<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 JUNE 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)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-3976138
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1740 BROADWAY
NEW YORK, NEW YORK 10019
(212) 708-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1999 there were 47,237,950 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
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: Unaudited interim condensed consolidated balance sheets as
of June 30, 1999 and December 31, 1998.................... 3
Unaudited interim condensed consolidated statements of
income and comprehensive income for the three-month
periods ended June 30, 1999 and 1998...................... 4
Unaudited interim condensed consolidated statements of
income and comprehensive income for the six-month periods
ended June 30, 1999 and 1998.............................. 5
Unaudited interim condensed consolidated statement of
changes in shareholders' equity for the six-month period
ended June 30, 1999....................................... 6
Unaudited interim condensed consolidated statements of cash
flows for the six-month periods ended June 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................................................. 42
ITEM 3: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 52
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings........................................... 53
ITEM 2: Changes in Securities....................................... 54
ITEM 3: Defaults upon Senior Securities............................. 54
ITEM 4: Submission of Matters to a Vote of Security Holders......... 54
ITEM 5: Other Information........................................... 54
ITEM 6: Exhibits and Reports on Form 8-K............................ 54
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 JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value.................................................. $ 3,037.0 $ 3,132.0
Equity securities available-for-sale, at fair value....... 453.8 457.2
Mortgage loans on real estate............................. 1,149.6 988.3
Policy loans.............................................. 63.7 61.1
Real estate to be disposed of............................. 322.6 312.9
Real estate held for investment........................... 142.8 321.3
Other invested assets..................................... 43.4 40.7
--------- ---------
5,212.9 5,313.5
Cash and cash equivalents................................... 331.4 329.1
Accrued investment income................................... 70.5 68.9
Amounts due from reinsurers................................. 479.9 475.9
Deferred policy acquisition costs........................... 500.0 439.7
Other assets................................................ 384.2 325.6
Assets transferred in Group Pension Transaction (Note 4).... 5,337.1 5,751.8
Separate account assets..................................... 6,372.4 6,090.3
Closed Block assets (Note 6)................................ 6,125.6 6,161.2
--------- ---------
Total assets...................................... $24,814.0 $24,956.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 956.8 $ 960.0
Policyholders' account balances............................. 1,974.6 1,991.7
Other policyholders' liabilities............................ 96.3 104.8
Amounts due to reinsurers................................... 93.8 93.4
Accounts payable and other liabilities...................... 496.8 526.7
Short-term debt............................................. 97.1 --
Long-term debt.............................................. 255.5 375.4
Current federal income taxes payable........................ 138.0 79.1
Liabilities transferred in Group Pension Transaction (Note
4)........................................................ 5,334.2 5,678.5
Separate account liabilities................................ 6,358.4 6,078.1
Closed Block liabilities (Note 6)........................... 7,249.1 7,290.7
--------- ---------
Total liabilities................................. 23,050.6 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........................................... 106.8 8.8
Accumulated other comprehensive income...................... 40.2 152.4
--------- ---------
Total shareholders' equity........................ 1,763.4 1,777.6
--------- ---------
Total liabilities and shareholders' equity........ $24,814.0 $24,956.0
========= =========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements.
3
<PAGE> 5
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
($ IN MILLIONS, EXCEPT SHARE
DATA AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 20.9 $ 177.4
Universal life and investment-type product policy fees...... 52.5 37.7
Net investment income....................................... 103.2 175.5
Net realized gains on investment............................ 41.7 100.1
Group Pension Profits (Note 4).............................. 12.0 13.1
Other income................................................ 49.7 43.3
Contribution from the Closed Block (Note 6)................. 11.4 --
---------- ----------
291.4 547.1
---------- ----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 33.5 193.2
Interest credited to policyholders' account balances........ 26.4 28.4
Amortization of deferred policy acquisition costs........... 15.4 37.9
Dividends to policyholders.................................. 0.7 53.8
Other operating costs and expenses.......................... 123.2 117.6
---------- ----------
199.2 430.9
---------- ----------
Income before income taxes and extraordinary item........... 92.2 116.2
Income tax expense.......................................... 30.8 41.5
---------- ----------
Income before extraordinary item............................ 61.4 74.7
---------- ----------
Extraordinary item -- demutualization expenses, net......... -- 4.6
---------- ----------
Net income.................................................. 61.4 70.1
Other comprehensive (loss)/income, net...................... (57.1) 10.6
---------- ----------
Comprehensive income........................................ $ 4.3 $ 80.7
========== ==========
PER SHARE DATA:
Income before extraordinary item/Net income................. $ 61.4
==========
Basic earnings per share.................................... $ 1.30
==========
Diluted earnings per share.................................. $ 1.29
==========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 47,237,950
Plus: incremental shares from assumed conversion of
warrants.................................................. 473,925
----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,711,875
==========
</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 SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
($ IN MILLIONS, EXCEPT SHARE
DATA AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 44.2 $ 353.8
Universal life and investment-type product policy fees...... 97.9 74.3
Net investment income....................................... 198.0 357.7
Net realized gains on investment............................ 70.6 157.6
Group Pension Profits (Note 4).............................. 26.3 22.7
Other income................................................ 91.7 78.4
Contribution from the Closed Block (Note 6)................. 21.9 --
---------- ----------
550.6 1,044.5
---------- ----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 73.4 379.7
Interest credited to policyholders' account balances........ 54.3 58.7
Amortization of deferred policy acquisition costs........... 32.2 70.8
Dividends to policyholders.................................. 0.7 108.4
Other operating costs and expenses.......................... 227.0 227.0
---------- ----------
387.6 844.6
---------- ----------
Income before income taxes and extraordinary item........... 163.0 199.9
Income tax expense.......................................... 55.6 71.8
---------- ----------
Income before extraordinary item............................ 107.4 128.1
---------- ----------
Extraordinary item -- demutualization expenses, net......... -- 9.7
---------- ----------
Net income.................................................. 107.4 118.4
Other comprehensive (loss)/income, net...................... (112.2) 9.9
---------- ----------
Comprehensive (loss)/income................................. $ (4.8) $ 128.3
---------- ----------
PER SHARE DATA:
Income before extraordinary item/Net income................. $ 107.4
==========
Basic earnings per share.................................... $ 2.27
==========
Diluted earnings per share.................................. $ 2.25
==========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 47,237,950
Plus: incremental shares from assumed conversion of
warrants.................................................. 432,851
----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,670,801
==========
</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 SIX-MONTH PERIOD ENDED JUNE 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.......................... (9.4) (9.4)
Comprehensive loss
Net income....................... 107.4 107.4
Other comprehensive loss:
Unrealized gains on
investments, net of
unrealized losses,
reclassification
adjustments, and taxes...... (112.2) (112.2)
--------
Comprehensive loss................. (4.8)
---- -------- ------ ------ --------
Balance, June 30, 1999............. $0.5 $1,615.9 $106.8 $ 40.2 $1,763.4
==== ======== ====== ====== ========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements.
6
<PAGE> 8
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------- -------
($ IN MILLIONS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 75.8 $ 91.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturity securities................................. 344.7 533.9
Equity securities......................................... 126.9 100.5
Mortgage loans on real estate............................. 74.9 152.0
Real estate............................................... 169.4 424.9
Other invested assets..................................... 4.1 45.5
Acquisitions of investments:
Fixed maturity securities................................. (381.6) (826.5)
Equity securities......................................... (68.4) (104.6)
Mortgage loans on real estate............................. (231.5) (171.9)
Real estate............................................... (15.2) (19.1)
Other invested assets..................................... (2.4) (0.4)
Policy loans, net......................................... (22.5) (5.4)
Other, net................................................ (0.6) 57.0
Property, plant and equipment, net........................ (27.6) (4.0)
------- -------
Net cash (used in)/provided by investing activities......... (29.8) 181.9
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.......................................... (29.8) (1.8)
Receipts from annuity and universal life policies credited
to policyholders' account balances........................ 831.6 655.3
Return of policyholders' account balances on annuity and
universal life policies................................... (828.0) (748.0)
Dividends paid to shareholders.............................. (9.4) --
Payments to eligible policyholders.......................... (8.1) --
------- -------
Net cash used in financing activities....................... (43.7) (94.5)
------- -------
Net increase in cash and cash equivalents................... 2.3 179.0
Cash and cash equivalents, beginning of period.............. 329.1 313.4
------- -------
Cash and cash equivalents, end of period.................... $ 331.4 $ 492.4
======= =======
</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. 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 six-month periods ended June 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 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.
8
<PAGE> 10
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 1999 and December 31, 1998
and for the three-month and six-month periods ended June 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). In addition, 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. In addition, 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 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.
9
<PAGE> 11
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIOD PERIOD
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Protection Products(1).................................. $ 18.8 $173.4 $ 39.3 $343.8
Accumulation Products................................... 0.4 1.3 0.8 1.8
Other Products.......................................... 1.7 2.7 4.1 8.2
------ ------ ------ ------
$ 20.9 $177.4 $ 44.2 $353.8
====== ====== ====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products..................................... $ 33.8 $ 20.8 $ 61.6 $ 41.8
Accumulation Products................................... 18.8 16.6 36.0 31.6
Other Products.......................................... (0.1) 0.3 0.3 0.9
------ ------ ------ ------
$ 52.5 $ 37.7 $ 97.9 $ 74.3
====== ====== ====== ======
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products(2).................................. $ 96.0 $212.4 $178.0 $397.0
Accumulation Products................................... 32.6 41.6 61.5 77.8
Other Products.......................................... 17.0 20.4 27.9 38.9
Unallocated amounts..................................... (0.7) 1.2 1.2 1.6
------ ------ ------ ------
$144.9 $275.6 $268.6 $515.3
====== ====== ====== ======
OTHER INCOME:
Protection Products(3)(9)............................... $ 27.2 $ 16.1 $ 55.3 $ 31.2
Accumulation Products................................... 23.1 19.3 44.0 34.6
Other Products.......................................... 21.7 19.6 38.5 32.4
Unallocated amounts..................................... 1.1 1.4 2.1 2.9
------ ------ ------ ------
$ 73.1 $ 56.4 $139.9 $101.1
====== ====== ====== ======
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products(13)................................. $ 8.2 $ 29.3 $ 17.3 $ 55.4
Accumulation Products................................... 7.2 8.6 14.9 15.4
------ ------ ------ ------
$ 15.4 $ 37.9 $ 32.2 $ 70.8
====== ====== ====== ======
BENEFITS TO POLICYHOLDERS:(4)
Protection Products..................................... $ 33.6 $186.8 $ 73.7 $370.5
Accumulation Products................................... 19.0 20.5 37.3 40.6
Other Products.......................................... 7.3 10.2 14.4 22.6
Unallocated amounts..................................... -- 4.1 2.3 4.7
------ ------ ------ ------
$ 59.9 $221.6 $127.7 $438.4
====== ====== ====== ======
</TABLE>
10
<PAGE> 12
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIOD PERIOD
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
DIVIDENDS TO POLICYHOLDERS:
Protection Products..................................... (0.1) 52.9 (0.8) 106.8
Accumulation Products................................... 0.5 0.4 0.9 0.9
Other Products.......................................... 0.3 0.5 0.6 0.7
------ ------ ------ ------
$ 0.7 $ 53.8 $ 0.7 $108.4
====== ====== ====== ======
OTHER OPERATING COSTS AND EXPENSES:
Protection Products..................................... $ 70.7 $ 71.0 $130.8 $144.4
Accumulation Products................................... 27.8 20.3 51.2 38.9
Other Products.......................................... 24.7 26.3 45.0 43.7
------ ------ ------ ------
$123.2 $117.6 $227.0 $227.0
====== ====== ====== ======
INCOME BEFORE INCOME TAXES:
Protection Products..................................... $ 63.4 $ 82.7 $113.2 $136.7
Accumulation Products................................... 20.4 29.0 38.0 50.0
Other Products.......................................... 8.0 6.0 10.8 13.4
Unallocated amounts..................................... 0.4 (1.5) 1.0 (0.2)
------ ------ ------ ------
$ 92.2 $116.2 $163.0 $199.9
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS:(7)
Protection Products(5)(10).................................. $16,142.7 $16,578.7
Accumulation Products....................................... 6,243.8 6,171.3
Other Products.............................................. 1,233.5 1,256.2
Unallocated amounts......................................... 1,194.0 949.8
--------- ---------
$24,814.0 $24,956.0
========= =========
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(11)..................................... $ 1,009.4 $ 857.6
Accumulation Products....................................... 149.3 136.7
--------- ---------
$ 1,158.7 $ 994.3
========= =========
POLICYHOLDERS' LIABILITIES:
Protection Products(6)(12).................................. $10,189.0 $10,267.0
Accumulation Products....................................... 1,287.4 1,318.6
Other Products.............................................. 442.8 455.6
Unallocated amounts......................................... 15.4 17.4
--------- ---------
$11,934.6 $12,058.6
========= =========
</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
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
SEPARATE ACCOUNT LIABILITIES:(7)
Protection Products(8)...................................... $ 3,891.1 $ 4,056.8
Accumulation Products....................................... 4,582.7 4,452.6
Other Products.............................................. 644.7 621.9
Unallocated amounts......................................... 819.1 776.4
--------- ---------
$ 9,937.6 $ 9,907.7
========= =========
</TABLE>
- ---------------
(1) Excludes $158.0 million and $304.4 million of revenues in individual life
related to the Closed Block for the three-month and six-month period ended
June 30, 1999, respectively.
