FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
(Mark One) Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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) 578-7791
-------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is not applicable.
The number of shares outstanding of the registrants $1.00 par value Common
Stock, as of March 31, 1997, was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Form S-1 filed with the Commission (File No. 33-
20104), which became effective on May 13, 1988, are incorporated by reference
into Part III and Part IV herein.
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
- ------------------------------------------------------------
PART I
Item 1. BUSINESS
Holdings
MetLife Texas Holdings, Inc. (Holdings or Registrant) is a
wholly-owned subsidiary of Metropolitan Life Insurance
Company (Metropolitan) and was incorporated under the laws
of the State of Delaware on November 20, 1987 to effect the
acquisition of Texas Life Insurance Company (TLIC) pursuant
to an Acquisition Agreement dated as of December 1, 1987.
The acquisition was completed on July 31, 1988. Holdings
issued $12,800,000 of 9.41% Contingent Payment Notes due
1997 (Contingent Payment Notes) to former TLIC shareholders
plus $47,200,000 in cash as consideration for the purchase
of the outstanding TLIC common stock. Payment of principal
and interest on the Contingent Payment Notes has been and
will be contingent on the performance of a certain pool of
TLIC real estate mortgage loans (Pool Loans). Following the
acquisition, the sole activities of Holdings consist of the
investment of its assets in certain investments permitted by
the Indenture pursuant to which the Contingent Payment Notes
were issued, administration of the Contingent Payment Notes
and ownership of the outstanding common stock of its wholly-
owned subsidiary, TLIC. Holdings had no employees as of
December 31, 1996.
TLIC
General and History
- -------------------
Texas Life Insurance Company, a Texas legal reserve life
insurance company, was incorporated in 1901 and was issued
the first legal reserve life insurance charter in Texas.
TLIC primarily markets life insurance to the individual,
business, pension and employer-sponsored markets through
independent agents.
-2
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
Products
--------
TLIC primarily markets a portfolio of individual life
(permanent and term) products, including interest-sensitive
life products, traditional term and whole life insurance and
annuity products in the individual, business, pension and
employer-sponsored markets.
Universal Life. During 1996, universal life insurance
accounted for 50.9% of the life insurance sales of TLIC in
terms of annualized premiums. Universal life insurance
combines life insurance protection (similar to that provided
by term life) with a savings element offering a current
interest rate. The premium paid on the universal life
products of TLIC represents payment of three elements: an
insurance protection element, a savings element and an
expense element. All premiums collected are credited to the
account of the policyholder. Charges for insurance
protection and expenses are deducted from the account and
the remainder is credited to the savings element where it
accumulates at interest. The interest rate credited to the
policyholder on the savings element is guaranteed not to be
less than a rate specified in the policy. Annually, a
report is provided to the policyholder which details premium
deposits, interest credited and deductions for insurance
protection and expenses. The policyholder has the right to
increase or decrease the insurance amount and the premium is
flexible, both of which contribute to variance in the
frequency and amount of premium payments.
Traditional Whole Life. This type of policy, where a
policyholder pays a stipulated premium on the policy
throughout his lifetime, accounted for approximately
-3
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
38.4% of life insurance sales in terms of annualized premium
in 1996. The premium is averaged over the expected lifetime
of the policyholder, costing the policyholder more than
comparable term life insurance when the policyholder is
younger, but less as the policyholder grows older. This
level premium concept results in an increasing cash value
over the life of the policy. The policyholder may borrow
against the cash value or use it as collateral for a loan.
The policyholder may also choose to surrender the policy and
receive the cash value, rather than continue the insurance
protection, or apply the cash value to the purchase of paid-
up life insurance.
Term Life. Term life insurance accounted for approximately
10.7% of life insurance sales in terms of annualized premium
in 1996. Term life offers insurance protection for a
specified period of time at a premium which increases when
the insured grows older. Products of TLIC in this area
include annually renewable term, 5-year renewable and
convertible term, and several decreasing term plans.
Annuity. Annualized annuity premiums on new business
totaled approximately $876,000 in 1996. Annuities are
contracts that pay income to the holder during the lifetime
of such holder and are most often used for retirement
income. TLIC offers both single and flexible premium
deferred annuities and single premium immediate annuities.
The deferred annuities are sold primarily in the individual
retirement account and retirement plan markets, while the
single premium immediate annuities are used primarily for
settlement options included in life insurance products of
TLIC. Annuities are offered by TLIC solely to provide a
complete portfolio of plans and are not emphasized by TLIC.
-4
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
Revenues from all these products consist of premiums earned
on whole life, term and fixed annuity products and revenue
generated by universal life insurance and flexible premium
annuities. Premium income earned by TLIC in 1996 from whole
life and term products was $14,435,000 and, from fixed
annuities, $1,000 for a total of $14,436,000. Under
Statement of Financial Accounting Standards (SFAS) No. 97,
revenue from universal life insurance and flexible premium
annuity policies comprises charges deducted from the account
of the policyholder and is presented in the Consolidated
Statements of Income under the caption Universal life and
investment product policy charges. Such revenue in 1996
amounted to $15,866,000.
The following chart shows sales in terms of annualized
premium for whole life and term policies, universal life
policies, actual excess universal life premiums and new
premium sales for other lines for the five year period ended
December 31, 1996. Annualized premium, which is used to
measure sales production, is the sum of the annualized
premiums for all policies issued each year and assumes that
a full first-year premium will be paid.
