other things the Investors purchased, for
$115.0 million (the "Consideration"), MONY Notes with an aggregate principal
amount equal to the Consideration. Pursuant to the terms of the Investment
Agreement, the Investors may elect to exchange the MONY Notes for Holding
Company Subordinated Notes. If such exchange occurs, the MONY Group will hold
one or more Intercompany Surplus Notes in an aggregate principal amount equal to
the principal amount of the Holding Company Subordinated Notes.
If the Holding Company Subordinated Notes are issued, the MONY Group will
receive payments of principal and interest from MONY Life on the Intercompany
Surplus Notes. The Intercompany Surplus Notes will be in an aggregate principal
amount equal to the aggregate principal amount of the Holding Company
Subordinated Notes and bear interest at 9.50% per annum, which is payable
semiannually. Principal is payable at maturity. Payments of principal and
interest on the Intercompany Surplus Notes can only be made with the prior
approval of the New York Superintendent "whenever, in his judgment, the
financial condition of such insurer warrants". Such payments further may be made
only out of surplus funds, which are
37
<PAGE> 39
available for such payments under the New York Insurance Law. There can be no
assurance that MONY Life will obtain the requisite approval for payments with
respect to the Intercompany Surplus Notes, or that surplus funds will be
available for such payments.
The MONY Group expects to pay a quarterly dividend in the fourth quarter of
1999. In lieu of quarterly dividend payments the Company will begin paying
annual dividends on its common stock in 2000.
Capitalization
The Company's total capitalization, including short-term debt and excluding
accumulated other comprehensive income, increased $100.8 million or 5.0%, to
$2,101.4 million at September 30, 1999, as compared to $2,000.6 million at
December 31, 1998. The increase was primarily the result of net income of $135.0
million. The Company's total debt to equity (excluding accumulated other
comprehensive income) and total debt to total capitalization ratios decreased to
20.4% and 16.9% at September 30, 1999, respectively, from 23.1% and 18.8% at
December 31, 1998, respectively. Included in total debt used in the above
calculations are $71.9 million and $101.3 million of non-recourse indebtedness
at September 30, 1999 and December 31, 1998, respectively.
MONY Life
MONY Life's cash inflows are provided mainly from life insurance premiums,
annuity considerations and deposit funds, investment income and maturities and
sales of invested assets. Cash outflows primarily relate to the liabilities
associated with its various life insurance and annuity products, dividends to
policyholders, operating expenses, income taxes, acquisitions of invested
assets, and principal and interest on its outstanding debt obligations. The life
insurance and annuity liabilities relate to the Company's obligation to make
benefit payments under its insurance and annuity 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 September 30, 1999 and December 31, 1998.
38
<PAGE> 40
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
SEPTEMBER 30, PERCENT DECEMBER 31, PERCENT
1999 OF TOTAL 1998(1) OF TOTAL
------------- -------- ------------ --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal
provisions................................... $1,315.4 17.6% $1,092.6 14.0%
Subject to discretionary withdrawal -- with
market value adjustment or at carrying value
less surrender charge.......................... 4,958.2 66.2 5,475.4 69.9
-------- ------ -------- ------
Subtotal....................................... 6,273.6 83.8 6,568.0 83.9
-------- ------ -------- ------
Subject to discretionary withdrawal -- without
adjustment at carrying value................. 1,210.6 16.2 1,264.5 16.1
-------- ------ -------- ------
Total annuity reserves and deposit liabilities
(gross)...................................... 7,484.2 100.0% 7,832.5 100.0%
======== ====== ======== ======
Less reinsurance............................... 91.5 121.7
-------- --------
Total annuity reserves and deposit liabilities
(net)........................................ $7,392.7 $7,710.8
======== ========
</TABLE>
- ---------------
(1) Reflects certain reclassifications of amounts previously reported.
The following table sets forth by product line the actual surrenders and
withdrawals paid for the periods indicated.
SURRENDERS AND WITHDRAWALS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PRODUCT LINE:
Traditional life(1)..................................... $ 86.7 $ 77.3 $294.6 $239.3
Variable and universal life............................. 8.9 7.7 32.8 24.0
Annuities(2)............................................ 192.9 118.3 592.4 390.0
------ ------ ------ ------
TOTAL.............................................. $288.5 $203.3 $919.8 $653.3
====== ====== ====== ======
</TABLE>
- ---------------
(1) Includes $19.0 million of surrenders in the Closed Block, the proceeds from
which remained with the Company to fund premiums on newly issued traditional
life policies outside the Closed Block.
(2) Excludes approximately $188.6 million and $441.6 million for the three-month
and nine-month periods ended September 30, 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 and nine-month
periods ended September 30, 1999 as compared to the comparable prior year
periods 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.
The Company's principal sources of liquidity to meet cash outflows are its
portfolio of liquid assets and its net operating cash flow. During the
nine-month period ended September 30, 1999, the net cash flow from operations
reported in the Company's consolidated cash flow statement was $40.6 million.
This amount excludes $106.3 million of cash flow relating to the Closed Block.