(2) Excludes net investment income and net realized capital gains on
investments in individual life related to the Closed Block of $94.3 million
and $191.9 million for the three-month and six-month period ended June 30,
1999, respectively.
(3) Includes Group Pension Profits of $12.0 million and $13.1 million for the
three-month period ended June 30, 1999 and 1998, respectively, and $26.3
million and $22.7 million for the six-month period ended June 30, 1999 and
1998, respectively.
(4) Includes interest credited to policyholders' account balances. Excludes
$169.2 million and $318.4 million of benefits and interest credited to
policyholders' account balances in individual life in the Closed Block for
the three-month and six-month period ended June 30, 1999, respectively.
(5) Includes assets transferred in the Group Pension Transaction of $5,337.1
million and $5,751.8 million as of June 30, 1999 and December 31, 1998,
respectively.
(6) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,732.0 million and $1,824.9 million as of June 30, 1999
and December 31, 1998, respectively.
(7) Each segment includes separate account assets in an amount equal to the
corresponding liability reported.
(8) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,579.2 million and $3,829.6 million as of June 30, 1999
and December 31, 1998 respectively.
(9) Includes $11.4 million and $21.9 relating to the Contribution from the
Closed Block for the three-month and six-month period ended June 30, 1999.
(10) Includes Closed Block assets of $6,125.6 million and $6,161.2 million as of
June 30, 1999 and December 31, 1998, respectively (see Note 6).
(11) Includes deferred policy acquisition costs allocated to the Closed Block of
$658.7 million and $554.6 million as of June 30, 1999 and December 31,
1998, respectively (see Note 6).
(12) Includes Closed Block policyholders' liabilities of $7,174.9 million and
$7,177.1 million as of June 30, 1998 and December 31, 1998, respectively
(see Note 6)
(13) Excludes $17.2 million and $35.1 million of amortization of deferred policy
acquisition costs related to the Closed Block for the three-month and
six-month period ended June 30, 1999.
12
<PAGE> 14
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of premiums and universal life and
investment-type product policy fees by product for the three-month and six-month
periods ended June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
THREE-MONTH SIX-MONTH
PERIOD PERIOD
ENDED JUNE 30, ENDED JUNE 30,
--------------- ---------------
1999 1998 1999 1998
----- ------ ----- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Individual life(1)................................ $18.6 $173.4 $39.0 $343.1
Disability income insurance....................... 0.2 0.3 0.7
Group insurance................................... 2.0 2.8 4.7 5.7
Other............................................. 0.1 1.2 0.2 4.3
----- ------ ----- ------
Total................................... $20.9 $177.4 $44.2 $353.8
===== ====== ===== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY
FEES:
Universal life.................................... $19.1 $ 11.2 $36.7 $ 23.1
Variable universal life........................... 11.0 7.1 18.7 13.5
Group universal life.............................. 3.7 2.5 6.2 5.2
Individual variable annuities..................... 18.7 16.3 35.7 31.2
Individual fixed annuities........................ -- 0.6 0.6 1.3
----- ------ ----- ------
Total................................... $52.5 $ 37.7 $97.9 $ 74.3
===== ====== ===== ======
</TABLE>
- ---------------
(1) Excludes revenues from individual life in the Closed Block of $158.0 million
and $304.4 million for the three-month and six-month periods ended June 30,
1999.
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 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
13
<PAGE> 15
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
14
<PAGE> 16
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
General Account
Fixed maturity securities: available for sale, at
estimated fair value (amortized cost: $1,539.9 and
$1,564.6, respectively)............................... $1,546.4 $1,620.2
Mortgage loans on real estate.......................... 134.3 214.8
Real estate held for investment........................ 34.8 37.9
Cash and cash equivalents.............................. 15.8 21.7
Accrued investment income.............................. 26.6 27.6
-------- --------
Total general account assets........................... 1,757.9 1,922.2
Separate account assets................................... 3,579.2 3,829.6
-------- --------
Total assets...................................... $5,337.1 $5,751.8
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................ $1,732.0 $1,824.9
Other liabilities...................................... 23.0 24.0
-------- --------
Total general account liabilities................. 1,755.0 1,848.9
Separate account liabilities(2)........................... 3,579.2 3,829.6
-------- --------
Total liabilities................................. $5,334.2 $5,678.5
======== ========
</TABLE>
- ---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $117.3
million and $121.7 million as of June 30, 1999 and December 31, 1998,
respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $34.0 million
and $33.3 million as of June 30, 1999 and December 31, 1998, respectively.
15
<PAGE> 17
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Product policy fees................................. $ 6.0 $ 6.0 $12.1 $11.1
Net investment income............................... 32.5 42.5 66.6 80.6
Net realized gains (losses) on investments.......... 1.0 (1.9) 4.3 (2.4)
----- ----- ----- -----
Total revenues............................ 39.5 46.6 83.0 89.3
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances.......................................... 23.0 27.6 45.5 55.7
Other operating costs and expenses.................. 4.5 5.9 11.2 10.9
----- ----- ----- -----
Total benefits and expenses............... 27.5 33.5 56.7 66.6
----- ----- ----- -----
Group Pension Profits..................... $12.0 $13.1 $26.3 $22.7
===== ===== ===== =====
</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.
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 will be filed
during the summer and early fall, and
16
<PAGE> 18
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
oral argument before the Court of Appeals will take 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, requested the Judicial Panel on
Multidistrict Litigation to transfer the action to the Multidistrict Litigation
in the District of Massachusetts and sought a stay of further proceedings in the
Kentucky District Court pending a determination on multidistrict transfer. On
April 19, 1999, the Judicial Panel entered a conditional transfer order
transferring the case to the Federal District Court in Massachusetts. Plaintiffs
have opposed the transfer, and oral argument on MLOA's transfer motion took
place before the Judicial Panel on July 22, 1999. On April 20, 1999, plaintiffs
moved to remand the case to the Kentucky State Court. MLOA has opposed the
motion. On June 18, 1999, the Federal District Court denied MLOA's motion for a
stay and preliminary discovery has been initiated in the case.
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 $0.4 million and $11.3 million during the six-month period ended
June 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 June
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 1999 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 June 30, 1999.
At June 30, 1999, the Company had commitments to issue $23.9 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 7.13% to 8.25%. In
addition, the Company had commitments to issue $95.2 million of fixed rate
commercial mortgage loans with interest rates ranging from 7.00% to 8.09%. The
Company also had commitments outstanding to purchase $86.1 million of private
fixed maturity securities as of June 30, 1999 with interest rates ranging from
7.26% to 9.32%. At June 30, 1999, the Company had commitments to contribute
capital to its equity partnership investments of $112.9 million.
On July 29, 1999, the MONY Group's Board of Directors approved a quarterly
dividend of $0.10 per share. The dividend will be payable September 24, 1999 to
shareholders of record on September 3, 1999.
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>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
Fixed maturity securities: available for sale, at
estimated fair value (amortized cost; $3,492.8 and
$3,423.0, respectively)................................ $3,474.8 $3,574.0
Mortgage loans on real estate............................. 458.4 431.7
Policy loans.............................................. 1,205.5 1,208.4
Real estate held for investment........................... 21.2 --
Cash and cash equivalents................................. 73.6 134.4
Premiums receivable....................................... 10.6 16.8
Deferred policy acquisition costs......................... 658.7 554.6
Other assets.............................................. 222.8 241.3
-------- --------
Total Closed Block assets......................... $6,125.6 $6,161.2
======== ========
LIABILITIES:
Future policy benefits.................................... $6,718.6 $6,715.6
Policyholders' account balances........................... 295.2 298.0
Other policyholders' liabilities.......................... 161.1 163.5
Other liabilities......................................... 74.2 113.6
-------- --------
Total Closed Block liabilities.................... $7,249.1 $7,290.7
======== ========
</TABLE>
19
<PAGE> 21
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE SIX MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------- -----------------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Premiums.......................................... $158.0 $304.4
Investment-type product fees...................... -- --
Net investment income and net realized gains on
investments..................................... 94.3 191.9
Other income...................................... 0.3 0.7
------ ------
Total revenues.......................... 252.6 497.0
BENEFITS AND EXPENSES:
Benefits to policyholders......................... 167.0 314.0
Interest credited to policyholders' account
balances........................................ 2.2 4.4
Amortization of deferred policy acquisition
costs........................................... 17.2 35.1
Dividends to policyholders........................ 52.8 116.4
Other operating costs and expenses................ 2.0 5.2
------ ------
Total benefits and expenses............. 241.2 475.1
------ ------
Contribution from Closed Block.................... $ 11.4 $ 21.9
====== ======
</TABLE>
At June 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 June 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 $2.0 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. 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 anticipates a one-time restructuring
charge will be taken in the third quarter of 1999, after the completion of the
realignment program.
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 six-month periods ended June
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
six-month periods ended June 30, 1999 was $11.4 million and $21.9 million,
respectively. The Closed Block includes only those revenues, benefit payments,
dividends and premium taxes considered in funding the Closed Block and excludes
many costs and expenses associated with operating the Closed Block and
administering the policies included therein. Since many expenses related to the
Closed Block were excluded from the calculation of the Closed Block
contribution, the contribution from the Closed Block does not represent the
actual profitability of the business in the Closed Block. As a result, operating
costs and expenses outside the Closed Block are disproportionate to the business
outside the Closed Block.
21
<PAGE> 23
GROUP PENSION TRANSACTION
Management expects that Group Pension Profits will decline in future
periods consistent with the continuing run-off of the underlying business until
they terminate as of December 31, 2002. For a description of the Group Pension
Transaction, the Group Pension Profits and certain summary financial information
relating thereto, refer to Note 4 of the unaudited interim condensed
consolidated financial statements included herein.
For comparability with prior periods, the table below presents the results
of operations of the Closed Block for the three-month and six-month periods
ended June 30, 1999, combined on a line by line basis with the results of
operations outside the Closed Block. In all other respects, the financial
information herein is presented in accordance with GAAP unless otherwise noted.