Year Ended December 31,
-----------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Whole life and term...$4,542 $4,130 $4,247 $2,938 $2,638
Universal life target
premium............. 4,705 4,458 3,424 3,668 4,068
Universal life in
excess of target.... 1,385 2,169 4,477 4,053 4,521
Annuity............... 876 3,002 1,906 3,342 4,899
Group life............ 0 17 1 1 3
-5
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
The universal life target premium is the annualized premium
TLIC expects to receive from universal life policies
written. The excess received over the target premium
represents additional payments by the policyholder which are
credited to the savings element of the policy.
The face amount of new policies, reinstatements and increases
issued in each of the last five years is as follows:
Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Universal life.$ 897,718 $ 542,303 $ 344,697 $315,628 $349,630
Whole life..... 81,408 111,027 132,258 91,907 63,834
Term life...... 449,679 546,738 537,460 481,789 467,279
Group life..... 1,812 2,890 6,414 3,343 35,870
---------- ---------- ---------- -------- --------
TOTAL..........$1,430,617 $1,202,958 $1,020,829 $892,667 $916,613
========== ========== ========== ======== ========
The following chart shows the gross insurance of TLIC in
force at December 31 for each of the last five years.
Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Universal life.$4,273,129 $3,751,537 $3,490,805 $3,390,042 $3,287,464
Whole life..... 594,170 561,413 491,618 380,948 306,212
Term life...... 2,160,306 2,008,361 1,779,448 1,511,972 1,274,759
Group life..... 41,091 39,865 49,109 82,676 112,684
---------- ---------- ---------- ---------- ---------
TOTAL $7,068,696 $6,361,176 $5,810,980 $5,365,638 $4,981,119
========== ========== ========== ========== ==========
-6
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
As of December 31, 1996, universal life made up 60% of the
total life insurance in force of TLIC compared to 59% at
December 31, 1995.
Marketing
---------
TLIC markets its products exclusively through independent
insurance agents. TLIC has contracts with independent
agents in the 32 states in which it did business in 1996.
These agents write insurance for TLIC on a nonexclusive
basis and may sell insurance for companies that compete with
TLIC. During 1996, 1,850 of these agents produced premium
income for TLIC. For the years 1995, 1994, 1993 and 1992,
the number of producing agents was 1,459, 1,071, 873 and
861, respectively. For the year ended December 31, 1996,
there were 756 new producing agents who produced
approximately 24.6% of new premiums. TLIC offers limited
agent training programs because it prefers to utilize
experienced agents. TLIC has regional Texas sales offices
in Waco and Dallas, and other sales offices in 25 states.
The majority of insurance sales by TLIC occur in Texas. In
1996, 64% of life insurance premium collected was from
Texas. Oklahoma accounted for 5%, Florida and Louisiana
each accounted for 4%, Missouri, Colorado and Oregon each
accounted for 3%, and the other 25 states in which TLIC did
business accounted for 14% in the aggregate.
Reinsurance
-----------
In accordance with common practice within the life insurance
industry, TLIC transfers insurance risks to other insurers
in amounts which vary from time to time. Insurance is
ceded when the reinsurer assumes liability for a portion
-7
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
of the risk on a policy. Ceding insurance generally allows
greater diversification of business and reduces the maximum
net loss arising from large claims. Although the ceding of
insurance does not discharge an insurer from its primary
legal liability to a policyholder, the reinsurer assumes a
related liability and, accordingly, generally accepted
accounting principles currently allow insurance companies
(subject to certain limitations) to recognize the amounts
receivable from reinsurers arising from properly reinsured
exposures.
Certain of the lines of insurance of TLIC are covered by
automatic reinsurance agreements. These agreements provide
that upon issuance of a policy by TLIC, a certain portion of
the risk is automatically ceded to one or more reinsurers.
TLIC also maintains facultative reinsurance agreements which
provide that, in certain cases, the reinsurer will review
the application for insurance and approve reinsurance
coverage prior to issuance of the policy by TLIC.
TLIC reinsured 25% of its individual life insurance in force
as of December 31, 1996. The reinsurance was placed with 15
reinsurers. The majority of insurance ceded is placed with
companies rated A+ (Superior) by A.M. Best. The largest
risk retained by TLIC on any individual life is $250,000.
TLIC also maintains reinsurance on its group life insurance.
Underwriting
------------
Substantially all policies issued by TLIC are individually
underwritten. After initial processing, each file is
reviewed to determine the additional information, if any,
required to make an underwriting decision, which depends on
the amount of insurance applied for and in force, the
applicants age and medical history, as well as certain non-
medical information. This additional information may
-8
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
include medical examinations, statements from doctors who
have treated the applicant in the past, and special medical
tests such as an HIV antibody test or an electrocardiogram,
all of which may be regulated by state laws and regulations.
TLIC also utilizes investigative services where deemed
necessary to supplement and substantiate other information.
After reviewing the information collected, TLIC either
issues the policy as applied for, issues the policy with an
extra premium charge because of unfavorable factors, or
rejects the application.
