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, 1997
------------------
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 .
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, 1997
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 nine months
ended September 30, 1997 and 1996 (Unaudited) 3-4
Condensed Consolidated Balance Sheets
as of September 30, 1997 (Unaudited) and
December 31, 1996 5
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1997 and 1996 (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>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
<C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------- -------
(In Thousands)
Revenues
Insurance revenues
Traditional life insurance premiums........ $ 3,573 $ 3,588 $10,660 $10,467
Universal life and investment product
policy charges........................... 4,544 3,858 13,079 11,257
Investment income (less related expenses).... 8,540 8,069 25,404 24,197
Trading securities-unrealized gain (loss).... - - - (205)
Realized gain on investments................. 180 1,225 274 873
Other income................................. 271 2 772 220
------- ------- ------- -------
17,108 16,742 50,189 46,809
------- ------- ------- -------
Benefits, Claims and Expenses
Policyholder benefits and claims............. 3,994 4,054 12,425 10,130
Change in liability for future
policyholder benefits...................... 6,294 5,794 20,476 18,210
Operating expenses........................... 2,405 1,988 7,070 6,098
Commissions, taxes and fees.................. 900 874 2,734 2,592
Amortization of policy acquisition costs..... 983 839 2,984 2,627
Amortization of cost of insurance acquired... 462 525 1,366 1,573
------- ------- ------- -------
15,038 14,074 47,055 41,230
------- ------- ------- -------
Income before income taxes................... 2,070 2,668 3,134 5,579
------- ------- ------- -------
-3
Provision (benefit) for federal income taxes
Current.................................... 792 839 1,629 2,120
Deferred................................... (276) (67) (818) (303)
------- ------- ------- -------
516 772 811 1,817
------- ------- ------- -------
Net income................................... $ 1,554 $ 1,896 $ 2,323 $ 3,762
======= ======= ======= =======
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
-4-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<C> <C>
(In Thousands) September 30, December 31,
------------- ------------
ASSETS (Unaudited)
Investments
Fixed maturities available for sale.... $345,891 $321,578
Fixed maturities held to maturity...... 49,630 53,145
Equity securities...................... 4,235 2,854
Mortgage loans......................... 29,530 31,910
Cash and cash equivalents.............. 13,647 16,369
Policy loans........................... 30,803 30,230
Other.................................. 4,045 3,541
-------- --------
477,781 459,627
Deferred policy acquisition costs........... 52,347 48,348
Cost of insurance acquired.................. 35,830 39,033
Goodwill.................................... 4,005 4,154
Investment income due and accrued........... 5,773 6,473
Amounts due from reinsurers................. 5,478 7,423
Other....................................... 3,930 3,922
-------- --------
TOTAL ASSETS $585,144 $568,980
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities
Policy liabilities.......................... $416,271 $408,441
Deferred federal income tax................. 16,732 16,933
Contingent notes payable.................... 7,874 7,874
Notes payable to affiliates................. 12,500 12,500
General expenses............................ 12,578 8,668
Other....................................... 21,675 20,602
-------- --------
Total Liabilities........................... 487,630 475,018
-------- --------
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........................... 34,476 32,153
Net unrealized investment gains on
fixed maturities available for sale and
equity securities......................... 2,837 1,608
-------- --------
Total Stockholders Equity.................. 97,514 93,962
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $585,144 $568,980
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
-5
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
For the
Nine Months Ended
September 30,
<C> <C>
1997 1996
------- -------
OPERATING ACTIVITIES
Net Income...................................$ 2,323 $ 3,762
Adjustments to reconcile net income to cash
provided by operating activities
Decrease in liability for future policy
benefits and other policy liabilities.... (2,737) (511)
Amortization and depreciation.............. 4,919 4,768
Decrease (increase) in other assets........ 1,880 (1,805)
Deferred policy acquisition costs.......... (8,455) (7,774)
Increase in other non-policy related
liabilities.............................. 4,149 2,912
Decrease in trading securities............. - 13,134
Interest credited to policyholder accounts. 14,783 14,385
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES.......... 16,862 28,871
------- -------
INVESTING ACTIVITIES
Purchase of investments and loans made.......(57,120) (127,796)
Sale or maturities of investments and
receipts from repayment of loans........... 41,736 136,406
------- -------
CASH(USED FOR)PROVIDED BY INVESTING ACTIVITIES.(15,384) 8,610
------- -------
FINANCING ACTIVITIES
Net receipts from (withdrawals by) universal
life policyholders credited to (withdrawn
from) policyholder account balances........ (4,216) 4,265
Other........................................ 16 314
------- -------
CASH(USED FOR)PROVIDED BY FINANCING ACTIVITIES. (4,200) 4,579
------- -------
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (2,722) 42,060
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 16,369 20,930
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.....$13,647 $62,990
======= =======
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
-6
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 (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, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. 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, 1996.
