UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
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or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 33-20104
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MetLife Texas Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3437648
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Madison Avenue, New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (212)578-3437
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Not Applicable
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(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 .
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.
Common Stock, $1.00 Par Value 1,000
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Title of Class Outstanding at June 30, 1996
METLIFE TEXAS HOLDINGS, INC.
INDEX
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Part I. FINANCIAL INFORMATION Page No(s)
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Item 1. Financial Statements
Condensed Consolidated Statements of
Income for the quarters and years-to-date
ended June 30, 1996 and 1995 (Unaudited) 3-4
Condensed Consolidated Balance Sheets
as of June 30, 1996 (Unaudited) and
December 31, 1995 5
Condensed Consolidated Statements of
Cash Flows for the years-to-date ended
June 30, 1996 and 1995 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-9
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 10-14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K
(including Exhibit Index) 15
Signatures 16
METLIFE TEXAS HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
METLIFE TEXAS HOLDINGS INC. AND SUBSIDIARY
[TEXT]
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues
Traditional life insurance premiums........ $ 3,497 $ 3,026 $ 6,879 $ 5,965
Universal life and investment product
policy charges........................... 3,770 3,648 7,399 7,292
Investment income (less related expenses).... 7,697 7,748 16,128 15,198
Trading securities-unrealized gain (loss).... 505 0 (205) 0
Realized (loss) gain on investments.......... (854) (68) (352) 5
Other income................................. 152 112 218 172
------- ------- ------- -------
14,767 14,466 30,067 28,632
------- ------- ------- -------
Benefits, Claims and Expenses:
Policyholder benefits and claims............. 2,408 2,641 6,076 5,729
Change in liability for future
policyholder benefits...................... 6,187 5,531 12,416 11,079
Operating expenses........................... 2,000 1,671 4,110 3,531
Commissions, taxes and fees.................. 845 813 1,718 1,594
Amortization of policy acquisition costs..... 915 847 1,788 1,646
Amortization of cost of insurance acquired... 501 565 1,048 1,122
------- ------- ------- -------
12,856 12,068 27,156 24,701
------- ------- ------- -------
Income before income taxes................... 1,911 2,398 2,911 3,931
------- ------- ------- -------
Provision (benefit) for federal income taxes
Current.................................... 442 917 1,281 1,439
Deferred................................... 301 (57) (236) 3
------- ------- ------- -------
743 860 1,045 1,442
------- ------- ------- -------
Net income................................... $ 1,168 $ 1,538 $ 1,866 $ 2,489
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) June 30, December 31,
1996 1995
<S> <C> <C> -------- ------------
ASSETS (Unaudited)
Investments:
Fixed maturities available for sale.... $275,606 $276,101
Fixed maturities held to maturity...... 56,646 59,406
Fixed maturities held for trading...... 0 13,134
Equity securities...................... 2,525 3,362
Mortgage loans......................... 33,330 35,155
Cash and cash equivalents.............. 39,113 20,930
Policy loans........................... 29,642 29,642
Other.................................. 3,830 3,550
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440,692 441,280
Deferred policy acquisition costs........... 45,822 38,474
Cost of insurance acquired.................. 41,672 36,911
Goodwill.................................... 4,253 4,352
Investment income due and accrued........... 6,412 6,194
Amounts due from reinsurers................. 5,146 4,706
Other....................................... 3,358 4,803
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TOTAL ASSETS $547,355 $536,720
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LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Policy liabilities.......................... $395,991 $384,825
Deferred federal income tax................. 15,738 17,044
Contingent notes payable.................... 7,874 7,874
Notes payable to affiliates................. 12,500 12,500
General expenses............................ 10,150 9,659
Other....................................... 15,797 15,138
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Total Liabilities........................... 458,050 447,040
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Stockholders Equity:
Common stock, par value $1.00 (1,000 shares
authorized, issued and outstanding)....... 1 1
Additional paid-in capital.................. 60,200 60,200
Retained earnings........................... 28,711 26,845
Net unrealized investment gains on
fixed maturities available for sale and
equity securities......................... 393 2,634