Total combined cash flow for the nine-month period ended September 30, 1999
(including the Closed Block) was $146.9 million, an increase of
39
<PAGE> 41
$20.7 million from $126.2 million reported for the nine-month period ended
September 30, 1998. The increase primarily relates to lower tax payments and
higher net investment income, offset by higher operating expenses, higher death
benefits and lower Group Pension Payments. The Company's liquid assets include
substantial 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
September 30, 1999, the Company had readily marketable fixed maturity securities
with a carrying value of $6,642.4 million (including fixed maturities in the
Closed Block), which were comprised of $3,636.9 million public and $3,005.5
million private fixed maturity securities. At that date, approximately 93.2% 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 September 30, 1999
the Company had cash and cash equivalents of $269.4 million.
In addition, the Company maintains two bank line of credit facilities with
domestic banks aggregating $150.0 million, with scheduled renewal dates in
September 2000 and September 2003. In accordance with certain covenants under
these lines of credit, the Company is required to maintain a certain statutory
tangible net worth and debt to capitalization ratio. The purpose of these
facilities is to provide additional liquidity for any unanticipated short-term
cash needs the Company might experience and also to serve as support for the
Company's $250 million commercial paper program which was activated in the
second quarter of 1999. The Company has complied with all covenants under these
lines of credit, has not borrowed against these lines of credit since their
inception, and does not have any commercial paper outstanding as of September
30, 1999.
At September 30, 1999, the Company had commitments to issue $11.8 million
of fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from 7.1% to 8.5%. In addition, the
Company had commitments to issue $77.2 million of fixed rate commercial mortgage
loans with interest rates ranging from 7.0% to 8.2%. The Company also had
commitments outstanding to purchase $11.0 million of private fixed maturity
securities as of September, 1999 with interest rates ranging from 8.3% to 8.5%.
At September 30, 1999, the Company had commitments to contribute capital to its
equity partnership investments of $122.7 million.
Of the $1,101.1 million of currently outstanding commercial mortgage loans
in the Company's investment portfolio at September 30, 1999, $10.7 million,
$24.5 million, $88.8 million, and $155.5 million are scheduled to mature in
1999, 2000, 2001 and 2002, respectively.
In 1994, the Company completed the sale of $125.0 million face amount of
its 11.25% Surplus Notes due August 15, 2024, which generated net proceeds of
$70.0 million after a discount of approximately 42.2% from the principal amount
payable at maturity and issuance expenses of approximately $2.3 million.
Following the discount accretion period, interest will begin to accrue on August
15, 1999; thereafter, interest is scheduled to be paid on February 15 and August
15 of each year, commencing February 15, 2000, at a rate of 11.25% per annum.
To the extent that the MONY Notes are not exchanged for Holding Company
Subordinated Notes, they will remain as surplus notes of MONY having an interest
rate of 9.5%, payable semiannually in arrears on June 30 and December 31 in each
year.
The Company has mortgage loans on certain of its real estate properties.
The interest rates on these loans range from 6.3% to 8.5%. Maturities range from
June 2000 to March 2002. Interest expense on mortgage loans was $1.1 million and
$2.1 million for the three-month period ended September 30, 1999 and 1998,
respectively, and $3.8 million and $8.0 million for the nine-month periods ended
September 30, 1999 and 1998, respectively.
During 1989, the Company entered into a transaction, which is accounted for
as a financing arrangement involving certain real estate properties held for
investment. Pursuant to the terms of the agreement, the Company effectively
pledged the real estate properties as collateral for a loan of approximately
$35.0 million bearing simple interest at a rate of 8.0% per annum. Interest is
cumulative. Periodic interest payments are not required. All principal and
interest are effectively due at the maturity of the obligation (March 30, 2000)
which is subject to extension at the option of the creditor. However, interest
may be paid periodically subject
40
<PAGE> 42
to available cash flow from the real estate properties. At September 30, 1999
and December 31, 1998, the outstanding balance of the obligation including
accrued interest was $43.6 million and $42.4 million, respectively. Interest
expense on the obligation of $0.8 million and $0.8 million for the three-month
period ended September 30, 1999 and 1998, respectively, and $2.4 million and
$2.3 million for the nine-months period ended September 30, 1999 and 1998,
respectively, is reflected in other operating costs and expenses. At September
30, 1999, the obligation is classified as short term debt, and the Company is
currently in negotiations to extinguish the debt under the terms of the
agreement, with a possibility of full payment of the obligation occurring in the
fourth quarter of 1999.
In 1988, the Company financed one of its real estate properties under a
sale/leaseback arrangement. The facility was sold for $66.0 million, $56.0
million of which was in the form of an interest bearing note receivable and
$10.0 million in cash. The note is due January 1, 2009. The transaction is
accounted for as a financing. Accordingly, the facility remains on the Company's
books and continues to be depreciated. An obligation representing the total
proceeds on the sale was recorded by the Company at the effective date of the
transaction, and is reduced based on payments under the lease. The lease has a
term of 20 years beginning December 21, 1988 and requires minimum annual rental
payments of $7.1 million in 1999, $7.3 million in 2000, $7.4 million in 2001,
$7.6 million in 2002, $7.7 million in 2003, and $41.0 million thereafter. The
Company has the option to renew the lease at the end of the lease term.
At September 30, 1999, aggregate maturities of long-term debt based on
required remaining principal payments for 1999 and the succeeding four years are
$0.1 million, $0.2 million, $11.5 million, $0.2 million and $0.2 million,
respectively, and $245.7 million thereafter.