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, 1997 and 1996.
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, 1997 and December
31, 1996. The carrying value of the related Pool Loans was reduced by
a valuation allowance of $2,603,000 at both September 30, 1997 and
December 31, 1996.
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, 1996 for a description of certain restrictions on Holdings
contained in the indenture pursuant to which the Notes were issued.
-7
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
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 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 $29,015,000 at September 30, 1997. 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 June 30, 1997, January 2, 1997, July 9, 1996 and
January 2, 1996.
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. $292,000 of interest was paid for the first nine months
of 1997 and $295,000 was paid for the comparable period of 1996.
NOTE 3 - REINSURANCE
Reinsurance receivables of $5,238,000 and $6,569,000 are recorded in
accordance with Statement of Financial Accounting Standards No. 113
Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts in the accompanying September 30, 1997 and December
31, 1996 Condensed Consolidated Balance Sheets, respectively. For the
nine months ended September 30, 1997 and September 30, 1996, earned
premiums ceded were $6,133,000 and $6,136,000, respectively, and
recoveries recognized under reinsurance contracts were $4,680,000 and
$3,549,000, respectively.
-8
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTE 4 - 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 $2,954,000 and $3,306,000, respectively, at September
30, 1997. 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, 1997 was $2,953,000 and the related interest
income recognized during the period related to impaired loans was
$97,000 on both the accrual and cash bases of accounting.
Activity in the allowance for credit losses for the nine months ended
September 30, 1997 was as follows
Balance at December 31, 1996 $3,306,000
Provision for impaired loans -
Write-downs -
Recoveries -
----------
Balance at September 30, 1997 $3,306,000
==========
-9
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 $2.2 million for the quarter
ended September 30, 1997, down $315,000, or 12.5%, from the
quarter ended September 30, 1996. This reflected a $21,000, or 1.0%,
increase in universal life product sales with decreases of $207,000, or
74.2%, in permanent traditional life product sales and $129,000, or
57.6%, in term life sales.
Consolidated third quarter 1997 revenues increased $366,000, or 2.2%,
over the third quarter of 1996 primarily related to a $686,000, or
17.8%, increase in universal life and investment product policy charges
related to increased universal life sales, a $471,000, or 5.8%,
increase in net investment income related to an increase in invested
assets and increased yields on invested assets, and a $269,000 increase
in other income related primarily to an increase in supplemental
contract considerations. These increases were partially offset by a
$1,045,000, or 85.3%, decrease in realized capital gains ($180,000 of
gains in the third quarter of 1997 versus $1,225,000 of gains for the
comparable period of 1996 resulting from TLICs aggressive mortgage-
backed securities sales program in 1996).
Consolidated third quarter 1997 benefits, claims and expenses increased
$964,000, or 6.8%, over the comparable period of 1996. This was
primarily attributable to a $500,000, or 8.6%, increase in the change
in liability for future policyholder benefits and claims related to the
increased traditional life business in force and the aging of the block
of business in force, and a $417,000, or 21.0%, increase in operating
expenses related to the introduction of new universal life products.
