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 September 30, 1996
------------------
or
[ ] 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 33-20104
--------
MetLife Texas Holdings, Inc.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3437648
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Madison Avenue, New York, New York 10010
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (212)578-3437
---------------
Not Applicable
- ------------------------------------------------------------------------
(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 .
------ ------
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
- ----------------------------- ---------------------------------
Title of Class Outstanding at September 30, 1996
METLIFE TEXAS HOLDINGS, INC.
INDEX
-----
Part I. FINANCIAL INFORMATION Page No(s)
----------
Item 1. Financial Statements
Condensed Consolidated Statements of
Income for the quarters and years-to-date
ended September 30, 1996 and 1995 (Unaudited) 3-4
Condensed Consolidated Balance Sheets
as of September 30, 1996 (Unaudited) and
December 31, 1995 5
Condensed Consolidated Statements of
Cash Flows for the years-to-date ended
September 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 10-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K
(including Exhibit Index) 16
Signatures 17
METLIFE TEXAS HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
METLIFE TEXAS HOLDINGS INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues
Traditional life insurance premiums........ $ 3,588 $ 3,246 $10,467 $ 9,211
Universal life and investment product
policy charges........................... 3,858 3,171 11,257 10,463
Investment income (less related expenses).... 8,069 7,799 24,197 22,997
Trading securities-unrealized loss........... 0 0 (205) 0
Realized gain on investments................. 1,225 258 873 263
Other income................................. 2 112 220 284
------- ------- ------- -------
16,742 14,586 46,809 43,218
------- ------- ------- -------
Benefits, Claims and Expenses:
Policyholder benefits and claims............. 4,054 3,384 10,130 9,113
Change in liability for future
policyholder benefits...................... 5,794 5,918 18,210 16,997
Operating expenses........................... 1,988 1,830 6,098 5,361
Commissions, taxes and fees.................. 874 868 2,592 2,462
Amortization of policy acquisition costs..... 839 1,127 2,627 2,773
Amortization of cost of insurance acquired... 525 547 1,573 1,669
------- ------- ------- -------
14,074 13,674 41,230 38,375
------- ------- ------ -------
Income before income taxes................... 2,668 912 5,579 4,843
------- ------- ------- -------
Provision (benefit) for federal income taxes
Current.................................... 839 550 2,120 1,989
Deferred................................... (67) (261) (303) (258)
------- ------- ------- -------
772 289 1,817 1,731
------- ------- ------- -------
Net income................................... $ 1,896 $ 623 $ 3,762 $ 3,112
======= ======= ======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) September 30, December 31,
1996 1995
------------- ------------
ASSETS (Unaudited)
Investments:
Fixed maturities available for sale.... $264,759 $276,101
Fixed maturities held to maturity...... 53,401 59,406
Fixed maturities held for trading...... 0 13,134
Equity securities...................... 2,510 3,362
Mortgage loans......................... 33,203 35,155
Cash and cash equivalents.............. 62,990 20,930
Policy loans........................... 30,358 29,642
Other.................................. 3,539 3,550
-------- --------
450,760 441,280
Deferred policy acquisition costs........... 47,685 38,474
Cost of insurance acquired.................. 41,161 36,911
Goodwill.................................... 4,203 4,352
Investment income due and accrued........... 5,405 6,194
Amounts due from reinsurers................. 5,834 4,706
Other....................................... 3,481 4,803
-------- --------
TOTAL ASSETS $558,529 $536,720
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Policy liabilities.......................... $402,964 $384,825
Deferred federal income tax................. 15,667 17,044
Contingent notes payable.................... 7,874 7,874
Notes payable to affiliates................. 12,500 12,500
Accrued general expenses.................... 10,959 9,659
Other....................................... 17,370 15,138
-------- --------
Total Liabilities........................... 467,334 447,040
-------- --------
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........................... 30,608 26,845
Net unrealized investment gains on
fixed maturities available for sale and
equity securities......................... 386 2,634
-------- --------
Total Stockholders Equity.................. 91,195 89,680
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $558,529 $536,720
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the
Year-to-Date Ended
September 30,
1996 1995
------- -------
OPERATING ACTIVITIES
Net Income..................................$ 3,762 $ 3,112
Adjustments to reconcile net income to cash
provided by operating activities:
Decrease in liability for future
policy benefits and other policy
liabilities............................. (511) (1,055)
Amortization and depreciation............. 4,768 4,677
Increase in other assets.................. (1,805) (2,047)
Increase in deferred policy
acquisition costs....................... (7,774) (6,936)
Increase in other non-policy related
liabilities............................. 2,912 3,819
Decrease(increase) in trading securities.. 13,134 (12,514)
Interest credited to policyholder accounts 14,385 13,693
-------- -------
CASH PROVIDED BY OPERATING ACTIVITIES......... 28,871 2,749
-------- -------
INVESTING ACTIVITIES
Purchase of investments and loans made......(127,796) (48,064)
Sale or maturities of investments and
receipts from repayment of loans.......... 136,406 50,886
-------- -------
CASH PROVIDED BY INVESTING ACTIVITIES......... 8,610 2,822
-------- -------
FINANCING ACTIVITIES
Net receipts from universal life policyholders
credited to policyholder account balances. 4,265 2,637
Other....................................... 314 291
-------- -------
CASH PROVIDED BY FINANCING ACTIVITIES......... 4,579 2,928
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS......... 42,060 8,499
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD...................................... 20,930 10,092
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....$ 62,990 $18,591
======== =======
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 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 nine months ended
September 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 September 30, 1996 and December 31, 1995. The carrying
value of the related Pool Loans was reduced by a valuation allowance of
$2,603,000 at September 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 $28,980,000 at September 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. $295,000 of interest was paid for
the first nine months of 1996 and $315,000 was paid for the comparable
period of 1995.