Government Regulation
---------------------
The laws of the various states in which TLIC does
business establish supervisory agencies that, to various
degrees, exercise broad administrative powers with respect
to licensing to transact business, overseeing trade
practices, licensing agents, approving policy forms,
establishing reserve requirements, prescribing dividend
limitations, prescribing the form and content of required
financial statements, regulating the type and amounts of
investments permitted and other matters, all as set forth in
laws and regulations. TLIC files detailed annual reports
and audited annual financial statements, based on the
accounting practices prescribed or permitted by its state of
domicile, with supervisory agencies in each of the
jurisdictions in which it does business, and its operations
and accounts are subject to examination by such agencies at
regular intervals. An examination is in progress by the
states of Texas, Oklahoma and Mississippi for the period
ended December 31, 1995. No report has been issued yet.
Under insurance guarantee fund laws, insurers doing business
in states having such laws can be assessed up to prescribed
-9
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued
limits for policyholder losses incurred by insolvent
companies. In 1996 and 1995, TLIC was assessed
approximately $313,000 and $391,000, respectively. The
amount, if any, of future assessments on TLIC under these
laws cannot be reasonably estimated.
Several states, including Texas, regulate insurers and their
affiliates under insurance holding company legislation.
Under such laws, transactions with affiliates of TLIC may be
subject to prior notice or approval depending on the size of
the transaction in relation to the financial position of
TLIC.
Although the Federal government generally does not directly
regulate the business of insurance, Federal initiatives
often have an impact on the business in a variety of ways.
Federal measures proposed currently or in recent years that
may significantly affect the insurance industry include
employee benefit legislation, securities regulation
concerning insurance products, tax law changes affecting
taxation of insurance companies, the tax treatment of
insurance products and its impact on the relative
desirability of various personal investment vehicles and
proposed legislation to more fully subject insurance
companies to antitrust laws as well as proposed measures
affecting the banking industry that may make it more
competitive in the financial marketplace.
Federal Income Taxes
--------------------
Effective September 30, 1990, for purposes of calculating
Federal taxable income, life insurers were required to
capitalize and amortize acquisition costs relating to
specific types of contracts (e.g., life insurance contracts,
annuity contracts, and noncancelable or guaranteed renewable
-10
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 1. BUSINESS (Continued)
accident and health contracts). The amount of acquisition
costs required to be capitalized for Federal income tax
purposes is determined as a percentage of net premiums.
TLIC capitalized $3,994,000, $3,700,000 and $2,312,000 in
1996, 1995 and 1994, respectively, and amortized $1,639,000,
$1,258,000 and $954,000 in 1996, 1995 and 1994,
respectively. As a result, TLICs taxable income increased
by $2,355,000 in 1996, $2,442,000 in 1995 and $1,358,000 in
1994.
In 1993, TLICs marginal statutory tax rate increased from
34% to 35%.
Competition
-----------
The life insurance industry is highly competitive because of
the large number of stock and mutual life insurance
companies marketing insurance products. This includes
competition in the quoting of current as well as expected
future rates of interest and mortality cost. Bests Life-
Health Industry Marketing Results, 1995 edition, ranked TLIC
37th among approximately 700 life insurance companies doing
business in Texas in terms of premium income. There are
approximately 1,800 insurance companies in the United
States, many of whom market insurance in states where TLIC
operates. TLIC ranked 205th among all life insurance
companies, based upon life premium income, according to
Bests Insurance Management Reports, Life-Health, 1995
edition.
Employees
---------
As of December 31, 1996, TLIC had 125 employees, of whom 115
full-time and part-time employees worked in its home office
and 10 worked in its regional offices. Independent agents
marketing TLIC insurance products are not employees of TLIC.
-11-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ----------------------------------------------------------
Item 1. BUSINESS (Continued)
Subsidiaries
------------
During 1994, Berac Corp., a wholly-owned subsidiary of TLIC
was renamed Texas Life Agency Services, Inc.
During 1995, TLIC organized Texas Life Agency Services of
Kansas, Inc., a wholly-owned subsidiary of TLIC.
Item 2. PROPERTIES
Holdings owns no property. TLIC owns an undivided 56.54%
interest in its home office building and Texas National Bank
of Waco, Waco, Texas, owns the remaining undivided interest.
The building is a ten-story, 80,391 square foot office and
bank building located in Waco, Texas. TLIC occupies 32,954
square feet of the building. TLICs interest in the building
had a net book value of approximately $2,459,000 as of
December 31, 1996. TLIC leases space for its Dallas and
Waco regional offices. As of December 31, 1996, TLIC also
owned real estate that it acquired through foreclosure in
satisfaction of debt. The foreclosed property included land
and a residential development in Corinth, Texas. It is
reported in the Consolidated Balance Sheet as of December
31, 1996 at its estimated net realizable value of
approximately $982,000.
Item 3. LEGAL PROCEEDINGS
Neither Registrant nor its subsidiaries is involved in any
material pending or threatened legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of
1996 to a vote of security holders of the Registrant or its
subsidiaries, through the solicitation of proxies or
otherwise.