Federal income taxes decreased $256,000, or 33.2%, for the third
quarter of 1997 versus the comparable period of 1996. This resulted
from a $47,000 decrease in current taxes and a $209,000 decrease in
deferred tax benefits. Deferred tax benefits decreased $353,000 due to
the difference between tax and book basis of invested assets and
$73,000 due to temporary differences between tax and book
-10-
METLIFE TEXAS HOLDINGS, INC.
policyholder reserves. These decreases were offset by increases of
$107,000 due to the difference between tax and book basis of deferred
policy acquisition costs and $103,000 due to the difference between tax
basis and book basis of furniture and equipment.
As a result of the items discussed above, net income decreased
$342,000, or 18.0%, for the third quarter of 1997 versus the comparable
period of 1996.
YEAR-TO-DATE RESULTS
TLICs sales in annualized premiums were $6.5 million for the nine
months ended September 30, 1997, down $229,000, or 3.4%, from the
comparable period of 1996. During this period, sales of universal life
products increased $681,000, or 13.1%, while sales of traditional life
products decreased $447,000, or 62.9%, and sales of term life products
decreased $463,000, or 58.3%.
Consolidated year-to-date revenue increased $3,380,000, or 7.2%, over
the first nine months of 1996 primarily related to (i) a $1,822,000, or
16.2%, increase in universal life and investment product policy charges
related to increased sales of new products and the increase in business
in force, (ii) a $1,207,000, or 5.0%, increase in net investment income
related to an increase in invested assets and increased yields on
invested assets and (iii) a $552,000, or 250.9%, increase in other
income related primarily to an increase in supplemental contract
considerations. These increases were partially offset by a $599,000,
or 68.6%, decrease in realized capital gains (from a gain of $873,000
for the nine months ended September 30, 1996 resulting from the 1996
mortgage-backed securities sales program mentioned previously).
Benefits, claims and expenses increased $5,825,000, or 14.1%, for the
first nine months of 1997 over the comparable period of 1996. This
increase is primarily attributable to a $2,266,000, or 12.4%, increase
in the change in liability for future policyholder benefits related to
the increase in traditional life insurance in force resulting from
sales and the aging of the block of traditional life business in force,
and a $2,295,000, or 22.7%, increase in policyholder benefits primarily
related to increased death claims. Additionally, operating expenses
increased $972,000, or 15.9%, over the same period due to expenses
related to the introduction of new universal life products.
Federal income taxes decreased $1,006,000, or 55.4%, for the first nine
months of 1997 versus 1996. This resulted from a $491,000, or 23.2%,
decrease in current taxes and a $515,000, or 170.0%, increase in
deferred tax benefits. Current income taxes decreased $779,000 due to
a decrease in statutory earnings with a partially offsetting increase
of $353,000 due to the difference between the tax and book basis of
policyholder reserves. Deferred income tax benefits increased $502,000
due to the difference between the tax and book basis of policyholder
reserves, $75,000 related to the difference between the tax and book
basis of non-policy related liabilities and
-11
METLIFE TEXAS HOLDINGS, INC.
certain non-investment related assets and $162,000 due to the
difference between the tax basis and book basis of invested assets.
These increases were partially offset by $226,000 due to the difference
between the tax basis and book basis of deferred policy acquisition
costs.
As a result of the items discussed above, net income for the nine
months ended September 30, 1997 decreased $1,439,000, or 38.3%, from
the comparable period of 1996.
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. Holdings has $18,500,000 of high-grade liquid
investments to make any required payments of principal and interest on
the maturity of the Contingent Payment Notes on December 31, 1997.
Holdings expects to make a payment on the Notes at their maturity.
Holdings does not have any other short-term liquidity needs.