Aggregate contractual debt service payments on the Company's long term debt
at September 30, 1999, for the remainder of 1999 and the succeeding four years
are $3.0 million, $26.7 million, $32.1 million, $35.6 million and $25.2 million,
respectively and $638.4 million thereafter.
Among the assets allocated to the Closed Block are the Series A Notes. MONY
Life has undertaken to reimburse the Closed Block from its general account
assets outside the Closed Block for any reduction in principal payments on the
Series A Notes pursuant to the terms thereof, as described in Note 4 to the
Unaudited Condensed Consolidated Financial Statements
The NAIC established 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 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 it 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 adjusted RBC capital ratios
of all the Company's insurance subsidiaries at September 30, 1999 and December
31, 1998 were in excess of the minimum required RBC.
YEAR 2000
In 1996, the Company initiated a formal Year 2000 Project (the "Project")
to resolve the Year 2000 issue. The scope of the Project was identified, and
funding was established. In early 1997, the Company retained a consulting firm
to assist in bringing the Company's computer and information systems into Year
2000 compliance. The Company's overall goal for information technology ("IT")
related items was to have business-critical hardware and software compliant by
December 31, 1998, with additional testing and enterprise end-to-end testing
occurring in 1999. The Company has also retained a consulting firm to assist in
the evaluation of Year 2000 issues affecting the Company's facilities, equipment
and related systems which may contain date logic in embedded chips. Essentially
all of these items have been remediated as of September 30, 1999, and ongoing
testing for Year 2000 compliance will continue through 1999.
41
<PAGE> 43
The scope of the Company's Project includes: ensuring the 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 issues related to non-IT systems in buildings,
facilities and equipment which may contain date logic in embedded chips; and
addressing the compliance of key vendors and other third parties.
The phases of the Project are: (i) inventorying Year 2000 items and
assigning priorities; (ii) assessing the Year 2000 compliance of items; (iii)
remediating or replacing items that are determined not to be Year 2000
compliant; (iv) testing items for Year 2000 compliance; and (v) designing and
implementing Year 2000 contingency and business continuity plans. To determine
that all IT systems (whether internally developed or purchased) are Year 2000
compliant, each system is tested using a standard testing methodology which
includes unit testing, baseline testing, and future date testing. Future date
testing includes critical dates near the end of 1999 and into the year 2000,
including leap year testing.
The inventory and assessment phases of the Project were completed prior to
mid 1998. At September 30, 1999. At June 30, 1999, all of the Company's existing
application systems had been remediated, current date tested and future date
tested. Newly acquired applications and new releases of software packages are
being tested in 1999 as they are implemented.
In late 1998 and early 1999, the Company contracted with a consulting firm
to perform an Independent Validation and Verification ("IV&V") of the Year 2000
remediation of selected critical applications. The results of the IV&V indicated
that the Company's remediation and testing processes were highly effective and
had achieved a high level of compliance.
Approximately 99% of the operating systems, systems software, and hardware
for mainframe, PC and LAN platforms are deemed compliant based on information
supplied by vendors verbally, in writing, or on the vendor's Internet site.
Essentially all critical hardware and software were compliant and tested by
December 31, 1998. The few remaining items will be resolved and tested prior to
October 31, 1999. Ongoing testing for Year 2000 compliance is continuing in 1999
as applications, systems software and hardware are upgraded or replaced.
Approximately 90% of critical non-IT systems had been remediated as of September
30, 1999, and ongoing testing for year 2000 compliance will continue through
1999.
As part of the Project, we identified and contacted significant service and
information providers, external vendors, suppliers, and other third parties
(including telecommunication, electrical, security, and HVAC systems) that we
believe will be critical to business operations after January 1, 2000.
Procedures are being undertaken to ascertain with reasonable certainty their
current and reasonably anticipated states of Year 2000 readiness through
questionnaires, compliance letters, interviews, on-site visits, and other
available means.
Costs
The estimated total cost of the Year 2000 Project is approximately $26
million. The total amount expended on the Project through September 30, 1999 was
$25 million, which includes $16 million for external vendor costs, and $9
million for internal costs. The future cost of completing the Year 2000 Project
is estimated to be approximately $1 million, which includes external vendor
costs and internal costs; the future Project cost will be funded through
operating cash flows. These amounts also include costs associated with the
development of contingency plans.
Risks
The Company believes that completed and planned modifications and
conversions of its internal systems and equipment will allow it to be Year 2000
compliant in a timely manner. There can be no assurance, however, that the
Company's internal systems or equipment will be entirely error-free, or those
external parties on which the Company relies will be Year 2000 compliant in a
timely manner, or that the Company's or external parties' contingency plans will
mitigate sufficiently the effects of any noncompliance. Based upon currently
available information and considering the Company's Year 2000 Project status,
management believes that the most reasonably likely worst case scenario would be
short-term interruptions to Company
42
<PAGE> 44
business operations. However, 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 consolidated
financial position and results of its operations.
