<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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-14603
THE MONY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3976138
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1740 BROADWAY
NEW YORK, NEW YORK 10019
(212) 708-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 8, 2000 there were 46,147,359 shares of the Registrant's
common stock, par value $0.01, outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE MONY GROUP INC. AND SUBSIDIARIES
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: Unaudited interim condensed consolidated balance sheets as
of September 30, 2000 and December 31, 1999............... 4
Unaudited interim condensed consolidated statements of
income and comprehensive income for the three-month
periods ended September 30, 2000 and 1999................. 5
Unaudited interim condensed consolidated statements of
income and comprehensive income for the nine-month periods
ended September 30, 2000 and 1999......................... 6
Unaudited interim condensed consolidated statement of
changes in shareholders' equity for the nine-month period
ended September 30, 2000.................................. 7
Unaudited interim condensed consolidated statements of cash
flows for the nine-month period ended September 30, 2000
and 1999.................................................. 8
Notes to unaudited interim condensed consolidated financial
statements................................................ 9
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Investments................................................. 45
Item 3: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 55
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................... 56
Item 2: Changes in Securities and Use of Proceeds................... 57
Item 3: Defaults upon Senior Securities............................. 57
Item 4: Submission of Matters to a Vote of Security Holders......... 57
Item 5: Other Information........................................... 57
Item 6: Exhibits and Reports on Form 8-K............................ 57
SIGNATURES........................................................... S-1
</TABLE>
2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
The Company's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning the Company's operations,
economic performance and financial condition. Forward-looking statements
include, among other things, discussions concerning the Company's potential
exposure to market risks, as well as statements expressing management's
expectations, beliefs, estimates, forecasts, projections and assumptions, as
indicated by words such as "believes," "estimates," "anticipates," "expects,"
"projects," "forecasts," "plans," "intends," "may," "could," "possible," "will,"
"should," "probably," "risk," "target," "goals," "objectives," or similar
expressions. The Company claims the protection afforded by the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and assumes no duty to update any forward-looking statement.
Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those anticipated by forward-looking
statements due to a number of important factors including those discussed
elsewhere in this report and in the Company's 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 restructuring of the Company's career agency sales force, and the
ability to attract and retain productive agents; (iii) the success of the
restructuring of agent compensation; (iv) the Company's ability to control
operating expenses; (v) the outcome of pending litigation; (vi) deterioration in
the experience of the "closed block" established in connection with the
Demutualization; (vii) the performance of the financial markets; (viii) the
intensity of competition from other financial institutions; (ix) the Company's
mortality, morbidity, persistency and claims experience; (x) the Company's
ability to develop, distribute and administer competitive products and services
in a timely, cost-effective manner; (xi) the Company's financial and claims
paying ratings; (xii) the effect of changes in laws and regulations affecting
the Company's businesses, including changes in tax laws affecting insurance and
annuity products; (xiii) market risks related to interest rates, equity prices,
derivatives, foreign currency exchange and credit and; (xiv) the ability of the
Company to identify and consummate on successful terms any future acquisitions,
and to successfully integrate acquired businesses with minimal disruption.
3
<PAGE> 4
ITEM 1:
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available for sale, at fair
value.................................................. $ 3,083.5 $ 3,066.7
Equity securities available for sale, at fair value....... 537.5 519.8
Mortgage loans on real estate............................. 1,119.3 1,270.4
Policy loans.............................................. 78.7 69.1
Real estate to be disposed of............................. 235.7 300.9
Real estate held for investment........................... 46.6 46.2
Other invested assets..................................... 90.0 37.9
--------- ---------
5,191.3 5,311.0
========= =========
Cash and cash equivalents................................... 370.3 265.9
Accrued investment income................................... 77.2 74.6
Amounts due from reinsurers................................. 485.2 488.0
Deferred policy acquisition costs........................... 636.4 558.3
Other assets................................................ 529.9 348.3
Assets transferred in Group Pension Transaction (Note 4).... 4,980.8 5,109.8
Separate account assets..................................... 6,103.0 6,398.3
Closed Block assets (Note 6)................................ 6,218.2 6,182.1
--------- ---------
Total assets........................................... $24,592.3 $24,736.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 972.7 $ 954.3
Policyholders' account balances............................. 1,908.7 1,942.9
Other policyholders' liabilities............................ 117.0 120.4
Amounts due to reinsurers................................... 87.4 83.8
Accounts payable and other liabilities...................... 575.5 580.9
Short-term debt............................................. 52.8 53.4
Long-term debt.............................................. 298.7 245.4
Current federal income taxes payable........................ 130.8 148.0
Deferred federal income taxes............................... 52.1 (16.9)
Liabilities transferred in Group Pension Transaction (Note
4)........................................................ 4,968.7 5,099.1
Separate account liabilities................................ 6,100.6 6,396.2
Closed Block liabilities (Note 6)........................... 7,310.3 7,303.3
--------- ---------
Total liabilities...................................... $22,575.3 $22,910.8
========= =========
Commitments and contingencies (Note 5) Common stock, $0.01
par value; 400 million shares authorized; 47.2 million
shares issued and outstanding at December 31, 1999, 46.1
million shares outstanding at September 30, 2000.......... $ 0.5 $ 0.5
Capital in excess of par.................................... 1,616.1 1,615.9
Treasury stock at cost: 1,095,900 shares at September 30,
2000...................................................... (33.0) --
Retained earnings........................................... 454.0 238.5
Accumulated other comprehensive (loss)...................... (20.5) (29.4)
Unamortized restricted stock compensation................... (0.1) --
--------- ---------
Total shareholders' equity............................. 2,017.0 1,825.5
--------- ---------
Total liabilities and shareholders' equity............. $24,592.3 $24,736.3
========= =========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
4
<PAGE> 5
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
($ IN MILLIONS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 26.5 $ 20.8
Universal life and investment-type product policy fees...... 51.2 47.8
Net investment income....................................... 132.4 124.5
Net realized (losses)/gains on investments.................. 20.3 22.5
Group Pension Profits (Note 4).............................. 10.8 21.5
Other income................................................ 51.7 47.2
Contribution from the Closed Block (Note 6)................. 10.7 9.5
----------- -----------
303.6 293.8
----------- -----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 46.0 34.9
Interest credited to policyholders' account balances........ 26.7 26.4
Amortization of deferred policy acquisition costs........... 16.0 21.9
Dividends to policyholders.................................. 0.6 0.7
Other operating costs and expenses.......................... 114.0 164.9
----------- -----------
203.3 248.8
----------- -----------
Income before income taxes and extraordinary item........... 100.3 45.0
Income tax expense.......................................... 33.1 15.5
----------- -----------
Income before extraordinary item............................ 67.2 29.5
Extraordinary loss, net of tax.............................. 1.0 1.9
----------- -----------
Net income.................................................. 66.2 27.6
Other comprehensive loss, net............................... 34.7 (28.5)
----------- -----------
Comprehensive income/(loss)................................. $ 100.9 $ (0.9)
=========== ===========
PER SHARE DATA:
Income before extraordinary items:
Basic earnings per share.................................. $ 1.46 $ 0.62
=========== ===========
Diluted earnings per share................................ $ 1.41 $ 0.61
=========== ===========
Net Income:
Basic earnings per share.................................. $ 1.43 $ 0.58
=========== ===========
Diluted earnings per share................................ $ 1.39 $ 0.58
=========== ===========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 46,147,359 47,238,166
Plus: incremental shares from assumed conversion of dilutive
securities................................................ 1,517,693 750,738
----------- -----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,665,052 47,988,904
=========== ===========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
5
<PAGE> 6
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
($ IN MILLIONS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Premiums.................................................... $ 84.4 $ 65.0
Universal life and investment-type product policy fees...... 157.0 145.7
Net investment income....................................... 518.7 322.5
Net realized gains on investments........................... 36.9 93.1
Group Pension Profits (Note 4).............................. 29.0 47.8
Other income................................................ 172.3 138.9
Contribution from the Closed Block (Note 6)................. 32.1 31.4
----------- -----------
1,030.4 844.4
----------- -----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 126.9 108.3
Interest credited to policyholders' account balances........ 76.6 80.7
Amortization of deferred policy acquisition costs........... 58.8 54.1
Dividends to policyholders.................................. 1.8 1.4
Other operating costs and expenses.......................... 382.3 391.9
----------- -----------
646.4 636.4
----------- -----------
Income before income taxes and extraordinary item........... 384.0 208.0
Income tax expense.......................................... 130.8 71.1
----------- -----------
Income before extraordinary item............................ 253.2 136.9
----------- -----------
Extraordinary loss, net of tax.............................. 37.7 1.9
----------- -----------
Net income.................................................. 215.5 135.0
----------- -----------
Other comprehensive loss, net............................... 8.9 (140.7)
----------- -----------
Comprehensive income/(loss)................................. $ 224.4 $ (5.7)
=========== ===========
PER SHARE DATA:
Income before extraordinary items:
Basic earnings per share.................................. $ 5.44 $ 2.90
=========== ===========
Diluted earnings per share................................ $ 5.32 $ 2.86
=========== ===========
Net income:
Basic earnings per share.................................. $ 4.63 $ 2.86
=========== ===========
Diluted earnings per share................................ $ 4.53 $ 2.83
=========== ===========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 46,572,467 47,238,166
Plus: incremental shares from assumed conversion of dilutive
securities................................................ 1,046,639 547,797
----------- -----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,619,106 47,785,963
=========== ===========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
6
<PAGE> 7
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ACCUMULATED UNAMORTIZED
CAPITAL OTHER RESTRICTED TOTAL
COMMON IN EXCESS TREASURY RETAINED COMPREHENSIVE STOCK SHAREHOLDERS'
STOCK OF PAR STOCK EARNINGS INCOME COMPENSATION EQUITY
------ --------- -------- -------- ------------- ------------ -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1999.................. $0.5 $1,615.9 -- $238.5 $(29.4) -- $1,825.5
Issuance of Shares...... 0.2 0.2
Treasury Stock, at
cost.................. (33.0) (33.0)
Unamortized restricted
stock compensation.... (0.1) (0.1)
Comprehensive income....
Net income.......... 215.5 215.5
Other comprehensive
income(1)......... 8.9 8.9
--------
Comprehensive income.... 224.4
---- -------- ------ ------ ------ ----- --------
BALANCE, SEPTEMBER 30,
2000.................. $0.5 $1,616.1 $(33.0) $454.0 $(20.5) $(0.1) $2,017.0
==== ======== ====== ====== ====== ===== ========
</TABLE>
---------------
(1) Represents unrealized losses on investments, net of unrealized gains,
reclassification adjustments, and taxes.
See accompanying notes to unaudited interim condensed consolidated financial
statements
7
<PAGE> 8
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
($ IN MILLIONS)
<S> <C> <C>
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES......... $ (100.2) $ 40.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities securities............................... 449.6 472.5
Equity securities......................................... 318.2 168.2
Mortgage loans on real estate............................. 353.3 101.3
Real estate............................................... 102.8 257.6
Other invested assets..................................... 1.6 4.6
Acquisitions of investments:
Fixed maturities securities............................... (458.3) (631.8)
Equity securities......................................... (98.2) (105.9)
Mortgage loans on real estate............................. (175.2) (337.8)
Real estate............................................... (36.3) (29.2)
Other invested assets..................................... (37.9) (4.7)
Policy loans, net......................................... (9.6) (28.2)
Other, net................................................ (150.0) 16.0
Property, plant and equipment, net.......................... (28.9) (14.7)
--------- ---------
Net cash provided by/(used in) investing activities......... 231.1 (132.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt............................................ 296.6 --
Repayments of debt.......................................... (284.3) (29.2)
Receipts from annuity and universal life policies credited
to policyholder account balances.......................... 1,854.7 1,293.0
Return of policyholder's account balances on annuity and
universal life policies................................... (1,860.5) (1,288.4)
Treasury stock repurchases.................................. (33.0) --
Dividends paid to shareholders.............................. -- (14.2)
Payments to eligible policyholders.......................... -- (8.1)
--------- ---------
Net cash (used in) financing activities..................... (26.5) (46.9)
--------- ---------
Net (decrease)/increase in cash and cash equivalents........ 104.4 (138.4)
Cash and cash equivalents, beginning of period.............. 265.9 329.1
--------- ---------
Cash and cash equivalents, end of period.................... $ 370.3 $ 190.7
========= =========
</TABLE>
See accompanying notes to unaudited interim condensed consolidated financial
statements
8
<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" or the "Holding Company"), 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 Plan and the Offerings are hereafter
collectively referred to as the "Transaction".
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
and services to higher income individuals, particularly family builders,
pre-retirees, and small business owners (see Note 3). The Company distributes
its products primarily through its career agency sales force and various
complementary distribution channels. These include sales of mutual funds sold by
Enterprise Capital Management through third-party broker dealers, sales of
protection products sold by the Company's U.S. Financial Life Insurance Company
("USFL") subsidiary through brokerage general agencies, sales of corporate-owned
life insurance ("COLI") products by the Company's corporate marketing team and
sales of a variety of financial products and services through the Company's
Trusted Securities Advisors Corp. subsidiary. The Company primarily sells its
products in all 50 of the United States, the District of Columbia, the U.S.
Virgin Islands, Guam and the Commonwealth of Puerto Rico.
2. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles in the United States ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In the opinion of management these statements include all
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, 1999, which are
presented in the Company's 1999 Annual Report on Form 10-K. The results of
operations for the three-month and nine-month periods ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made in the amounts presented for the
comparative 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 opera-
9
<PAGE> 10
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
tions, and certain insurance lines of business no longer written by the Company
(the "run-off businesses"). These business activities represent the Company's
operating segments. Except as discussed below, these segments are managed
separately because they either provide different products or services, are
subject to different regulation, require different strategies, or have different
technology requirements.
Management considers the Company's mutual fund operations to be an integral
part of the products offered by the Company's accumulation products segment. The
Company's mutual fund operation, which is conducted through its Enterprise
Capital Management subsidiary, offers proprietary mutual funds directly to
retail customers as well as proprietary and non-proprietary mutual funds through
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 insurance products, including; whole life, term life, universal
life, variable universal life, corporate-owned life insurance, last survivor
variable universal life, group universal life and special-risk products. 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) and (ii) the Closed Block assets and
liabilities, as well as the Contribution from the Closed Block (see Note 6). The
Protection Products segment also includes the in-force business from last
survivor universal life and last survivor whole life products. In its
Accumulation Products segment, the Company primarily offers flexible premium
variable annuities and proprietary retail mutual funds. The Accumulation
Products segment also includes the in-force business from single premium
deferred annuities and immediate annuities. 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, small group health
and specialty insurance products written by other carriers to meet the insurance
and investment needs of its customers. The run-off businesses primarily consist
of group life and health business, as well as group pension business that was
not included in the Group Pension Transaction (see Note 4).
Set forth in the table below is certain financial information with respect
to the Company's operating segments as of September 30, 2000 and December 31,
1999 and for the three-month and nine-month periods ended September 30, 2000 and
1999, 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 and certain nonrecurring items (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 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
10
<PAGE> 11
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
impaired real estate (including real estate acquired in satisfaction of debt)
are included in the protection products segment.
Amounts reported as "reconciling amounts" in the table below represent
amounts not allocated to segments and primarily relate to: (i) certain expenses
relating to the Company's employee benefit plans, and (ii) assets, liabilities,
revenues and expenses of the MONY Group.
Except for various allocations discussed below, the accounting policies of
the segments are the same as those described in the preparation of the Unaudited
Interim Condensed Consolidated Financial Statements. The Company evaluates the
performance of each operating segment based on profit or loss from operations
before income taxes and nonrecurring items (e.g. items of an unusual or
infrequent nature). The Company does not allocate certain nonrecurring items to
the segments. In addition, all segment revenues are from external customers.