Management's Discussion and Analysis, which follows this table, addresses the
results of operations of the Company on the aforementioned combined basis unless
otherwise noted.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums............................................. $178.9 $177.4 $ 348.6 $ 353.8
Universal life and investment-type product policy
fees............................................... 52.5 37.7 97.9 74.3
Net investment income................................ 196.1 175.5 384.2 357.7
Net realized gains on investments.................... 43.1 100.1 76.3 157.6
Group Pension Profits................................ 12.0 13.1 26.3 22.7
Other income......................................... 50.0 43.3 92.4 78.4
------ ------ -------- --------
Total revenues............................. 532.6 547.1 1,025.7 1,044.5
BENEFITS AND EXPENSES:
Benefits to policyholders............................ 200.5 193.2 387.4 379.7
Interest credited to policyholders' account
balances........................................... 28.6 28.4 58.7 58.7
Amortization of deferred policy acquisition costs.... 32.6 37.9 67.3 70.8
Dividends to policyholders........................... 53.5 53.8 117.1 108.4
Other operating costs and expenses................... 125.2 117.6 232.2 227.0
------ ------ -------- --------
Total benefits and expenses................ 440.4 430.9 862.7 844.6
------ ------ -------- --------
Income before income taxes and extraordinary item.... $ 92.2 $116.2 $ 163.0 $ 199.9
====== ====== ======== ========
</TABLE>
Consolidated -- For the Three-month Period Ended June 30, 1999 Compared to the
Three-month Period Ended June 30, 1998.
Premium revenue was $178.9 million for the three-month period ended June
30, 1999, an increase of $1.5 million, or 0.8% from $177.4 million reported in
the comparable prior year period. The increase consisted primarily of $4.3
million of premiums from Sagamore Financial Corporation ("Sagamore"), which was
acquired December 31, 1998, (see Notes to the Unaudited Interim Condensed
Consolidated Financial Statements included elsewhere herein), and an increase of
$1.1 million in single premiums, offset primarily by lower renewal premiums on
traditional life business of $2.3 million due to the decrease of such in-force
business, and lower premiums of $1.0 million from the run-off businesses.
Management believes that the decrease in premium revenues, 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.
22
<PAGE> 24
Universal life and investment-type product policy fees were $52.5 million
for the three-month period ended June 30, 1999, an increase of $14.8 million or
39.3% from $37.7 million reported in the comparable prior year period ended June
30, 1998. This increase was primarily the result of fees earned by Sagamore of
$5.4 million and higher fees relating to the Company's flexible premium variable
annuity ("FPVA"), variable universal life ("VUL") and universal life ("UL")
businesses of $2.4 million, $4.6 million and $1.0 million, respectively. The
Company reported total fees from its FPVA business during the period of $18.7
million, as compared to $16.3 million reported for the comparable prior year
period. The increase was primarily due to higher surrender charges of $2.0
million for the quarter ending June 30, 1999 compared to the comparable prior
year period. The average FPVA fund value remained relatively unchanged for the
three-month period ended June 30, 1999 as compared to the comparable prior year
period, however, FPVA sales decreased to $112.4 million in the second quarter of
1999, as compared to $190.6 million in the second quarter of 1998. Management
believes that the decline in sales is primarily due to delays in state
regulatory approvals of new products introduced by the Company in connection
with its reorganization in November 1998. See "Accumulation Products Segment."
The Company reported total fees from its VUL business during the period of $9.7
million, as compared to $5.1 million reported for the comparable period in the
prior year. This increase is consistent with the growth of such in force
business. The Company reported total fees from its UL business of $15.8 million
during the period as compared to $14.8 million during the comparable prior year
period.
Net investment income was $196.1 million for the three-month period ended
June 30, 1999, an increase of $20.6 million, or 11.7%, from $175.5 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
(mostly due to higher equity partnerships income), higher average balances, and
changes in the mix of invested assets for the three-month period ended June 30,
1999 compared to the prior year period. Higher yields on invested assets for the
three-month period ended June 30, 1999 compared to the three month period ended
June 30, 1998, resulted in higher investment income of approximately $13.3
million. In addition, an increase in the Company's average total invested assets
between the periods of approximately $352.7 million, as well as changes in the
mix of invested assets from lower yielding real estate to relatively higher
yielding fixed maturity securities, mortgages and equity securities resulted in
additional increases in investment income of approximately $7.3 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
June 30, 1999, the Company's average investment in fixed maturity securities
(before cumulative unrealized gains or losses), mortgages, equity securities,
cash and short term securities increased by approximately $549.5 million, $78.8
million, $74.0 million and $28.8 million, respectively, while real estate and
other invested assets (mostly real estate partnerships) decreased by
approximately $371.3 million and $26.6 million, respectively. As of June 30,
1999, invested assets were $10,778.4 million (including cumulative unrealized
losses of $48.0 million for fixed maturity securities) compared to $10,732.9
million (including cumulative unrealized gains of $211.9 million for fixed
maturity securities) for the prior year period. At June 30, 1999, fixed maturity
securities, mortgage loans and real estate represented approximately 60.4%,
14.9% and 4.5%, respectively, of total invested assets, as compared to 58.5%,
13.8% and 7.4%, respectively, at June 30, 1998. The annualized yield on the
Company's invested assets before and after realized gains/(losses) on
investments was 7.2% and 8.8%, respectively, for the three-month periods ended
June 30, 1999, as compared to 6.7% and 10.5%, respectively, for the three-month
period ended June 30, 1998.
Net realized capital gains were $43.1 million for the three-month period
ended June 30, 1999, a decrease of $57.0 million, or 56.9%, from $100.1 million
for the comparable prior year period. The decrease is due primarily to lower
gains on sales of real estate and real estate partnership equities of $46.6
million, lower gains on prepayments and sales of fixed maturity securities and
mortgages of $12.5 million, lower allowances for mortgages of $2.2 million,
higher losses on other than temporary impairments of fixed maturity securities
of $1.9 million, offset with higher sales gains on equity securities of $5.9
million. Gains on the sale of real estate and real estate partnerships were
$39.2 million for the three-month period ended June 30, 1999, compared to $85.8
million for the prior year period. Prepayment/sales gains for fixed maturities
and mortgages were $2.5 million for the three-month period ended June 30, 1999
compared to $15.0 million for the three-month
23
<PAGE> 25
period ended June 30, 1998. Additional provisions for valuation allowances for
mortgages were $1.3 million for the three-month period ended June 30, 1999,
compared to releases of $0.9 million for the prior year period. Losses on other
than temporary impairments on fixed maturity securities were $1.9 million for
the three-month period ended June 30, 1999, compared to $0.0 for the prior year
period. Gains on sales of equity securities were $6.9 million for the
three-month period ended June 30, 1999, compared to $1.0 million for the prior
year period.
Group Pension Profits were $12.0 million for the three-month period ended
June 30, 1999, a decrease of $1.1 million, or 8.4%, from $13.1 million reported
in the comparable prior year period. Group Pension Profits consisted primarily
of $7.3 million of Group Pension Payments, and a decrease of $4.6 million in
mortgage loan valuation allowances, which primarily related to the reversal of a
valuation allowance on a mortgage loan sold during the period. In the comparable
prior year period, Group Pension Profits consisted of $18.9 million of Group
Pension Payments, offset by $5.8 million relating to an increase in the
aforementioned valuation allowances. The decrease in Group Pension Payments is
consistent with the runoff of 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 $50.0 million for the three-month period ended June 30, 1999, an
increase of $6.7 million, or 15.5%, as compared to $43.3 million reported in the
comparable prior year period. The increase was primarily the result of higher
fees of $4.9 million earned by the Company's mutual fund management operations,
and an increase of $2.5 million earned by the Company's broker-dealer
operations. During the three-month period ended June 30, 1999, the Company's
broker-dealer operations reported commission earnings of $17.5 million, as
compared to $15.0 million reported in the comparable prior year period. Also,
during the second quarter of 1999, the Company's mutual fund management
operations reported $20.8 million in fees from advisory, underwriting and
distribution services, as compared to $15.9 million reported in the comparable
prior year period, as its assets under management increased to approximately
$7.9 billion from $6.8 billion at June 30, 1999 and 1998, respectively.
Benefits to policyholders were $200.5 million for the three-month period
ended June 30, 1999, an increase of $7.3 million, or 3.8%, as compared to $193.2
million reported in the comparable prior year period. The increase was primarily
due to $6.3 million of benefits from Sagamore, an increase of $8.9 million
relating to death benefits paid, net of reinsurance, offset by a $2.4 million
decrease in benefits relating to the runoff businesses included in the other
products segment and a $4.1 million decrease in benefits incurred by the
Company's benefits plans.
Interest credited to policyholders' account balances was $28.6 million for
the three-month period ended June 30, 1999, an increase of $0.2 million, or
0.7%, as compared to $28.4 million reported in the comparable prior year period.
The increase primarily resulted from: (i) an increase of $1.1 related to
Sagamore, (ii) an increase of $0.6 million in interest crediting on the
traditional life business, and (iii) an increase in accumulation products, other
than single premium deferred annuities ("SDPA"), of $1.2 million, offset by
lower interest crediting during the three-month period ended June 30, 1999, as
compared to the comparable prior year period, of $2.8 million relating to SPDA.
Declines in SPDA fund balances and modestly lower interest rates contributed to
the decline in interest crediting.
Amortization of deferred policy acquisition ("DAC") costs was $32.6 million
for the three-month period ended June 30, 1999, a decrease of $5.3 million, or
14.0%, as compared to $37.9 million reported in the comparable prior year
period. The decrease primarily resulted from: (i) lower amortization of
approximately $5.1 million relating to traditional life business due to lower
realized gains on investments, (ii) lower amortization of approximately $1.5
million relating to lower earnings in the Company's UL business, and (iii) an
increase in future expected profitability of the FPVA business, offset by (i) an
increase in amortization of $1.0 million relating the growth of the Company's
VUL business and (ii) a $1.3 million decrease relating to term business.
24
<PAGE> 26
Other operating costs and expenses were $125.2 million for the three-month
period ended June 30, 1999, an increase of $7.6 million, or 6.5%, as compared to
$117.6 million reported in the comparable prior year period. The increase
primarily consisted of: (i) higher expenses of $7.8 million relating to certain
of the Company's benefit plans, (ii) $4.5 million of higher sub-advisory fees
and other expenses incurred by the Company's mutual fund management operations,
(iii) $3.8 million from Sagamore and (iv) $1.7 million of commission expenses
incurred under a new commission structure designed to reward the Company's
career agents for policy persistency, offset by, (i) lower Year 2000 costs of
$3.6 million, (ii) lower charitable contributions and corporate advertising of
$2.7 million, (iii) a $0.7 million savings due to the outsourcing of certain
benefit administration functions, (iv) $1.0 million in lower consulting costs,
(v) $1.0 million in lower guaranty assessments and, (vi) a $1.2 million
recurring savings resulting from a change in benefits under the Company's
pension plan.
Consolidated -- For the Six-month Period Ended June 30, 1999 Compared to the
Six-month Period Ended June 30, 1998
Premium revenue was $ 348.6 million for the six-month period ended June 30,
1999, a decrease of $5.2 million, or 1.5% from $353.8 million reported in the
comparable prior year period. The decrease resulted primarily from lower renewal
premiums on traditional life business of $15.2 million resulting from the
decrease in such in-force business, and lower premiums of $4.1 million from the
run-off businesses, offset primarily by $7.6 million of premiums from Sagamore,
which was acquired December 31, 1998, (see Notes to Unaudited Interim Condensed
Financial Statements included elsewhere herein), $2.2 million of higher single
premiums, and higher new premiums of approximately $5.7 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.
Universal life and investment-type product policy fees were $97.9 million
for the six-month period ended June 30, 1999, an increase of $23.6 million or
31.8% from $74.3 million reported in the comparable prior year period ended June
30, 1998. This increase was primarily the result of fees earned by Sagamore of
$10.3 million, and higher fees relating to the Company's FPVA business, VUL
business and UL business of $4.5 million, $7.3 million and $1.8 million,
respectively. The Company reported total fees from its FPVA business during the
period of $35.7 million, as compared to $31.2 million reported for the
comparable prior year period. The increase was primarily due to an increase in
surrender charges of $3.4 million from the comparable prior year period. The
average FPVA fund value remained relatively unchanged for the three-month period
ended June 30, 1999 as compared to the comparable prior year period, however,
FPVA sales were $216.5 million in 1999, as compared to $346.5 million in 1998.