NOTE 3 - REINSURANCE
Reinsurance receivables of $5,565,000 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
September 30, 1996 and December 31, 1995 Condensed Consolidated Balance
Sheets, respectively. For the nine months ended September 30, 1996 and
September 30, 1995, earned premiums ceded were $6,136,000 and $5,550,000,
respectively, and recoveries recognized under reinsurance contracts were
$3,549,000 and $3,253,000, 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 September
30, 1996 and December 31, 1995, as shown on the Condensed Consolidated
Balance Sheets, were impacted as follows: at September 30, 1996
stockholders equity was decreased approximately $1,994,000 after positive
adjustments of $4,063,000 for deferred acquisition costs, $1,074,000 for
deferred federal income taxes, and $5,823,000 for the cost of insurance
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
acquired; and at December 31, 1995 stockholders equity was increased
approximately $2,634,000 after negative adjustments of $8,029,000 for
deferred acquisition costs, $1,281,000 for deferred federal income taxes
and $11,059,000 for the cost of insurance acquired.
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
$3,306,000, respectively, at September 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 nine months
ended September 30, 1996 was $2,952,000 and the related interest income
recognized during the period related to impaired loans was $22,000 on both
the accrual and cash bases of accounting.
Activity in the allowance for credit losses for the nine months ended
September 30, 1996 was as follows:
Balance at December 31, 1995 $3,302,000
Provision for impaired loans -
Write-downs (310,000)
Recoveries 314,000
----------
Balance at September 30, 1996 $3,306,000
==========
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.
THIRD 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 $2.5 million for the quarter ended
September 30, 1996, up $90,000, or 3.7%, from the quarter ended September
30, 1995. This reflected a $187,000, or 16.8%, increase in universal life
product sales, reflecting the success of the Convenient Life product, with
partially offsetting decreases of $52,000, or 4.9%, in permanent
traditional life product sales and $45,000, or 16.7%, in term life sales.
Consolidated third quarter revenues increased $2,156,000, or 14.8%,
primarily because of (i) a $342,000, or 10.5%, increase in traditional life
insurance premiums and a $687,000, or 21.7%, increase in universal life and
investment product policy charges, both related to the increase in sales
over the past few years, and (ii) a $967,000 increase in realized gains
primarily related to a rebalancing of the mortgage-backed securities
portfolio in the third quarter of 1996.
Consolidated third quarter 1996 benefits, claims and expenses increased
$400,000, or 2.9%, over the comparable period of 1995. This was primarily
attributable to a $670,000, or 19.8%, increase in policyholder benefits and
claims related to a $686,000, or 274.4%, increase in traditional life
surrenders caused by the surrender of several large policies. This increase
was partially offset by a $288,000, or 25.6%, decrease in the amortization
of deferred policy acquisition costs caused by a slowing down of the rate
of amortization in the third quarter of 1996 versus the comparable period
of 1995 as a result of the change in product mix.
Federal income taxes increased $483,000, or 167.1%, for the third quarter
of 1996 versus the comparable period of 1995. This resulted from a
$289,000 increase in current taxes and a $194,000 decrease in deferred tax
benefits. Current taxes increased $190,000 due to an increase in
METLIFE TEXAS HOLDINGS, INC.
statutory income and $110,000 as a result of the increase in realized
capital gains discussed above. Deferred tax benefits decreased $203,000
due primarily to the increase in the difference between the book and tax
bases of deferred policy acquisition costs in the third quarter of 1996
versus the third quarter of 1995.
As a result of the items discussed above, net income increased $1,273,000,
or 204.3%, for the third quarter of 1996 versus the comparable period of
1995.
YEAR-TO-DATE RESULTS
TLICs sales in annualized premiums were $6.7 million for the nine months
ended September 30, 1996, up $517,000, or 8.4%, over the comparable period
of 1995. During this period, universal life sales increased $393,000, or
12.7%, due primarily to the success of TLICs Convenient Life product,
sales of permanent traditional life products increased $121,000, or 5.3%,
while sales of term life products were flat.
Consolidated year-to-date revenue increased $3,591,000, or 8.3%, over the
first nine months of 1995 primarily related to (i) a $1,256,000, or 13.6%,
increase in traditional life premiums and a $794,000, or 7.6%, increase in
universal life and investment product policy charges, both attributable to
increased sales in recent years, (ii) a $1,200,000, or 5.2%, increase in
net investment income attributable to an increase in invested assets and
higher yields on invested assets and (iii) a $610,000 increase in realized
gains primarily related to the sale of mortgage-backed securities in the
third quarter of 1996.