SEGMENT SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
2000 1999 2000 1999
------- ------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Protection Products(1).................................... $ 24.3 $ 19.0 $ 77.6 $ 58.3
Accumulation Products..................................... 0.0 (0.2) 0.4 0.6
Other Products............................................ 2.2 2.0 6.4 6.1
------ ------ ------ ------
$ 26.5 $ 20.8 $ 84.4 $ 65.0
====== ====== ====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products....................................... $ 33.8 $ 29.9 $102.3 $ 91.5
Accumulation Products..................................... 17.3 17.8 53.8 53.8
Other Products............................................ 0.1 0.1 0.9 0.4
------ ------ ------ ------
$ 51.2 $ 47.8 $157.0 $145.7
====== ====== ====== ======
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products(2).................................... $ 96.1 $ 98.6 $367.7 $276.6
Accumulation Products..................................... 30.4 30.1 106.6 91.6
Other Products............................................ 17.7 16.5 63.9 44.4
Reconciling amounts....................................... 8.5 1.8 17.4 3.0
------ ------ ------ ------
$152.7 $147.0 $555.6 $415.6
====== ====== ====== ======
OTHER INCOME:
Protection Products(3)(9)................................. $ 25.7 $ 33.5 $ 77.1 $ 88.8
Accumulation Products..................................... 29.8 24.1 92.5 68.1
Other Products............................................ 16.2 19.4 60.3 57.9
Reconciling amounts....................................... 1.5 1.2 3.5 3.3
------ ------ ------ ------
$ 73.2 $ 78.2 $233.4 $218.1
====== ====== ====== ======
</TABLE>
11
<PAGE> 12
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
2000 1999 2000 1999
------- ------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products(13)................................... $ 9.2 $ 14.0 $ 37.4 $ 31.3
Accumulation Products..................................... 6.8 7.9 21.4 22.8
------ ------ ------ ------
$ 16.0 $ 21.9 $ 58.8 $ 54.1
====== ====== ====== ======
BENEFITS TO POLICYHOLDERS:(4)
Protection Products....................................... $ 46.6 $ 33.7 $124.9 $107.4
Accumulation Products..................................... 16.4 17.6 53.4 54.9
Other Products............................................ 7.8 7.5 19.5 21.9
Reconciling amounts....................................... 1.9 2.5 5.7 4.8
------ ------ ------ ------
$ 72.7 $ 61.3 $203.5 $189.0
====== ====== ====== ======
DIVIDENDS TO POLICYHOLDERS:
Protection Products....................................... $ 0.0 $ 0.1 $ (0.2) $ (0.7)
Accumulation Products..................................... 0.4 0.4 1.2 1.3
Other Products............................................ 0.2 0.2 0.8 0.8
------ ------ ------ ------
$ 0.6 $ 0.7 $ 1.8 $ 1.4
====== ====== ====== ======
OTHER OPERATING COSTS AND EXPENSES:
Protection Products....................................... $ 56.0 $ 59.2 $200.4 $190.0
Accumulation Products..................................... 26.2 24.7 87.1 75.9
Other Products............................................ 24.7 22.0 78.3 66.5
Reconciling amounts....................................... 7.1 59.0 16.5 59.5
------ ------ ------ ------
$114.0 $164.9 $382.3 $391.9
====== ====== ====== ======
INCOME BEFORE INCOME TAXES:
Protection Products....................................... $ 68.1 $ 74.0 $262.2 $187.2
Accumulation Products..................................... 27.7 21.2 90.2 59.2
Other Products............................................ 3.5 8.3 32.9 19.6
Reconciling amounts....................................... 1.0 (58.5) (1.3) (58.0)
------ ------ ------ ------
$100.3 $ 45.0 $384.0 $208.0
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS:(7)
Protection Products(5)(10).................................. $16,505.2 $16,164.5
Accumulation Products....................................... 5,859.6 6,175.0
Other Products.............................................. 1,090.8 1,187.6
Reconciling amounts......................................... 1,136.7 1,209.2
--------- ---------
$24,592.3 $24,736.3
========= =========
</TABLE>
12
<PAGE> 13
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(11)..................................... $ 1,105.0 $ 1,094.9
Accumulation Products....................................... 151.1 153.3
--------- ---------
$ 1,256.1 $ 1,248.2
========= =========
POLICYHOLDERS LIABILITIES:
Protection Products(6)(12).................................. $10,261.8 $10,231.7
Accumulation Products....................................... 1,097.1 1,236.3
Other Products.............................................. 392.2 418.9
Reconciling amounts......................................... 17.5 17.4
--------- ---------
$11,768.6 $11,904.3
========= =========
SEPARATE ACCOUNT LIABILITIES:(7)
Protection Products(8)...................................... $ 3,946.8 $ 3,843.5
Accumulation Products....................................... 4,313.3 4,548.9
Other Products.............................................. 511.1 604.2
Reconciling amounts......................................... 786.2 832.3
--------- ---------
$ 9,557.4 $ 9,828.9
========= =========
</TABLE>
---------------
(1) Excludes $136.0 million and $144.2 million of individual life premiums in
the Closed Block for the three-month periods ended September 30, 2000 and
1999, respectively, and $419.6 million and $448.6 million for the
nine-month periods ended September 30, 2000 and 1999, respectively (see
Note 6).
(2) Excludes net investment income and net realized gains on investments in the
Closed Block of $101.8 million and $96.7 million for the three-month
periods ended September 30, 2000 and 1999, respectively, and $289.9 million
and $288.6 million for the nine-month periods ended September 30, 2000 and
1999, respectively (see Note 6).
(3) Includes Group Pension Profits of $10.8 million and $21.5 million for the
three-month periods ended September 30, 2000 and 1999, respectively, and
$29.0 million and $47.8 million for the nine-month period ended September
30, 2000 and 1999, respectively (see Note 4).
(4) Includes interest credited to policyholders' account balances. Excludes
$150.2 million and $147.6 million of benefits and interest credited to
policyholders' account balances related to the Closed Block for the
three-month periods ended September 30, 2000 and 1999, respectively, and
$456.7 million and $466.0 million for the nine-month periods ended
September 30, 2000 and 1999, respectively (see Note 6).
(5) Includes assets transferred in the Group Pension Transaction of $4,980.8
million and $5,109.8 million as of September 30, 2000 and December 31,
1999, respectively (see Note 4).
(6) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,500.7 million and $1,645.7 million as of September 30,
2000 and December 31, 1999, respectively (see Note 4).
(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 $3,456.9 million and $3,432.7 million as of September 30,
2000 and December 31, 1999 respectively (see Note 4).
13
<PAGE> 14
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(9) Includes $10.7 million and $9.5 million relating to the Contribution from
the Closed Block for the three-month periods ended September 30, 2000 and
1999, respectively and $32.1 million and $31.4 million for the nine-month
periods ended September 30, 2000 and 1999, respectively (see Note 6).
(10) Includes Closed Block assets of $6,218.2 million and $6,182.1 million as of
September 30, 2000 and December 31, 1999, respectively (see Note 6).
(11) Includes deferred policy acquisition costs allocated to the Closed Block of
$619.7 million and $689.9 million as of September 30, 2000 and December 31,
1999, respectively (see Note 6).
(12) Includes Closed Block policyholders' liabilities of $7,269.5 million and
$7,241.0 million as of September 30, 2000 and December 31, 1999,
respectively (see Note 6).
(13) Excludes $14.7 million and $19.4 million of amortization of deferred policy
acquisition costs related to the Closed Block for the three-month periods
ended September 30, 2000 and 1999, respectively, and $46.6 million and
$54.5 million for the nine-month periods ended September 30, 2000 and 1999,
respectively (see Note 6).
The following is a summary of premiums and universal life and
investment-type product policy fees by product for the three-month and
nine-month periods ended September 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
($ IN MILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS:
Individual life(1)........................................ $24.1 $18.9 $ 77.2 $ 57.9
Group insurance........................................... 2.2 2.0 6.4 6.1
Disability income insurance............................... 0.2 0.1 0.4 0.4
Other..................................................... -- (0.2) 0.4 0.6
----- ----- ------ ------
Total................................................ $26.5 $20.8 $ 84.4 $ 65.0
----- ----- ------ ------
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Universal life............................................ $17.6 $17.7 $ 52.1 $ 54.4
Variable universal life................................... 12.4 9.2 38.5 25.8
Corporate sponsored variable universal life............... 1.2 0.9 3.4 3.0
Group universal life...................................... 2.6 2.1 8.3 8.3
Individual variable annuities............................. 17.3 17.7 53.6 53.4
Individual fixed annuities................................ 0.1 0.2 1.1 0.8
----- ----- ------ ------
Total................................................ $51.2 $47.8 $157.0 $145.7
===== ===== ====== ======
</TABLE>
---------------
(1) Excludes revenues from individual life in the Closed Block of $136.0 million
and $144.2 million for the three-month periods ended September 30, 2000 and
1999, respectively, and $419.6 million and $448.6 million for the nine-month
periods ended September 30, 2000 and 1999, respectively.
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
the Company transferred a substantial portion of its group pension business
(hereafter referred to as the "Group Pension Transaction"), 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
14
<PAGE> 15
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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.
Pursuant to the Agreement, MONY agreed to make a $200 million capital
investment in AEGON by purchasing $150 million face amount of Series A Notes and
$50 million face amount of Series B Notes (hereinafter referred to as the
"Notes"). The Series A Notes pay interest at 6.44 percent per annum and the
Series B Notes pay interest at 6.24 percent 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.
In accordance with GAAP, the transaction did not constitute a sale because
MONY retained substantially all the risks and rewards associated with the
deposits on contracts in force and transferred to AEGON on the Group Pension
Transaction Date (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.
Management expects that Group Pension Profits will continue to decrease in
the future consistent with the runoff of the Existing Deposits.
15
<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 the dates and for the periods
indicated, including information regarding: (i) the general account assets
transferred to support the Existing Deposits in the Group Pension Transaction
(hereafter referred to as the "AEGON Portfolio"), (ii) the transferred separate
account assets and liabilities and (iii) the components of revenue and expense
comprising the Group Pension Profits:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
General Account
Fixed Maturities: available for sale, at estimated fair
value (amortized
cost; $1,423.7 million and $1,532.4 million,
respectively)............................................. $1,411.4 $1,510.0
Mortgage loans on real estate............................. 54.7 98.5
Real estate to be disposed of............................. -- 16.8
Cash and cash equivalents................................. 35.2 25.3
Accrued investment income................................. 22.6 26.5
-------- --------
Total general account assets........................... 1,523.9 1,677.1
Separate account assets..................................... 3,456.9 3,432.7
-------- --------
Total assets........................................... $4,980.8 $5,109.8
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................... $1,500.7 $1,645.7
Other liabilities......................................... 11.1 20.7
-------- --------
Total general account liabilities...................... $1,511.8 $1,666.4
-------- --------
Separate account liabilities(2)............................. $3,456.9 $3,432.7
-------- --------
Total Liabilities...................................... $4,968.7 $5,099.1
======== ========
</TABLE>
---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $76.0 million
and $88.9 million as of September 30, 2000 and December 31, 1999,
respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $16.8 million
and $20.3 million as of September 30, 2000 and December 31, 1999,
respectively.
16
<PAGE> 17
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
2000 1999 2000 1999
----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Product policy fees......................................... $ 7.4 $ 5.4 $ 19.4 $ 17.5
Net investment income....................................... 27.8 31.6 86.2 98.2
Net realized gains on investments........................... 1.0 11.5 1.6 15.8
----- ----- ------ ------
Total Revenues......................................... 36.2 48.5 107.2 131.5
BENEFITS AND EXPENSES:
Interest Credited to policyholders' account balances........ 21.7 22.4 64.9 67.9
Other operating costs and expenses.......................... 3.7 4.6 13.3 15.8
----- ----- ------ ------
Total benefits and expenses............................ 25.4 27.0 78.2 83.7
----- ----- ------ ------
Group Pension Profits..................................... $10.8 $21.5 $ 29.0 $ 47.8
===== ===== ====== ======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
a.) Since late 1995 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
universal life insurance policies from the early 1980s through 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
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases seek primarily equitable relief (e.g., reformation,
specific performance, mandatory injunctive relief prohibiting the Company from
canceling policies for failure to make required premium payments, imposition of
a constructive trust and creation of a claims resolution facility to adjudicate
any individual issues remaining after resolution of all class-wide issues) as
opposed to compensatory damages, although they also seek compensatory damages in
unspecified amounts. The Company has answered the complaints in each action,
(except for one being voluntarily held in abeyance), has denied any wrongdoing
and has asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified one of those
cases, the Goshen v. The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America, (now known as Defilippo, et al v. The Mutual Life
Insurance Company of New York and MONY Life Insurance Company) 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 have been consolidated
and transferred by the Judicial Panel on Multidistrict Litigation to the United
States District Court for the District of Massachusetts, and/or are being
voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company. On December 20, 1999, the New York State Court of Appeals
affirmed the dismissal of all but one of the claims in the Goshen case (a claim
under New York's General Business Law), which has been remanded back to the New
York State Supreme Court for further proceedings consistent with the opinion.
The New York State Supreme Court has
17
<PAGE> 18
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
subsequently reaffirmed that, for purposes of the remaining New York General
Business law claims, the class is now limited to New York purchases only, (and
plaintiffs have appealed this aspect of the ruling), and has further held that
the New York General Business Law claims of all class members whose claims
accrued prior to November 29, 1992 are barred by the applicable statute of
limitations. The Company intends to defend itself vigorously against the sole
remaining claim.
b.) On November 16, 1999, The MONY Group, Inc. and MONY Life Insurance
Company were served with a complaint in an action entitled Calvin Chatlos, M.D.,
and Alvin H. Clement, On Behalf of Themselves And All Others Similarly Situated
v. The MONY Life Insurance Company, The MONY Group Inc., and Neil D. Levin,
Superintendent, New York Department of Insurance, filed in the United States
District Court for the Southern District of New York. The action purports to be
brought as a class action on behalf of all individuals who had an ownership
interest in one or more in-force life insurance policies issued by MONY Life
Insurance Company as of November 16, 1998. The complaint alleges that (i) the
New York Superintendent of Insurance, Neil D. Levin, violated Section 7312 of
the New York Insurance Law by approving the plan of demutualization, which
plaintiffs claim was not fair and adequate, primarily because it allegedly
failed to provide for sufficient assets for the mechanism established under the
plan to preserve reasonable dividend expectations of the closed block, and (ii)
MONY violated Section 7312 by failing to develop and submit to the
Superintendent a plan of demutualization that was fair and adequate. The
plaintiffs seek equitable relief in the form of an order vacating and/or
modifying the Superintendent's order approving the plan of demutualization
and/or directing the Superintendent to order MONY to increase the assets in the
closed block, as well as unspecified monetary damages, attorneys' fees and other
relief.
In early January 2000, MONY and the Superintendent wrote to the District
Court seeking a pre-motion conference preliminary to the filing of a motion to
dismiss the federal complaint on jurisdictional, federal abstention and
timeliness grounds and for failure to state a claim. Following receipt of those
letters, plaintiffs' counsel offered voluntarily to dismiss their complaint, and
a stipulation and order to that effect was thereafter filed and approved by the
court.
On March 27, 2000, plaintiffs filed a new action in New York State Supreme
Court bearing the same caption and naming the same defendants as the previously
filed federal action. The state court complaint differs from the complaint
previously filed in federal court in two primary respects. First, it no longer
asserts a claim for damages against the Superintendent, nor does its prayer for
relief seek entry of an order vacating or modifying the Superintendent's
decision or requiring the Superintendent to direct MONY to place additional
assets into the closed block. Rather, it seeks an accounting and an order from
the Court directing MONY to transfer additional assets to the closed block.
Second, the new complaint contains claims for breach of contract and
fiduciary duty, as well as new allegations regarding the adequacy of the
disclosures contained in the Policyholder Information Booklet distributed to
policyholders soliciting their approval of the plan of demutualization (which
plaintiffs claim violated both the Insurance Law and MONY's fiduciary duties).
In order to challenge successfully the New York Superintendent's approval
of the plan, plaintiffs would have to sustain the burden of showing that such
approval was arbitrary and capricious or an abuse of discretion, made in
violation of lawful procedures, affected by an error of law or not supported by
substantial evidence. In addition, Section 7312 provides that MONY may ask the
court to require the challenging party to give security for the reasonable
expenses, including attorneys' fees, which may be incurred by MONY or the
Superintendent or for which MONY may become liable, to which security MONY shall
have recourse in such amount as the court shall determine upon the termination
of the action.
MONY and the Superintendent have moved to dismiss the state court complaint
in its entirety on a variety of grounds. That motion is fully briefed and
awaiting decision by the court. MONY believes that there
18
<PAGE> 19
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
are substantial defenses to plaintiffs' claims and intends to defend itself
vigorously.
c.) 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.