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Total Stockholders Equity.................. 89,305 89,680
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $547,355 $536,720
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the
Year-to-Date Ended
June 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income...................................$ 1,866 $ 2,489
Adjustments to reconcile net income to cash
provided by operating activities:
Increase (decrease) in liability for future
policy benefits and other policy
liabilities.............................. 797 (1,068)
Amortization and depreciation.............. 3,262 2,796
Decrease(increase)in other assets.......... 28 (2,085)
Deferred policy acquisition costs.......... (5,082) (4,447)
Increase in other non-policy related
liabilities.............................. 598 1,901
Decrease(increase) in trading securities... 13,134 (12,393)
Interest credited to policyholder accounts. 9,529 9,101
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CASH PROVIDED(USED)BY OPERATING ACTIVITIES..... 24,132 (3,706)
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INVESTING ACTIVITIES
Purchase of investments and loans made.......(49,051) (25,940)
Sale or maturities of investments and
receipts from repayment of loans........... 41,948 32,159
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CASH (USED) PROVIDED BY INVESTING ACTIVITIES... (7,103) 6,219
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FINANCING ACTIVITIES
Net receipts from universal life policyholders
credited to policyholder account balances.. 840 1,943
Other......................................... 314 283
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CASH PROVIDED BY FINANCING ACTIVITIES........... 1,154 2,226
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INCREASE IN CASH AND CASH EQUIVALENTS...........18,183 4,739
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 20,930 10,092
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.....$39,113 $14,831
======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrants Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
NOTE 1 - CONTINGENT PAYMENT NOTES
MetLife Texas Holdings, Inc. (Holdings) issued 9.41% Contingent Payment
Notes (Notes) in the face amount of $12,800,000 in connection with its
acquisition of Texas Life Insurance Company (TLIC) on July 31, 1988. The
principal amount of these Notes is due on December 31, 1997 (unless
redeemed earlier at the option of Holdings) and interest is payable semi-
annually at the stated interest rate of 9.41%. The principal and interest
payments on the Notes are, however, subject to reduction. In general, the
reduction is equal to the difference between the contractual terms of, and
amounts of principal and interest payments actually received by TLIC on,
certain specified real estate mortgage notes receivable (Pool Loans). The
holders of the Notes received no interest for the six months ended June 30,
1996 and 1995.
The carrying value of the Notes in the accompanying Condensed Consolidated
Balance Sheets was reduced by a valuation allowance for possible losses of
$4,703,000 at both June 30, 1996 and December 31, 1995. The carrying value
of the related Pool Loans was reduced by a valuation allowance of
$2,549,000 at June 30, 1996 and $2,451,000 at December 31, 1995.
See Note 9 to the consolidated financial statements included in the
Registrants Annual Report on Form 10-K for the fiscal year ended December
31, 1995 for a description of certain restrictions on Holdings contained in
the indenture pursuant to which the Notes were issued.
NOTE 2 - NOTES PAYABLE TO AFFILIATES
On June 30, 1989, TLIC issued a $7,000,000 note payable (called a surplus
debenture) to Metropolitan Life Insurance Company (Metropolitan), the
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
parent of Holdings. Such note has no specified maturity date and semi-
annual principal payments will not begin until TLICs statutory surplus, as
calculated under Texas insurance regulations, increases to $50,000,000.
TLICs statutory surplus amounted to $28,183,000 at June 30, 1996.
Interest is payable semi-annually at any time TLICs statutory surplus is
in excess of $12,798,000. The note bears interest at a rate of 7.60% per
annum until June 30, 1999, at which time, it will be adjusted to a rate
equal to 0.75% over the then five year U.S. Treasury note rate. Interest
of $266,000 was paid on July 9, 1996, January 2, 1996, June 30, 1995 and
January 2, 1995.
An additional $5,500,000 note payable (also called a surplus debenture) was
issued by TLIC to MetLife Credit Corp., a wholly-owned subsidiary of
Metropolitan, on December 31, 1990. Such note has no specified maturity
date and annual principal payments will not begin until TLICs statutory
surplus, as calculated under Texas insurance regulations, increases to
$40,000,000. This note must be repaid in full before TLIC can make any
principal payments on the $7,000,000 note payable to Metropolitan discussed
above. Interest is payable monthly, at a variable interest rate which is
set by MetLife Credit Corp. on the first of each month, at any time TLICs
statutory surplus exceeds $10,000,000. $197,000 of interest was paid for
the first six months of 1996 and $210,000 was paid for the comparable
period of 1995.