Management believes that the decline in sales is primarily due to delays in
state regulatory approvals of new products introduced by the Company in
connection with its reorganization in November 1998. The Company reported total
fees from its VUL business during the period of $16.6 million, as compared to
$9.3 million reported for the comparable period in the prior year. This increase
is consistent with the growth of such in force business. The Company reported
total fees from its UL business of $31.4 million during the period as compared
to 29.6 million in the prior year period.
Net investment income was $384.2 million for the six-month period ended
June 30, 1999, an increase of $26.5 million, or 7.4%, from $357.7 million
reported for the comparable prior year period. The increase in net investment
income was primarily due to the combination of higher yields on invested assets
(mostly due to higher equity partnership income) and higher average balances,
and changes in the mix of invested assets for the six-month period ended June
30, 1999 compared to the prior year period. Higher yields on invested assets for
the six month period ended June 30, 1999 compared to the six month period ended
June 30, 1998 resulted in higher investment income of approximately $12.3
million. In addition, an increase in the Company's average total invested assets
between the periods of approximately $274.0 million, as well as changes in the
mix of invested assets from lower yielding real estate to higher yielding fixed
maturity securities, mortgages and equity securities resulted in an additional
increases in investment income of approximately $14.2 million. Average total
invested assets for the six-month period ended June 30, 1999 increased as
compared to the prior
25
<PAGE> 27
year period, primarily as a result of IPO proceeds received, gains from sales of
real estate, and positive cash flow from operations and investing activities
between the periods. For the six-month period ended June 30, 1999, the Company's
average investment in fixed maturity securities (before cumulative unrealized
gains or losses), mortgages, equity securities, cash and short term securities
increased by approximately $397.7 million, $89.0 million, $58.0 million and
$45.9 million, respectively, while real estate and other invested assets (mostly
real estate partnerships) decreased by approximately $315.3 million and $12.3
million, respectively. As of June 30, 1999, invested assets were $10,778.4
million (including cumulative unrealized losses of $48.0 million for fixed
maturity securities) compared to $10,732.9 million (including cumulative
unrealized gains of $211.9 million for fixed maturity securities) for the prior
year period. At June 30, 1999, fixed maturity securities, mortgage loans and
real estate represented approximately 60.4%, 14.9% and 4.5%, respectively, of
total invested assets, as compared to 58.5%, 13.8% and 7.4%, respectively, at
June 30, 1998. The annualized yield on the Company's invested assets before and
after realized gains/(losses) on investments was 7.2% and 8.6%, respectively,
for the six-month period ended June 30, 1999, as compared to 6.9% and 9.9%,
respectively, for the six-month ended June 30, 1998.
Net realized capital gains were $76.3 million for the six-month period
ended June 30, 1999, a decrease of $81.3 million, or 51.6%, from $157.6 million
for the comparable prior year period. The decrease is due primarily to lower
sales gains on real estate and real estate partnership equities of $81.0
million, lower gains on prepayments and sales of fixed maturity securities and
mortgages of $9.9 million, higher valuation allowances for real estate added to
the held for sale category of $4.4 million, changes in foreign currency
translation losses of $2.4 million, higher allowances on mortgages of $1.8
million, higher losses on other than temporary impairments on equity securities
of $1.0 million, offset with higher sales gains on equity securities of $21.5
million. Gains on the sale of real estate and real estate partnerships were
$122.6 million for the six-month period ended June 30, 1999, compared to $41.6
million for the prior year period. Prepayment/sales gains for fixed maturity
securities and mortgages were $7.9 million for the six-month period ended June
30, 1999 compared to $17.8 million for the six-month period ended June 30, 1998.
Additional provisions for valuation allowances on real estate held for sale were
$6.0 million for the six-month period ended June 30, 1999, compared to $1.6
million for the comparable prior year period. Foreign currency translation
losses were $1.8 million for the six-month period ended June 30, 1999 as
compared to gains of $0.6 million for the six-month period ended June 30, 1998.
Losses for other than temporary impairment on equity securities were $1.6
million for the six-month period ended June 30, 1999, compared to $0.6 million
for the prior year period. Gains on sales of equity securities were $39.9
million for the six-month period ended June 30, 1999, compared to $18.5 million
for the prior year period.
Group Pension Profits were $26.3 million for the six-month period ended
June 30, 1999, an increase of $3.6 million, or 15.9%, from $22.7 million
reported in the comparable prior year period. Group Pension Profits consisted
primarily of $16.4 million of Group Pension Payments, and a decrease of $9.8
million in mortgage loan valuation allowances which primarily related to the
reversal of a valuation allowance on a mortgage loan sold during the period. In
the comparable prior year period, Group Pension Profits consisted of $27.7
million of Group Pension Payments and $5.0 million relating to an increase in
the valuation allowances. The decrease in Group Pension Payments is consistent
with the runoff of 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 $92.4 million for the six-month period ended June 30, 1999, an
increase of $14.0 million, or 17.9%, as compared to $78.4 million reported in
the comparable prior year period. The increase was primarily the result of
higher fees of $9.7 million earned by the Company's mutual fund management
operations and an increase of $6.5 million earned by the Company's broker-dealer
operations. During the six-month period ended June 30, 1999, the Company's
broker-dealer operations reported commission earnings of $30.7 million, as
compared to $24.2 million reported in the comparable prior year period. Also,
during the six-month period ended June 30, 1999, the Company's mutual fund
management operations reported $39.2 million in fees from advisory,
26
<PAGE> 28
underwriting and distribution services, as compared to $29.5 million reported in
the comparable prior year period, as its assets under management increased to
approximately $7.9 billion from $6.8 billion at June 30, 1999 and 1998,
respectively.
Benefits to policyholders were $387.4 million for the six-month period
ended June 30, 1999, an increase of $7.7 million, or 2.0%, as compared to $379.7
million reported in the comparable prior year period. The increase primarily due
to $10.8 million of benefits from Sagamore, and an increase of $8.8 million
relating to death benefits paid, net of reinsurance, offset by an $ 8.1 million
decrease in the run-off businesses included in the other segment and a $2.4
million decrease in benefits related to the Company's benefit plans.
Interest credited to policyholders' account balances was $58.7 million for
the six-month period ended June 30, 1999, as compared to $58.7 million reported
in the comparable prior year period. Increases in interest crediting of $2.2
relating to the consolidation of Sagamore, $0.7 million relating to traditional
life business and $0.5 million related to other accumulation products were
offset primarily by a decrease of $4.2 million in interest crediting related to
the SPDA product line. Declines in fund balances and modestly lower interest
rates in these products contributed to declines in overall interest crediting.
Amortization of DAC was $67.3 million for the six-month period ended June
30, 1999, a decrease of $3.5 million, or 4.9%, as compared to $70.8 million
reported in the comparable prior year period. The decrease primarily resulted
from: (i) lower amortization of approximately $6.9 million relating to
traditional life business due to higher realized gains on investments, (ii)
lower amortization of $2.7 million due to lower earnings on the Company's UL
business, and (iii) an increase in the future expected profitability of the FPVA
business, offset by, (iii) an increase in amortization of approximately $2.5
million relating to the growth of the Company's VUL business and (iv) $2.0
million relating to term life insurance business.
Dividends to policyholders of $117.1 million for the six-month period ended
June 30, 1999 increased $8.7 million, or 8.0% from $108.4 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 Close Block
policyholders will be increased accordingly. 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 $232.2 million for the six-month
period ended June 30, 1999, an increase of $5.2 million, or 2.3%, as compared to
$227.0 million reported in the comparable prior year period. The increase
primarily consisted of: (i) $8.5 million of higher sub-advisory fees and other
expenses incurred by the Company's mutual fund management operations, (ii) $7.1
million from Sagamore, (iii) $3.1 million related to the Company's broker-dealer
operations, (iv) $3.0 million related to the consolidation and closing of
certain agency offices and resultant employee reductions, and (v) a $2.7 million
increase in commission expenses incurred under a new commission structure to
reward the Company's career agents for policy persistency, offset by: (i) a $1.3
million decrease with respect to certain of the Company's benefit plans, (ii) a
$2.4 million recurring savings resulting from a change in benefits under the
Company's pension plan (iii) lower Year 2000 costs of $5.2 million, (iv) $3.7
million of lower compensation costs, (v) a $2.7 million decrease in charitable
contributions and corporate advertising, (vi) lower guaranty fund assessments of
$1.0 million, (vii) a $1.0 million decrease in outside consulting costs, and
(vii) $1.3 million in savings due to the outsourcing of certain benefit
administration functions.
RESULTS OF OPERATIONS BY SEGMENT
Presented below is a discussion and analysis of the results of operations
of the Company's reportable segments. For a discussion of such segments and a
reconciliation of the amounts reported in the segments with the amounts reported
in the Unaudited Interim Condensed Consolidated Financial Statements, see Note 3
to the Unaudited Interim Condensed Consolidated Financial Statements.
27
<PAGE> 29
The following table presents certain summary financial data relating to the
Company's Protection Products segment for the periods indicated.
PROTECTION PRODUCTS SEGMENT
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums................................................ $176.8 $173.4 $343.7 $343.8
Universal life policy fees.............................. 33.8 20.8 61.6 41.8
Net investment income and net realized gains on
investments........................................... 190.3 212.4 369.9 397.0
Group Pension Profits................................... 12.0 13.1 26.3 22.7
Other income............................................ 4.1 3.0 7.8 8.5
------ ------ ------ ------
417.0 422.7 809.3 813.8
BENEFITS AND EXPENSES:
Benefits to policyholders............................... 191.0 177.1 367.8 349.8
Interest credited to policyholders' account balances.... 11.8 9.7 24.3 20.7
Amortization of deferred policy acquisition costs....... 25.4 29.3 52.4 55.4
Dividends to policyholders.............................. 52.7 52.9 115.6 106.8
Other operating costs and expenses...................... 72.7 71.0 136.0 144.4
------ ------ ------ ------
353.6 340.0 696.1 677.1
------ ------ ------ ------
Income before income taxes.............................. $ 63.4 $ 82.7 $113.2 $136.7
====== ====== ====== ======
</TABLE>
Protection Products Segment -- For the Three-month Period Ended June 30, 1999
Compared to the Three-month Period Ended June 30, 1998
Premium revenue was $176.8 million for the three-month period ended June
30, 1999, an increase of $3.4 million, or 2.0%, from $173.4 million reported in
the comparable prior year period. The increase consisted primarily of $4.3
million of premiums from Sagamore which was acquired December 31, 1998, (see
Notes to Unaudited Interim Condensed Financial Statements included elsewhere
herein), and an increase of $1.1 million in single premiums, offset primarily by
lower renewal premiums on traditional life business of $2.3 million due to the
decrease of such in-force business. Management believes that the 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.
Universal life policy fees were $33.8 million for the three-month period
ended June 30, 1999, an increase of $13.0 million or 62.5% from $20.8 million
reported in the comparable prior year period. This increase was primarily the
result of fees earned by Sagamore of $5.4 million and higher fees relating to
the Company's VUL and UL business of $4.6 million and $1.0 million,
respectively. The Company reported total fees from its VUL business during the
period of $9.7 million, as compared to $5.1 million reported for the comparable
period in the prior year. This increase is consistent with the growth of such in
force business. The Company reported total fees from its UL business of $15.8
million during the period as compared to $14.8 million during the comparable
prior year period.
Net investment income and net realized gains on investments were $190.3
million for the three-month period ended June 30, 1999, a decrease of $22.1
million, or 10.4%, from $212.4 million reported in the comparable prior year
period. The decrease was primarily due to lower realized gains on sales of real
estate and real estate partnership equities offset in part by increased net
investment income primarily attributable to the investment of IPO proceeds.