-12
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ---------------------------------------------------------------
PART II
Item 5. MARKET FOR THE COMMON STOCK OF THE REGISTRANT AND
RELATED STOCKHOLDER MATTERS
The Registrant is a wholly-owned subsidiary of Metropolitan
and there is no market for the common stock of the
registrant. Under the Indenture pursuant to which the
Contingent Payment Notes were issued, the Registrant is
prohibited from paying any dividends to Metropolitan as long
as the Contingent Payment Notes are outstanding. See Note
11 to the Consolidated Financial Statements regarding other
restrictions on the payment of dividends.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial
data for the Registrant as of and for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 (dollars in
thousands):
1996 1995 1994 1993 1992
Revenue:
Insurance revenues...$ 30,302 $ 26,713 $ 24,431 $ 21,849 $ 21,330
Investment income.... 32,654 31,217 27,685 27,551 27,770
Other-net............ 988 1,026 (717) 895 2,152
-------- -------- ------- -------- --------
Total........... $ 63,944 $ 58,956 $ 51,399 $ 50,295 $ 51,252
======== ======== ======== ======== ========
Net income.......... $ 5,308 $ 4,500 $ 2,217 $ 3,287 $ 4,8774
======== ======== ======== ======== ========
Total assets........ $568,980 $536,720 $496,098 $473,582 $434,894
======== ======== ======== ======== ========
Contingent payment
notes net of
allowance........ $ 7,874 $ 7,874 $ 7,874 $ 7,874 $ 7,874
======== ======== ======== ======== ========
Notes payable to
affiliates....... $ 12,500 $ 12,500 $ 12,500 $ 12,500 $ 12,500
======== ======== ======== ======== ========
-13
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Historical Results of Operations
--------------------------------
Holdings is a wholly-owned subsidiary of Metropolitan and
was formed for the purpose of acquiring TLIC. The
unconsolidated revenues of Holdings are exclusively
attributable to its interest bearing investments.
Therefore, the changes in the Consolidated Statements of
Operations discussed below are primarily attributable to
TLIC.
Summarized below are the consolidated results of operations
for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
As of December 31,
-------------------------
1996 1995 1994
---- ---- ----
Traditional life insurance premiums $14,436 $12,690 $10,836
Universal life and investment policies 15,866 14,023 13,595
Investment income 32,654 31,217 27,685
Realized gains (losses) 679 601 (1,404)
Other income 309 425 687
------- ------- -------
Total revenues 63,944 58,956 51,399
------- ------- -------
Policyholder benefits and claims 13,611 11,668 11,364
Change in liability for future
policyholder benefits, net of
transfers to reinsurers 24,984 23,124 21,081
Operating expenses, commissions,
taxes and fees 10,148 9,624 8,983
Interest accrual on contingent
payment notes 1,184 998 983
Amortization of policy acquisition costs 3,592 3,955 3,222
Amortization of cost of insurance acquired 2,392 2,456 2,366
------- ------- -------
Total benefits and expenses 55,911 51,825 47,999
------- ------- -------
-14
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
As of December 31,
-------------------------
1996 1995 1994
---- ---- ----
Income before Federal income taxes $ 8,033 $ 7,131 $ 3,400
Federal income taxes 2,725 2,631 1,183
------- ------- -------
Net income $ 5,308 $ 4,500 $ 2,217
======= ======= =======
Year-to-Date Results
--------------------
Individual life insurance sales of TLIC in annualized
premium (excluding premiums in excess of target), which
represents first year premium and is used to measure sales
production, were $9,247,000 for the year ended December 31,
1996, an increase of $659,000, or 7.7%, from December 31,
1995 results. Sales of universal life, which comprised
50.9% of 1996 total life sales, increased $247,000, or 5.5%,
for 1996 versus 1995 primarily due to the success of the
Convenient Life product of TLIC. Sales of traditional life
products increased $535,000, or 17.8% and term life sales
decreased $123,000, or 11.0%, over the same period.
Total revenues increased $5.0 million in 1996 from the
comparable period in 1995, and $7.6 million in 1995 from the
comparable period in 1994. The increase in 1996 is
primarily attributable to (i) a $1.7 million, or 13.8%,
increase in traditional life premiums and a $1.8 million, or
13.1%, increase in universal life and investment product
policy charges, both attributable to an increase in business
in force related to increased sales in recent years, and
(ii) a $1.4 million, or 4.6%, increase in net investment
income resulting from increased yields earned on invested
assets and an increase in invested assets (from $441.3
million at December 31, 1995 to $459.6 million at December
31, 1996).
-15
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The increase in 1995 is primarily attributable to (i) a $3.5
million, or 12.8%, increase in net investment income related
to increased yields on investments in 1995 and an increase
in invested assets (invested assets were $441.3 million at
December 31, 1995 versus $387.6 million at December 31,
1994), (ii) a $1.9 million, or 17.1%, increase in
traditional life insurance premiums related to increased
business in force resulting from increased sales in recent
years, and (iii) a $2.0 million increase in realized capital
gains (a $0.6 million gain at December 31, 1995 versus a
$1.4 million loss at December 31, 1994) related to the sale
in 1994 of underperforming mortgage-backed securities and
U.S. Treasuries.
Benefits, claims and expenses increased $4.1 million, or
7.9%, in 1996 versus 1995 and $3.8 million, or 8.0%, in 1995
versus 1994. The 1996 increase is primarily attributable to
a $1.9 million, or 16.7%, increase in policyholder benefits
and claims and a $1.9 million, or 8.0%, increase in the
change in the liability for future policyholder benefits,
both of which are related to the growth and aging of the
block of business in force.
The 1995 increase over 1994 is primarily attributable to
(i) a $2.0 million, or 9.7%, increase in the change in
liability for future policyholder benefits related to the
growth and aging of the block of business in force, (ii) a
$0.7 million, or 22.7%, increase in the amortization of
deferred policy acquisition costs due primarily to increased
production of new business, and (iii) a $0.7 million, or
6.6%, increase in operating expenses and commissions, taxes
and fees due primarily to increases in personnel,
commissions and printing associated with increased sales in
recent years.