Contingency Plans
The Company has retained outside consultants to assist in the development
of Business Continuity Plans ("BCP"), which include identification of third
party service providers, information systems, equipment, facilities and other
items which are mission-critical to the operation of the business. In
conjunction with this effort, the Company is developing a Year 2000 Contingency
Plan (the "Contingency Plan") to address Year 2000 related failures of third
parties, among other factors that are critical to the ongoing operation of the
business. The Contingency Plan provides alternate means of processing critical
work and services, as well as a methodology for selection and retention of
alternate service providers, vendors, and suppliers, if necessary. At September
30, 1999, development of BCP has been completed. Additional testing, maintenance
and refinement of BCP will continue through 1999. At September 30, 1999, the
Contingency Plan has been substantially completed with ongoing evaluating and
refinements planned for the remainder of 1999. The Company believes that due to
the pervasive and evolving nature of potential Year 2000 issues, the contingency
planning process is an ongoing one that will require further modifications as
the Company obtains additional information regarding the status of third party
Year 2000 readiness.
43
<PAGE> 45
INVESTMENTS
On the effective date of the Plan, the Company's invested assets were
allocated between the Closed Block and operations outside the Closed Block. In
view of the similar asset quality characteristics of the major asset categories
in the two portfolios, the invested assets in the Closed Block have been
combined with the Company's invested assets outside the Closed Block for
purposes of the following discussion and analysis. In addition, the following
discussion excludes invested assets transferred in the Group Pension
Transaction. Accordingly, this discussion should be read in conjunction with the
summary financial information regarding assets transferred in the Group Pension
Transaction presented in Note 4 to the Unaudited Interim Condensed Consolidated
Financial Statements.
The yield on general account invested assets (including net realized gains
and losses on investments) was 9.0% and 8.0% for the three-month periods ended
September 30, 1999 and 1998, respectively, and 8.7% and 9.4% for the nine-month
period ended September 30, 1999 and 1998, respectively.
The following table illustrates the yields on average assets for each of
the components of the Company's investment portfolio for the three-month and
nine-month periods ended September 30, 1999 and 1998, respectively.
INVESTMENT RESULTS BY ASSET CATEGORY
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTH PERIOD THREE-MONTH PERIOD NINE-MONTH PERIOD NINE-MONTH PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------- --------------------- --------------------- ---------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- --------- -------- --------- -------- --------- -------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES:
Investment income............... 7.2% $ 119.7 7.4% $ 113.9 7.2% $ 356.9 7.4% $ 333.8
Net realized gains (losses)..... 0.0 (0.7) (0.2) (3.5) 0.1 4.8 0.2 8.8
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 7.2% $ 119.0 7.2% $ 110.4 7.3% $ 361.7 7.6% $ 342.6
Ending assets................... 6,744.6 6,214.4 6,744.6 6214.4
EQUITY SECURITIES:(3)
Investment income............... 34.1% $ 39.5 27.1% $ 25.6 21.1% $ 73.6 17.3% $ 46.4
Net realized gains (losses)..... 3.0 3.5 (10.7) (10.1) 12.0 41.8 2.9 7.8
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 37.1% $ 43.0 16.4% $ 15.5 33.1% $ 115.4 20.2% $ 54.2
Ending assets................... 472.8 378.1 472.8 378.1
MORTGAGE LOANS:
Investment income............... 8.4% $ 34.5 8.8% $ 31.7 8.1% $ 93.8 8.9% $ 94.8
Net realized gains (losses)..... 0.6 2.4 1.0 3.5 0.2 1.9 0.8 8.1
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 9.0% $ 36.9 9.8% $ 35.2 8.3% $ 95.7 9.7% $ 102.9
Ending assets................... 1,676.9 1,404.3 1,676.9 1,404.3
REAL ESTATE:(4)
Investment income............... 8.5% $ 9.8 3.7% $ 6.9 7.5% $ 29.9 4.8% $ 32.6
Net realized gains (losses)..... 11.2 12.8 12.7 23.3 11.9 47.6 18.3 123.4
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 19.7% $ 22.6 16.4% $ 30.2 19.4% $ 77.5 23.1% $ 156.0
Ending assets................... 431.6 680.6 431.6 680.6
POLICY LOANS:
Investment income............... 6.5% $ 20.6 6.9% $ 21.6 6.4% $ 61.1 6.5% $ 61.2
Net realized gains (losses)..... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 6.5% $ 20.6 6.9% $ 21.6 6.4% $ 61.1 6.5% $ 61.2
Ending assets................... 1,265.6 1,257.6 1,265.6 1,257.6
CASH & CASH EQUIVALENTS:
Investment income............... 5.3% $ 4.5 5.4% $ 5.9 4.8% $ 13.3 4.9% $ 12.8
Net realized gains (losses)..... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 5.3% $ 4.5 5.4% $ 5.9 4.8% $ 13.3 4.9% $ 12.8
Ending assets................... 269.4 388.1 269.4 388.1
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTH PERIOD THREE-MONTH PERIOD NINE-MONTH PERIOD NINE-MONTH PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------- --------------------- --------------------- ---------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- --------- -------- --------- -------- --------- -------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INVESTED ASSETS:
Investment income(5)............ 0.0% $ 0.0 5.6% $ 0.8 (1.2)% $ (0.4) 1.7% $ 0.8
Net realized gains (losses)..... 53.6 6.4 (8.4) (1.2) 13.3 4.6 45.6 21.5
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 53.6% $ 6.4 (2.8)% $ (0.4) 12.1% $ 4.2 47.3% $ 22.3
Ending assets................... 51.5 57.1 51.5 57.1
TOTAL BEFORE INVESTMENT
EXPENSES:
Investment income(6)............ 8.4% $ 228.6 7.9% $ 206.4 7.8% $ 628.2 7.5% $ 582.4
Net realized gains (losses)..... 0.9 24.4 0.5 12.0 1.2 100.7 2.2 169.6
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 9.3% $ 253.0 8.4% $ 218.4 9.0% $ 728.9 9.7% $ 752.0