Benefits, claims and expenses increased $2,855,000, or 7.4%, for the first
nine months of 1996 over the comparable period of 1995. This increase is
primarily attributable to (i) a $1,017,000, or 11.2%, increase in
policyholder benefits and claims related primarily to a $484,000, or 37.0%,
increase in traditional life surrenders, as discussed in third quarter
results above, and a $390,000, or 6.0%, increase in death claims, primarily
on universal life products, (ii) a $1,213,000, or 7.1%, 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
(iii) a $737,000, or 13.7%, increase in operating expenses primarily
related to the increase in sales.
Federal income taxes increased $86,000, or 5.0%, for the first nine months
of 1996 versus the first nine months of 1995. This resulted from a
$131,000, or 6.6%, increase in current taxes partially offset by a $45,000
increase in deferred tax benefits.
METLIFE TEXAS HOLDINGS, INC.
As a result of the items discussed above, net income for the nine months
ended September 30, 1996 increased $650,000, or 20.9%, 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 consolidated condensed 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 September 30, 1996, Holdings had $17.7
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 nine months ended September 30, 1996 Holdings had a loss of
$19,000, on a stand alone basis, versus a loss of $9,000 for the comparable
period of 1995. September 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
METLIFE TEXAS HOLDINGS, INC.
additional statutory surplus. Borrowings by Holdings are prohibited by the
terms of the indenture pursuant to which the Notes were issued.
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 September 30, 1996, TLIC had
$4,976,000 of securities rated below investment grade by the National
Association of Insurance Commissioners, representing 1.4% of its total
investment securities. Two of these investments, which are carried on the
balance sheet at $183,000, were in default as to interest at September 30,
1996.
TLIC has mortgage loans with a carrying value of $33,203,000 ($36,509,000
book value less $3,306,000 reserve for losses) at September 30, 1996. The
carrying value of these mortgage loans comprises 7.7% of total invested
assets. The reserve represents 9.1% 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 September 30, 1996 and December 31, 1995 and are
comprised of three performing cash flow commercial loans. Expressed as a
percentage of mortgage loans, delinquencies were 8.1% at September 30,
1996, 7.7% at December 31, 1995 and 8.0% at September 30, 1995.
Included in the mortgage loan balance is $3,421,000 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 ten loans
included in this category, nine loans (totaling $3,201,000) are current and
one loan (with a balance of $220,000) is 60 days overdue.
TLICs mortgage loan portfolio includes $17,938,000 of commercial loans,
$18,187,000 of agricultural loans, $63,000 of loans on apartments and
$321,000 of residential loans. 50.2% of these loans are in Texas and the
remaining 49.8% are spread over 13 states. The gross yield on all mortgage
loans was 8.3% for the nine months ended September 30, 1996 and for the
year ended December 31, 1995.
Since its acquisition by Holdings, TLIC has made twelve new commercial
mortgage loans, with a book value aggregating $5,038,000, fifteen purchase
money mortgages on foreclosed real estate aggregating $4,163,000 and 44
agricultural loans aggregating $20,203,000 through Metropolitans
Agricultural Investments Department, for a total of $29,404,000. Since the
METLIFE TEXAS HOLDINGS, INC.
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
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 September 30, 1996, TLIC had $982,000 of foreclosed real estate which
had a loss of $6,000 in the first nine months of 1996. This consists of
one acreage loan with a book value of $982,000.
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 September 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.
METLIFE TEXAS HOLDINGS, INC.
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.
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 40% of TLICs insurance in
force is traditional life insurance, which is not as susceptible to changes
in the interest rate environment (31% 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 September 30, 1996, it had approximately
$616,000 of cash and $57,100,000 of short-term investments and investment
commitments of $48,300,000 for October.
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 September 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: November 13, 1996 By Myron O. Schlanger
-----------------------------
Myron O. Schlanger
Vice-President and Controller
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000829321
<NAME> METLIFE TEXAS HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 264,759
<DEBT-CARRYING-VALUE> 53,401
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,510
<MORTGAGE> 33,203
<REAL-ESTATE> 0
<TOTAL-INVEST> 450,760
<CASH> 62,990
<RECOVER-REINSURE> 5,834
<DEFERRED-ACQUISITION> 47,685
<TOTAL-ASSETS> 558,529
<POLICY-LOSSES> 402,964
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,874
<COMMON> 1
0
0
<OTHER-SE> 91,194
<TOTAL-LIABILITY-AND-EQUITY> 558,529
10,467
<INVESTMENT-INCOME> 24,197
<INVESTMENT-GAINS> 873
<OTHER-INCOME> 11,477
<BENEFITS> 28,340
<UNDERWRITING-AMORTIZATION> 2,627
<UNDERWRITING-OTHER> 10,263
<INCOME-PRETAX> 5,579
<INCOME-TAX> 1,817
<INCOME-CONTINUING> 3,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,762
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