While the outcome of matters discussed in 5(a), 5(b) and 5(c) cannot be
predicted with certainty, in the opinion of management, any additional liability
beyond that recorded in the consolidated financial statements at September 30,
2000, 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. There can be no assurance, however, that the present litigation will
not have a material adverse effect on MONY.
d.) 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.
e.) The Company maintains a line of credit with domestic banks totaling
$150.0 million with a scheduled renewal date in June 2001. Under this line of
credit, the Company is required to maintain a certain statutory tangible net
worth and debt to capitalization ratio. The Company has complied with all
covenants relating thereto. The Company has not borrowed against these lines of
credit since their inception.
f.) At September 30, 2000, the Company had commitments to issue $10.5
million of fixed rate agricultural loans with periodic interest rate reset
dates. The initial interest rates on such loans range from approximately 7.85%
to 9.15%. In addition, the Company had commitments to issue $115.3 million of
fixed rate and floating rate commercial mortgage loans with interest rates
ranging from 7.75% to 9.30%. The Company had commitments outstanding to purchase
private fixed and floating rate maturity securities as of September 30, 2000 of
$145.8 million with interest rates from 7.61% to 10.75%. At September 30, 2000,
the Company had commitments to contribute capital to its equity partnership
investments of $119.5 million.
6. CLOSED BLOCK:
In accordance with New York State Insurance Law, 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 were 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.
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
19
<PAGE> 20
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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.
In addition, MONY has undertaken to reimburse the Closed Block from its
general account assets outside the Closed Block for any reduction in principal
payments due on the Series A Notes (which have been allocated to the Closed
Block) pursuant to the terms thereof, as described in Note 4. Since the Closed
Block has been funded to provide for the payment of guaranteed benefits and the
continuation of current payable dividends on the policies included therein, it
will not be necessary to use general funds to pay guaranteed benefits unless the
Closed Block Business experiences very substantial ongoing adverse experience in
investment, mortality, persistency or other experience factors. The Company
regularly (at least quarterly) monitors the experience from the Closed Block and
may make changes to the dividend scale, when appropriate, to ensure the profits
are distributed to Closed Block policyholders in a fair and equitable manner. In
addition, periodically the New York Insurance Department requires the filing of
an independent auditor's report on the operations 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 are 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 Company's financial statements subsequent
to the establishment of the Closed Block reflect material reductions in reported
amounts, as compared to periods 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,
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.
20
<PAGE> 21
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 Closed Block, as of and for the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost; $3,524.2 and $3,589.6, respectively)............. $3,449.8 $3,479.5
Mortgage loans on real restate............................ 539.9 443.0
Policy loans.............................................. 1,181.3 1,199.1
Real estate............................................... 24.0 22.1
Cash and cash equivalents................................. 145.0 111.3
Premiums receivable....................................... 8.8 14.2
Deferred policy acquisition costs......................... 619.7 689.9
Other assets.............................................. 249.7 223.0
-------- --------
Total Closed Block assets.............................. $6,218.2 $6,182.1
======== ========
LIABILITIES:
Future policy benefits.................................... $6,790.1 $6,781.5
Policyholders' account balances........................... 292.4 294.6
Other Policyholders' liabilities.......................... 187.0 164.9
Other liabilities......................................... 40.8 62.3
-------- --------
Total Closed Block liabilities......................... $7,310.3 $7,303.3
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE- FOR THE NINE-
MONTH MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums............................................ $136.0 $144.2 $419.6 $448.6
Net investment income............................... 101.8 96.7 289.9 288.6
Net realized gains (losses) on investments.......... -- -- --
Other income........................................ 0.6 0.4 1.7 1.1
------ ------ ------ ------
Total revenues................................. 238.4 241.3 711.2 738.3
------ ------ ------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders........................... 148.0 145.5 450.2 459.5
Interest credited to policyholders' account
balances.......................................... 2.2 2.1 6.5 6.5
Amortization of deferred policy acquisition costs... 14.7 19.4 46.6 54.5
Dividends to policyholders.......................... 60.4 63.4 169.1 179.8
Other operating costs and expenses.................. 2.4 1.4 6.7 6.6
------ ------ ------ ------
Total benefits and expenses.................... 227.7 231.8 679.1 706.9
------ ------ ------ ------
Contribution from the Closed Block.................. $ 10.7 $ 9.5 $ 32.1 $ 31.4
====== ====== ====== ======
</TABLE>
21
<PAGE> 22
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
For the three-month periods ended September 30, 2000 and 1999, there were
$5.6 million and $0.0 million, respectively, in charges for other than temporary
impairments on fixed maturity securities in the Closed Block. For the nine-month
periods ended September 30, 2000 and 1999, there were $10.1 million and $0.0
million, respectively, in charges for other than temporary impairments on fixed
maturity securities in the Closed Block. At September 30, 2000 and December 31,
1999, there were $5.5 million and $0.0 million, respectively, of fixed income
securities that were non-income producing for the twelve months preceding such
dates. At September 30, 2000 and December 31, 1999, there were no non-income
producing mortgage loans for the twelve months preceding such dates in the
Closed Block.
7. EXTRAORDINARY AND OTHER ITEMS:
a) On January 12, 2000, the Company announced a plan to repurchase up to 5%
of the outstanding common shares of the Company or approximately 2.4 million
shares. Under the plan, the Company may repurchase such shares from time to
time, as market conditions and other factors warrant. The plan may be
discontinued at any time. As of September 30, 2000, 1,095,900 shares had been
repurchased at a cost of approximately $33 million.
b) In January 2000, the New York Insurance Department approved, and MONY
Life paid, a dividend to MONY Group in the amount of $75 million.
c) On January 12, 2000, the Holding Company filed a registration statement
on Form S-3 with the Securities and Exchange Commission (the "SEC") to register
certain securities. This registration, known as a "Shelf Registration", provides
the Company with the ability to offer various securities to the public, when it
deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion
in the aggregate for all issuances of securities thereunder. It is the intention
of the Company to use this facility to raise proceeds for mergers and
acquisitions and for other general corporate matters, as it considers necessary.
d) On March 8, 2000, the Holding Company issued $300.0 million principal
amount of senior notes (the "Senior Notes") pursuant to the aforementioned Shelf
Registration. The Senior Notes mature on March 15, 2010 and bear interest at
8.35% per annum. The principal amount of the Senior Notes is payable at maturity
and interest is payable semi-annually. The net proceeds to the Company from the
issuance of the Senior Notes, after deducting underwriting commissions and other
expenses (primarily legal and accounting fees), were approximately $296.6
million. Approximately $280.0 million of the net proceeds from the issuance of
the Senior Notes was used by the Holding Company to finance the repurchase, on
March 8, 2000, by MONY Life of all of its outstanding $115.0 million face amount
9.5% coupon surplus notes, and $116.5 million face amount of its $125.0 million
face amount 11.25% coupon surplus notes (hereafter referred to as the "9.5%
Notes" and "11.25% Notes", respectively), which were outstanding at December 31,
1999. The balance of the net proceeds from the issuance of the Senior Notes was
retained by the Holding Company for general corporate purposes. In the third
quarter of 2000, the Company repurchased another $6.5 million face amount of the
11.25% Notes.
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes, the Company recorded a pre-tax tax loss of $56.5 million
($36.7 million after tax) during the first quarter of 2000 and $1.6 million
($1.0 million after tax) during the third quarter of 2000. The loss resulted
from the premium paid by MONY Life to the holders of the 9.5% Notes and the
11.25% Notes reflecting the excess of their fair value over their carrying value
on the Company's books at the date of the transaction of approximately $7.0
million and $51.1 million, respectively. This loss is reported, net of tax, as
an extraordinary item on the Company's income statement for the nine-month
period ended September 30, 2000.
22
<PAGE> 23
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
8. ACQUISITION OF THE ADVEST GROUP, INC.:
On August 23, 2000, The MONY Group Inc, and The Advest Group, Inc.
("Advest"), entered into a definitive Agreement and Plan of Merger, dated as of
August 23, 2000 (the "merger agreement"), providing, for the acquisition of
Advest by MONY Group Inc.. Advest is a diversified financial services company
providing securities brokerage, trading, investment banking, trust and asset
management services. The merger agreement provides that the value of the
consideration to be received by Advest shareholders will be fixed five days
prior to the transaction closing date using the 10-day average closing price of
MONY's shares at that time. Advest stockholders may elect to receive the
consideration in shares of MONY common stock, an equivalent value in cash based
upon the average closing price of MONY's shares, or a combination of cash and
shares of MONY common stock. These elections will then be adjusted, as
necessary, on a pro rata basis, to produce an aggregate consideration consisting
of 49.9% cash and 50.1% MONY common stock.
The business combination will be accounted for under the purchase method of
accounting. Accordingly, a portion of the purchase price will be allocated to
net tangible and intangible assets acquired based on their estimated fair
values. The consummation of the merger, which is pending certain regulatory
approvals, is expected to occur on or about December 31, 2000. Details of the
proposed merger, including a copy of the merger agreement has been filed with
the Securities and Exchange Commission on Form S-4 and mailed to all
shareholders.
9. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The corresponding derivative gains and
losses should be reported based on the hedge relationship that exists, if there
is one. Changes in the fair value of derivatives that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133, are
required to be reported in earnings. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of the fiscal years beginning after June 15,
2000. SFAS 137 delayed the effective date of SFAS 133 by one year. Adoption of
SFAS 133 is not expected to have a material effect on the Company's financial
condition or results of operations.
23
<PAGE> 24
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition and results of
operations of the Company for the periods indicated. The discussion of the
Company's results of operations is based on the results of the Closed Block
combined on a line by line basis with the results of operations outside the
Closed Block (hereafter referred to as "combined basis"), for such respective
periods as further discussed below. The discussion and analysis of the Company's
financial condition and results of operations presented below should be read in
conjunction with the Company's unaudited interim condensed consolidated
financial statements and related notes to the unaudited interim condensed
consolidation financial statements included elsewhere herein and the Company's
1999 Annual Report on Form 10-K.
GENERAL
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 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 affects
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 periods
ended September 30, 2000 and 1999 was $10.7 million and $9.5 million,
respectively, and $32.1 million and $31.4 million for the nine-month periods
ended September 30, 2000 and 1999, 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
24
<PAGE> 25
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.
SEGMENTS
For management and reporting purposes, the Company's business is organized
in two principal operating segments, the "Protection Products" segment and the
"Accumulation Products" segment. Substantially all of the Company's other
business activities are combined and reported in the "Other Products" segment.
In its Protection Products segment, the Company currently offers a wide range of
individual life insurance products, including; whole life, term life, universal
life, variable universal life, corporate-owned life insurance, last survivor
variable universal life, group universal life and special risk products. The
Protection Products segment also includes the in-force business from sales of
last survivor universal life and last survivor whole life. Also included in the
Protection Products segment are the: (i) assets and liabilities transferred
pursuant to the Group Pension Transaction, as well as the related profits
therefrom (see Note 4 to the Unaudited Interim Condensed Consolidated Financial
Statements included elsewhere herein), and (ii) the Closed Block assets and
liabilities, as well as the Contribution from the Closed Block (see Note 6 to
the Unaudited Interim Condensed Consolidated Financial Statements included
elsewhere herein). In its Accumulation Products segment, the Company primarily
offers flexible premium variable annuities and proprietary retail mutual funds.
The Accumulation Products segment also includes the in-force business from
single premium deferred annuities and immediate annuities. The Company's Other
Products segment primarily consists of a securities broker-dealer operation, an
insurance brokerage operation and certain runoff businesses which consist
primarily of group life and health business, as well as group pension business
that was not included in the Group Pension Transaction. In addition to selling
the Company's proprietary investment products, the securities broker-dealer
operation 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 career agency sales force with access to life, annuity, small group
health and specialty insurance products written by other carriers to meet the
insurance and investment needs of its customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. Capital is allocated to each segment
in amounts sufficient to maintain a targeted regulatory risk-based capital
("RBC") level for each segment. Allocations of net investment income and net
realized gains on investments were primarily based on the amount of assets
allocated to each segment. Other costs and operating expenses were allocated to
each of the segments based on: (i) a review of the nature of such costs, (ii)
time studies analyzing the amount of employee compensation costs incurred by
each segment, and (iii) cost estimates included in the Company's product
pricing. Substantially all non-cash transactions and impaired real estate
(including real estate acquired in satisfaction of debt) have been allocated to
the Protection Products segment.
FACTORS AFFECTING PROFITABILITY
The Company derives its revenues principally from: (i) premiums on
individual life insurance, (ii) insurance, administrative and surrender charges
on universal life and annuity products, (iii) asset management fees from
separate account and mutual fund products, (iv) net investment income on general
account assets, (v) the Group Pension Profits, See "--The Group Pension
Transaction" and (vi) commissions from securities and insurance brokerage
operations. The Company's expenses consist of insurance benefits provided to
policyholders, interest credited on policyholders' account balances, dividends
to policyholders, the cost of selling and servicing the various products sold by
the Company, including commissions to sales representatives (net of any
deferrals), and general business expenses.
The Company's profitability depends in large part upon (i) the amount of
its assets, (ii) the adequacy of its product pricing (which is primarily a
function of competitive conditions, management's ability to assess and manage
trends in mortality and morbidity experience as compared to the level of benefit
payments, and its ability to maintain expenses within pricing assumptions),
(iii) the maintenance of the Company's target spreads between credited rates on
policyholders' account balances and the rate of earnings on its investments,
25
<PAGE> 26
(iv) the persistency of its policies (which affects the ability of the Company
to recover the costs incurred to sell a policy) and (v) its ability to manage
the market and credit risks associated with its invested assets. External
factors, such as legislation and regulation of the insurance marketplace and
products, may also affect the Company's profitability.
The following tables present the Company's consolidated and segment results
of operations for the three-month and nine-month periods ended September 30,
2000 and 1999 on the aforementioned combined basis. Management's Discussion and
Analysis, which follows this table, discusses the Company's consolidated and
segment results of operations on a combined basis unless otherwise noted. See
Note 6 to the Unaudited Interim Condensed Consolidated Financial Statements for
a summarized Closed Block income statement.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums........................................ $160.3 $ -- $ 2.2 $ -- $162.5
Universal life and investment-type product
policy fees................................... 33.8 17.3 0.1 -- 51.2
Net investment income and realized gains on
investments................................... 197.9 30.4 17.7 8.5 254.5
Group Pension Profits(2)........................ 10.8 -- -- -- 10.8
Other income.................................... 4.8 29.8 16.2 1.5 52.3
------ ----- ----- ----- ------
407.6 77.5 36.2 10.0 531.3
------ ----- ----- ----- ------
BENEFITS AND EXPENSES:
Benefits to policyholders....................... 182.7 4.2 5.2 1.9 194.0
Interest credited to policyholders' account
balances...................................... 14.1 12.2 2.6 -- 28.9
Amortization of deferred policy acquisition
costs......................................... 23.9 6.8 -- -- 30.7
Dividends to policyholders...................... 60.4 0.4 0.2 -- 61.0
Other operating costs and expenses.............. 58.4 26.2 24.7 7.1 116.4
------ ----- ----- ----- ------
339.5 49.8 32.7 9.0 431.0
------ ----- ----- ----- ------
Income before income taxes and extraordinary
item.......................................... $ 68.1 $27.7 $ 3.5 $ 1.0 100.3
====== ===== ===== =====
Income tax expense.............................. 33.1
------
Income before extraordinary item................ 67.2
Extraordinary item.............................. 1.0
------
Net Income...................................... $ 66.2
======
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums........................................ $163.2 $(0.2) $ 2.0 $ -- $165.0
Universal life and investment-type product
policy fees................................... 29.9 17.8 0.1 -- 47.8
Net investment income and realized gains on
investments................................... 195.3 30.1 16.5 1.8 243.7
Group Pension Profits(2)........................ 21.5 -- -- -- 21.5
Other income.................................... 2.9 24.1 19.4 1.2 47.6
------ ----- ----- ------ ------
412.8 71.8 38.0 3.0 525.6
------ ----- ----- ------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders....................... 169.3 4.0 4.6 2.5 180.4
Interest credited to policyholders' account
balances...................................... 12.0 13.6 2.9 -- 28.5
Amortization of deferred policy acquisition
costs......................................... 33.4 7.9 -- -- 41.3
Dividends to policyholders...................... 63.5 0.4 0.2 -- 64.1
Other operating costs and expenses.............. 60.6 24.7 22.0 59.0 166.3
------ ----- ----- ------ ------
338.8 50.6 29.7 61.5 480.6
------ ----- ----- ------ ------
Income before income taxes and extraordinary
item.......................................... $ 74.0 $21.2 $ 8.3 $(58.5) 45.0
====== ===== ===== ======
Income tax expense.............................. 15.5
------
Income before extraordinary item................ 29.5
Extraordinary item.............................. 1.9
------
Net Income...................................... $ 27.6
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums........................................ $497.2 $ 0.4 $ 6.4 $ -- $504.0
Universal life and investment-type product
policy fees................................... 102.3 53.8 0.9 -- 157.0
Net investment income and realized gains on
investments................................... 657.6 106.6 63.9 17.4 845.5
Group Pension Profits(2)........................ 29.0 -- -- -- 29.0
Other income.................................... 17.7 92.5 60.3 3.5 174.0
------ ----- ----- ------ ------
1,303.8 253.3 131.5 20.9 1,709.5
------ ----- ----- ------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders....................... 541.8 17.2 12.4 5.7 577.1
Interest credited to policyholders' account
balances...................................... 39.8 36.2 7.1 -- 83.1
Amortization of deferred policy acquisition
costs......................................... 84.0 21.4 -- -- 105.4
Dividends to policyholders...................... 168.9 1.2 0.8 -- 170.9
Other operating costs and expenses.............. 207.1 87.1 78.3 16.5 389.0
------ ----- ----- ------ ------
1,041.6 163.1 98.6 22.2 1,325.5
------ ----- ----- ------ ------
Income before income taxes and extraordinary
item.......................................... $262.2 $90.2 $32.9 $ (1.3) $384.0
====== ===== ===== ======
Income tax expense.............................. 130.8
------
Income before extraordinary items............... 253.2
Extraordinary items............................. 37.7
------
Net Income...................................... $215.5
======
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums........................................ $506.9 $ 0.6 $ 6.1 $ $513.6
Universal life and investment-type product
policy fees................................... 91.5 53.8 0.4 145.7
Net investment income and realized gains on
investments................................... 565.2 91.6 44.4 3.0 704.2
Group Pension Profits(2)........................ 47.8 -- -- 47.8
Other income.................................... 10.7 68.1 57.9 3.3 140.0
------ ----- ----- ------ ------
1,222.1 214.1 108.8 6.3 1,551.3
------ ----- ----- ------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders....................... 537.1 13.1 12.8 4.8 567.8
Interest credited to policyholders' account
balances...................................... 36.3 41.8 9.1 -- 87.2
Amortization of deferred policy acquisition
costs......................................... 85.8 22.8 -- -- 108.6
Dividends to policyholders...................... 179.1 1.3 0.8 -- 181.2
Other operating costs and expenses.............. 196.6 75.9 66.5 59.5 398.5
------ ----- ----- ------ ------
1,034.9 154.9 89.2 64.3 1,343.3
------ ----- ----- ------ ------
Income before income taxes...................... $187.2 $59.2 $19.6 $(58.0) 208.0
====== ===== ===== ======
Income tax expense.............................. 71.1
------
Income before extraordinary items............... 136.9
Extraordinary items............................. 1.9
------
Net Income...................................... $135.0
======
</TABLE>
---------------
(1) Amounts reported as "reconciling" primarily relate to: (i) certain expenses
related to the Company's employee benefit plans, and (ii) revenues and
expenses of the MONY Group.