28
<PAGE> 30
Group Pension Profits were $12.0 million for the three-month period ended
June 30, 1999, a decrease of $1.1 million, or 8.4%, from $13.1 million reported
in the comparable prior year period. Group Pension Profits consisted primarily
of $7.3 million of Group Pension Payments, and a decrease of $4.6 million in
mortgage loan valuation allowances, which primarily related to the reversal of a
valuation allowance on a mortgage loan sold during the period. In the comparable
prior year period, Group Pension Profits consisted of $18.9 million of Group
Pension Payments offset by $5.8 million relating to an increase in the
aforementioned valuation allowances. The decrease in Group Pension Payments is
consistent with the runoff of Group Pension business. See "Notes to Unaudited
Interim Condensed Consolidated Financial Statements."
Benefits to policyholders were $191.0 million for the three-month period
ended June 30, 1999, an increase of $13.9 million, or 7.8%, as compared to
$177.1 million reported in the comparable prior year period. The increase
primarily was due to the addition of $5.6 million of benefits related to
Sagamore and an $8.9 million increase in death benefits paid, net of
reinsurance.
Interest credited to policyholders' account balances was $11.8 million for
the three-month period ended June 30, 1999, an increase of $2.1 million, or
21.6%, as compared to $9.7 million reported in the comparable prior year period.
This increase was primarily due to additional interest crediting of $0.9 million
from Sagamore and an increase of $0.6 million relating to traditional life
business.
Amortization of DAC was $25.4 million for the three-month period ended June
30, 1999, a decrease of $3.9 million, or 13.3%, as compared to $29.3 million
reported in the comparable prior year period. The decrease primarily resulted
from: (i) lower amortization of approximately $5.1 million relating to
traditional life business due to lower realized gains on investments, and (ii)
lower amortization of approximately $1.5 million relating to lower earnings in
the Company's UL business, offset by (i) an increase in amortization of $1.0
million relating to the growth of the Company's VUL business, and (ii) a $1.3
million decrease relating to term business.
Other operating costs and expenses were $72.7 million for the three-month
period ended June 30, 1999, an increase of $1.7 million, or 2.4%, as compared to
$71.0 million reported in the comparable prior year period. The increase
primarily consists of: (i) a $7.8 million increase with respect to certain of
the Company's benefit plans, (ii) $3.8 million from Sagamore offset by, (i)
lower Year 2000 costs of $3.6 million, (ii) lower charitable contributions and
corporate advertising of $2.7 million, (iii) a $0.7 million savings due to the
outsourcing of certain benefit administration functions, (iv) $1.0 million in
lower guaranty assessments (v) $1.0 million related to lower consulting fees,
and (vi) a $1.0 million recurring savings resulting from a change in benefits
under the Company's pension plan.
Protection Products Segment -- For the Six-month Period Ended June 30, 1999
Compared to the Six-month Period Ended June 30, 1998
Premium revenue was $343.7 million for the six-month period ended June 30,
1999, a decrease of $0.1 million from $343.8 million reported in the comparable
prior year period. The decrease resulted primarily from lower renewal premiums
on traditional life business of $15.2 million resulting from the decrease in
such in-force business, offset primarily by $7.6 million of premiums from
Sagamore, which was acquired December 31, 1998, (see Notes to Unaudited Interim
Condensed Financial Statements included elsewhere herein), $2.2 million of
higher single premiums, and higher new premiums of approximately $5.7 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.
Universal life policy fees were $61.6 million for the six-month period
ended June 30, 1999, an increase of $19.8 million or 47.4% from $41.8 million
reported in the comparable prior year period. This increase was primarily the
result of fees earned by Sagamore of $10.3 million, and higher fees relating to
the Company's VUL business and UL business of $7.3 million and $1.8 million,
respectively. The Company reported total fees from its VUL business during the
period of $16.6 million, as compared to $9.3 million reported for the comparable
period in the prior year. This increase is consistent with the growth of such in
force business. The
29
<PAGE> 31
Company reported total fees from its UL business of $31.4 million during the
period as compared to $29.6 million in the prior year period.
Net investment income and net realized gains on investments were $369.9
million for the six-month period ended June 30, 1999, a decrease of $27.1
million, or 6.8%, from $397.0 million reported in the comparable prior year
period. The decrease was primarily due to lower realized gains on sales of real
estate and real estate partnership equities offset in part by increased net
investment income primarily attributable to the investment of IPO proceeds.
Group Pension Profits were $26.3 million for the six-month period ended
June 30, 1999, an increase of $3.6 million, or 15.9%, from $22.7 million
reported in the comparable prior year period. Group Pension Profits consisted
primarily of $16.4 million of Group Pension Payments, and a decrease of $9.8
million in mortgage loan valuation allowances which primarily related to the
reversal of a valuation allowance on a mortgage loan sold during the period. In
the comparable prior year period, Group Pension Profits consisted of $27.7
million of Group Pension Payments and $5.0 million relating to an increase in
the valuation allowances. The decrease in Group Pension Payments is consistent
with the run-off of Group Pension business. See "Notes to Unaudited Interim
Condensed Consolidated Financial Statements."
Benefits to policyholders were $367.8 million for the six-month period
ended June 30, 1999, an increase of $18.0 million, or 5.1%, as compared to
$349.8 million reported in the comparable prior year period. The increase was
primarily due to $10.1 million of benefits related to Sagamore, and an $8.8
million increase in death benefits paid, net of reinsurance.
Interest credited to policyholders' account balances was $24.3 million for
the six-month period ended June 30, 1999, an increase of $3.6 million, or 17.4%,
as compared to $20.7 million reported in the comparable prior year period. This
increase was primarily due to $2.0 million from Sagamore and an increase of $0.7
million relating to traditional life business.
Amortization of DAC was $52.4 million for the six-month period ended June
30, 1999, a decrease of $3.0 million, or 5.4%, as compared to $55.4 million
reported in the comparable prior year period. The decrease primarily resulted
from lower amortization of approximately $6.9 million from traditional whole
life due to lower realized gains from the sale of real estate, and a decrease of
$2.7 million relating to the Company's UL business. Offsetting this decrease was
higher amortization of approximately $2.0 million from term business and $2.5
million relating to the growth of the Company's VUL business.
Dividends to policyholders of $115.6 million for the six-month period ended
June 30, 1999 increased $8.8 million, or 8.2% from $106.8 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 accordingly. 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 $136.0 million for the six-month
period ended June 30, 1999, a decrease of $8.4 million, or 5.8%, as compared to
$144.4 million reported in the comparable prior year period. The decrease
primarily consists of: (i) a $1.3 million decrease with respect to certain of
the Company's benefit plans, (ii) lower Year 2000 costs of $5.2 million, (iii)
lower compensation costs of $3.7 million, (iv) a $2.4 million recurring savings
resulting from a change in benefits under the Company's pension plan, (v) lower
guaranty fund assessments of $1.0 million, and (vi) a $1.0 million decrease in
outside consulting costs, (vii) lower charitable contributions and corporate
advertising of $2.7 million, and (viii) $1.3 million in savings due to the
outsourcing of certain benefit administration functions, offset by (i) $7.1
million from Sagamore (ii) $3.0 million related to the consolidation and closing
of certain agency offices and resultant employee reductions.
30
<PAGE> 32
Accumulation Products Segment
The following table presents certain summary financial data relating to the
Company's Accumulation Products segment for the periods indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums................................................ $ 0.4 $ 1.3 $ 0.8 $ 1.8
Investment-type product fees............................ 18.8 16.6 36.0 31.6
Net investment income and net realized gains on
investments........................................... 32.6 41.6 61.5 77.8
Other income............................................ 23.1 19.3 44.0 34.6
----- ----- ------ ------
74.9 78.8 142.3 145.8
BENEFITS AND EXPENSES:
Benefits to policyholders............................... 4.8 4.9 9.1 8.9
Interest credited to policyholders' account balances.... 14.2 15.6 28.2 31.7
Amortization of deferred policy acquisition costs....... 7.2 8.6 14.9 15.4
Dividends to policyholders.............................. 0.5 0.4 0.9 0.9
Other operating costs and expenses...................... 27.8 20.3 51.2 38.9
----- ----- ------ ------
54.5 49.8 104.3 95.8
----- ----- ------ ------
Income before income taxes.............................. $20.4 $29.0 $ 38.0 $ 50.0
===== ===== ====== ======
</TABLE>
Accumulation Products Segment -- For the Three-month Period Ended June 30,
1999 Compared to the Three-month Period Ended June 30, 1998
Investment-type product policy fees were $18.8 million for the three-month
period ended June 30, 1999, an increase of $2.2 million, or 13.3%, from $16.6
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
$2.4 million. The Company reported total fees from its FPVA business during the
period of $18.7 million, as compared to $16.3 million reported for the
comparable prior year period. The increase was primarily due to higher surrender
charges of $2.0 million for the quarter ending June 30, 1999 compared to the
comparable prior year period. The average FPVA fund value remained relatively
unchanged for the three-month period ended June 30, 1999 as compared to the
comparable prior year period, however, FPVA sales decreased to $112.4 million in
the second quarter of 1999, as compared to $190.6 million in the second quarter
of 1998. Management believes that the decline in sales is primarily due to
delays in state regulatory approvals of new products introduced by the Company
in connection with its reorganization in November 1998.
Net investment income and net realized gains on investments were $32.6
million for the three-month period ended June 30, 1999, a decrease of $9.0
million, or 21.6%, from $41.6 million reported in the comparable period ended
June 30, 1998. The decrease was primarily due to lower realized gains on sales
of real estate and real estate partnership equities offset in part by increased
net investment income primarily attributable to the investment of IPO proceeds.
Other income (which consists primarily of fees earned by the Company's
mutual fund management and supplementary contracts) was $23.1 million for the
three-month period ended June 30, 1999, an increase of $3.8 million, or 19.7%,
as compared to $19.3 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 $4.9 million. The Company's mutual fund management
operations reported $20.8 million in fees from advisory, underwriting and
distribution services, as compared to $15.9 million reported in the comparable
prior year period, as its assets under management increased to approximately
$7.9 billion from $6.8 billion at June 30, 1999 and 1998, respectively.
31
<PAGE> 33
Interest credited to policyholders' account balances was $14.2 million for
the three-month period ended June 30, 1999, a decrease of $1.4 million, or 9.0%,
as compared to $15.6 million reported in the comparable prior year period. The
decrease primarily resulted from lower interest crediting of $2.8 million
relating to SPDA products. Declines in fund balances in these products and
modestly lower interest crediting rates contributed to declines in overall
interest crediting. This decrease was offset by increases in interest crediting
on other accumulation products.
Amortization of DAC was $7.2 million for the three-month period ended June
30, 1999, a decrease of $1.4 million, or 16.3%, as compared to $8.6 million
reported in the comparable prior year period. The decrease was due primarily to
an increase in future expected profitability of the FPVA business.
Other operating costs and expenses were $27.8 million for the three-month
period ended June 30, 1999, an increase of $7.5 million, or 36.9%, as compared
to $20.3 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 $4.5 million and an
increase in commission expenses incurred under a new commission structure to
reward the Company's career agents for policy persistency of $1.7 million.
Accumulation Products Segment -- For the Six-month Period Ended June 30, 1999
Compared to the Six-month Period Ended June 30, 1998.
Investment-type product policy fees were $36.0 million for the six-month
period ended June 30, 1999, an increase of $4.4 million, or 13.9%, from $31.6
million reported in the comparable period ended June 30, 1998. This increase was
primarily the result of higher fees relating to the Company's FPVA business of
$4.5 million. The Company reported total fees from its FPVA business during the
period of $35.7 million, as compared to $31.2 million reported for the
comparable prior year period. The increase was primarily due to an increase in
surrender charges of $3.4 million from the comparable prior year period. The
average FPVA fund value remained relatively unchanged for the three-month period
ended June 30, 1999 as compared to the comparable prior year period, however,
FPVA sales were $216.5 million in 1999, as compared to $346.5 million in 1998.
Management believes that the decline in sales is primarily due to delays in
state regulatory approvals of new products introduced by the Company in
connection with its reorganization in November 1998.