NOTE 3 - REINSURANCE
Reinsurance receivables of $5,057,000 and $5,385,000 are recorded in
accordance with Statement of Financial Accounting Standards No. 113
Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts, and are included in other assets in the accompanying
June 30, 1996 and December 31, 1995 Condensed Consolidated Balance Sheets,
respectively. For the six months ended June 30, 1996 and June 30, 1995,
earned premiums ceded were $4,111,000 and $3,546,000, respectively, and
recoveries recognized under reinsurance contracts were $2,574,000 and
$2,174,000, respectively.
NOTE 4 - INVESTMENTS
As of January 1, 1994, Holdings adopted Statement of Accounting Standards
No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115). SFAS No. 115 establishes standards of financial accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. As a
result of the adoption of SFAS No. 115, stockholders equity at June 30,
1996 and December 31, 1995, as shown on the Condensed Consolidated Balance
Sheets, were impacted as follows: at June 30, 1996 stockholders equity
was decreased approximately $1,987,000 net of adjustments of $4,054,000 for
deferred acquisition costs, $5,809,000 for the cost of insurance acquired
and $1,070,000 for deferred federal income taxes; and at December
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
31, 1995 stockholders equity was increased approximately $2,634,000 net of
adjustments of $8,029,000 for deferred acquisition costs, $11,059,000 for
the cost of insurance acquired and $1,281,000 for deferred federal income
taxes.
NOTE 5 - MORTGAGE LOANS
As of January 1, 1995, Holdings adopted Statement of Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
SFAS No. 118, Accounting by Creditors for the Impairment of a Loan -
Income Recognition and Disclosure, which addresses the accounting by
creditors for the impairment of certain loans. Total impaired loans and
the allowance for all known credit losses on mortgages were $2,952,000 and
$3,090,000, respectively, at June 30, 1996. Holdings primary policy is to
utilize the cash basis of accounting for the recognition of interest income
on impaired loans.
The average recorded investment in impaired loans during the six months
ended June 30, 1996 was $2,952,000 and the related interest income
recognized during the period related to impaired loans was $96,000 on both
the accrual and cash bases of accounting.
Activity in the allowance for credit losses for the six months ended June
30, 1996 was as follows:
Balance at December 31, 1995 $3,302,000
Provision for impaired loans -
Write-downs (310,000)
Recoveries 98,000
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Balance at June 30, 1996 $3,090,000
==========
METLIFE TEXAS HOLDINGS, INC.
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
HISTORICAL RESULTS OF OPERATIONS
MetLife Texas Holdings, Inc. (Holdings) is a wholly-owned subsidiary of
Metropolitan Life Insurance Company (Metropolitan) and was formed for the
purpose of acquiring Texas Life Insurance Company (TLIC). Holdings
unconsolidated revenues are exclusively attributable to its interest
bearing investments. Therefore, the changes in the Condensed Consolidated
Statements of Income that are discussed below are primarily attributable to
TLIC.
SECOND QUARTER RESULTS
TLICs sales in annualized premiums, which represent the annualization of
first year premiums on business issued during the current period and are
used to measure production, were $2.3 million for the quarter ended June
30, 1996, up $275,000, or 13.4%, from the quarter ended June 30, 1995.
This reflected a $295,000, or 53.7%, increase in permanent traditional life
products and a $58,000, or 20.6%, increase in term life, with a partially
offsetting $78,000, or 6.4%, decrease in universal life product sales.
Consolidated second quarter revenues only increased slightly despite a
$471,000, or 15.6%, increase in traditional life insurance premiums related
to the increase in sales over the past few years, and a $505,000 increase
in unrealized gains relative to changes in market value of the trading
portfolio. These increases were partially offset by a $786,000 increase in
realized losses on the sale of investments.