(2) See Note 4 to the Unaudited Interim Condensed Consolidated Financial
Statements contained herein.
Three-Month Period Ended September 30, 2000
Compared to the Three-Month Period Ended September 30, 1999.
Premiums--
Premium revenue was $162.5 million for the three-month period ended
September 30, 2000, a decrease of $2.5 million, or 1.5% from $165.0 million
reported for the comparable prior year period ended September 30, 1999.
Substantially all of the decrease related to traditional life insurance products
offered through the Company's Protection Products segment. The decrease was
primarily comprised of lower renewal premiums of $8.6 million due to the
reduction of the in-force block, offset by an increase of $3.8 million and $1.3
million in new and renewal premiums, respectively, on special risk term
insurance products offered by the Company's subsidiary, U.S. Financial Life
Insurance Company ("USFL"). The increase in new premiums written by USFL is
primarily attributable to the expansion of its distribution and the improvement
of its financial strength ratings since being acquired by the Company.
Management believes that the decrease in traditional life insurance premiums is
consistent with industry trends, particularly the continuing shift by consumers
from traditional protection products to asset accumulation products. See "New
Business Information" for a discussion regarding period to period sales and
related trends.
Universal life and investment-type product policy fees--
Universal life and investment-type product policy fees were $51.2 million
for three-month period ended September 30, 2000, an increase of $3.4 million, or
7.1% from $47.8 million reported for the comparable prior year period ended
September 30, 1999. The increase consisted primarily of higher Protection
Products segment fees of $3.9 million. The increase in fees in the Protection
Products segment was primarily due to higher fees from the Company's variable
universal life ("VUL") business of approximately $3.2 million. For the
three-month period ended September 30, 2000, the Company reported total fees
from its VUL business of $12.4 million, as compared to $9.2 million reported for
comparable prior year period. The increase in VUL fees resulted primarily from
new sales of such business and the growing in-force block.
28
<PAGE> 29
Net investment income and realized gains on investments --
Net investment income was $231.6 million for the three-month period ended
September 30, 2000, an increase of $12.3 million, or 5.6%, from $219.3 million
reported for the comparable prior year period. The increase in net investment
income is primarily related to an increase in income recorded by the Company
from its investments in limited partnership interests. Such partnerships provide
venture capital funding to companies through the purchase of or investment in
equity securities issued by such companies. For the three-month period ended
September 30, 2000, the Company earned $49.1 million relating to such
partnership investments, an increase of $11.1 million from $38.0 million
recorded for the three-month period ended September 30, 1999. The balance of the
increase in investment income resulted from other invested asset categories
collectively and is primarily attributable to higher yields and an increase in
average invested assets. As of September 30, 2000, invested assets were
$10,913.2 million (including cumulative unrealized losses of $147.9 million on
fixed maturity securities) compared to $10,810.2 million (including cumulative
unrealized losses of $102.2 million on fixed maturity securities) for the prior
period. At September 30, 2000, fixed maturity securities, mortgage loans and
real estate represented approximately 59.9%, 15.2% and 2.9%, respectively, of
total invested assets, as compared to 61.4%, 15.5% and 4.0%, respectively, at
September 30, 1999. The annualized yield on the Company's invested assets,
including limited partnership interests, before and after realized
gains/(losses) on investments was 8.4% and 9.2%, respectively, for the
three-month period ended September 30, 2000, as compared to 8.1% and 9.0%,
respectively, for the three-month period ended September 30, 1999. See
"Investments -- Results by Asset Category."
Net realized capital gains were $22.9 million for the three-month period
ended September 30, 2000, a decrease of $1.5 million, or 6.1%, from gains of
$24.4 million reported for the comparable prior year period. The following table
sets forth the components of net realized gains (losses) for the three-month
period ended September 30, 2000 compared to the three-month period ended
September 30, 1999.
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIODS ENDED
SEPTEMBER 30,
--------------------
2000 1999
------ ------
<S> <C> <C>
Real estate................................................. $16.0 $12.8
Equity securities........................................... (3.2) 3.5
Fixed maturities............................................ (6.4) (0.7)
Mortgage loans.............................................. 16.8 2.5
Other....................................................... (0.3) 6.3
----- -----
$22.9 $24.4
===== =====
</TABLE>
As of September 30, 2000, the Company had approximately $98.0 million of
additional pretax gains related to its venture capital limited partnership
investments that may be realized in the future subject to market fluctuation.
Net investment income and net realized gains on investments are allocated
to the Company's segments based on the assets allocated to such segments to
support the associated liabilities of each segment and to maintain a targeted
regulatory risk-based capital level for each segment. See "Segments."
Group Pension Profits --
Group Pension Profits were $10.8 million for the three-month period ended
September 30, 2000, a decrease of $10.7 million, or 49.8%, from $21.5 million in
the comparable prior year period ended September 30, 1999. Group Pension Profits
for the three-month periods ended September 30, 2000 and 1999, consisted of
$11.0 million and $5.0 million, respectively, of Group Pension Payments and
($0.2) million and $16.5 million, respectively relating to adjustments required
to reflect the earnings from such payments in accordance with GAAP. Such
adjustments primarily relate to changes in the valuation allowances established
to recognize impairment of assets supporting the business transferred in the
Group Pension Transaction as well as certain adjustments relating to
policyholder liabilities. The decrease of $10.7 million in the Group
29
<PAGE> 30
Pension Profits is primarily due to lower investment gains of $10.5 million from
lower gains on real estate sales.
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. Management expects that Group Pension Profits will decline in
future periods through the termination of the Group Pension Transaction on
December 31, 2002 consistent with the continuing run-off of the underlying
business.
Other income --
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 $52.3 million for the three-month period ended September 30, 2000,
an increase of $4.7 million, or 9.9%, from $47.6 million reported for the
comparable prior year period. The increase was primarily due to higher income of
$1.9 million and $5.7 million in the Protection Products segment and the
Accumulation Products segment, respectively. This was offset by a $3.2 million
decrease in income in the Other Products segment primarily due to a decrease in
commissions earned from the Company's broker-dealer operations, as a result of
unfavorable market conditions.
The increase in income recorded in the Protection Products segment of $1.9
million is primarily due to an increase in the cash surrender value of the
Company's Corporate Owned Life Insurance ("COLI"). In the second quarter of
2000, the Company purchased COLI from a third party insurance company to better
hedge changes in its nonqualified employee benefit liabilities. The increase in
income recorded in the Accumulation Products segment was primarily attributable
to higher fees of $5.5 million from advisory, underwriting and distribution
services in the Company's mutual fund management operations as assets under
management increased to approximately $8.6 billion at September 30, 2000 from
$7.6 billion at September 30, 1999.
Benefits to policyholders --
Benefits to policyholders were $194.0 million for the three-month period
ended September 30, 2000, an increase of $13.6 million, or 7.5%, from $180.4
million reported for comparable prior year period. The increase consisted
primarily of higher benefits in the Company's Protection Product segment due to
(i) higher death claims of approximately $5.2 million in the Closed Block and
approximately $7.4 million on Open Block traditional business, and (ii) an
increase in death claims of $4.3 million in USFL, consistent with the growing
in-force block offset by (a) lower change in traditional reserves of $4.1
million (of which approximately $3.0 million was in the Closed Block).
Interest credited to policyholders' account balances --
Interest credited to policyholders' account balances was $28.9 million for
the three-month period ended September 30, 2000, an increase of $0.4 million, or
1.4%, from $28.5 million reported for the comparable prior year period. The
increase consisted of higher interest crediting of $2.1 million in the Company's
Protection Products segment due to a $1.3 million increase in CSVUL consistent
with an increase in the general account fund values of this product. This was
offset by lower interest crediting of $1.4 million in the Company's Accumulation
Products segment primarily due to lower interest crediting on single premium
deferred annuities ("SPDA") of $1.2 million. During the third quarter of 2000,
SPDA account values decreased from approximately $336.6 million to approximately
$318.3 million. The decrease in account value was primarily due to continuing
withdrawals, which management believes partially reflects consumer preferences
for separate account products as well as the aging of the in-force block of
business.
Amortization of deferred policy acquisition costs --
Amortization of deferred policy acquisition costs ("DAC") was $30.7 million
for the three-month period ended September 30, 2000, a decrease of $10.6
million, or 25.7%, from $41.3 million reported in the
30
<PAGE> 31
comparable prior year period. The decrease primarily resulted from lower
amortization in the Protection Products segment of approximately $9.5 million
primarily due to higher benefit claims.
Dividends to policyholders --
Dividends to policyholders were $61.0 million for three-month period ended
September 30, 2000, a decrease of $3.1 million, or 4.8%, from $64.1 million
reported for the comparable prior year period. The decrease, substantially all
of which occurred in the Protection Products segment, resulted primarily from a
reduction in the additional dividend liability established in the Closed Block
as of September 30, 2000, as compared to September 30, 1999. As further
discussed in Note 6 to the Unaudited Interim Condensed Consolidated Financial
Statements included elsewhere herein, all the assets in the Closed Block inure
solely to the benefit of the Closed Block policyholders, and to the extent that
the results of the Closed Block are more favorable than assumed in establishing
the Closed Block, total dividends paid to Closed Block policyholders will be
increased and are, accordingly, accrued as an additional dividend liability.
Such additional dividend liability will be reduced in future periods to the
extent that the results of such future periods are less than assumed in
establishing the Closed Block, but not below zero. Only the excess of the Closed
Block liabilities over the Closed Block assets at the date of the establishment
of the Closed Block (November 16, 1998) 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 --
Other operating costs and expenses were $116.4 million for the three-month
period ended September 30, 2000, a decrease of $49.9 million, or 30.0%, from
$166.3 million reported for the comparable prior year period. The decrease
consisted of $51.9 million attributable to Reconciling Items, which consisted of
to a one time restructuring charge of $58.9 million in connection to the early
retirement program during the third quarter of 1999 (See Note 8(d) to the
unaudited interim condensed consolidated financial statements). This was offset
by higher expenses of $1.9 million, $2.1 million, and $1.7 million of cost
directly attributable to the Protection products Accumulation Product and Other
Product Segments, respectively. To the extent that costs are not directly
identifiable with an operating segment, such costs are allocated to the
Company's operating segments based on cost allocations utilizing time studies,
and cost estimates included in the Company's product pricing (see "Segments").
The increase of $1.9 million of costs directly attributable to the
Protection Products segment primarily consisted of $1.4 million of higher
expenses related to USFL. The increase of $2.1 million in costs directly
attributable to the Accumulation Products segment primarily consisted of higher
sub-advisory fees and other expenses incurred by the Company's mutual fund
management operations, which directly corresponded with an increase in revenues
from such operations (see discussion and analysis of other income above). The
increase of $1.7 million in costs directly attributable to the Other Products
segment primarily consisted of $1.8 million in expenses attributable to the
Company's investment in a start-up insurance brokerage operations in Brazil.
Other allocable costs increased primarily due to an increase in incentive
compensation partially attributable to an increase in equity partnership income.
Nine-month Period Ended September 30, 2000 Compared to the Nine-month Period
Ended September 30, 1999.
Premiums --
Premium revenue was $504.0 million for the nine-month period ended
September 30, 2000, a decrease of $9.6 million, or 1.9% from $513.6 million
reported for the comparable prior year period ended September 30, 1999.
Substantially all of the decrease related to traditional life insurance products
offered through the Company's Protection Products segment. The decrease was
comprised of (i) lower new premiums of $10.4 million, and (ii) lower renewal
premiums of $18.2 million due to the reduction of the in-force block of
business, offset by (i) higher single premium of $1.4 million, and (ii) an
increase in USFL of $17.5 million in premiums of which $15.9 million represented
new premiums on special risk term insurance products. The
31
<PAGE> 32
increase in new premiums written by USFL is primarily attributable to the
expansion of its distribution and the improvement of its financial strength
ratings since being acquired by the Company. Also contributing to the increase
in premiums generated by USFL was an abnormally high volume of applications
received in the 4th quarter of 1999, which management attributes to customers'
anticipation of higher rates resulting from new regulation, known as "Triple X",
requiring companies to increase reserves on term life insurance business.
Management believes that the decrease in traditional life insurance premiums is
consistent with industry trends, particularly the continuing shift by consumers
from traditional protection products to asset accumulation products. See "New
business Information" for a discussion regarding period to period sales and
related trends.
Universal life and investment-type product policy fees --
Universal life and investment-type product policy fees were $157.0 million
for nine-month period ended September 30, 2000, an increase of $11.3 million, or
7.8% from $145.7 million reported for the comparable prior year period ended
September 30, 1999. The increase consisted primarily of higher Protection
Products segment fees of $10.8 million. The increase in fees in the Protection
Products segment was primarily due to higher fees from the Company's VUL
business of approximately $12.7 million, offset by higher ceded reinsurance of
$3.5 million across the Protection Products segment. For the nine-month period
ended September 30, 2000, the Company reported total fees from its VUL business
of $38.5 million, as compared to $25.8 million reported for the comparable prior
year period. The increase in fees resulted primarily from new sales of such
business and the growing in-force block.