-16
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The acquisition of TLIC was accounted for as a purchase and,
accordingly, the assets acquired (including the cost of
insurance acquired) and the liabilities acquired were
recorded at their fair values. The cost of insurance
acquired is being amortized over the lives of the acquired
policies in relation to the remaining present value of
estimated gross profits from surrender charges and
investment, mortality and expense margins expected to be
realized from such policies. Amortization of $6,777,000,
net of interest of $4,411,000 and an equity adjustment of
$3,737,000 relating to SFAS 115, resulted in a December 31,
1994 balance of the cost of insurance acquired of
$50,426,000. Amortization of $6,594,000, net of interest of
$4,137,000 and an equity adjustment of $11,058,000 relating
to SFAS 115, resulted in a December 31, 1995 balance of the
cost of insurance acquired of $36,911,000. Amortization of
$6,312,000, net of interest of $3,920,000 and an equity
adjustment of $4,514,000 relating to SFAS 115, resulted in a
December 31, 1996 balance of the cost of insurance acquired
of $39,033,000. The interest rate used by TLIC for such
calculations was 8.931% for universal life policies and
9.41% for all other business.
Federal income taxes remained virtually flat in 1996 as
compared to 1995 resulting from a $352,000 decrease in
current taxes and a more than offsetting $446,000 increase
in deferred tax expense. Current tax expense decreased
$230,000 resulting from the difference between the book and
tax basis of policyholder reserves and $220,000 resulting
from the difference between the tax and book basis of
realized capital losses. These decreases were partially
-17
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
offset by a $57,000 increase related to an increase in
capital gains for Holdings. Deferred tax expense increased
$453,000 due to the difference between the tax and book
basis of deferred policy acquisition costs and $459,000 due
to the difference between the tax and book basis of
policyholder reserves. These increases were partially
offset by a $495,000 decrease caused by the difference
between the tax and book basis of invested assets.
Federal income taxes increased $1.4 million, or 122.4%, in
1995 versus 1994, resulting from a $2.3 million, or 433.0%,
increase in the current tax provision and a partially
offsetting $0.9 million, or 130.5%, decrease in deferred
taxes. Current tax expense increased $0.4 million resulting
from an increase in the DAC tax in 1995 versus 1994, $0.7
million due to a bad debt deduction taken in 1994 relating
to certain mortgage loans, and $1.0 million as a result of
an increase in the tax versus book basis of realized capital
gains in 1995 versus 1994. Deferred taxes decreased $0.5
million due to an increase in the difference between the tax
and book basis of invested assets and other policyholder
liabilities and $0.3 million due to a decrease in the
difference between the tax and book basis of deferred policy
acquisition costs and cost of insurance acquired.
As a result of the above-mentioned items, net income
increased $0.8 million, or 18.0%, in 1996 versus 1995 and
$2.3 million, or 103.0%, in 1995 versus 1994.
-18
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Fourth Quarter Results
----------------------
Fourth quarter 1996 revenues of $17.1 million increased $1.4
million, or 8.9%, over fourth quarter 1995 revenues
primarily because of a $1.0 million, or 29.5%, increase in
universal life and investment product policy charges and a
$0.5 million, or 14.1%, increase in traditional insurance
premiums, both due to increased sales of these products in
recent years.
Fourth quarter 1996 benefits, claims and expenses increased
$1.2 million, or 9.2%, over the fourth quarter of 1995
primarily due to (i) a $0.9 million, or 36.2%, increase in
policyholder benefits and claims resulting from increased
traditional life death claims and (ii) a $0.6 million, or
10.6%, increase in the change in liability for future
policyholder benefits related to the growth and aging of the
block of business in force.
Federal income taxes remained virtually unchanged for the
fourth quarter of 1996 versus the comparable period of 1995.
Current taxes decreased $0.5 million and deferred taxes
increased an equivalent amount. Current taxes decreased
$279,000 due to decreased statutory operating earnings,
$141,000 due to the difference between the book and tax
basis of policyholder reserves and $99,000 due to increased
realized capital losses. Deferred taxes increased $579,000
due to the difference between the book and tax basis of
policyholder reserves.
-19
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
As a result of the items discussed above, net income
increased $0.2 million, or 11.4%, for the fourth quarter of
1996 as compared to the fourth quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The sole activities of Holdings consist of the investment of
its assets in certain high grade, liquid investments
permitted by the indenture pursuant to which its Contingent
Payment Notes were issued (see Note 9 to the Consolidated
Financial Statements), administration of its Contingent
Payment Notes and ownership of the outstanding common stock
of its wholly-owned subsidiary, TLIC. Since payment of
principal on the Contingent Payment Notes is not required
until December 1997, Holdings does not have substantial
short-term liquidity needs. Nevertheless, on December 31,
1996, Holdings had $17.8 million of high grade, liquid
investments which will be available to make the required
principal payments, if any, on the Contingent Payment Notes
in 1997. Income earned on these investments should be
sufficient to cover the semi-annual interest payments, if
any, on the Contingent Payment Notes. Under the terms of
the Indenture, Holdings paid no interest in both 1996 and
1995 on the Contingent Payment Notes because of accumulated
-20-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
losses on the underlying Pool Loans. Additionally, no
interest was paid in January 1997. It is unlikely that
interest will be paid on the Contingent Payment Notes in
July 1997.