Net investment income and net realized gains on investments were $61.5
million for the six-month period ended June 30, 1999, a decrease of $16.3
million, or 21.0%, from $77.8 million reported in the comparable period ended
June 30, 1998. The decrease was primarily due to lower realized gains on sales
of real estate and real estate partnership equities, offset in part by increased
net investment income primarily attributable to the investment of IPO proceeds.
Other income was $44.0 million for the six-month period ended June 30,
1999, an increase of $9.4 million, or 27.2%, as compared to $34.6 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 operations
of $9.7 million. During the first quarter of 1999, the Company's mutual fund
management operations reported $39.2 million in fees from advisory, underwriting
and distribution services, as compared to $29.5 million reported in the
comparable prior year period, as its assets under management increased to
approximately $7.9 billion from $6.8 billion at June 30, 1999 and 1998,
respectively.
Interest credited to policyholder account balances was $28.2 million for
the six-month period ended June 30, 1999, a decrease of $3.5 million, or 11.0%,
as compared to $31.7 million reported in the comparable prior year period. The
decrease primarily resulted from lower interest crediting of $4.2 million
relating to SPDA products and $0.9 million relating to certain group deferred
annuities. Declines in fund balances and modestly lower interest rates in these
products contributed to declines in overall interest crediting
Amortization of DAC was $14.9 million for the six-month period ended June
30, 1999, an decrease of $0.5 million, or 3.2%, as compared to $15.4 million
reported in the comparable prior year period. The decrease was due primarily to
an increase in future expected profitability of the FPVA business.
32
<PAGE> 34
Other operating costs and expenses were $51.2 million for the six-month
period ended June 30, 1999, an increase of $12.3 million, or 31.6%, as compared
to $38.9 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 $8.5 million and an
increase in commission expenses incurred under a new commission structure to
reward the Company's career agents for policy persistency of $2.7 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 PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------ ------ ------ ------
( $ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums.................................................. $ 1.7 $ 2.7 $ 4.1 $ 8.2
Investment-type product policy fees....................... (0.1) 0.3 0.3 0.9
Net investment income and net realized gains.............. 17.0 20.4 27.9 38.9
Other income.............................................. 21.7 19.6 38.5 32.4
----- ----- ----- -----
40.3 43.0 70.8 80.4
BENEFITS AND EXPENSES:
Benefits to policyholders................................. 4.7 7.1 8.2 16.3
Interest credited to policyholders' account balances...... 2.6 3.1 6.2 6.3
Dividends to policyholders................................ 0.3 0.5 0.6 0.7
Other operating costs and expenses........................ 24.7 26.3 45.0 43.7
----- ----- ----- -----
32.3 37.0 60.0 67.0
----- ----- ----- -----
Income before income taxes................................ $ 8.0 $ 6.0 $10.8 $13.4
===== ===== ===== =====
</TABLE>
Other Products Segment -- For the Three-month Period Ended June 30, 1999
Compared to the Three-month Period Ended June 30, 1998
Premium revenue was $1.7 million for the three-month period ended June 30,
1999, a decrease of $1.0 million, or 37.0%, from $2.7 million reported in the
comparable period ended June 30, 1998. The decrease relates to a decrease in
premiums on the run-off businesses.
Net investment income and net realized gains on investments were $17.0
million for the three-month period ended June 30, 1999, a decrease of $3.4
million, or 16.7%, from $20.4 million reported in the comparable period ended
June 30, 1998. The decrease was primarily due to lower realized gains on sales
of real estate and real estate partnership equities, offset in part by increased
net investment income primarily attributable to the investment of IPO proceeds.
Other income was $21.7 million for the three-month period ended June 30,
1999, an increase of $2.1 million, or 10.7%, as compared to $19.6 million
reported in the comparable prior year period. The increase was primarily the
result of $2.5 million of higher commissions earned by the Company's broker-
dealer operations. During the three-month period ended June 30, 1999, the
Company's broker-dealer operations reported commission earnings of $17.5
million, as compared to $15.0 million reported in the comparable prior year
period.
Benefits to policyholders were $4.7 million for the three-month period
ended June 30, 1999, a decrease of $2.4 million, or 33.8%, as compared to $7.1
million reported in the comparable prior year period. The decrease was due to
decreases in the runoff businesses.
33
<PAGE> 35
Other operating costs and expenses were $24.7 million for the three-month
period ended June 30, 1999, a decrease of $1.6 million, or 6.1%, as compared to
$26.3 million reported in the comparable prior year period. The decrease was
primarily due to a decrease in certain miscellaneous expenses partially offset
by an increase in commission and other expenses incurred by the Company's
broker-dealer operations.
Other Products Segment -- For the Six-month Period Ended June 30, 1999 Compared
to the Six-month Period Ended June 30, 1998
Premium revenue was $4.1 million for the six-month period ended June 30,
1999, a decrease of $4.1 million, or 50.0%, from $8.2 million reported in the
comparable period ended June 30, 1998. The decrease relates to a decrease in
premiums on the runoff businesses.
Net investment income and net realized gains on investments were $27.9
million for the six-month period ended June 30, 1999, a decrease of $11.0
million, or 28.3%, from $38.9 million reported in the comparable period ended
June 30, 1998. The decrease was primarily due to lower realized gains on sales
of real estate and real estate partnership equities offset in part by increased
net investment income primarily attributable to the investment of IPO proceeds.
Other income was $38.5 million for the six-month period ended June 30,
1999, an increase of $6.1 million, or 18.8%, as compared to $32.4 million
reported in the comparable prior year period. The increase was primarily the
result of $6.5 million in higher commissions earned by the Company's
broker-dealer operations. During the six-month period ended June 30, 1999, the
Company's broker-dealer operations reported commission earnings of $30.7
million, as compared to $24.2 million reported in the comparable prior year
period.
Benefits to policyholders were $8.2 million for the six-month period ended
June 30, 1999, a decrease of $8.1 million, or 49.7%, as compared to $16.3
million reported in the comparable prior year period. The decrease was due to
decreases in the runoff businesses.
Other operating costs and expenses were $45.0 million for the six-month
period ended June 30, 1999, an increase of $1.3 million, or 3.0%, as compared to
$43.7 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 $3.1 million.
EARLY RETIREMENT PROGRAM
On June 30, 1999, the Company announced a voluntary retirement program for
approximately 500 eligible employees. 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 plans to take a one time restructuring charge in the
third quarter of 1999 related to this program.
EXTRAORDINARY CHARGE FOR DEMUTUALIZATION
The $4.6 million and $9.7 million reflected as after-tax demutualization
expenses on the Company's consolidated statements of income for the three month
and six month periods ended June 30, 1998 were direct nonrecurring costs
specifically related to the demutualization of MONY. There were no extraordinary
items recorded in the three-month or six-month periods ended June 30, 1999.
In connection with the Plan, the Company will begin its commission-free
sale and purchase program on August 17, 1999, which will offer shareholders who
own fewer than 100 shares the opportunity to sell all of their shares or
purchase additional shares to round up to 100 shares. The program will continue
for three months. As a result of this program the Company will incur certain
expenses, which will be reported as an extraordinary item.
34
<PAGE> 36
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 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.
On July 29, 1999, the MONY Group's Board of Directors approved a quarterly
dividend of $0.10 per share. The dividend will be payable September 24, 1999 to
shareholders of record as of September 3, 1999. The MONY Group expects to
continue paying quarterly dividends on its common stock of $0.10 per share
throughout 1999.
Capitalization
The Company's total capitalization, including short-term debt and excluding
accumulated other comprehensive income, increased $75.2 million or 3.8%, to
$2,075.8 million at June 30, 1999, as compared to $2,000.6 million at December
31, 1998. The increase was primarily the result of net income of $107.4 million.
The Company's total debt to equity (excluding accumulated other comprehensive
income) and total debt to total capitalization ratios decreased to 20.5% and
17.0% at June 30, 1999, respectively, from 23.1% and 18.8%
35
<PAGE> 37
at December 31, 1998, respectively. Included in total debt used in the above
calculations are $71.4 million and $101.3 million of non-recourse indebtedness.
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 June 30, 1999 and December 31, 1998.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
JUNE 30, PERCENT DECEMBER 31, PERCENT
1999 OF TOTAL 1998(1) OF TOTAL
--------- -------- ------------ --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawl
provisions...................................... $1,454.9 18.2% $1,092.6 14.0%
Subject to discretionary withdrawal -- with market
value adjustment or at carrying value less
surrender charge................................ 5,282.8 66.0 5,475.4 69.9
-------- ------ -------- ------
Subtotal.......................................... 6,737.7 84.2 6,568.0 83.9
------
Subject to discretionary withdrawal -- without
adjustment at carrying value.................... 1,266.1 15.8 1,264.5 16.1
-------- ------ -------- ------
Total annuity reserves and deposit liabilities
(gross)......................................... 8,003.8 100.0% 7,832.5 100.0%
-------- ====== -------- ======
Less reinsurance.................................. 117.7 121.7
-------- --------
Total annuity reserves and deposit liabilities
(net)........................................... $7,886.1 $7,710.8
======== ========
</TABLE>
- ---------------
(1) Reflects certain reclassifications of amounts previously reported.
36
<PAGE> 38
The following table sets forth by product line the actual surrenders and
withdrawals paid for the periods indicated.
SURRENDERS AND WITHDRAWALS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PRODUCT LINE:
Traditional life(1)..................................... $ 96.9 $ 78.9 $207.9 $162.0
Variable and universal life............................. 11.7 8.7 23.9 16.3
Annuities(2)............................................ 216.8 146.5 399.5 271.7
------ ------ ------ ------
Total......................................... $325.4 $234.1 $631.3 $450.0
====== ====== ====== ======
</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 $147.0 million and $253.0 million for the three-month
and six-month periods ended June 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 six-month periods
ended June 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 six-month
period ended June 30, 1999, the net cash flow from operations reported in the
Company's consolidated cash flow statement was $75.8 million. This amount
excludes $55.4 million of cash flow relating to the Closed Block. Total combined
cash flow for the six-month period ended June 30, 1999 (including the Closed
Block) was $131.2 million, an increase of $39.6 million from $91.6 million
reported for the six-month period ended June 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 June 30, 1999, the Company had readily marketable
fixed maturity securities with a carrying value of $6,511.8 million (including
fixed maturities in the Closed Block), which were comprised of $3,568.2 million
public and $2,943.6 million private fixed maturity securities. At that date,
approximately 93.9% 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 June 30,
1999 the Company had cash and cash equivalents of $405.0 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 1999 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
37
<PAGE> 39
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 June 30, 1999.
At June 30, 1999, the Company had commitments to issue $23.9 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from 7.13% to 8.25%. In addition, the
Company had commitments to issue $95.2 million of fixed rate commercial mortgage
loans with interest rates ranging from 7.00% to 8.09%. The Company also had
commitments outstanding to purchase $86.1 million of private fixed maturity
securities as of June, 1999 with interest rates ranging from 7.26% to 9.32%. At
June 30, 1999, the Company had commitments to contribute capital to its equity
partnership investments of $112.9 million.
Of the $1,045.5 million of currently outstanding commercial mortgage loans
in the Company's investment portfolio at June 30, 1999, $52.5 million, $24.9
million, $77.2 million, and $91.1 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 February 2002. Interest expense on mortgage loans was $1.2 million
and $3.0 million for the three-month periods ended June 30, 1999 and 1998,
respectively, and $2.7 million and $5.9 million for the six-month periods ended
June 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 to available cash flow from the real estate
properties. At June 30, 1999 and December 31, 1998, the outstanding balance of
the obligation including accrued interest was $42.9 million and $42.4 million,
respectively. Interest expense on the obligation of $0.8 million and $0.7
million for the three-month periods ended June 30, 1999 and 1998, respectively,
and $1.6 million and $1.5 million for the six-months period ended June 30, 1999
and 1998, respectively, is reflected in other operating costs and expenses.
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.
38
<PAGE> 40
At June 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, $0.3 million, $10.6 million, $0.2 million and $0.2 million,
respectively, and $245.7 million thereafter.