Net investment income and realized gains on investments --
Net investment income was $812.9 million for the nine-month period ended
September 30, 2000, an increase of $209.4 million, or 34.7%, from $603.5 million
reported for the comparable prior year period. The increase in net investment
income is primarily related to an increase in income recorded by the Company
from its investments in limited partnership interests. Such partnerships provide
venture capital funding to companies through the purchase of or investment in
equity securities issued by such companies. For the nine-month period ended
September 30, 2000, the Company earned $258.9 million relating to such
partnership investments, an increase of $189.0 million from $69.9 million
recorded for the nine-month period ended September 30, 1999. The balance of the
increase in investment income resulted from other invested asset categories
collectively and is primarily attributable to higher yields and an increase in
average invested assets. As of September 30, 2000, invested assets were
$10,913.2 million (including cumulative unrealized losses of $147.9 million on
fixed maturity securities) compared to $10,810.2 million (including cumulative
unrealized losses of $102.2 million on fixed maturity securities) for the prior
period. At September 30, 2000, fixed maturity securities, mortgage loans and
real estate represented approximately 59.9%, 15.2% and 2.9%, respectively, of
total invested assets, as compared to 61.4%, 15.5% and 4.0%, respectively, at
September 30, 1999. The annualized yield on the Company's invested assets,
including limited partnership interests, before and after realized
gains/(losses) on investments was 9.8% and 10.2%, respectively, for the
nine-month periods ended September 30, 2000, as compared to 7.5% and 8.7%,
respectively, for the nine-month period ended September 30, 1999. See
"Investments -- Results by Asset Category."
32
<PAGE> 33
Net realized capital gains were $32.6 million for the nine-month period
ended September 30, 2000, a decrease of $68.1 million, or 67.6% from $100.7
million for the comparable prior year period. The following table sets forth the
components of net realized gains (losses) for the nine-month period ended
September 30, 2000 compared to the nine-month period ended September 30, 1999.
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
PERIOD ENDED
SEPTEMBER 30,
-------------------
2000 1999
------- ------
<S> <C> <C>
Real estate................................................. $ 18.5 $47.6
Equity securities........................................... 13.8 41.8
Fixed maturities............................................ (19.3) 4.8
Mortgage loans.............................................. 19.6 1.9
Other....................................................... 0.0 4.6
------ -----
32.6 100.7
====== =====
</TABLE>
As of September 30, 2000, the Company had approximately $98.0 million of
additional pretax gains related to its venture capital limited partnership
investments that may be realized in the future subject to market fluctuations.
Net investment income and net realized gains on investments are allocated
to the Company's segments based on the assets allocated to such segments to
support the associated liabilities of each segment and to maintain a targeted
regulatory risk-based capital level for each segment. See "Segments".
Group Pension Profits --
Group Pension Profits were $29.0 million for the nine-month period ended
September 30, 2000, a decrease of $18.8 million, or 39.3%, from $47.8 million in
the comparable prior year period ended September 30, 1999. Group Pension Profits
for the nine-month periods ended September 30, 2000 and 1999, consisted of $18.6
million and $21.4 million, respectively, of Group Pension Payments and $10.4
million and $26.4 million, respectively relating to adjustments required to
reflect the earnings from such payments in accordance with GAAP. Such
adjustments primarily relate to changes in the valuation allowances established
to recognize impairment of assets supporting the business transferred in the
Group Pension Transaction as well as certain adjustments relating to
policyholder liabilities. The decrease of $18.8 million in the Group Pension
Profits is due to lower investment gains of $14.2 million from lower gains on
sales of real estate and lower mortgage recoveries on valuation allowances in
2000, as well as lower income of $4.6 million due to the run off of the Group
Pension business.
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. Management expects that Group Pension Profits will decline in
future period through to the termination of the Group Pension Transaction on
December 31, 2002 consistent with the continuing run-off of the underlying
business.
Other income --
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 $174.0 million for the period ended September 30, 2000, an
increase of $34.0 million, or 24.3%, from $140.0 million reported for the
comparable prior period. The increase was primarily due to higher income of $7.0
million, $24.4 million and $2.4 million in the Protection Products, Accumulation
Products and Other Products segments, respectively. The increase in the
Protection Products segment was primarily attributable to an increase in the
cash surrender value of the Company's COLI contract. In the second quarter of
2000, the Company purchased COLI from a third party insurance company to better
hedge changes in its nonqualified
33
<PAGE> 34
employee benefit liabilities. The increase in income recorded in the
Accumulation Products segment was primarily attributable to higher fees earned
by the Company's mutual fund management operations. The Company's mutual fund
management operations reported $81.4 million in fees from advisory, underwriting
and distribution services in the nine-month period ended September 30, 2000, as
compared to $ 61.2 million reported in the comparable prior period ended
September 30, 1999, as assets under management increased to approximately $8.6
billion at September 30, 2000 from $7.6 billion at September 30, 1999. In
addition, income from supplementary contracts increased $4.0 million in the
nine-month period ended September 30, 2000 as compared to the comparable prior
year period as interest rates on new supplementary contracts have increased,
making them more attractive. The increase in income recorded in the Other
Products segment was primarily due to higher commissions earned by the Company's
insurance brokerage operation.
Benefits to policyholders --
Benefits to policyholders were $577.1 million for the nine-month period
ended September 30, 2000, an increase of $9.3 million, or 1.6%, from $567.8
million reported in the comparable prior year period. The increase consisted
primarily of higher death benefits in the Company's Protection Product segment
due to (i) higher death claims of approximately $6.6 million in the Closed Block
and approximately $6.6 million on open block traditional business, and (ii) an
increase in death claims of $10.4 million in USFL, consistent with the growing
in-force block, offset by lower change in traditional reserves of $14.5 million
(of which approximately $12.1 million was in the Closed Block).
Interest credited to policyholders' account balances --
Interest credited to policyholders' account balances was $83.1 million for
the nine-month period ended September 30, 2000, a decrease of $4.1 million, or
4.7%, from $87.2 million reported for the comparable prior year period. The
decrease consisted primarily of lower interest crediting of $5.6 million in the
company's Accumulation Products segment on SPDA and other annuity business of
$3.4 million and $2.2 million, respectively. During the nine-month period ended
September 30, 2000, SPDA account value decreased approximately $61.2 million to
$318.3 million. The decrease in account value in the nine-month period ended
September 30, 2000 was primarily due to continuing withdrawals, which management
believes partially reflects consumer preferences for separate account products
as well as the aging of the in-force block of business.
Amortization of deferred policy acquisition costs --
Amortization of deferred policy acquisition costs ("DAC") was $105.4
million for the nine-month period ended September 30, 2000, a decrease of $3.2
million, or 2.9%, from $108.6 million reported in the comparable prior year
period. The decrease primarily resulted from lower amortization in the
Protection Products and Accumulation Products segment of approximately $1.8
million and $1.4 million, respectively. The decrease in DAC amortization in the
Protection Products segment primarily consisted of: (i) $5.4 million of lower
amortization related to the Company's traditional business, (ii) lower
amortization in CSVUL business of $0.8 million, due to higher death claims,
offset by higher amortization of $1.3 million in UL business due to lower death
claims. The decrease in DAC amortization in the Accumulation Products segment
was primarily due to the growing levels of exchange activity to the Company's
new variable annuity product and related expectations of better future
persistency. Almost $900 million of old variable annuities had been exchanged in
the nine month period ended September 30, 2000 compared to approximately $440
million in the comparable prior year period.
Dividends to policyholders --
Dividends to policyholders were $170.9 million for the nine-month period
ended September 30, 2000, a decrease of $10.3 million, or 5.7%, from $181.2
million reported for the comparable prior period. The decrease, substantially
all of which occurred in the Protection Products segment, resulted primarily
from a reduction in the additional dividend liability established in the Closed
Block as of September 30, 2000, as compared to September 30, 1999. As further
discussed in Note 6 to the Unaudited Interim Condensed Consolidated
34
<PAGE> 35
Financial Statements included elsewhere herein, all the assets in the Closed
Block inure solely to the benefit of the Closed Block policyholders, and to the
extent that the results of the Closed Block are more favorable than assumed in
establishing the Closed Block, total dividends paid to Closed Block
policyholders will be increased and are, accordingly, accrued as an additional
dividend liability. Such additional dividend liability will be reduced in future
periods to the extent that the results of such future periods are less than
assumed in establishing the Closed Block, but not below zero. Only the excess of
the Closed Block liabilities over the Closed Block assets at the date of the
establishment of the Closed Block (November 16, 1998) 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 --
Other operating costs and expenses were $389.0 million for the nine-month
period ended September 30, 2000, a decrease of $9.5 million, or 2.4%, from
$398.5 million reported for the comparable prior year period. The decrease
primarily consisted of $43.0 million of reconciling items, which was primarily
attributable to a one time restructuring charge of $58.9 million in connection
to the early retirement program during the third quarter of 1999. This was
offset by higher expenses of $8.6 million, $11.1 million, $10.1 million of cost
directly attributable to the Protection Product, Accumulation Product and Other
Product Segments, respectively. To the extent that costs are not directly
identifiable with an operating segment, such costs are allocated to the
Company's operating segments based on cost allocations utilizing time studies,
and cost estimates included in the Company's product pricing (see "Segments").
The increase of $8.6 million in costs directly attributable to the
Protection Products segment consisted of $5.6 million related to an increase in
USFL's expenses, consistent with an increase in USFL's sales activity, and an
increase of $3.0 million in costs related to the company's international
insurance operations. The increase of $11.1 million in costs directly
attributable to the Accumulation Products segment primarily consisted of higher
sub-advisory fees and other expenses incurred by the Company's mutual fund
management operations, which directly corresponded with an increase in revenues
from such operations (see discussion and analysis of other income above). The
increase of $10.1 million in costs directly attributable to the Other Products
segment primarily consisted of higher commissions and other expenses incurred by
the Company's broker-dealer operations of $5.3 million, and $3.0 million in
higher cost in connection with the Company's investment in its international
brokerage operations. Other allocable costs increased primarily due to an
increase in incentive compensation partially attributable to an increase in
equity partnership income offset by decreases in company benefit plan expenses.
NEW BUSINESS INFORMATION
The Company distributes its products primarily through its career agency
sales force and various complementary distribution channels which include: (i)
sales of proprietary retail mutual funds through third party broker-dealers,
(ii) sales of Protection Products by the Company's USFL subsidiary through
brokerage general agencies, (iii) sales of COLI products by the Company's
corporate marketing team, and (iv) sales of a variety of financial products and
services through the Company's Trusted Advisors subsidiary.
The table below and discussion which follows presents certain information
with respect to the Company's sales of protection products during the
three-month and nine-month periods ended September 30, 2000 and 1999 by source
of distribution. Management uses this information to measure the Company's sales
production from period to period by source of distribution. The amounts
presented with respect to life insurance sales represent annualized
statutory-basis premiums. Statutory basis premiums are used in lieu of GAAP
basis premiums because, in accordance with statutory accounting practices,
revenues from all classes of long-duration contracts are measured on the same
basis, whereas GAAP provides different revenue recognition rules for different
classes of long-duration contracts as defined by the requirements of SFAS No.
60, Accounting and Reporting by Insurance Enterprises, SFAS No. 97, Accounting
and Reporting by Insurance
35
<PAGE> 36
Enterprises for Certain Long Duration Contracts and for Realized Gains and
Losses from the Sale of Investments, and SOP 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
SOURCE OF DISTRIBUTION
PROTECTION PRODUCTS(1):
Career Distribution(2)...................................... $19.5 $21.7 $ 62.7 $ 71.3
Complementary Distribution.................................. 76.3 8.9 142.6 51.4
----- ----- ------ ------
Total New Annualized Life Insurance Premiums........... $95.8 $30.6 $205.3 $122.7
===== ===== ====== ======
</TABLE>
---------------
(1) Annualized premiums represent the total premium scheduled to be collected on
a policy or contract over a twelve-month period. Pursuant to the terms of
certain of the policies and contracts issued by the Company, premiums and
deposits may be paid or deposited on a monthly, quarterly, or semi-annual
basis. Annualized premium does not apply to COLI business or single premium
paying business. All premiums received on COLI business and single premium
paying policies during the period presented are included.
(2) Includes premiums or deposits that have been annualized.
Protection Segment -- New Business Information for the three-month period
ended September 30, 2000 compared to the three-month period ended September
30, 1999.
Total new annualized and single life insurance premiums for the three-month
period ended September 30, 2000 were $95.8 million, an increase of $65.2 million
from $30.6 million in the comparable prior year period. The increase was
primarily attributable to: (i) an increase in sales of USFL products through
brokerage general agencies from $7.7 million to $10.2 million resulting from the
expansion of its distribution and the improvement of its financial strength
ratings since being acquired by the Company, and (ii) an increase in sales of
corporate-owned life insurance ("COLI") from $1.2 million to 65.7 million
resulting from improved ratings and aggressive marketing efforts. COLI are large
premium cases that typically fluctuate over the course of the year.
New life insurance premiums from the career agency system (first-year and
single premiums) were $19.5 million for the three-month period ended September
30, 2000, compared to $21.7 million for the three month period ended September
30, 1999, U.S. career agency sales were level with the previous year while
international sales declined as expected, due to the formation of a Brazilian
based insurance brokerage operation and the transfer of sales agents to the
Brazilian insurance broker.
Protection Segment -- New Business Information for the nine-month period
ended September 30, 2000 compared to the nine-month period ended September
30, 1999.
Total new annualized and single life insurance premiums for the nine-month
period ended September 30, 2000 were $205.3 million, an increase of $82.6
million from $122.7 million for the comparable prior year period. The increase
was primarily attributable to: (i) an increase in sales of USFL products through
brokerage general agencies of $12.8 million resulting from the expansion of its
distribution and the improvement of its financial strength ratings since being
acquired by the Company and (ii) an increase in sales of COLI from $33.9 million
to $110.4 million in the third quarter of 2000 resulting from improved ratings
and aggressive marketing efforts.
New career agency life insurance premiums (first-year and single premiums)
were $62.7 million in the nine-month period ended September 30, 2000, a decrease
of $8.6 million from the comparable prior year period. The decrease is primarily
attributable to an unusually large case that was written during the first half
of 1999.
36
<PAGE> 37
Accumulation Segment --
The table below and discussion which follows presents certain information
with respect to the Company's sales of accumulation products. The amounts
presented with respect to annuity and mutual fund sales represent deposits made
by customers during the periods presented.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
SOURCE OF DISTRIBUTION:
ACCUMULATION PRODUCTS(1):
Variable Annuity-Career Distribution(2)(3).................. $ 90 $100 $ 322 $ 317
Mutual Funds-Career Distribution............................ 128 159 509 479
Mutual Funds-Complementary Distribution..................... 305 263 1,168 808
---- ---- ------ ------
Total Accumulation Product Sales....................... $523 $522 $1,999 $1,604
==== ==== ====== ======
</TABLE>
---------------
(1) Annualized premiums or deposits represent the total premium or deposits
scheduled to be collected on a policy or contract over a twelve-month
period. Pursuant to the terms of certain of the policies and contracts
issued by the Company, premiums or deposits may be paid or deposited on a
monthly, quarterly, or semi-annual basis. Annualized premium does not apply
to COLI business or single premium paying business. All premiums received on
COLI business and single premium paying policies during the period presented
are included.
(2) Includes premiums or deposits that have been annualized.
(3) Excludes annualized premiums or deposits associated with an exchange program
offered by the Company wherein contractholders surrendered old FPVA
contracts and reinvested the proceeds therefrom in a new enhanced FPVA
product offered by the Company.
37
<PAGE> 38
The following tables set forth assets under management as of September 30,
2000 and December 31, 1999, and changes in the primary components of assets
under management for the three-month and nine-month periods ended September 30,
2000 and 1999:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER DECEMBER 31,
30, 2000 1999
--------- ------------
($ IN BILLIONS)
<S> <C> <C>
ASSETS UNDER MANAGEMENT:(1)
Individual variable annuities............................... $ 4.6 $ 4.9
Individual fixed annuities.................................. 0.8 0.9
Proprietary retail mutual funds............................. 5.0 4.8
----- -----
$10.4 $10.6
===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
($ IN BILLIONS)
<S> <C> <C> <C> <C>
INDIVIDUAL VARIABLE ANNUITIES:
Beginning account value..................................... $ 4.7 $ 4.9 $ 4.9 $ 4.8
Sales(2).................................................... 0.1 0.1 0.3 0.3
Market appreciation......................................... 0.0 (0.2) 0.0 0.1
Surrenders and withdrawals(2)............................... (0.2) (0.2) (0.6) (0.6)
----- ----- ----- -----
Ending account value........................................ $ 4.6 $ 4.6 $ 4.6 $ 4.6
===== ===== ===== =====
PROPRIETARY RETAIL MUTUAL FUNDS:
Beginning account value..................................... $ 5.1 $ 3.7 $ 4.8 $ 3.0
Sales....................................................... 0.4 0.4 1.6 1.3
Dividends reinvested........................................ 0.0 0.0 0.1 0.0
Market appreciation......................................... (0.1) (0.1) (0.5) 0.1
Redemptions................................................. (0.4) (0.2) (1.0) (0.4)
----- ----- ----- -----
Ending account value........................................ $ 5.0 $ 3.8 $ 5.0 $ 3.8
===== ===== ===== =====
</TABLE>
---------------
(1) Results exclude recently acquired subsidiary -- USFL.