As a result of book interest expense on the Contingent
Payment Notes for the year ended December 31, 1996, Holdings
had a net loss of approximately $108,000, on an
unconsolidated basis. Due to the low interest rate
environment and the constraints on investment options
imposed on Holdings by the Indenture under which the
Contingent Payment Notes were issued, the book interest
expense on the Notes resulted in an operating loss in both
1995 and 1996. The operating losses do not present a cash
flow concern since, as noted above, no interest payments are
expected to be made in July 1997.
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 10 to the Consolidated
Financial Statements for a description). While both of
these notes are considered a liability by the Registrant on
a GAAP basis, they are considered surplus for TLIC on a
statutory basis. The $7 million note payable was issued to
provide additional statutory capital 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.
-21-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
The Registrant has no outstanding borrowings other than the
Contingent Payment Notes and the notes payable of TLIC to
affiliates 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 Contingent Payment
Notes were issued.
Holdings 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 the invested assets of TLIC are investment grade
securities to provide ample protection for its
policyholders. As of December 31, 1996, TLIC had $4,770,000
of securities rated below investment grade by the National
Association of Insurance Commissioners, representing 0.1% of
total invested assets. These consist of $3,646,000 of bonds
rated BB, $400,000 rated B, $707,000 rated C and $17,000 of
nonperforming bonds. The NAIC ratings reflect ratings by
independent rating agencies for publicly traded securities.
TLIC has mortgage loans with a carrying value of $31,910,000
($35,216,000 less a $3,306,000 reserve for losses) at
December 31, 1996. The carrying value of these mortgage
loans comprised 6.9% of total invested assets. The
$3,306,000 reserve for losses for mortgage loans increased
$4,000 in 1996 due to loan payoffs. Management believes
that the reserve for losses recognizes any potential losses
which may occur in the future on impaired mortgage loans.
It represents 9.4% of the total mortgage loan book value and
covers 111.9% of the $2,955,000 in mortgage loan principal
-22-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
balances which were delinquent by 90 days or more.
Such delinquent mortgage loans were comprised of $2,951,000
of cash flow loans and a $4,000 residential loan.
Included in the mortgage loan book value is $3,403,000 of
loans on watch (i.e., loans which are not delinquent over
90 days but are being monitored more carefully for possible
problems in the future). One loan, which is 30 days
overdue, has a total value of $71,000. The 8.4% delinquency
rate of TLICs mortgage loan portfolio at December 31, 1996
is up from 7.6% at December 31, 1995 and down from 10.9% at
December 31, 1994 and 12.3% at December 31, 1993. The
$2,955,000 book value at December 31, 1996 of loans that
were delinquent by 90 days or more was up slightly from
$2,951,000 at December 31, 1995 and down from $4,531,000 at
December 31, 1994.
The gross yield on all mortgage loans was 8.1% in 1996, 8.3%
in 1995, 9.24% in 1994 and 9.36% in 1993. In 1996, mortgage
loan income was reduced $149,000 due to loan restructurings,
which compares to $253,000 in 1995. In 1996, foreclosed
property income was $13,000 lower than if the properties
were yielding their respective mortgage rates of interest.
In 1995, such income was $303,000 lower.
The mortgage loan portfolio of TLIC includes $17,034,000 of
commercial loans, $59,000 of loans on apartments, $306,000
of residential loans and $17,817,000 of agricultural loans.
50.6% of these loans are in Texas and 49.4% are in other
states. Since its acquisition by Holdings, TLIC has made 11
commercial mortgage loans with a book value aggregating
$5,038,000, fifteen purchase money mortgages on foreclosed
-23-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
real estate aggregating $4,163,000, and forty-four
agricultural loans aggregating $20,203,000 through the
Agricultural Investments Department of Metropolitan, for a
total of $29,404,000. Since its acquisition, TLIC has
required a maximum loan to appraised value of 75% 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 to fifteen years, with
recent ten to fifteen year loans containing a provision for
adjustment in the interest rate after three or five years.
The total ratio of original loan balance to original
appraised value is 58.4% and the current loan value to
original appraised value is 45.7%. The average seasoning of
loans is approximately 5.0 years. The total current loan
balance to original loan balance is 78.2%. The largest
single loan balance is $1,642,000.
At December 31, 1996, TLIC had $982,000 of foreclosed real
estate which consists of one acreage property with
residential development. Real estate also includes property
occupied by TLIC with a net book value of $2,459,000 at
December 31, 1996.
Due to the relatively small amount of below investment grade
and nonperforming investments, these investments have not
had, nor are they expected to have, a material impact on the
financial condition of TLIC or its results of operations.
TLIC maintains liquidity through its selection of
-24-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
investments. Four-fifths of its securities at December 31,
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. TLIC has utilized an asset/liability
matching process to help determine the investment rate it
can credit to its policyholders. The universal life
insurance products of TLIC are credited an interest rate
based upon earnings from allocated assets less an interest
rate margin. In the recent history of TLIC, the philosophy
of its management has been to maintain this interest rate
margin based on the returns on its investments rather than
to credit current market rates to its previously issued
policies. The interest rate credited by its competitors to
their new policyholders is, however, influenced by the
current market rates of available investments. Significant
increases in the credited rates of these competitors could
cause TLIC either to reduce its margins or to credit a rate
that may be noncompetitive and result in surrenders of
policies by some holders of previously issued TLIC 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 lower 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 policy
surrenders.