Ending assets................... 10,912.4 10,380.2 10,912.4 10,380.2
Investment expenses net of fee
income(7)..................... (0.4)% $ (9.3) (0.3)% $ (9.3) (0.3)% $ (24.7) (0.3)% $ (27.6)
TOTAL AFTER INVESTMENT EXPENSES:
Investment income(7)............ 8.1% $ 219.3 7.5% $ 197.1 7.5% $ 603.5 7.2% $ 554.8
Net realized gains (losses)..... 0.9 24.4 0.5 12.0 1.2 100.7 2.2 169.6
----- --------- ----- --------- ----- --------- ----- ---------
Total........................... 9.0% $ 243.7 8.0% $ 209.1 8.7% $ 704.2 9.4% $ 724.4
Ending assets................... 10,912.4 10,380.2 10,912.4 10,380.2
Net unrealized gains (losses) on
fixed maturities.............. (102.2) 338.1 (102.2) 338.1
--------- --------- --------- ---------
Total invested assets........... $10,810.2 $10,718.3 $10,810.2 $10,718.3
========= ========= ========= =========
</TABLE>
- ---------------
(1) Yields are based on year-to-date average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(2) Yields are based on quarterly average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(3) Including net unrealized gains and losses in the determination of the total
yield on equity securities for the three-month periods ended September 30,
1999 and 1998 would have resulted in a total yield of 21.0% and (4.8)%,
respectively, which would have resulted in a total return on invested assets
of 8.3% and 7.2% for the aforementioned periods, respectively. Including net
unrealized gains and losses in the determination of the total yield on
equity securities for the nine-month periods ended September 30, 1999 and
1998 would have resulted in a total yield of 25.6% and 14.5%, respectively,
which would have resulted in a total return on invested assets of 8.4% and
9.2% for the aforementioned periods, respectively.
(4) Equity real estate income is shown net of operating expenses, depreciation
and minority interest.
(5) Excludes amounts referred to in (7) below.
(6) Total investment income includes non-cash income from amortization,
payment-in-kind distributions and undistributed equity earnings of $41.3
million and $24.2 million for the three-months ended September 30, 1999 and
1998, respectively. In addition, real estate investment income is shown net
of depreciation of $1.8 million and $7.0 million for the aforementioned
periods, respectively. Total investment income includes non-cash income from
amortization, payment-in-kind distributions and undistributed equity
earnings of $72.3 million and $42.4 million for the nine-months ended
September 30, 1999 and 1998, respectively. In addition, real estate
investment income is shown net of depreciation of $7.8 million and $21.1
million for the aforementioned periods, respectively.
(7) Includes mortgage servicing fee and other miscellaneous fee income of
approximately $1.1 million and $2.2 million for the three-months ended
September 30, 1999 and 1998, respectively. Includes mortgage servicing fee
and other miscellaneous fee income of approximately $3.4 million and $4.0
million for the nine-months ended September 30, 1999 and 1998, respectively.
45
<PAGE> 47
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities, privately
placed debt securities and small amounts of redeemable preferred stock, and
represented 61.4% and 61.0% of total invested assets at September 30, 1999 and
December 31, 1998, 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 September
30, 1999, 93.2% were investment grade and 6.8% were below-investment grade,
where 58.0%, 35.2%, 6.1%, 0.3%, 0.3% and 0.1% had NAIC Designations of 1, 2, 3,
4, 5 and 6, respectively.
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) 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.
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.
46
<PAGE> 48
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
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total fixed maturities (public and private)................ $6,642.4 $6,706.0
======== ========
Problem fixed maturities................................... 33.4 33.9
Potential problem fixed maturities......................... 60.0 82.9
Restructured fixed maturities.............................. 7.6 8.6
-------- --------
Total problem, potential problem and restructured fixed
maturities............................................... $ 101.0 $ 125.4
======== ========
Total problem, potential problem and restructured fixed
maturities
as a percent of total fixed maturities................... 1.5% 1.9%
======== ========
</TABLE>
At September 30, 1999, the Company's largest unaffiliated single
concentration of fixed maturities was $242.9 million of Federal Home Loan
Mortgage Corporation ("FHLMC") which represents 2.2% of total invested assets.
The second largest single concentration consists of $196.5 million of the Notes
purchased in connection with the Group Pension Transaction. These Notes
represent approximately 1.8% of total invested assets at September 30, 1999. No
other individual non-government issuer represents more than 0.5% of invested
assets.
The Company held approximately $1,156.5 million and $1,161.3 million of
mortgage-backed and asset-backed securities as of September 30, 1999 and
December 31, 1998, respectively. Of such amounts, $408.5 million and $471.5
million, or 35.3% and 40.6%, respectively, represented agency-issued
pass-through and collateralized mortgage obligations ("CMOs") secured by Federal
National Mortgage Association, FHLMC, Government National Mortgage Association
and Canadian Housing Authority collateral. The balance of such amounts were
comprised of other types of mortgage-backed and asset-backed securities. The
Company believes that its active monitoring of its portfolio of mortgage-backed
securities and the limited extent of its holdings of more volatile types of
mortgage-backed securities mitigate the Company's exposure to losses from
prepayment risk associated with interest rate fluctuations for this portfolio.