(2) Amounts presented in the three-month and nine-month periods ended September
30, 2000 and 1999 are net of transfers to the new product series.
New Business Information for the three-month period ended September 30, 2000
compared to the three-month period ended September 30, 1999.
New accumulation assets raised were $523 million for the three-month period
ended September 30, 2000 compared to $522 million in the comparable prior year
period.
New sales of variable annuities during the three-month period ended
September 30, 2000 were $90 million, an decrease of $10 million, or 10%, from
$100 million reported for the three-month period ended September 30, 1999.
Management believes that the decrease reflects significant competition with
respect to annuity sales. The Company has committed to offering products and
services that are consistent with our advice model and high ethical standards
only when such sales are in the best interests of our customers. Consistent with
these standards, MONY does not offer bonus annuities. Our career agents have
been focused on facilitating exchanges of their existing customer's old variable
annuity products to a new product series offered by the Company where the
customer receives better value. In the third quarter of 2000, customers
exchanged approximately $230 million of assets from the old variable annuity
series to the new series on a commission-free basis.
38
<PAGE> 39
Sales of proprietary retail mutual funds offered by the Company's mutual
fund subsidiary increased by $11 million, or 3%, to $433 million for the
three-month period ended September 30, 2000, as compared to $422 million for the
three-month period ended September 30, 1999. Proprietary mutual fund sales
through the Company's career agency system decreased approximately $31 million,
or 6.4% to $128 million for the three-month period ended September 30, 2000 from
$159 million for the three-month period ended September 30, 1999, while
proprietary mutual fund sales through third-party broker-dealers increased
approximately $42 million, or 16%, to $305 million for the three-month period
ended September 30, 2000 from approximately $263 million for the three-month
period ended September 30, 1999.
New Business Information for the nine-month period ended September 30, 2000
compared to the nine-month period ended September 30, 1999.
New accumulation assets raised were $1,999 million for the nine-month
period ended September 30, 2000 compared to $1,604 million in the nine-month
period ended September 30, 1999.
New sales of variable annuities during the nine-month period ended
September 30, 2000 were $322 million, an increase of $5 million, or 1.6%, from
$317 million reported for the nine-month period ended September 30, 1999. The
increase reflects the positive impact of the Company's effort to retain business
through the exchange program as discussed above. Exchanges from the old product
series to the new series for the nine-month period ended September 30, 2000 were
almost $900 million.
Sales of proprietary retail mutual funds offered by the Company's mutual
fund subsidiary increased by $390 million, or 30%, to $1,677 million for the
nine-month period ended September 30, 2000, as compared to $1,287 million for
the nine-month period ended September 30, 1999. Proprietary mutual fund sales
through the Company's career agency system increased approximately $30 million
or 6%, to $509 million for the nine-month period ended September 30, 2000, as
compared to $479 million for the nine-month period ended September 30, 1999.
Accumulation assets under management at September 30, 2000 were $10.4 billion,
compared with $10.6 billion at June 30, 2000 and $9.3 billion as of September
30, 1999. The decline in the equity markets during the third quarter was
primarily responsible for the decrease in assets under management from June 30,
2000 to September 30, 2000.
Enterprise mutual fund sales through complementary distribution channel
were $1,168 million in the third quarter of 2000, up 44.6% from $808 million in
the second quarter of 1999. Enterprise mutual fund sales through the career
agency system were $128 million in the third quarter of 2000, versus $159
million in the third quarter of 1999.
REPURCHASE OF SURPLUS NOTES
In two separate transactions on March 8, 2000 and August 3, 2000, MONY Life
repurchased substantially all of the surplus note indebtedness it had
outstanding at December 31, 1999. As a result of the repurchase, the Company
recorded an after-tax loss of $36.7 million during the first quarter of 2000 and
$1.0 million during the third quarter of 2000. The loss resulted from the
premium paid by MONY Life to the holders of the aforementioned surplus notes,
reflecting the excess of their fair value over their carrying value on the
Company's books at the date if the transaction, which aggregated approximately
$58.1 million. This loss is reported, net of tax, as an extraordinary item on
the Company's income statement in 2000. See Liquidity and Capital
Resources -- Issuance of Senior Notes and Repurchase of Surplus Notes and Note 7
to the Unaudited Interim Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company
MONY Group's cash flow consists of investment income from its invested
assets (including interest form intercompany Surplus Notes, as hereafter
defined), and dividends from MONY Life, if declared and paid, offset by expenses
incurred in connection with the administration of MONY Group's affairs and
interest expense on the Senior Notes, as hereafter defined (sees Insurance of
Senior Notes and Repurchase of Surplus
39
<PAGE> 40
Notes below). As a holding company, MONY Group's ability to meet its cash
requirements pay interest expense on Senior Notes, and pay dividends on its
Common Stock substantially depend upon payments from MONY Life, including the
receipt of; (i) dividends, (ii) interest income on the Inter-company Surplus
Notes, and (iii) other payments. The payment of dividends by MONY Life to MONY
Group is regulated under state insurance law. Under the New York Insurance Law,
MONY Life will be permitted to pay shareholder dividends 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. In addition, payments of principal and interest
on the Inter-company Surplus Notes can only be made with the prior approval of
the New York Superintendent "whenever, in his judgement, 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 have statutory earnings to support
the payment of dividends to the MONY Group or that the New York Superintendent
will approve interest payments to MONY Group on the Inter-company Surplus Notes.
Accordingly, there can be no assurance that MONY Group will have sufficient
funds to meet its cash requirements and pay cash dividends to shareholders. 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 of
dividends 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.
In January 2000, the New York State Insurance Department approved, and MONY
life paid, a dividend to MONY Group in the amount of $75.0 million.
The MONY Group expects to continue to pay a dividend on its common stock of
at least $0.40 per share in 2000. However, because the company has changed the
frequency of dividend payments from quarterly to annual it expects to increase
the $0.40 per share dividend to compensate shareholders for the time value of
money.
Issuance of Senior Notes and Repurchase of Surplus Notes --
On January 12, 2000, the Holding Company filed a registration statement of
Form S-3 with the Securities and Exchange Commission (the "SEC") to register
certain securities. This registration, known as a "Shelf Registration", provides
the Company with the ability to offer various securities to the public, when it
deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion
in the aggregate for all issuance's of securities thereunder. It is the
intention of the Company to use this facility to raise proceeds for mergers and
acquisitions and for other general corporate matters, as it considers necessary.
On March 8, 2000, the Holding Company issued $300.0 million principal
amount of senior notes (the "Senior Notes") pursuant to the aforementioned Shelf
Registration. The senior notes mature on March 15, 2010, bear interest at 8.35%
per annum and were priced at a discount to yield 8.38%. The principal amount of
senior notes is payable at maturity and interest is payable semi-annually. The
net proceeds to the Company from the issuance of the senior notes, after
deducting underwriting commissions and other expenses (primarily legal and
accounting fees), were approximately $296.6 million. Approximately $280.0
million of the net proceeds from the issuance of the senior notes was used by
the Holding Company as discussed below to finance the repurchase, on March 8,
2000, by MONY Life of all of its outstanding $115.0 million face amount 9.5%
coupon surplus notes, and a $116.5 million face amount of its $125.0 million
face amount 11.25% coupon surplus notes (hereafter referred to as the "9.5%
Notes" and "11.25% Notes, respectively), which were outstanding at December 31,
1999. In the third quarter of 2000, the Company repurchased another $6.5 million
face amount of the 11.25% Notes.
40
<PAGE> 41
To finance MONY Life's repurchase of the 9.5% Notes and the 11.25% Notes,
the Holding Company, on March 8, 2000:
(i) purchased two surplus notes from MONY Life (hereafter referred to as
the "Inter-company Surplus Notes") to replace the 9.5% Notes and the 11.25%
Notes. The terms of the Inter-company Surplus Notes are identical to the 9.5%
Notes and the 11.25% notes, except that the Inter-company Surplus Notes were
priced to yield a current market rate of interest and the inter-company surplus
note issued to replace the $116.5 million face amount of the 11.25% Notes was
issued at a face amount of $100.0 million and
(ii) contributed capital to MONY Life in the amount of $65.0 million
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes, the Company recorded an after-tax loss of $36.7 million during
the first quarter of 2000 and $1.0 million during the third quarter of 2000. The
loss resulted from the premium paid by MONY Life to the holders of the 9.5%
Notes and the 11.25% Notes reflecting the excess of their fair value over their
carrying value on the Company's books at the date of the transaction of
approximately $7.0 million and $51.1 million, respectively. This loss is
reported, net of tax, as an extraordinary item on the Company's income statement
in 2000. See "Repurchase of Surplus Notes".
Capitalization
The Company's total capitalization, excluding accumulated comprehensive
income, increased $235.3 million or 10.9% to $2,389.0 million at September 30,
2000, as compared to $2,153.7 million at December 31, 1999. The increase was
primarily the result of net income of $215.5 million. The Company's total debt
to equity (excluding accumulated comprehensive income) and total debt to total
capitalization (excluding accumulated comprehensive income) ratios increased to
17.3% and 14.7% at September 30, 2000, respectively, from 16.1% and 13.9% at
December 31, 1999, respectively. Included in total debt used in the above
calculations are $52.8 million and $58.8 million of non-recourse indebtedness at
September 30, 2000 and December 31, 1999, respectively.
MONY Life
MONY Life's cash inflows are provided mainly from life insurance premiums,
annuity considerations and deposit funds, investment income and maturities and
sales of invested assets. Cash outflows primarily relate to the liabilities
associated with its various life insurance and annuity products, dividends to
policyholders, operating expenses, income taxes, acquisitions of invested
assets, and principal and interest on its outstanding debt obligations. The life
insurance and annuity liabilities relate to the Company's obligation to make
benefit payments under its insurance and annuity contracts, as well as the need
to make payments in connection with policy surrenders, withdrawals and loans.
The Company develops an annual cash flow projection which shows expected asset
and liability cash flows on a monthly basis. At the end of each quarter actual
cash flows are compared to projections, projections for the balance of the year
are adjusted in light of the actual results, if appropriate, and investment
strategies are also changed, if appropriate. The quarterly cash flow reports
contain relevant information on all of the following: new product sales and
deposits versus projections, existing liability cash flow versus projections and
asset portfolio cash flow versus projections. An interest rate projection is a
part of the initial annual cash flow projections for both assets and
liabilities. Actual changes in interest rates during the year and, to a lesser
extent, changes in rate expectations will impact the changes in projected asset
and liability cash flows during the course of the year. When the Company is
formulating its cash flow projections it considers, among other things, its
expectations about sales of the Company's products, its expectations concerning
customer behavior in light of current and expected economic conditions, its
expectations concerning competitors and the general outlook for the economy and
interest rates.
The events most likely to cause an adjustment in the Company's investment
policies are: (i) a significant change in its product mix, (ii) a significant
change in the outlook for either the economy in general or for interest rates in
particular and (iii) a significant reevaluation of the prospective risks and
returns of various asset classes.
41
<PAGE> 42
The following table sets forth the withdrawal characteristics and the
surrender and withdrawal experience of the Company's total annuity reserves and
deposit liabilities at September 30, 2000 and December 31, 1999.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
SEPTEMBER 30, PERCENT DECEMBER 31, PERCENT
2000 OF TOTAL 1999 OF TOTAL
------------- -------- ------------ --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal
Provisions..................................... $1,390.4 19.1% $1,449.9 18.5%
Subject to discretionary withdrawal with market
value adjustment or at carrying value less
surrender charge............................... 4,782.6 65.7 5,165.6 66.1
-------- ----- -------- -----
Subtotal......................................... 6,173.0 84.8 6,615.5 84.6
-------- ----- -------- -----
Subject to discretionary withdrawal -- without
adjustment at carrying value................... 1,110.7 15.2 1,205.1 15.4
-------- ----- -------- -----
Total annuity reserves and deposit liabilities
(gross)........................................ 7,283.7 100.0% 7,820.6 100.0%
======== ===== ======== =====
Less reinsurance................................. 76.4 89.3
-------- --------
Total annuity reserves and deposit liabilities
(net).......................................... $7,207.3 $7,731.3
======== ========
</TABLE>
The following table sets forth by product line the actual surrenders and
withdrawals paid for the period indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -------------------
2000 1999 2000 1999
------ ------ -------- --------
<S> <C> <C> <C> <C>
PRODUCT LINE:(1)
Traditional life(2).................................... $ 87.3 $ 86.7 $ 293.2 $ 294.6
Variable and universal life.............................. 10.3 8.9 29.7 32.8
Annuities(3)............................................. 163.2 192.9 626.9 592.4
Pensions(4).............................................. 91.8 36.3 454.5 118.8
------ ------ -------- --------
TOTAL............................................... $352.6 $324.8 $1,404.3 $1,038.6
====== ====== ======== ========
</TABLE>
---------------
(1) Prior years' amounts have been restated primarily to include surrenders and
withdrawals related to the retained group pension business and the Company's
benefit plans.
(2) Includes approximately $19 million in 1999 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.
(3) Excludes surrenders associated with an exchange program offered by the
Company wherein contract holders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
(4) Excludes transfers between funds within the company benefit plans.
Annuity surrenders have increased for the nine-month period ended September
30, 2000 as compared to the comparable prior year period primarily due to the
aging of the block of business and consequent decrease in surrender charge rates
and due to an increase in competition. The Company responded to this trend by
enhancing its variable annuity products by offering new investment fund choices.
In addition, the Company has established a special conservation unit and offers
policyholders the opportunity to exchange their contracts for a new product
series. The positive effects of these conservation efforts are reflected in the
decrease in
42
<PAGE> 43
surrender activity in the third quarter of 2000 as compared to the comparable
prior year period. See "New Business Information."
The Company's principal sources of liquidity to meet cash outflows are its
portfolio of liquid assets and its net operating cash flow. During the
nine-month period ended September 30, 2000, the net cash outflow from operations
reported in the Company's consolidated cash flow statement was $100.2 million.
This amount excludes $73.2 million of cash in flow relating to the Closed Block.
Total combined cash outflow for the nine-month period ended September 30, 2000
(including the Closed Block) was $27.0 million, a decrease of $173.9 million
from $146.9 million of cash inflow reported for the nine-month period ended
September 30, 1999. The decrease primarily relates to lower operating cash flow
from the Closed Block, higher tax payments and lower Group Pension Payments. The
Company's liquid assets include substantial U.S. Treasury holdings, short-term
money market investments and marketable long-term fixed maturity securities.
Management believes that the Company's sources of liquidity are adequate to meet
its anticipated needs. As of September 30, 2000, the Company had readily
marketable fixed maturity securities with a carrying value of $6,533.3 million
(including fixed maturities in the Closed Block), which were comprised of
$3,550.7 million public and $2,982.6 million private fixed maturity securities.
At that date, approximately 92.6% of the Company's fixed maturity securities
were designated in NAIC rating categories 1 and 2 (considered investment grade,
with a rating of "Baa" or higher by Moody's or "BBB" or higher by S&P). In
addition, at September 30, 2000 the Company had cash and cash equivalents of
$515.3 million (including cash and cash equivalents in the Closed Block).
In addition, the Company maintains a bank line of credit facility with
domestic banks aggregating $150.0 million, with a scheduled renewal date in
September 2001. 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 this facility 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 $150.0
million commercial paper program which was activated in the third quarter of
2000. The Company has complied with all covenants under these lines of credit,
has not borrowed against these lines of credit since their inception, and does
not have any commercial paper outstanding as of September 30, 2000.
On January 12, 2000, the Company announced a plan to repurchase up to 5% or
approximately $2.4 million shares of the outstanding common shares of the
Company. Under the repurchase plan, the Company may repurchase common shares
from time to time, as market conditions and other factors warrant. The
repurchase program may be discontinued at any time.
At September 30, 2000, the Company had commitments to issue $10.5 million
of fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from 7.85% to 9.15%. In addition, the
Company had commitments to issue $115.3 million of fixed and floating rate
commercial mortgage loans with interest rates ranging from 7.75% to 9.30%. The
Company also had commitments outstanding to purchase $145.8 million of private
fixed and floating rate maturity securities as of September 30, 2000 with
interest rates ranging from 7.61% to 10.75%. At September 30, 2000, the Company
had commitments to contribute capital to its equity partnership investments of
$119.5 million.