Consolidated second quarter 1996 benefits, claims and expenses increased
$788,000, or 6.5%, over the comparable period of 1995. This was primarily
attributable to a $656,000, or 11.9%, increase in the change in liability
for future policyholder benefits related to the increased traditional life
sales and the aging of the block of business in force, and a $329,000, or
19.7%, increase in operating expenses primarily attributable to increased
expenses related to the increase in sales. These increases were partially
offset by a $233,000, or 8.8%, decrease in policyholder benefits and claims
related to improved mortality experience on the traditional block of
business.
Federal income taxes decreased $117,000, or 13.6%, for the second quarter
of 1996 versus the comparable period of 1995. This resulted from a
$475,000 decrease in current taxes and a $358,000 decrease in deferred tax
benefits. Current taxes decreased $392,000 as a result of realized capital
losses from the liquidation of TLICs trading portfolio in the second
METLIFE TEXAS HOLDINGS, INC.
quarter of 1996 and $71,000 resulting from a decrease in statutory income.
Deferred tax benefits decreased $303,000 due to the difference between the
tax and book basis of invested assets, $99,000 due to the difference
between the tax and book basis of deferred policy acquisition costs and
$62,000 due to the difference between the tax and book basis of future
policyholder liabilities. The decreases were partially offset by a $95,000
increase related to an increase in unearned universal life income
associated with the increased sales of TLICs Convenient Life product.
As a result of the items discussed above, net income decreased $370,000, or
24.1%, for the second quarter of 1996 versus the comparable period of 1995.
YEAR-TO-DATE RESULTS
TLICs sales in annualized premiums were $4.2 million for the six months
ended June 30, 1996, up $427,000, or 11.4%, over the comparable period of
1995. During this period, universal life sales increased $206,000, or
10.4%, resulting from the success of TLICs Convenient Life product, sales
of permanent traditional life products increased $173,000, or 13.9%, and
sales of term life products increased $48,000, or 9.2%.
Consolidated year-to-date revenue increased $1,435,000, or 5.0%, over the
first six months of 1995 primarily related to a $914,000, or 15.3%,
increase in traditional life premiums attributable to increased sales in
recent years and a $930,000, or 6.1%, increase in investment income
attributable to an increase in invested assets and higher yields on
invested assets. These increases were partly offset by a $357,000 increase
in realized losses on the sale of securities primarily related to the sale
of trading portfolio securities.
Benefits, claims and expenses increased $2,455,000, or 9.9%, for the first
six months of 1996 over the comparable period of 1995. This increase is
primarily attributable to a $1,337,000, or 12.1%, increase in the change in
liability for future policyholder benefits related to the increase in
traditional life insurance in force resulting from increased sales and the
aging of the block of traditional life business in force, and a $579,000,
or 16.4%, increase in operating expenses primarily associated with
increased expenses directly related to the increase in sales.
Federal income taxes decreased $397,000, or 27.5%, for the first six months
of 1996 versus 1995. This resulted from a $158,000, or 11.0%, decrease in
current taxes and a $239,000 decrease in deferred taxes. Current income
taxes decreased $158,000 primarily as a result of realized capital losses.
Deferred taxes decreased $285,000 due to the difference between the tax
basis and book basis of investment income and $187,000 due to the increase
in unearned universal life income described in second quarter tax results
above. These decreases were partially offset by a $151,000 increase
resulting from the difference between the tax and book bases of deferred
METLIFE TEXAS HOLDINGS, INC.
policy acquisition costs and $68,000 due to the difference between the tax
and book bases of other liabilities.
As a result of the items discussed above, net income for the six months
ended June 30, 1996 decreased $623,000, or 25.0%, from the comparable
period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Holdings sole activities consist of the investment of its assets in
certain high grade, liquid investments permitted by the indenture pursuant
to which its Contingent Payment Notes (Notes) were issued (see Note 1 to
the accompanying financial statements), administration of its Notes and
ownership of the outstanding stock of its wholly-owned subsidiary, TLIC.
Since payment of principal on the Notes is not required until 1997,
Holdings does not have substantial short-term liquidity needs.
Nevertheless, on June 30, 1996, Holdings had $17.5 million of high grade,
liquid investments which will be available to make the required principal
payments, if any, on the Notes in 1997. It is likely that Holdings will be
required to make a payment on the Notes at their maturity in December 1997;
however, it is impossible to predict, at this time, the magnitude of such
payment.