For the nine months ended September 30, 1997 Holdings had a loss of
$199,000, on a stand alone basis, versus a loss of $19,000 for the
comparable period of 1996. September 30, 1997 results are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1997. No interest payments on the Notes were
required to be made in 1997 or 1996.
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 condensed consolidated financial
statements). While both of these notes are considered a liability by
the Registrant for financial reporting purposes under generally
accepted accounting principles, 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.
-12
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 September 30,
1997, TLIC had $4,836,000 of securities rated below investment grade by
the National Association of Insurance Commissioners, representing 1.25%
of its total investment securities. One of these investments, which is
carried on the balance sheet at $86,000, was in default as to interest
at September 30, 1997.
TLIC has mortgage loans with a carrying value of $29,530,000
($32,836,000 book value less $3,306,000 reserve for losses) at
September 30, 1997. The carrying value of these mortgage loans
comprises 6.2% of total invested assets. The reserve represents 10.1%
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
$2,954,000 at September 30, 1997 and $2,951,000 at December 31, 1996
and are comprised of three performing cash flow commercial loans and
one performing residential loan. Expressed as a percentage of mortgage
loans, delinquencies were 9.0% at September 30, 1997, 8.4% at December
31, 1996 and 8.1% at September 30, 1996.
Included in the mortgage loan balance is $2,266,000 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
six loans included in this category, five loans totaling $2,196,000 are
current and one loan totaling $70,000 is 30 days overdue.
TLICs mortgage loan portfolio includes $14,973,000 of commercial loans,
$17,625,000 of agricultural loans, $43,000 of loans on apartments and
$195,000 of residential loans. 62.6% of these loans are in Texas and
the remaining 37.4% are spread over 13 states. The gross yield on all
mortgage loans was 7.8% for the nine months ended September 30, 1997
and 8.1% for the year ended December 31, 1996.
Since its acquisition by Holdings, TLIC has made eleven 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 45 agricultural loans aggregating $20,953,000 through
Metropolitans Agricultural Investments Department, for a total of
$30,154,000. 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 garantees for the entire amount of
the mortgage
-13
METLIFE TEXAS HOLDINGS, INC.
indebtedness as well as a first 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, 1997, TLIC had $1,210,000 of foreclosed real estate
consisting of one acreage property and one industrial warehouse.
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 adverse 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, 1997 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.
-14
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 35.4% of TLICs insurance in force is traditional life
insurance, which is not as susceptible to changes in the interest rate
environment (27.6% 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, 1997, it
had approximately $1,638,000 of cash and $5,946,000 of short-term
investments. There were $3,980,000 of investment commitments for
October 1997.
-15
METLIFE TEXAS HOLDINGS, INC.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Neither Holdings nor its subsidiary are involved in any material
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, 1996, filed with the Securities and
Exchange Commission on March 31, 1997 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, 1997.
-16
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, 1997 By Myron O. Schlanger
-----------------------------
Myron O. Schlanger
Vice-President and Controller
(Chief Financial Officer)
-17-
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 345,891
<DEBT-CARRYING-VALUE> 49,630
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,235
<MORTGAGE> 29,530
<REAL-ESTATE> 0
<TOTAL-INVEST> 477,781
<CASH> 13,647
<RECOVER-REINSURE> 5,478
<DEFERRED-ACQUISITION> 52,347
<TOTAL-ASSETS> 585,144
<POLICY-LOSSES> 416,271
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,874
0
0
<COMMON> 1
<OTHER-SE> 94,676
<TOTAL-LIABILITY-AND-EQUITY> 585,144
10,660
<INVESTMENT-INCOME> 25,404
<INVESTMENT-GAINS> 274
<OTHER-INCOME> 13,851
<BENEFITS> 32,901
<UNDERWRITING-AMORTIZATION> 2,984
<UNDERWRITING-OTHER> 11,170
<INCOME-PRETAX> 3,134
<INCOME-TAX> 811
<INCOME-CONTINUING> 2,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,323
<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>