Of the $1,350.4 million of currently outstanding commercial mortgage loans
in the Company's investment portfolio at September 30, 2000, $19.9 million,
$106.4 million, $165.6 million, and $83.7 million are scheduled to mature in
2000, 2001, 2002 and 2003, respectively.
The Company has one mortgage loan on its real estate properties. The
interest rates on this loan is 8.7%. The maturity on this loan is December 2000,
with an option to extend. Interest expense on mortgage loans was $1.9 million
and $2.1 million for the three-month period ended September 30, 2000 and 1999,
respectively, and $4.3 million and $4.1 million for the nine-month period ended
September 30, 2000 and 1999, respectively.
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 was due January 1, 2009. The remaining balance
of the interest-bearing note was paid in full on December 1, 1999, as part of
the sale of the property to a third party. This transactions continues to be
accounted for as a sale/leaseback arrangement, with the proceeds received of
approximately
43
<PAGE> 44
$44.0 million amortized into income over the life of the lease. The lease has a
term of 20 years beginning December 21, 1988 and requires minimum annual rental
payments of $7.3 million in 2000, $7.4 million in 2001, $7.6 million 2002, $7.7
million in 2003, $7.9 million in 2004 and $33.1 million thereafter. The Company
has the option to renew the lease at the end of the lease term.
At September 30, 2000, aggregate maturities of long-term debt based on
required remaining principal payments for 2000 and the succeeding four years are
$0.0 million, $0.0 million, $0.0 million, $0.0 million and $0.0 million,
respectively, and $302.0 million thereafter.
Aggregate contractual debt service payments on the Company's long term debt
at September 30, 2000, for the remainder of 2000 and the succeeding four years
are $14.2 million, $25.3 million, $25.3 million, $25.3 million and $25.3
million, respectively and $444.2 million thereafter.
Among the assets allocated to the Closed Block are the Series A Notes. MONY
Life has undertaken to reimburse the Closed Block from its general account
assets outside the Closed Block for any reduction in principal payments on the
Series A Notes pursuant to the terms thereof, as described in Note 4 to the
Unaudited Condensed Consolidated Financial Statements.
The NAIC established RBC requirements to help state regulators monitor and
safeguard life insurers' financial strength by identifying those companies that
may be inadequately capitalized. The RBC guidelines provide a method to measure
the adjusted capital (statutory-basis capital and surplus plus the Asset
Valuation Reserve and other adjustments) that a life insurance company should
have for regulatory purposes, taking into consideration the risk characteristics
of such company's investments and products. A life insurance company's RBC ratio
will vary over time depending upon many factors, including its earnings, the
nature, mix and credit quality of its investment portfolio and the nature and
volume of the products that it sells.
While the RBC guidelines are intended to be a regulatory tool only, and are
not intended as a means to rank insurers generally, comparisons of RBC ratios of
life insurers have become generally available. The adjusted RBC capital ratios
of all the Company's insurance subsidiaries at September 30, 2000 and December
31, 1999 were in excess of the minimum required RBC.
YEAR 2000
The Company successfully completed its Year 2000 Project (the "Project") to
ensure Year 2000 readiness. The Company developed and implemented an
enterprise-wide plan to prepare for the Year 2000 issue by ensuring compliance
of all applications, operating systems and hardware of mainframe, PC and local
area network ("LAN") platforms; ensuring the compliance of voice and data
network software and hardware; addressing the compliance of key vendors and
other third parties.
The total cost of the Project was $25.4 million. The Company does not
expect to incur any material future cost on the Project.
The Company has not experienced any significant Year 2000 related problems
post-December 31, 1999 with its operations of with any external parties with
which business is conducted. Based on this experience and the amount of work and
testing previously performed, the Company believes the likelihood of a Year 2000
issue that would have a material effect on the Company's consolidated financial
position and results of its operations continues to be remote as the Company
performs month-end, leap year, quarter-end, and year-end processing. However,
there is still the possibility that future Year 2000 related failures in the
Company's systems of 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.
44
<PAGE> 45
INVESTMENTS
On the effective date of the Plan, the Company's invested assets were
allocated between the Closed Block and operations outside the Closed Block. In
view of the similar asset quality characteristics of the major asset categories
in the two portfolios, the invested assets in the Closed Block have been
combined with the Company's invested assets outside the Closed Block for
purposes of the following discussion and analysis. In addition, the following
discussion excludes invested assets transferred in the Group Pension
Transaction. Accordingly, this discussion should be read in conjunction with the
summary financial information regarding assets transferred in the Group Pension
Transaction presented in Note 4 to the Unaudited Interim Condensed Consolidated
Financial Statements.
The yield on general account invested assets (including net realized gains
and losses on investments) was 9.2% and 9.0% for the three month period ended
September 30, 2000 and 1999, and 10.2% and 8.7% for the nine-month period ended
September 30, 2000 and 1999, respectively.
The following table illustrates the net investment income yields on average
assets for each of the components of the Company's investment portfolio,
excluding net realized gains. The yields are based on quarterly average carrying
values, (excluding unrealized gains (losses) in the fixed maturity asset
category). Equity real estate income is shown net of operating expenses,
depreciation and minority interest.
INVESTMENT RESULTS BY ASSET CATEGORY
<TABLE>
<CAPTION>
THREE-MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
NET INVESTMENT AVERAGE ASSET NET INVESTMENT AVERAGE ASSET
INCOME YIELD BALANCES INCOME YIELD BALANCES
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities.......................... 7.4% $ 6,661.3 7.2% $ 6,652.2
Equity securities......................... 37.3 535.0 34.1 463.3
Mortgage loans on real estate............. 8.2 1,764.0 8.4 1,642.5
Policy loans.............................. 6.9 1,260.0 6.5 1,267.4
Real estate............................... 6.1 341.3 8.5 459.1
Cash and cash equivalents................. 7.7 387.4 5.3 337.2
Other invested assets..................... 2.4 89.2 0.0 47.8
--------- ---------
Total invested assets before investment
expenses............................. 8.9% $11,038.2 8.4% $10,869.5
========= =========
Investment expenses..................... (0.5) (0.3)
---- ----
Total invested assets after investment
expenses(1).......................... 8.4% 8.1%
==== ====
</TABLE>
---------------
(1) The increase in net investment income yields was primarily due to an
increase in limited partnership income included in the equity securities
asset category of $11.1 million. The net investment income yields excluding
the limited partnership income are 6.8% and 6.7% for the three-month periods
ended September 30, 2000 and 1999 respectively.
45
<PAGE> 46
<TABLE>
<CAPTION>
NINE-MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
NET INVESTMENT AVERAGE ASSET NET INVESTMENT AVERAGE ASSET
INCOME YIELD BALANCES INCOME YIELD BALANCES
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities.......................... 7.3% $ 6,716.9 7.2% $ 6,599.1
Equity securities......................... 65.9 528.7 21.1 465.0
Mortgage loans on real estate............. 8.6 1,686.3 8.1 1,548.5
Policy loans.............................. 6.8 1,264.1 6.4 1,267.6
Real estate............................... 6.8 337.7 7.5 532.9
Cash and cash equivalents................. 6.6 379.8 4.8 366.5
Other invested assets..................... 6.1 69.9 (1.2) 46.1
--------- ---------
Total invested assets before investment
expenses............................. 10.2% $10,983.4 7.8% $10,825.7
========= =========
Investment expenses..................... (0.4) (0.3)
---- ----
Total invested assets after investment
expenses(1).......................... 9.8% 7.5%
==== ====
</TABLE>
---------------
(1) The increase in net investment income yields was primarily due to an
increase in limited partnership income included in the equity securities
asset category of $189.0 million. The net investment income yields excluding
limited partnership income is 6.9% and 6.6% for the nine-month period ended
September 30, 2000 and 1999, respectively.
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities, privately
placed debt securities and small amounts of redeemable preferred stock, and
represented 59.9% and 60.4% of total invested assets at September 30, 2000 and
December 31, 1999, respectively.
The Securities Valuation Office of the NAIC evaluates the bond investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC Designations". The NAIC Designations
closely mirror the Nationally Recognized Securities Rating Organizations' credit
ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered
investment grade ("Baa" or higher by Moody's, or "BBB" or higher by S&P) by such
rating organizations. NAIC Designations 3 through 6 are referred to as below
investment grade ("Ba" or lower by Moody's, or "BB" or lower by S&P).
Of the Company's total portfolio of fixed maturity securities at September
30, 2000, 92.6% were investment grade and 7.4% were below-investment grade.
The Company reviews all fixed maturity securities at least once each
quarter and identifies investments that management concludes require additional
monitoring. Among the criteria are: (i) violation of financial covenants, (ii)
public securities trading at a substantial discount as a result of specific
credit concerns, and (iii) other subjective factors relating to the issuer.
The Company defines problem securities in the fixed maturity category as
securities (i) as to which principal and/or interest payments are in default or
are to be restructured pursuant to commenced negotiations or (ii) 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
46
<PAGE> 47
characteristics: a reduction in the interest rate, an extension of the maturity
date and a partial forgiveness of principal and/or interest. There were no
restructured fixed maturities at September 30, 2000 and December 31, 1999.
As of September 30, 2000 the fair value of the Company's problem, potential
problem and restructured fixed maturities were $41.8 million, $21.1 million and
$0.0 million, respectively, which, in the aggregate, represented approximately
1.0% of total fixed maturities. As of December 31, 1999, the fair value of the
Company's problem, potential problem and restructured fixed maturities were
$45.9 million, $32.8 million and $0.0 million, respectively, which, in the
aggregate, represented approximately 1.9% of total fixed maturities.
At September 30, 2000, the Company's largest unaffiliated single
concentration of fixed maturities was $257.6 million of Federal Home Loan
Mortgage Corporation ("FHLMC") which represents 2.4% of total invested assets.
The largest non-government issuer consists of $195.3 million of AEGON notes
purchased in connection with the Group Pension Transaction. These notes
represent approximately 1.8% of total invested assets at September 30, 2000. No
other individual non-government issuer represents more than 0.4% of invested
assets.
The Company held approximately $1,106.5 million and $1,138.5 million of
mortgage-backed and asset-backed securities as of September 30, 2000 and
December 31, 1999, respectively. Of such amounts, $352.0 million and $391.5
million, or 31.8% and 34.4%, respectively, represented agency-issued
pass-through and collateralized mortgage obligations ("CMOs") secured by Federal
National Mortgage Association, FHLMC, Government National Mortgage Association
and Canadian Housing Authority collateral. The balance of such amounts were
comprised of other types of mortgage-backed and asset-backed securities. The
Company believes that its active monitoring of its portfolio of mortgage-backed
securities and the limited extent of its holdings of more volatile types of
mortgage-backed securities mitigate the Company's exposure to losses from
prepayment risk associated with interest rate fluctuations for this portfolio.
At September 30, 2000 and December 31, 1999, 85.7% of the Company's
mortgage-backed and asset-backed securities were assigned an NAIC Designation of
1 at such dates.
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
CMOs........................................................ $ 497.7 500.1
Pass-through securities..................................... 28.3 31.0
Commercial MBSs............................................. 101.8 118.5
Asset-backed securities..................................... 478.7 488.9
-------- --------
Total MBSs and asset-backed securities................. $1,106.5 $1,138.5
======== ========
</TABLE>
47
<PAGE> 48
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of
September 30, 2000 and December 31, 1999 are as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 DECEMBER 31, 1999
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less................................ $ 85.2 $ 85.3 $ 206.5 $ 208.5
Due after one year through five years.................. 1,537.3 1,523.8 1,506.6 1,487.9
Due after five years through ten years................. 2,692.8 2,622.6 2,711.9 2,612.9
Due after ten years.................................... 1,240.9 1,195.1 1,153.9 1,098.4
-------- -------- -------- --------
Subtotal............................................. 5,556.2 5,426.8 5,578.9 5,407.7
Mortgage-backed and other asset-backed securities...... 1,125.0 1,106.5 1,173.7 1,138.5
-------- -------- -------- --------
Total................................................ $6,681.2 $6,533.3 $6,752.6 $6,546.2
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Mortgage loans comprised 15.2% and 15.8% of total invested assets as of
September 30, 2000 and December 31, 1999, respectively. Mortgage loans consist
of commercial, agricultural and residential loans. As of September 30, 2000 and
December 31, 1999 commercial mortgage loans comprised $1,350.4 million and
$1,141.4 million or 81.4% and 66.6% of total mortgage loan investments,
respectively. Agricultural loans comprise $307.7 million and $570.7 million, or
18.5% and 33.3% of total mortgage loans, respectively. Residential mortgage
loans comprised $1.1 million and $1.3 million, or 0.1% and 0.1% of total
mortgage loan investments at September 30, 2000 and December 31, 1999,
respectively.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $45.8 million and represented less than
0.5% of general account invested assets as of September 30, 2000. Amounts loaned
on 19 properties were $20 million or greater, representing in the aggregate
39.7% of the total carrying value of the commercial loan portfolio at the same
date. Total mortgage loans to the five largest borrowers accounted in the
aggregate for approximately 23.0% of the total carrying value of the commercial
loan portfolio and less than 2.9% of total invested assets at September 30,
2000.
48
<PAGE> 49
The following table presents the Company's commercial mortgage loan
maturity profile for the period indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF
2000 DECEMBER 31, 1999
---------------- ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- --------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1 year or less............................................. $ 117.8 8.7% $ 26.6 2.3%
Due after one year through five years...................... 430.0 31.9 401.0 35.2
Due after five years through ten years..................... 498.8 36.9 425.6 37.3
Due after ten years........................................ 303.8 22.5 288.2 25.2
-------- ----- -------- -----
$1,350.4 100.0% $1,141.4 100.0%
======== ===== ======== =====
</TABLE>
Problem, Potential Problem and Restructured Commercial Mortgages
Commercial mortgage loans are stated at their unpaid principal balances,
net of valuation allowances and writedowns for impairment. The Company provides
valuation allowances for commercial mortgage loans considered to be impaired.
Mortgage loans are considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When the Company
determines that a loan is impaired, a valuation allowance for loss is
established for the excess of the carrying value of the mortgage loan over its
estimated fair value.
Estimated fair value is based on either the present value of expected
future cash flows discounted at the loan's original effective interest rate, the
loan's observable market price of the fair value of the collateral. The
provision for loss is reported as a realized loss on investment.
The Company reviews its mortgage loan portfolio and analyzes the need for a
valuation allowance for any loan which is delinquent for 60 days or more, in
process of foreclosure, restructured, on "watchlist", or which currently has a
valuation allowance. Loans which are delinquent and loans in process of
foreclosure are categorized by the Company as "problem" loans. Loans with
valuation allowances, but which are not currently delinquent, and loans which
are on watchlist are categorized by the Company as "potential problem" loans.
Loans for which the original terms of the mortgages have been modified or for
which interest or principal payments have been deferred are categorized by the
Company as "restructured" loans.
The following table presents the carrying amounts of problem, potential
problem and restructured commercial mortgage loans relative to the carrying
value of all commercial mortgage loans as of the dates indicated. The table also
presents the valuation allowances and writedowns recorded by the Company
relative to commercial mortgages defined as problem, potential problem and
restructured as of each of the dates indicated.
49
<PAGE> 50
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
COMMERCIAL MORTGAGES AT CARRYING VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $1,350.4 $1,141.4
-------- --------
Problem commercial mortgages(1)............................. 8.0 0.0
Potential problem commercial mortgages...................... 71.4 72.1
Restructured commercial mortgages........................... 84.8 134.8
-------- --------
Total problem, potential problem & restructured commercial
mortgages................................................. $ 164.2 $ 206.9
-------- --------
Total problem, potential problem and restructured commercial
mortgages as a percent of total commercial mortgages...... 12.2% 18.1%
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Valuation allowances/writedowns(2)
Problem loans............................................... $ -- $ --
Potential problem loans..................................... 15.0 16.2
Restructured loans.......................................... 7.9 26.0
-------- --------
Total valuation allowances/writedowns(2).................... $ 22.9 $ 42.2
-------- --------
Total valuation allowances/writedowns as a percent of
problem, potential problem and restructured commercial
mortgages at carrying value before valuation allowances
and writedowns............................................ 12.2% 16.9%
======== ========
</TABLE>
---------------
(1) Problem commercial mortgages included delinquent mortgages of $0.0 million
and $0.0 million and loans in process of foreclosure of $8.0 million and
$0.0 million at September 30, 2000 and December 31, 1999 respectively.