Aggregate contractual debt service payments on the Company's debt at June
30, 1999, for the remainder of 1999 and the succeeding four years are $6.0
million, $26.7 million, $32.0 million, $33.7 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 June 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. The
Company's overall goal is to have these items compliant by September 30, 1999.
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 June 30, 1999, all of the Company's existing application systems
had been remediated, current date tested and future date
39
<PAGE> 41
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 95% 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 remaining items will be resolved and tested by the third
quarter of 1999. Ongoing testing for Year 2000 compliance is continuing in 1999
as applications, systems software and hardware are upgraded or replaced.
Approximately 70% of critical non-IT systems had been remediated as of June 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
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 $26.0
million. The total amount expended on the Project through June 30, 1999 was
$24.0 million, which includes $16.0 million for external vendor costs, and $8.0
million for internal costs. The future cost of completing the Year 2000 Project
is estimated to be approximately $2.0 million, which includes $1.0 million for
external vendor costs, and $1.0 million for 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 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
40
<PAGE> 42
June 30 1999, development of BCP has been completed. Additional testing,
maintenance and refinement of BCP will continue through 1999. The scheduled date
for completion of the Contingency Plan is September 30, 1999, with ongoing
evaluation and refinements through 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.
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<PAGE> 43
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 8.8% and 10.5% for the three-month periods ended
June 30, 1999 and 1998, respectively, and 8.6% and 9.9% for the six-month period
ended June 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
six-month periods ended June 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 THREE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
--------------------- --------------------- --------------------- ---------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES:
Investment income......... 7.2% $ 118.1 7.3% $ 109.8 7.5% $ 237.2 7.4% $ 219.9
Net realized gains
(losses)................ 0.0 0.5 0.8 12.2 0.2 5.5 0.4 12.3
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 7.2% $ 118.6 8.1% $ 122.0 7.7% $ 242.7 7.8% $ 232.2
Ending assets............. 6,559.8 6,070.5 6,559.8 6,070.5
EQUITY SECURITIES:(3)
Investment income......... 18.4% $ 20.0 11.9% $ 10.7 16.4% $ 34.1 11.6% $ 20.8
Net realized gains
(losses)................ 6.2 6.7 0.4 0.4 18.4 38.3 10.0 17.9
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 24.6% $ 26.7 12.3% $ 11.1 34.8% $ 72.4 21.6% $ 38.7
Ending assets............. 453.8 378.1 453.8 378.1
MORTGAGE LOANS:
Investment income......... 8.0% $ 30.9 8.6% $ 31.6 7.7% $ 59.3 8.7% $ 63.1
Net realized gains
(losses)................ (0.3) (1.2) 1.0 3.8 (0.1) (0.5) 0.6 4.6
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 7.7% $ 29.7 9.6% $ 35.4 7.6% $ 58.8 9.3% $ 67.7
Ending assets............. 1,608.0 1,478.8 1,608.0 1,478.8
REAL ESTATE:(4)
Investment income......... 8.5% $ 12.0 4.1% $ 9.6 6.3% $ 20.1 5.4% $ 25.7
Net realized gains
(losses)................ 27.4 38.6 36.0 84.1 10.9 34.8 21.0 100.1
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 35.9% $ 50.6 40.1% $ 93.7 17.2% $ 54.9 26.4% $ 125.8
Ending assets............. 486.6 791.6 486.6 791.6
POLICY LOANS:
Investment income......... 6.4% $ 20.4 6.3% $ 19.7 6.4% $ 40.5 6.3% $ 39.6
Net realized gains
(losses)................ 0.0 0.0 0.0 -- 0.0 0.0 0.0 0.0
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 6.4% $ 20.4 6.3% $ 19.7 6.4% $ 40.5 6.3% $ 39.6
Ending assets............. 1,269.2 1,252.6 1,269.2 1,252.6
CASH & CASH EQUIVALENTS:
Investment income......... 3.5% $ 3.5 3.4% $ 3.1 3.9% $ 8.8 3.4% $ 6.9
Net realized gains
(losses)................ 0.0 0.0 0.0 -- 0.0 0.0 0.0 0.0
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 3.5% $ 3.5 3.4% $ 3.1 3.9% $ 8.8 3.4% $ 6.9
Ending assets............. 405.0 492.4 405.0 492.4
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTH THREE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
--------------------- --------------------- --------------------- ---------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INVESTED ASSETS:
Investment income(5)...... (1.0)% $ (0.1) 0.0% $ -- (1.6)% $ (0.4) 0.0% $ 0.0
Net realized gains
(losses)................ (15.4) (1.5) (2.4) (0.4) (7.1) (1.8) 72.3 22.7
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... (16.4)% $ (1.6) (2.4)% $ (0.4) (8.7)% $ (2.2) 72.3% $ 22.7
Ending assets............. 44.0 57.0 44.0 57.0
TOTAL BEFORE INVESTMENT
EXPENSES:
Investment income(6)...... 7.6% $ 204.8 7.1% $ 184.5 7.5% $ 399.6 7.3% $ 376.0
Net realized gains
(losses)................ 1.6 43.1 3.8 100.1 1.4 76.3 3.0 157.6
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 9.2% $ 247.9 10.9% $ 284.6 8.9% $ 475.9 10.3% $ 533.6
Ending assets............. 10,826.4 10,521.0 10,826.4 10,521.0
Investment expenses net of
fee income(7)........... (0.3)% $ (8.7) (0.3)% $ (9.0) (0.3)% $ (15.4) (0.4)% $ (18.3)
TOTAL AFTER INVESTMENT
EXPENSES:
Investment income(7)...... 7.2% $ 196.1 6.7% $ 175.5 7.2% $ 384.2 6.9% $ 357.7
Net realized gains
(losses)................ 1.6 43.1 3.8 100.1 1.4 76.3 3.0 157.6
----- --------- ---- --------- ---- --------- ---- ---------
Total..................... 8.8% $ 239.2 10.5% $ 275.6 8.6% $ 460.5 9.9% $ 515.3
Ending assets............. 10,826.4 10,521.0 10,826.4 10,521.0
Net unrealized gains
(losses) on fixed
maturities.............. (48.0) 211.9 (48.0) 211.9
--------- --------- --------- ---------
Total invested assets..... $10,778.4 $10,732.9 $10,778.4 $10,732.9
========= ========= ========= =========
</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 six-month periods ended June 30, 1999 and
1998 would have resulted in a total yield of 31.2% and 24.2%, respectively,
which would have resulted in a total return on invested assets of 8.5% and
10.0% for the aforementioned periods, respectively. Including net unrealized
gains and losses in the determination of the total yield on equity
securities for the three-month periods ended June 30, 1999 and 1998 would
have resulted in a total yield of 24.6% and 18.7%, respectively, which would
have resulted in a total return on invested assets of 9.4% and 10.7% 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 $31.0
million and $18.2 million for the six-months ended June 30, 1999 and 1998,
respectively. In addition, real estate investment income is shown net of
depreciation of $6.0 million and $14.1 million for the aforementioned
periods, respectively. Total investment income includes non-cash income from
amortization, payment-in-kind distributions and undistributed equity
earnings of $15.9 million and $8.6 million for the three-months ended June
30, 1999 and 1998, respectively. In addition, real estate investment income
is shown net of depreciation of $2.4 million and $6.9 million for the
aforementioned periods, respectively.
(7) Includes mortgage servicing fee and other miscellaneous fee income of
approximately $2.3 million and $1.8 million for the six-months ended June
30, 1999 and 1998, respectively. Includes mortgage servicing fee and other
miscellaneous fee income of approximately $1.1 million and $1.0 million for
the three-months ended June 30, 1999 and 1998, respectively.
43
<PAGE> 45
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities, privately
placed debt securities and small amounts of redeemable preferred stock, and
represented 60.4% and 61.0% of total invested assets at June 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 June 30,
1999, 93.9% were investment grade and 6.1% were below-investment grade, where
57.9%, 36.0%, 5.3%, 0.3%, 0.4% 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.
44
<PAGE> 46
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
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total fixed maturities (public and private)................. $6,511.8 $6,706.0
======== ========
Problem fixed maturities.................................... 34.8 33.9
Potential problem fixed maturities.......................... 60.5 82.9
Restructured fixed maturities............................... 8.2 8.6
-------- --------
Total problem, potential problem & restructured fixed
maturities................................................ $ 103.5 $ 125.4
======== ========
Total problem, potential problem & restructured fixed
maturities as a percent of total fixed maturities......... 1.6% 1.9%
======== ========
</TABLE>
At June 30, 1999, the Company's largest unaffiliated single concentration
of fixed maturities was $232.8 million of Federal Home Loan Mortgage Corporation
("FHLMC") which represents 2.2% of total invested assets. The second largest
single concentration consists of $197.2 million of the Notes purchased in
connection with the Group Pension Transaction. These Notes represent
approximately 1.8% of total invested assets at June 30, 1999. No other
individual non-government issuer represents more than 0.5% of invested assets.
The Company held approximately $1,152.1 million and $1,161.3 million of
mortgage-backed and asset-backed securities as of June 30, 1999 and December 31,
1998, respectively. Of such amounts, $421.3 million and $471.5 million, or 36.6%
and 40.6%, respectively, represented agency-issued pass-through and
collateralized mortgage obligations ("CMOs") secured by Federal National
Mortgage Association, FHLMC, Government National Mortgage Association and
Canadian Housing Authority collateral. The balance of such amounts were
comprised of other types of mortgage-backed and asset-backed securities. The
Company believes that its active monitoring of its portfolio of mortgage-backed
securities and the limited extent of its holdings of more volatile types of
mortgage-backed securities mitigate the Company's exposure to losses from
prepayment risk associated with interest rate fluctuations for this portfolio.
At June 30, 1999 and December 31, 1998, 87.6% and 88.6%, respectively, of the
Company's mortgage-backed and asset-backed securities were assigned an NAIC
Designation of 1. In addition, the Company believes that it holds a relatively
low percentage of CMOs compared to other life insurance companies.
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
CMOs........................................................ $ 518.0 $ 569.5
Pass-through securities..................................... 33.8 40.6
Commercial MBSs............................................. 99.4 85.7
Asset-backed securities..................................... 500.9 465.5
-------- --------
Total MBS's and asset-backed securities........... $1,152.1 $1,161.3
======== ========
</TABLE>
45
<PAGE> 47
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of June
30, 1999 and December 31, 1998 are as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less.......................... $ 126.0 $ 127.5 $ 155.3 $ 155.9
Due after one year through five years............ 1,510.0 1,514.5 1,536.2 1,573.5
Due after five years through ten years........... 2,541.1 2,518.0 2,441.8 2,565.6
Due after ten years.............................. 1,221.5 1,199.7 1,187.4 1,249.7
-------- -------- -------- --------
Subtotal............................... 5,398.6 5,359.7 5,320.7 5,544.7
Mortgage-backed and other asset-backed
securities..................................... 1,161.2 1,152.1 1,132.8 1,161.3
-------- -------- -------- --------
Total.................................. $6,559.8 $6,511.8 $6,453.5 $6,706.0
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Mortgage loans comprised 14.9% and 12.9% of total invested assets as of
June 30, 1999 and December 31, 1998, respectively. Mortgage loans consist of
commercial, agricultural and residential loans. As of June 30, 1999 and December
31, 1998 commercial mortgage loans comprised $1,045.5 million and $886.9 million
or 65.0% and 62.5% of total mortgage loan investments, respectively.
Agricultural loans comprise $560.9 million and $531.2 million, or 34.9% and
37.4% of total mortgage loans, respectively. Residential mortgage loans
comprised $1.6 million and $1.9 million, or 0.1% and 0.1% of total mortgage loan
investments at June 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 $45.8 million and represented less than
0.5% of general account invested assets as of June 30, 1999. Amounts loaned on
12 properties were $20.0 million or greater, representing in the aggregate 33.4%
of the total carrying value of the commercial loan portfolio at the same date.