-25-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
Additionally, almost 39% of the insurance in force of TLIC
is traditional life insurance, which is not as susceptible
to changes in the interest rate environment (31% of its
insurance in force is term insurance, which has no cash
surrender value and is not impacted by changes in the
interest rate).
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 universal life
policyholders. However, a sudden significant increase in
current market rates could have a material adverse impact on
the liquidity of TLIC because policyholders might convert to
products of competitors to which higher rates are credited.
Conversely, sudden declines in interest rates could
materially increase the liquidity of TLIC if the issuers of
its fixed rate long-term investments exercise their bond
call options or refinance at lower rates the mortgages that
are owned by TLIC.
In addition to the large amount of readily marketable
securities referred to above, it is also the policy of TLIC
to maintain at least $3,000,000 of cash and short-term
investments, net of commitments for investment purchases.
At December 31, 1996, TLIC had approximately $2,910,000 in
cash, and approximately $7,831,000 in cash equivalents and
short-term investments. There were no investment
commitments at December 31, 1996.
-26-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL
RESOURCES (Continued)
New Accounting Pronouncements
During 1996, TLIC adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires that long-lived assets and certain
identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without
interest charges) expected to result from the use of the
asset and its eventual disposition to the carrying amount of
the asset. Adoption of SFAS 121 had no significant impact
on the Registrants consolidated financial position.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section
of this report. See Item 14(a)(1) and (2), page.38
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
-27-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------------------
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management of Holdings
The names, ages and positions of all the directors and executive
officers of the Registrant on the date of this report are listed below
along with their business experience during at least the last five
years. Mr. Nagler has served in such capacity since November 23,
1987. Mr. Blackwell has served as Vice-President and Director since
November 23, 1987 and as Secretary since May 1, 1991. Mr. Schlanger
has served in his present capacity since January 23, 1990, and Mr.
Leff since April 19, 1995. Pursuant to the by-laws of the Registrant,
directors are elected by the stockholder of the Registrant for a one-
year term, while officers are selected by the Board of Directors and
serve at the discretion of the Board.
Name and Age Title
------------ -----
Stewart G. Nagler, 54...................President and Director
Richard M. Blackwell, 57................Secretary, Vice-President
and Director
Harold B. Leff, 48......................Vice-President and Director
Myron O. Schlanger, 41..................Vice-President and Controller
Mr. Nagler has served as Senior Executive Vice-President of
Metropolitan, in its Corporate Management Office, since January 1,
1986. On April 1, 1993, he began serving as Senior Executive Vice-
President and Chief Financial Officer of Metropolitan.
Mr. Blackwell has served as Senior Vice-President in the compliance
area of Metropolitan since August 1, 1996. Prior to that, he served
as Senior Vice-President, General Counsel and Secretary of
Metropolitan.
Mr. Leff has served as Senior Vice-President and Senior Actuary of
Metropolitan in charge of special projects in the Individual Business
Marketing area since March 1996 and prior to that he served as Vice-
President and Senior Actuary of Metropolitan in charge of special
projects for Metropolitans Chief Financial Officer since April 1995.
Before that he served as Vice-President in charge of Distribution
Strategies in Metropolitans Personal Insurance department since
October 1, 1994; Vice-President in charge of Metropolitans Personal
Insurance Northeastern Territory since December 1993; and Vice-
President and Officer in Charge of MetLife Brokerage from July 1991 to
December 1993.
Mr. Schlanger has been a Vice-President in the Corporate Controllers
Department of Metropolitan since May 1, 1996. Prior to that, he
served as a Vice-President in the Personal Insurance Financial
Management area of Metropolitan since December 1, 1994. Prior to
-28-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -----------------------------------------------------------------------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
that, he served as a Vice-President since March 1, 1994 and an
Assistant Controller since May 1, 1991, in each case in the Corporate
Controllers Department of Metropolitan.
Directors and Executive Officers of TLIC
The following information is provided as to the directors, executive
officers and certain significant employees of TLIC.
Mr. Levene is Chairman of the Board of TLIC. He was elected at TLICs
Board meeting on November 14, 1996 and replaced John H. Tweedie as
Chairman of the Board. Mr. Tweedie resigned contemporaneously with
his becoming the officer in charge of Metropolitans International
Operations Department. Ms. Buffum and Mr. Lennon have been Directors
of TLIC since April 30, 1993. John D. Mayfield,III, President and
Chief Executive Officer of TLIC since 1957 retired from TLIC and the
Board on December 31, 1996. Ms Weiss and Mr. Cates became members of
the Board on November 14, 1996. Mr. Cates became President and Chief
Executive Officer of TLIC on January 1, 1997.
Pursuant to the by-laws of TLIC, Directors are elected by the
shareholder of TLIC for one-year terms. The President and Secretary
are elected by the Board of Directors, while the other officers may
be appointed by the Board of Directors or the person or committee to
whom the Board delegates the responsibility. These appointed officers
serve at the discretion of the Board of Directors or the Chief
Executive Officer. Unless otherwise indicated, the business address
of each person listed below as an officer of (1) TLIC is 900
Washington Avenue, P.O. Box 830, Waco, Texas 76703 and
(2) Metropolitan is One Madison Avenue, New York, NY 10010, and such
person is a citizen of the United States.