At September 30, 1999 and December 31, 1998, 87.9% and 88.6%, respectively, of
the Company's mortgage-backed and asset-backed securities were assigned an NAIC
Designation of 1. In addition, the Company believes that it holds a relatively
low percentage of CMOs compared to other life insurance companies.
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
CMOs........................................................ $ 521.1 $ 569.5
Pass-through securities..................................... 31.0 40.6
Commercial MBSs............................................. 103.5 85.7
Asset-backed securities..................................... 500.9 465.5
-------- --------
Total MBSs and asset-backed securities................. $1,156.5 $1,161.3
======== ========
</TABLE>
47
<PAGE> 49
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of
September 30, 1999 and December 31, 1998 are as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less.................... $ 158.6 $ 160.2 $ 155.3 $ 155.9
Due after one year through five years...... 1,504.2 1,502.9 1,536.2 1,573.5
Due after five years through ten years..... 2,708.3 2,655.5 2,441.8 2,565.6
Due after ten years........................ 1,198.6 1,167.3 1,187.4 1,249.7
-------- -------- -------- --------
Subtotal.............................. 5,569.7 5,485.9 5,320.7 5,544.7
Mortgage-backed and other asset-backed
securities............................... 1,174.9 1,156.5 1,132.8 1,161.3
-------- -------- -------- --------
Total................................. $6,744.6 $6,642.4 $6,453.5 $6,706.0
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Mortgage loans comprised 15.5% and 12.9% of total invested assets as of
September 30, 1999 and December 31, 1998, respectively. Mortgage loans consist
of commercial, agricultural and residential loans. As of September 30, 1999 and
December 31, 1998 commercial mortgage loans comprised $1,101.1 million and
$886.9 million or 65.7% and 62.5% of total mortgage loan investments,
respectively. Agricultural loans comprise $574.4 million and $531.2 million, or
34.2% and 37.4% of total mortgage loans, respectively. Residential mortgage
loans comprised $1.4 million and $1.9 million, or 0.1% and 0.1% of total
mortgage loan investments at September 30, 1999 and December 31, 1998,
respectively.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $45.4 million and represented less than
0.5% of general account invested assets as of September 30, 1999. Amounts loaned
on 14 properties were $20 million or greater, representing in the aggregate
37.1% of the total carrying value of the commercial loan portfolio at the same
date. Total mortgage loans to the 5 largest borrowers accounted in the aggregate
for approximately 22.4% of the total carrying value of the commercial loan
portfolio and less than 2.3% of total invested assets at September 30, 1999.
48
<PAGE> 50
The following table presents the Company's commercial mortgage loan
maturity profile for the periods indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------ -------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1 year or less.......................................... $ 35.2 3.2% $124.0 14.0%
Over 1 year but less than or equal to 2 years........... 80.3 7.3 50.7 5.7
Over 2 years but less than or equal to 3 years.......... 96.0 8.7 56.9 6.4
Over 3 years but less than or equal to 4 years.......... 101.0 9.2 79.3 9.0
Over 4 years but less than or equal to 5 years.......... 82.6 7.5 50.5 5.7
Over 5 years but less than or equal to 6 years.......... 28.9 2.6 42.8 4.8
Over 6 years but less than or equal to 7 years.......... 108.9 9.9 50.8 5.7
Over 7 years but less than or equal to 8 years.......... 26.7 2.4 49.5 5.6
Over 8 years but less than or equal to 9 years.......... 106.1 9.6 32.0 3.6
Over 9 years but less than or equal to 10 years......... 142.8 13.0 122.1 13.8
Over 10 years........................................... 292.6 26.6 228.3 25.7
-------- ----- ------ -----
Total.............................................. $1,101.1 100.0% $886.9 100.0%
======== ===== ====== =====
</TABLE>
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 of 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, potential problem and
restructured as of each of the dates indicated.
49
<PAGE> 51
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
COMMERCIAL MORTGAGES AT CARRYING VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $1,101.1 $886.9
======== ======
Problem commercial mortgages(1)............................. $ 6.9 $ 11.6
Potential problem commercial mortgages...................... 59.1 86.1
Restructured commercial mortgages........................... 133.6 153.6
-------- ------
Total problem, potential problem & restructured commercial
mortgages................................................. $ 199.6 $251.3
======== ======
Total problem, potential problem and restructured commercial
mortgages
as a percent of total commercial mortgages................ 18.1% 28.3%
Valuation allowances/writedowns(2)
Problem loans............................................... $ 0.3 $ 1.8
Potential problem loans..................................... 15.5 26.7
Restructured loans.......................................... 26.2 25.8
-------- ------
Total valuation allowances/writedowns(2).................... $ 42.0 $ 54.3
======== ======
Total valuation allowances/writedowns as a percent of
problem, potential problem and restructured commercial
mortgages at carrying value before valuation allowances
and writedowns............................................ 17.4% 17.8%
======== ======
</TABLE>
- ---------------
(1) Problem commercial mortgages included mortgage loans in the process of
foreclosure of $6.9 million and $11.6 million at such dates, respectively.