For the six months ended June 30, 1996 Holdings had income of $33,000, on a
stand alone basis, versus income of $37,000 for the comparable period of
1995. June 30, 1996 results are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. No interest
payments on the Notes were required to be made in 1996 or 1995. Holdings
does not expect to be required to make any interest payments on the Notes
in 1997. Holdings funds, including earnings on its investments, are
sufficient to make any required payments on the Notes.
On June 30, 1989, TLIC issued a $7 million note payable to Metropolitan
and, on December 31, 1990, it issued a $5.5 million note payable to MetLife
Credit Corp., a wholly-owned subsidiary of Metropolitan (see Note 2 to the
accompanying financial statements). While both of these notes are
considered a liability by the Registrant on a GAAP basis, they are surplus
for TLIC on a statutory basis. The $7 million note payable was issued to
provide additional statutory surplus to TLIC for expansion of premium
writings. Increases in first year premium volume reduce statutory surplus
since, for statutory purposes, acquisition costs are expensed rather than
deferred. The $5.5 million note payable is being used to provide a
voluntary statutory reserve for mortgage loans and foreclosed properties.
The Registrant has no outstanding borrowings other than the Notes and
TLICs notes payable to Metropolitan and MetLife Credit Corp. and has no
need or plans to borrow funds in the foreseeable future other than
additional notes which may be issued to affiliates by TLIC to provide
additional statutory surplus. Borrowings by Holdings are prohibited by the
terms of the indenture pursuant to which the Notes were issued.
METLIFE TEXAS HOLDINGS, INC.
The Registrant is involved in the life insurance business solely through
its ownership of TLIC. The liabilities of TLIC are predominantly long-term
in nature and, therefore, in order to match these liabilities with assets,
TLIC has long-term fixed maturity investments such as bonds and mortgages.
Most of TLICs invested assets are investment grade securities to provide
ample protection for its policyholders. As of June 30, 1996, TLIC had
$4,028,000 of securities rated below investment grade by the National
Association of Insurance Commissioners, representing 0.9% of its total
investment securities. Two of these investments, which are carried on the
balance sheet at $184,000, were in default as to interest at June 30, 1996.
TLIC has mortgage loans with a carrying value of $33,330,000 ($36,420,000
book value less $3,090,000 reserve for losses) at June 30, 1996. The
carrying value of these mortgage loans comprises 7.6% of total invested
assets. The reserve represents 8.5% of total mortgage loan book value.
Management believes that the reserve for losses is adequate.
Delinquent mortgage loans (those overdue more than 90 days) totaled
$2,952,000 at both June 30, 1996 and December 31, 1995 and are comprised of
three performing cash flow commercial loans and one residential loan.
Expressed as a percentage of mortgage loans, delinquencies were 8.1% at
June 30, 1996, 7.7% at December 31, 1995 and 7.9% at June 30, 1995.
Included in the mortgage loan balance is $3,486,000 of loans on watch
(i.e., loans which are not delinquent over 90 days but are being monitored
more closely for possible problems in the future). Of the eleven loans
included in this category, ten loans totaling $2,856,000 are current and
one loan totaling $630,000 is 30 days overdue.
TLICs mortgage loan portfolio includes $17,768,000 of commercial loans,
$18,250,000 of agricultural loans, $68,000 of loans on apartments and
$334,000 of residential loans. 49.9% of these loans are in Texas and the
remaining 50.1% are spread over 13 states. The gross yield on all mortgage
loans was 8.4% for the six months ended June 30, 1996 and 8.3% for the year
ended December 31, 1995.
Since its acquisition by Holdings, TLIC has made eleven new commercial
mortgage loans, with a book value aggregating $4,025,000, fourteen purchase
money mortgages on foreclosed real estate aggregating $3,663,000 and 44
agricultural loans aggregating $20,203,000 through Metropolitans
Agricultural Investments Department, for a total of $27,891,000. Since the
acquisition, TLICs policy relating to new loans is not to loan more than
75% of appraised value based on earnings conditions at the time of the
loan. Additionally, these loans are issued to borrowers having strong
financial backgrounds. Collateral on loans generally includes personal
METLIFE TEXAS HOLDINGS, INC.
guarantees for the entire amount of the mortgage indebtedness as well as a
lien on the mortgaged property. Loans generally mature within ten years,
with recent ten year loans containing a provision for adjustment in the
interest rate after three or five years.