Total mortgage loans to the 5 largest borrowers accounted in the aggregate for
approximately 24.8% of the total carrying value of the commercial loan portfolio
and less than 2.5% of total invested assets at June 30, 1999.
46
<PAGE> 48
The following table presents the Company's commercial mortgage loan
maturity profile for the periods indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
1999 1998
------------------ ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ------ -------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1 year or less.......................................... $ 69.2 6.6% $124.0 14.0%
Over 1 year but less than or equal to 2 years........... 33.6 3.2 50.7 5.7
Over 2 years but less than or equal to 3 years.......... 90.0 8.6 56.9 6.4
Over 3 years but less than or equal to 4 years.......... 73.2 7.0 79.3 9.0
Over 4 years but less than or equal to 5 years.......... 74.7 7.1 50.5 5.7
Over 5 years but less than or equal to 6 years.......... 47.3 4.5 42.8 4.8
Over 6 years but less than or equal to 7 years.......... 105.8 10.1 50.8 5.7
Over 7 years but less than or equal to 8 years.......... 26.9 2.6 49.5 5.6
Over 8 years but less than or equal to 9 years.......... 34.3 3.3 32.0 3.6
Over 9 years but less than or equal to 10 years......... 208.7 20.0 122.1 13.8
Over 10 years........................................... 281.8 27.0 228.3 25.7
-------- ------ ------ ------
Total......................................... $1,045.5 100.0% $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 or the fair value of the
collateral. The provision for loss is reported as a realized loss on investment.
The Company reviews its mortgage loan portfolio and analyzes the need for a
valuation allowance for any loan which is delinquent for 60 days or more, in
process of foreclosure, restructured, on "watchlist", or which currently has a
valuation allowance. Loans which are delinquent and loans in process of
foreclosure are categorized by the Company as "problem" loans. Loans with
valuation allowances, but which are not currently delinquent, and loans which
are on watchlist are categorized by the Company as "potential problem" loans.
Loans for which the original terms of the mortgages have been modified or for
which interest or principal payments have been deferred are categorized by the
Company as "restructured" loans.
The following table presents the carrying amounts of problem, potential
problem and restructured commercial mortgage loans relative to the carrying
value of all commercial mortgage loans as of the dates indicated. The table also
presents the valuation allowances and writedowns recorded by the Company
relative
47
<PAGE> 49
to commercial mortgages defined as problem, potential problem and restructured
as of each of the dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED COMMERCIAL MORTGAGES AT CARRYING
VALUE
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
-------- ------------
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $1,045.5 $886.9
======== ======
Problem commercial mortgages(1)............................. $ 12.0 $ 11.6
Potential problem commercial mortgages...................... 59.5 86.1
Restructured commercial mortgages........................... 145.5 153.6
-------- ------
Total problem, potential problem & restructured
commercial mortgages............................ $ 217.0 $251.3
======== ======
Total problem, potential problem and restructured
commercial mortgages as a percent of total
commercial mortgages............................ 20.8% 28.3%
Valuation allowances/writedowns(2):
Problem loans............................................... $ 1.3 $ 1.8
Potential problem loans..................................... 15.4 26.7
Restructured loans.......................................... 25.9 25.8
-------- ------
Total valuation allowances/writedowns(2).......... $ 42.6 $ 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............. 16.4% 17.8%
======== ======
</TABLE>
- ---------------
(1) Problem commercial mortgages included mortgage loans in the process of
foreclosure of $12.0 million and $11.6 million at such dates, respectively.
(2) Includes impairment writedowns recorded prior to the adoption of FASB No.
114, Accounting by Creditors for Impairment of a Loan, of $26.3 million at
June 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 June 30, 1999 and December 31, 1998, such
reserves were $13.7 million, and $13.2 million, respectively.
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the
48
<PAGE> 50
Company relative to agricultural mortgages defined as problem, potential problem
and restructured as of each of the aforementioned dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED AGRICULTURAL MORTGAGES AT CARRYING
VALUE
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER
1999 1998
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Total agricultural mortgages................................ $560.9 531.2
====== ======
Problem agricultural mortgages(1)........................... $ 12.5 2.1
Potential problem agricultural mortgages.................... 1.5 1.7
Restructured agricultural mortgages......................... 10.8 11.7
------ ------
Total problem, potential problem & restructured agricultural
mortgages................................................. $ 24.8 15.5
====== ======
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 4.4% 2.9%
====== ======
Valuation allowances/writedowns: problem loans.............. $ -- $ --
Potential problem loans..................................... 0.1 0.1
Restructured loans.......................................... 0.3 0.3
------ ------
Total valuation allowances/writedowns....................... $ 0.4 $ 0.4
====== ======
Total valuation allowances as a percent of problem,
potential problem and restructured agricultural mortgages
at carrying value before valuation allowances and
writedowns................................................ 1.6% 2.5%
====== ======
</TABLE>
- ---------------
(1) Problem agricultural mortgages included delinquent mortgage loans of $11.2
million and $2.1 million and loans in process of foreclosure of $1.3 million
and $0.0 at June 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 June 30, 1999 and December 31, 1998,
such reserves were $5.4 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 June 30, 1999 and December 31, 1998, the carrying
value of the Company's real estate investments was $486.6 million and $634.2
million, respectively, or 4.5% and 5.7%, respectively, of general account
invested assets. The Company owns real estate, interests in real estate joint
ventures (both majority owned and minority owned), and real estate acquired upon
foreclosure of
49
<PAGE> 51
commercial and agricultural mortgage loans. The following table presents the
carrying value of the Company's equity real estate investments by such
classifications.
EQUITY REAL ESTATE
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Real estate................................................. $223.8 $271.1
Joint ventures.............................................. 118.5 219.9
------ ------
Subtotal.................................................... 342.3 491.0
Foreclosed.................................................. 144.3 143.2
------ ------
Total....................................................... $486.6 $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 June 30, 1999 and December 31, 1998, the carrying value of real estate to be
disposed of was $322.6 million and $312.9 million, respectively, or 3.0% and
2.8%, respectively of invested assets at such dates. The aforementioned carrying
values are net of valuation allowances of $30.0 million and $30.6 million, at
June 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 $97.9 million and
$79.1 million of impairment adjustments. For the six-months period ended June
30, 1999 and the year ended December 31, 1998, such increases in valuation
allowances aggregated $6.0 million and $6.7 million, respectively.
The following table analyzes the Company's real estate sales during the
periods indicated.
REAL ESTATE SALES(1)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Sales proceeds.................................. $155.6 $371.4 $173.1 $428.1
====== ====== ====== ======
Carrying value before impairment adjustments and
valuation allowances.......................... $144.6 $329.1 $160.7 $431.2
Impairment adjustments.......................... 25.2 18.8 25.2 74.3
Valuation allowances............................ 3.0 34.8 4.0 39.9
------ ------ ------ ------
Carrying value after impairment adjustments and
valuation allowances.......................... $116.4 $275.5 $131.5 $317.0
====== ====== ====== ======
Gain (loss)..................................... $ 39.2 $ 95.9 $ 41.6 $111.1
====== ====== ====== ======
</TABLE>
- ---------------
(1) Excludes 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 $21.6 million
for June 30, 1999 and 1998, respectively.
50
<PAGE> 52
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
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 June 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
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Common stocks............................................... $267.0 $294.6
Limited partnership interests............................... 186.8 162.6
------ ------
Total............................................. $453.8 $457.2
====== ======
</TABLE>
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $ 15.0 $ 15.1
Equity securities........................................... 6.5 5.8
Mortgages................................................... 26.3 26.3
Real estate(1).............................................. 136.2 166.6
------ ------
Total............................................. $184.0 $213.8
====== ======
</TABLE>
- ---------------
(1) Includes $51.8 million and $55.8 million as of June 30, 1999 and December
31, 1998, respectively, relating to impairments taken upon foreclosure of
mortgage loans.
51
<PAGE> 53
CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Mortgages................................................... $35.8 $46.8
Real estate................................................. 30.0 30.6
----- -----
Total............................................. $65.8 $77.4
===== =====
</TABLE>
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $ 15.0 $ 15.1
Equity securities........................................... 6.5 5.8
Mortgages................................................... 62.1 73.1
Real estate................................................. 166.2 197.2
------ ------
Total............................................. $249.8 $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
June 30, 1999 is not materially different from that presented in the Company's
1998 Annual Report on Form 10-K at December 31, 1998.
52
<PAGE> 54
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 will be filed
during the summer and early fall, and oral argument before the Court of Appeals
will take 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, requested the Judicial Panel on
Multidistrict Litigation to transfer the action to the Multidistrict Litigation
in the District of Massachusetts and sought a stay of further proceedings in the
Kentucky District Court pending a determination on multidistrict transfer. On
April 19, 1999, the Judicial Panel entered a conditional transfer order
transferring the case to the Federal District Court in Massachusetts. Plaintiffs
have opposed the transfer, and oral argument on MLOA's transfer motion took
place before the Judicial Panel on July 22, 1999. On April 20, 1999, plaintiffs
moved to remand the case to the Kentucky State Court. MLOA has opposed the
motion. On June 18, 1999, the Federal District Court denied MLOA's motion for a
stay and preliminary discovery has been initiated in the case. 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.
53
<PAGE> 55
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
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors consists of three classes of directors: one class to
hold office initially for a term expiring at the Annual Meeting of Shareholders
held on May 26, 1999, another class to hold office initially for a term expiring
at the Annual Meeting of Shareholders to be held in the 2000, and another class
to hold office initially for a term expiring at the Annual Meeting of
Shareholders to be held in 2001, with the members of each class to hold office
until their successors are duly elected and qualified. At each Annual Meeting of
Shareholders of the Company, the successors to the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the Annual Meeting of Shareholders held in the third year following the year of
their election.
At the Annual Meeting of the Company's Shareholders held on May 26, 1999,
the five nominees listed below were elected as directors to hold office until
the 2002 Annual Meeting and until their successors shall have been elected and
qualified. In addition, at such meeting, the Company's shareholders ratified the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants.
The number of votes with respect to each of these matters was as follows:
(a) Election of Directors:
<TABLE>
<CAPTION>
VOTES
NAME VOTES FOR WITHHELD
---- ---------- --------
<S> <C> <C>
Claude M. Ballard........................................... 21,846,287 413,100
G. Robert Durham............................................ 21,849,419 409,970
James L. Johnson............................................ 21,846,134 413,253
Kenneth M. Levine........................................... 21,851,484 407,903
John R. Meyer............................................... 21,844,642 414,745
</TABLE>
(b) Ratification of the Appointment of PricewaterhouseCoopers LLP as
Independent Accountants:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C>
21,962,169 101,538 195,680
</TABLE>
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.
54
<PAGE> 56
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: August 13, 1999
By: /s/ LARRY COHEN
------------------------------------
Larry Cohen
Vice President and Controller
(Principal Accounting Officer)
Date: August 13, 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 SIX MONTHS ENDED 6-30-99
</LEGEND>
<MULTIPLIER>1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 3,037
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 454
<MORTGAGE> 1,150
<REAL-ESTATE> 465
<TOTAL-INVEST> 5,213
<CASH> 331
<RECOVER-REINSURE> 480<F1>
<DEFERRED-ACQUISITION> 500
<TOTAL-ASSETS> 24,814
<POLICY-LOSSES> 957
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 96
<POLICY-HOLDER-FUNDS> 1,975
<NOTES-PAYABLE> 256<F3>
0
0
<COMMON> 0
<OTHER-SE> 1,763
<TOTAL-LIABILITY-AND-EQUITY> 24,814
142<F4>
<INVESTMENT-INCOME> 198
<INVESTMENT-GAINS> 71
<OTHER-INCOME> 140
<BENEFITS> 73
<UNDERWRITING-AMORTIZATION> 32
<UNDERWRITING-OTHER> 227<F2>
<INCOME-PRETAX> 163
<INCOME-TAX> 56
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-BASIC> 2.27
<EPS-DILUTED> 2.25
<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
fees.
</FN>
</TABLE>