(2) Includes impairment writedowns recorded prior to the adoption of FASB No.
144, Accounting by Creditors for Impairment of a Loan, of $26.3 million at
September 30, 1999 and December 31, 1998.
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 September 30, 1999 and December 31, 1998,
such reserves were $14.1 million, and $13.2 million, respectively.
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the Company relative to agricultural
mortgages defined as problem, potential problem and restructured as of each of
the aforementioned dates indicated.
50
<PAGE> 52
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED AGRICULTURAL MORTGAGES AT CARRYING
VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER
1999 1998
------------- --------
($ IN MILLIONS)
<S> <C> <C>
Total agricultural mortgages................................ $574.4 531.2
====== ======
Problem agricultural mortgages(1)........................... $ 12.3 2.1
Potential problem agricultural mortgages.................... 1.1 1.7
Restructured agricultural mortgages......................... 9.5 11.7
------ ------
Total problem, potential problem & restructured agricultural
mortgages................................................. $ 22.9 15.5
====== ======
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 4.0% 2.9%
====== ======
Valuation allowances/writedowns:
Problem loans............................................... $ -- $ --
Potential problem loans..................................... 0.1 0.1
Restructured loans.......................................... 0.4 0.3
------ ------
Total valuation allowances/writedowns....................... $ 0.5 $ 0.4
====== ======
Total valuation allowances as a percent of problem,
potential problem and restructured agricultural mortgages
at carrying value before valuation allowances and
writedowns................................................ 2.1% 2.5%
====== ======
</TABLE>
- ---------------
(1) Problem agricultural mortgages included delinquent mortgage loans of $6.8
million and $2.1 million and loans in process of foreclosure of $5.5 million
and $0.0 million at September 30, 1999 and December 31, 1998, respectively.
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 September 30, 1999 and December 31,
1998, such reserves were $5.6 million and $5.2 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 September 30, 1999 and December 31, 1998, the
carrying value of the Company's real estate investments was $431.6 million and
$634.2 million, respectively, or 4.0% and 5.7%, respectively, of general account
invested assets. The Company owns real estate, interests in real estate joint
ventures (both majority owned and minority owned), and real estate acquired upon
foreclosure of commercial and agricultural mortgage loans. The following table
presents the carrying value of the Company's equity real estate investments by
such classifications.
51
<PAGE> 53
EQUITY REAL ESTATE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Real estate................................................. $191.8 $271.1
Joint ventures.............................................. 112.6 219.9
------ ------
Subtotal............................................... 304.4 491.0
Foreclosed.................................................. 127.2 143.2
------ ------
Total.................................................. $431.6 $634.2
====== ======
</TABLE>
REAL ESTATE SALES
In accordance with its ongoing strategy to strengthen the Company's
financial position, management expects to continue to selectively sell equity
real estate. Once management identifies a real estate property to be sold and
commences a plan for marketing the property, the property is classified as to be
disposed of and a valuation allowance is established and periodically revised,
if necessary, to adjust the carrying value of the property to reflect the lower
of its current carrying value or the fair value, less associated selling costs.
At September 30, 1999 and December 31, 1998, the carrying value of real estate
to be disposed of was $285.5 million and $312.9 million, respectively, or 2.6%
and 2.8%, respectively of invested assets at such dates. The aforementioned
carrying values are net of valuation allowances of $17.6 million and $30.6
million, at September 30, 1999 and December 31, 1998, respectively. In addition,
the carrying value of real estate to be disposed of at such dates is net of
$82.4 million and $79.1 million of impairment adjustments. For the nine-months
period ended September 30, 1999 and the year ended December 31, 1998, such
increases in valuation allowances aggregated $6.1 million and $6.7 million,
respectively.
The following table analyzes the Company's real estate sales during the
periods indicated.
REAL ESTATE SALES(1)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ----------------
1999 1998 1999 1998
------ ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Sales proceeds........................................... $ 87.1 $84.2 $260.1 $512.3
====== ===== ====== ======
Carrying value before impairment adjustments and
valuation allowances..................................... $141.8 $68.8 $322.6 $499.9
Impairment adjustments................................... 56.3 7.4 101.7 81.7
Valuation allowances..................................... 12.4 1.6 16.4 41.4
------ ----- ------ ------
Carrying value after impairment adjustments and valuation
allowances............................................. $ 73.1 $59.8 $204.5 $376.8
====== ===== ====== ======
Gain (loss).............................................. $ 14.0 $24.4 $ 55.6 $135.5
====== ===== ====== ======
</TABLE>
- ---------------
(1) Exclude sales of unconsolidated real estate joint ventures. Unconsolidated
real estate joint venture interests are included in "Other invested assets".
Gains from the sale of such interests were $0.0 million and $20.6 million
from nine months ended September 30, 1999 and 1998 and $0.0 million and
($1.0) million for the three months ended September 30, 1999 and September
30, 1998, respectively.
Most of the proceeds from real estate sales have been invested in
investment grade bonds. This has served to make the overall asset portfolio
somewhat more sensitive to changes in interest rates. It has also served to
52
<PAGE> 54
reduce exposure to an illiquid asset class, real estate, and increase exposure
to a more liquid asset class, investment grade public bonds.