As of June 30, 1996, TLIC had $1,359,000 of foreclosed real estate
($2,240,000 less a $881,000 allowance for losses) which had net income of
$12,000 in the first six months of 1996. This consists of one commercial
loan with a book value of $1,258,000 and one acreage loan with a book value
of $982,000. The allowance for loss represents 39.3% of book value and is
based on estimated market value.
Due to the relatively small amount of TLICs below investment grade and non-
performing investments, they have not had, and are not expected to have, a
material effect on TLICs financial condition or results of operations.
TLIC maintains liquidity through its selection of investments. Over 80
percent of its securities at June 30, 1996 were readily marketable
securities, primarily publicly traded bonds and stocks. TLIC must maintain
adequate liquidity to provide funds needed to make current payments to
policyholders. Significant changes in market interest rates could affect
TLICs liquidity. TLIC has utilized an asset/liability matching process to
help determine the investment rate it can credit to its policyholders.
TLICs universal life insurance products are credited an interest rate
based upon earnings from allocated assets less an interest rate margin.
Managements philosophy has been to maintain a credited interest rate based
on the returns on its allocated investments rather than to credit current
market rates to its previously issued policies. Significant increases in
its competitors credited rates could cause TLIC either to reduce its
margin or to credit a rate that may be noncompetitive, which may result in
surrenders of policies. However, TLIC has high surrender charges on most
of its universal life products during the first ten policy years (and
during the ten years following any increases in the policy face amount)
that would discourage surrenders or result in low surrender values. A
reduction in market interest rates could reduce the reinvestment rate of
its fixed investments and result in a lower than expected yield. However,
in this environment, TLIC could reduce the rates credited to the products
underlying these investments and maintain its interest rate margin without
risking significant amounts of surrenders of policies. Thus, changes
(other than sudden significant changes) in the interest rate environment
and the resulting changes in the interest rates credited to policyholders
would not significantly affect withdrawal experience because of the
significance of surrender charges to policyholders.
However, a sudden significant increase in current market rates could have a
material adverse impact on TLICs liquidity because policyholders might
convert to products of competitors to which higher rates are credited.
METLIFE TEXAS HOLDINGS, INC.
Conversely, sudden declines in interest rates could materially increase
TLICs liquidity if the issuers of TLICs fixed rate long-term investments
exercise their bond call options or refinance at lower rates the mortgages
that are owned by TLIC. Although they can significantly affect TLICs
liquidity, the impact of sudden increases or decreases in the interest rate
environment would be tempered by the fact that 41% of TLICs insurance in
force is traditional life insurance, which is not as susceptible to changes
in the interest rate environment (32% of TLICs insurance in force is term
insurance, which has no cash surrender value and is not impacted by changes
in the interest rate).
In addition to the large amount of readily marketable securities referred
to above, it is also TLICs policy to maintain at least $5,000,000 of cash
and short-term investments less any commitments for investment purchases
within the next month. At June 30, 1996, it had approximately $1,765,000
of cash and $32,276,000 of short-term investments and investment
commitments of $29,015,000 for July.
METLIFE TEXAS HOLDINGS, INC.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Neither Holdings nor its subsidiary are involved in any pending or
threatened legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
4.1 Form of Indenture, dated as of July 27, 1988, between
Registrant and Bankers Trust Company, as Trustee, is herein
incorporated by reference to Exhibit 4.1 to Registrants
Form S-1 filed with the Securities and Exchange Commission
(File No. 33-20104), which became effective on May 13, 1988.
28.1 Registrants Form 10-K for the fiscal year ended December
31, 1995, filed with the Securities and Exchange Commission
on March 28, 1996, is herein incorporated by reference.
(b) Reports on Form 8-K - No report on Form 8-K was filed during the
quarter ended June 30, 1996.
METLIFE TEXAS HOLDINGS, INC.
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.
METLIFE TEXAS HOLDINGS, INC.
(Registrant)
Date: August 13, 1996 By Myron O. Schlanger
-----------------------------
Myron O. Schlanger
Vice-President and Controller
(Chief Financial Officer)
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