(2) Includes impairment writedowns recorded prior to the adoption of FASB No.
114, Accounting by Creditors for Impairment of a Loan, of $11.1 million and
$26.3 million at September 30, 2000 and December 31, 1999, respectively.
In addition to valuation allowances and impairment writedowns recorded on
specific commercial mortgage loans classified as problem, potential problem, and
restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other such mortgage loans based on its historical loss
experience for such investments. As of September 30, 2000 and December 31, 1999,
such reserves were $17.1 million, and $14.1 million, respectively.
50
<PAGE> 51
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the Company relative to agricultural
mortgages defined as problem, potential problem and restructured as of each of
the aforementioned dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
AGRICULTURAL MORTGAGES AT CARRYING VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total agricultural mortgages................................ $307.7 $570.7
------ ------
Problem agricultural mortgages(1)......................... $ 18.3 $ 7.4
Potential problem agricultural mortgages.................. 0.0 1.4
Restructured agricultural mortgages....................... 11.1 9.3
------ ------
Total problem, potential problem & restructured agricultural
mortgages................................................. $ 29.4 $ 18.1
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 9.6% 3.2%
====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Valuation allowances/writedowns:
Problem loans............................................. $ 0.0 $ 0.2
Potential problem loans................................... 0.0 0.1
Restructured loans........................................ 0.2 0.5
------ ------
Total valuation allowances/writedowns....................... $ 0.2 $ 0.8
------ ------
Total valuation allowances as a percent of problem,
potential problem and restructured agricultural mortgages
at carrying value before valuation allowances and
writedowns................................................ 0.7% 4.2%
====== ======
</TABLE>
---------------
(1) Problem agricultural mortgages include delinquent mortgage loans of $15.0
million and $3.1 million and loans in process of foreclosure of $3.3 million
and $4.3 million at September 30, 2000 and December 31, 1999, respectively.
In addition to valuation allowances and impairments writedowns recorded on
specific agricultural mortgage loans classified as problem, potential problem,
and restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other agricultural mortgage loans based on its historical
loss experience for such investments. As of September 30, 2000 and December 31,
1999, such reserves were $2.8 million and $5.6 million, respectively.
EQUITY REAL ESTATE
The Company holds real estate as part of its general account investment
portfolio. The Company has adopted a policy of not investing new funds in equity
real estate except to safeguard values in existing investments or to honor
outstanding commitments. As of September 30, 2000 and December 31, 1999, the
carrying value of the Company's real estate investments was $306.2 million and
$369.1 million, respectively, or
51
<PAGE> 52
2.9% and 3.4%, respectively, of general account invested assets. The Company
owns real estate, interests in real estate joint ventures (both majority owned
and minority owned), and real estate acquired upon foreclosure of commercial and
agricultural mortgage loans. The following table presents the carrying value of
the Company's equity real estate investments by such classifications.
EQUITY REAL ESTATE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Real estate................................................. $ 81.6 $140.3
Joint ventures.............................................. 113.2 107.8
------ ------
Subtotal.................................................. 194.8 248.1
Foreclosed.................................................. 111.4 121.0
------ ------
Total............................................. $306.2 $369.1
====== ======
</TABLE>
REAL ESTATE SALES
In accordance with its ongoing strategy to strengthen the Company's
financial position, management expects to continue to selectively sell equity
real estate. Once management identifies a real estate property to be sold and
commences a plan for marketing the property, the property is classified as to be
disposed of and a valuation allowance is established and periodically revised,
if necessary, to adjust the carrying value of the property to reflect the lower
of its current carrying value or the fair value, less associated selling costs.
At September 30, 2000 and December 31, 1999, the carrying value of real estate
to be disposed of was $259.7 million and $322.9 million, respectively, or 2.5%
and 3.0%, respectively of invested assets at such dates. The aforementioned
carrying values are net of valuation allowances of $17.7 million and $22.0
million, at September 30, 2000 and December 31, 1999, respectively. In addition,
the carrying value of real estate to be disposed of at such dates is net of
$35.9 million and $62.3 million of impairment adjustments, respectively. For the
nine-months period ended September 30, 2000 and the year ended December 31 1999,
the income statement impact of changes in valuation allowances aggregated $0.7
million and ($12.1) million, respectively.
The following table analyzes the Company's real estate sales during the
period indicated.
REAL ESTATE SALES(1)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Sale Proceeds............................................... $97.3 $87.1 $102.3 $260.1
Carrying value at date of sale.............................. 78.6 $73.1 81.6 $204.5
===== ===== ====== ======
Gain (loss)................................................. $18.7 $14.0 $ 20.7 $ 55.6
===== ===== ====== ======
</TABLE>
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.
52
<PAGE> 53
EQUITY SECURITIES
The Company's equity securities consist of investments in common stocks and
limited partnership interests. The following table presents the carrying values
of the Company's equity securities at the dates indicated:
INVESTMENTS IN EQUITY SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Common Stocks............................................... $224.2 $277.2
Limited partnership interests............................... 313.3 242.6
------ ------
Total............................................. $537.5 $519.8
====== ======
</TABLE>
Common Stocks:
The Company's investments in common stocks represented 2.1% and 2.6% of
invested assets at September 30, 2000 and December 31, 1999, respectively. The
Company's investments in common stocks are classified as available-for-sale and
are reported at estimated fair value. Unrealized gains and losses on the
Company's common stocks are reported as a separate component of other
comprehensive income, net of deferred income taxes, and an adjustment for the
effect on deferred policy acquisition costs that would have occurred if such
gains and losses had been realized.
Limited Partnership Interests:
The Company accounts for its investments in limited partnership interests
in accordance with either the equity method of accounting or the cost method of
accounting depending upon the Company's percentage of ownership of the
partnership and the date the partnership was acquired. In general, partnership
interests acquired after May 18, 1995 are accounted for in accordance with the
equity method of accounting if the Company's ownership interest exceeds 3
percent, whereas, if the partnership was acquired prior to May 18, 1995, the
equity method would be applied only if the Company's ownership interest exceeded
20 percent. In all other circumstances, the Company accounts for its investment
in limited partnership interests in accordance with the cost method.
Under the equity method of accounting, an investor is required to record in
its income its share of the income or loss reported by the investee, and
correspondingly, increase or decrease the carrying value of such investment in
its balance sheet. Distributions of income or dividends from the partnership are
recorded as a reduction in the carrying value of the investment. In applying the
equity method, the investor is not permitted to adjust the income reported by an
investee to conform the investee's accounting policies to that followed by the
investor.
Under the cost method of accounting, the investment is carried at its
original cost and income is recognized when distributed as dividends from the
partnership. The carrying amount of the investment is reduced upon receipt of a
distribution characterized by the partnership as a return of capital or
liquidating dividend or when management has determined that the investment or
portion thereof may not be recovered.
In accordance with GAAP, limited partnerships report their investments at
fair value. Changes in the fair value of the investments are reflected in the
net income of the partnerships. Accordingly, a significant portion of the income
reported by the Company from partnerships accounted for under the equity method
results from unrealized appreciation in the investments of the partnerships.
The limited partnerships in which the Company has invested are
partnerships, which invest in the equity of private companies, generally in the
form of common stock. These partnerships will generally hold such equity until
the underlying company issues its securities to the public through an initial
public offering, or the equity is purchased by other public companies through
exchange of stock. At that time or thereafter, at the
53
<PAGE> 54
general partners' discretion, the partnership will generally distribute the
underlying publicly traded common stock to its partners. Upon distribution, the
Company will record the common stock received at fair value, reverse the
carrying value of the corresponding limited partnership investment, and record
as investment income any excess of the fair value of the common stock
distributed over the carrying value of the limited partnership investment.
Accordingly, certain of the common stocks owned by the Company at September 30,
2000 and December 31, 1999 were acquired through distributions from the
Company's investments in limited partnership interests. However, it has been the
Company's practice to sell such positions shortly after such distributions
occur.
The following table sets forth the carrying value of the Company's
investments in limited partnership interests sorted by the basis upon which the
Company accounts for such investments, as well as the amount of such investments
attributable to the partnerships' ownership of public and private common stock
at September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
CARRYING VALUE
----------------------------
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
EQUITY METHOD
Public common stock.................................... $ 94.3 $ 57.6
Private common stock................................... 87.0 69.3
------ ------
Sub Total............................................ 181.3 126.9
COST METHOD
Public common stock.................................... 33.1 40.8
Private common stock................................... 98.9 74.9
------ ------
Sub Total............................................ 132.0 115.7
------ ------
Total Limited Partnership Interests.................. $313.3 $242.6
====== ======
</TABLE>
Investment in Equity Limited Partnership Interests by Sector:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------ -------- -----
<S> <C> <C> <C> <C>
Information Technology................................... $175.0 55.8% $126.9 52.4%
Domestic LBO............................................. 49.0 15.6% 44.0 18.1%
Life Sciences............................................ 20.0 6.4% 12.6 5.2%
Telecommunications....................................... 19.3 6.2% 25.5 10.5%
International LBO........................................ 18.4 5.9% 17.7 7.3%
Merchant Banking......................................... 17.0 5.4% 15.4 6.3%
Other.................................................... 14.6 4.7% 0.5 0.2%
------ ----- ------ -----
Total.......................................... $313.3 100.0% $242.6 100.0%
====== ===== ====== =====
</TABLE>
At September 30, 2000, and December 31, 1999, the Company had investments
in approximately 58 and 50 different limited partnerships which represented 2.9%
and 2.2%, respectively, of the Company's general account invested assets.
Investment results for the portfolio are dependent upon, among other things,
general market conditions for initial and secondary offerings of common stock.
For the three-month periods ended September 30, 2000 and 1999, investment income
from equity partnership interests (which is comprised primarily of the Company's
pro rata share of income reported by partnerships accounted for under the equity
method and income recognized upon distribution for partnership investments
accounted for under the cost method) was approximately $49.1 million and $38.0
million, respectively. For the nine-month period ended September 30, 2000 and
September 30, 1999, investment income from equity limited partnership interests
was
54
<PAGE> 55
approximately $258.9 million and $69.9 million, respectively, representing 31.8%
and 11.6% respectively, of the net investment income for such period. There can
be no assurance that the recent level of investment income and returns achieved
on limited partnership investments can be sustained in the future, and the
failure to do so could have a material adverse effect on the Company's financial
position and results of operations.
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $25.3 $ 19.2
Equity securities........................................... 6.3 4.7
Mortgages................................................... 11.1 26.3
Real estate(1).............................................. 46.8 73.2
----- ------
Total.................................................. $89.5 $123.4
===== ======
</TABLE>
---------------
(1) Includes $38.3 million and $48.0 million as of September 30, 2000 and
December 31, 1999, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Mortgages................................................... $32.2 $37.3
Real estate................................................. 17.7 22.0
----- -----
Total.................................................. $49.9 $59.3
===== =====
</TABLE>
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $ 25.3 $ 19.2
Equity securities........................................... 6.3 4.7
Mortgages................................................... 43.3 63.6
Real estate................................................. 64.5 95.2
------ ------
Total.................................................. $139.4 $182.7
====== ======
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's 1999 Annual Report on Form 10-K for a description of
the Company's exposures to market risk, as well as the Company's objectives,
policies and strategies relating to the management of such risks. The relative
sensitivity to changes in fair value from interest rates and equity prices at
September 30, 2000 is not materially different from that presented in the
Company's 1999 Annual Report on Form 10-K at December 31, 1999.
55
<PAGE> 56
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since late 1995 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
universal life insurance policies from the early 1980s through 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
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primarily equitable relief (e.g., reformation, specific performance, mandatory
injunctive relief prohibiting the Company from canceling policies for failure to
make required premium payments, imposition of a constructive trust and creation
of a claims resolution facility to adjudicate any individual issues remaining
after resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts. The Company
has answered the complaints in each action, (except for one being voluntarily
held in abeyance), has denied any wrongdoing and has asserted numerous
affirmative defenses.
On September 7, 1996, the New York State Supreme Court certified one of
those cases the Goshen v. The Mutual Life Insurance Company of New York and MONY
Life Insurance Company of America, (not known as Defillipo, et al v. The Mutual
Life Insurance Company of New York and MONY Life Insurance Company), 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 have been
consolidated and transferred by the Judicial Panel on Multidistrict Litigation
to the United States District Court for the District of Massachusetts, or are
being voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On December 20, 1999, the New York State
Court of Appeals affirmed the dismissal of all but one of the claims in the
Goshen case (a claim under New York's General Business Law), which has been
remanded back to the New York State Supreme Court for further proceedings
consistent with the opinion. The Company intends to defend itself vigorously
against the sole remaining claim.
b.) On November 16, 1999, The MONY Group, Inc. and MONY Life Insurance
Company were served with a complaint in an action entitled Calvin Chatlos, M.D.,
and Alvin H. Clement, On Behalf of Themselves And All Others Similarly Situated
v. The MONY Life Insurance Company, The MONY Group Inc., and Neil D. Levin,
Superintendent, New York Department of Insurance, filed in the United States
District Court for the Southern District of New York. The action purports to be
brought as a class action on behalf of all individuals who had an ownership
interest in one or more in-force life insurance policies issued by MONY Life
Insurance Company as of November 16, 1998. The complaint alleges that (i) the
New York Superintendent of Insurance, Neil D. Levin, violated Section 7312 of
the New York Insurance Law by approving the plan of demutualization, which
plaintiffs claim was not fair and adequate, primarily because it allegedly
failed to provide for sufficient assets for the mechanism established under the
plan to preserve reasonable dividend expectations of the closed block, and (ii)
MONY violated Section 7312 by failing to develop and submit to the
Superintendent a plan of demutualization that was fair and adequate. The
plaintiffs seek equitable relief in the form of an order vacating and/or
modifying the Superintendent's order approving the plan of demutualization
and/or directing the Superintendent to order MONY to increase the assets in the
closed block, as well as unspecified monetary damages, attorneys' fees and other
relief.
56
<PAGE> 57
In early January 2000, MONY and the Superintendent wrote to the District
Court seeking a pre-motion conference preliminary to the filing of a motion to
dismiss the federal complaint on jurisdictional, federal abstention and
timeliness grounds and for failure to state a claim. Following receipt of those
letters, plaintiffs' counsel offered voluntarily to dismiss their complaint, and
a stipulation and order to that effect was thereafter filed and approved by the
court.
On March 27, 2000, plaintiffs filed a new action in New York State Supreme
Court bearing the same caption and naming the same defendants as the previously
filed federal action. The state court complaint differs from the complaint
previously filed in federal court in two primary respects. First, it no longer
asserts a claim for damages against the Superintendent, nor does its prayer for
relief seek entry of an order vacating or modifying the Superintendent's
decision or requiring the Superintendent to direct MONY to place additional
assets into the closed block. Rather, it seeks an accounting and an order from
the Court directing MONY to transfer additional assets to the closed block.
Second, the new complaint contains claims for breach of contract and
fiduciary duty, as well as new allegations regarding the adequacy of the
disclosures contained in the Policyholder Information Booklet distributed to
policyholders soliciting their approval of the plan of demutualization (which
plaintiffs claim violated both the Insurance Law and MONY's fiduciary duties).
In order to challenge successfully the New York Superintendent's approval
of the plan, plaintiffs would have to sustain the burden of showing that such
approval was arbitrary and capricious or an abuse of discretion, made in
violation of lawful procedures, affected by an error of law or not supported by
substantial evidence. In addition, Section 7312 provides that MONY may ask the
court to require the challenging party to give security for the reasonable
expenses, including attorneys' fees, which may be incurred by MONY or the
Superintendent or for which MONY may become liable, to which security MONY shall
have recourse in such amount as the court shall determine upon the termination
of the action.
MONY and the Superintendent have moved to dismiss the state court complaint
in its entirety on a variety of grounds. That motion is fully briefed and
awaiting decision by the court. MONY believes that there are substantial
defenses to plaintiffs' claims and intends to defend itself vigorously.
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.
There can be no assurance, however, that the present litigation will not have a
material adverse effect on MONY.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.1 Credit Agreement dated September 23, 2000.
57
<PAGE> 58
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 23, 2000 announcing
the merger with The Advert Group, Inc.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MONY GROUP INC.
By: /s/ RICHARD DADDARIO
------------------------------------
Richard Daddario
Executive Vice President and
Chief Financial Officer
(Authorized Signatory and Principal
Financial Officer)
Date: November 13, 2000
By: /s/ LARRY COHEN
------------------------------------
Larry Cohen
Vice President and Controller
(Principal Accounting Officer)
Date: November 13, 2000
S-1