EQUITY SECURITIES
The Company's equity securities primarily consist of investments in common
stocks and limited partnership interests. Substantially all the common stocks
owned by the Company are publicly traded on national security exchanges.
The following table presents the carrying values of the Company's
investments in common stocks and limited partnership interests at the dates
indicated. Included in common stocks at September 30, 1999 and December 31, 1998
are $5.6 million, and $19.1 million, respectively, of non-marketable private
equity securities.
INVESTMENTS IN EQUITY SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
$270.0 $294.6
Common stocks...............................................
202.8 162.6
Limited partnership interests...............................
------ ------
$472.8 $457.2
Total..................................................
====== ======
</TABLE>
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
$ 14.6 $ 15.1
Fixed maturities............................................
6.0 5.8
Equity securities...........................................
26.3 26.3
Mortgages...................................................
82.4 166.6
Real estate(1)..............................................
------ ------
$129.3 $213.8
Total..................................................
====== ======
</TABLE>
- ---------------
(1) Includes $48.2 million and $55.8 million as of September 30, 1999 and
December 31, 1998, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
$35.9 $46.8
Mortgages...................................................
17.6 30.6
Real estate.................................................
----- -----
$53.5 $77.4
Total..................................................
===== =====
</TABLE>
53
<PAGE> 55
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $ 14.6 $ 15.1
Equity securities........................................... 6.0 5.8
Mortgages................................................... 62.2 73.1
Real estate................................................. 100.0 197.2
------ ------
Total.................................................. $182.8 $291.2
====== ======
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's 1998 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
September 30, 1999 is not materially different from that presented in the
Company's 1998 Annual Report on Form 10-K at December 31, 1998.
54
<PAGE> 56
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In late 1995 and thereafter, a number of purported class actions were
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/or universal life insurance policies from the early 1980s to the mid
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/or
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primary 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/or
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 seek compensatory damages in unspecified amounts. The
Company has answered the complaints in each action (except for one action 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 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 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
judgment on all counts of the complaint. All of the other putative class actions
(with one exception discussed below) 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. The Massachusetts District
Court in the Multidistrict Litigation has entered an order essentially holding
all of the federal cases in abeyance pending the action of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On March 18, 1999 the order by the New York
State Supreme Court was affirmed by the New York State Appellate Division, First
Department. On June 8, 1999, plaintiffs obtained leave from the New York State
Court of Appeals to appeal the Appellate Division decision. Briefs were filed in
October 1999 and oral argument before the Court of Appeals took place on October
14, 1999. All actions before the United State District Court for the District of
Massachusetts are still pending.
In addition, on or about February 25, 1999, a purported class action was
filed against MONY Life Insurance Company of America ("MLOA"), a subsidiary of
MONY Life in Kentucky state court covering policyholders who purchased
individual universal life insurance policies from MLOA after January 1, 1998
claiming breach of contract and violations of the Kentucky Consumer Protection
Act. On March 26, 1999, MLOA removed that action to the United States District
Court for the Eastern District of Kentucky, and on August 11, 1999 obtained an
order from the Judicial Panel on Multidistrict Litigation transfering the action
to the Multidistrict Litigation in the District of Massachusetts. There can be
no assurance that the present or any future 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 a 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
55
<PAGE> 57
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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.
56
<PAGE> 58
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.
THE MONY GROUP INC.
By: /s/ RICHARD DADDARIO
------------------------------------
Richard Daddario
Executive Vice President and
Chief Financial Officer
(Authorized Signatory and Principal
Financial Officer)
Date: November 12, 1999
By: /s/ LARRY COHEN
------------------------------------
Larry Cohen
Vice President and Controller
(Principal Accounting Officer)
Date: November 12, 1999
S-1
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH MONY GROUP INC AND
SUBSIDIARIES FORM 10-Q FOR NINE MONTHS ENDED 9-30-99
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 3,134
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 473
<MORTGAGE> 1,229
<REAL-ESTATE> 411
<TOTAL-INVEST> 5,363
<CASH> 191
<RECOVER-REINSURE> 477<F1>
<DEFERRED-ACQUISITION> 526
<TOTAL-ASSETS> 24,301
<POLICY-LOSSES> 958
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 118
<POLICY-HOLDER-FUNDS> 1,968
<NOTES-PAYABLE> 258<F3>
0
0
<COMMON> 0
<OTHER-SE> 1,758
<TOTAL-LIABILITY-AND-EQUITY> 24,301
211<F4>
<INVESTMENT-INCOME> 323
<INVESTMENT-GAINS> 93
<OTHER-INCOME> 218
<BENEFITS> 108
<UNDERWRITING-AMORTIZATION> 54
<UNDERWRITING-OTHER> 392<F2>
<INCOME-PRETAX> 208
<INCOME-TAX> 71
<INCOME-CONTINUING> 137
<DISCONTINUED> 0
<EXTRAORDINARY> 2
<CHANGES> 0
<NET-INCOME> 135
<EPS-BASIC> 2.86
<EPS-DILUTED> 2.83
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>consists of amounts due from reinsures on paid and unpaid losses
<F2>consists of other operating costs and expenses
<F3>consists of long-term debt only
<F4>includes premiums and universal life and investment-type product policy
</FN>
</TABLE>