Set forth below is certain information concerning the individuals who
were directors or executive officers of TLIC on the date of this
report:
Present Principal Occupation;
Name, Age and Five-Year Employment History;
Business Address and Other Directorships
- ---------------- -----------------------------
Steven T. Cates, 43 President and Chief Executive Officer of
TLIC since January 1, 1997. Executive
Vice-President of TLIC on July 1, 1996;
Member of Board of TLIC since November
14, 1996; Vice-President in the Real
Estate Information Department of
Metropolitan since November 1, 1994;
Vice-President in the Investment
Information Department of Metropolitan
since October 1, 1993; Vice-President in
Metropolitans Strategic Research Group
since August 1, 1992; Vice-President in
the Southwestern Territory of
Metropolitans Real Estate Financing
-29
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -----------------------------------------------------------------------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
Present Principal Occupation;
Name, Age and Five-Year Employment History;
Business Address and Other Directorships
- ---------------- -----------------------------
Steven T. Cates (Cont.) Department since May 1, 1990.
Francis H. George, 56 Senior Vice-President and Actuary of
TLIC since 1981.
Paul E. Anderson, 36 Senior Vice-President and General
Counsel of TLIC since 1993.
Vice-President and Associate General
Counsel of TLIC from 1990 to 1993.
A. Glenn Morton, III, 56 Senior Vice-President and Director of
Marketing of TLIC since 1991.
Regional Vice-President of TLIC since
1982.
Steven L. Aupperle, 49 Senior Vice-President, Finance and
Investment Department, of TLIC since
1985.
Regan E. Jenkins, Jr., 50 Regional Vice-President of TLIC since
1420 W. Mockingbird 1987.
Suite 380
Dallas, Texas 75247
Carroll W. Fadal, 44 Regional Vice-President of TLIC since
4901 Boque Blvd. 1993, Sales Agent since 1975.
Suite 250
Waco, Texas 76714
Anthony Amodeo, 48 Vice-President and Actuary of
Metropolitan since May 1, 1988, serving
in this capacity in the Pensions
Department since such date and in the
Personal Insurance Department since
April 1, 1993.
Susan A. Buffum, 44 Vice-President in General Account
Portfolio Management Department of
Metropolitan since October 1, 1994;
Second Vice-President in Securities
Department of the Travelers Companies
from June 1990 through September 1994;
Investment Officer of the Travelers
Companies since 1986.
-30
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -----------------------------------------------------------------------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
Present Principal Occupation;
Name, Age and Five-Year Employment History;
Business Address and Other Directorships
- ---------------- -----------------------------
Harold B. Leff, 48 Vice-President and Senior Actuary in
charge of special projects for the
Individual Business Marketing area of
Metropolitan. See page 28 for prior
employment history.
Terence Lennon, 58 Senior Vice-President in the Mergers and
Acquisitions Department of Metropolitan
since March 1, 1994; Assistant Deputy
Superintendent and Chief Examiner of
the New York Insurance Department from
June 1988 through February 1994.
David A. Levene, 58 Chairman of the Board of TLIC since
November 14, 1996; Senior Vice-
President in the Individual Business
Department of Metropolitan since June 1,
1996 and Executive Vice-President in the
Individual Business Department of
Metropolitan since December 1, 1996;
Senior Vice-President and Chief Actuary
of Metropolitan since 1990.
Judy E. Weiss, 45 Senior Vice-President and Chief Actuary
of Metropolitan since July 1, 1996;
Senior Vice-President and Actuary in the
Pensions, Employer Financial Services
and Institutional Business departments
of Metropolitan since 1991.
Item 11. EXECUTIVE COMPENSATION
No compensation in any form was paid by Registrant to any executive
officer of the Registrant for services rendered in any capacity to the
Registrant and TLIC during Registrants last fiscal year.
The following table and discussion sets forth the compensation paid
for the years 1992-1996 to the President and Chief Executive Officer
of TLIC and the four other most highly compensated executive officers
of TLIC (which encompasses all executive officers of TLIC earning
$100,000 per year or more in any of such years). Compensation and
benefits, including perquisites, paid or furnished by TLIC for the
years 1992-1996 to such executive officers, other than as described in
the table below, were at amounts below established reporting
thresholds.
-31
METLIFE TEXAS HOLDINGS, INC, AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- --------------------------------------------------------------------------
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
Name and Principal Annual Compensation
Position -------------------
All Other
Year Salary Bonus( ) Compensation(2)
($) ($) ($)
1996 210,000 82,500 6,993
John D. Mayfield, III 1995 210,000 67,500 6,993
President and Chief 1994 190,000 50,833 6,497
Executive Officer 1993 190,000 117,132 7,925
1992 186,250 43,833 7,784
1996 149,333 35,708 5,212
A. Glenn Morton, III 1995 143,500 44,375 5,012
Senior Vice-President and 1994 136,500 27,675 4,772
Director of Marketing 1993 126,458 10,917 4,629
1992 122,133 23,077 4,456
1996 124,500 40,563 4,313
Steven L. Aupperle 1995 120,000 39,250 4,154
Senior Vice-President, 1994 110,500 22,746 3,845
Finance & Investments 1993 101,750 5,906 3,396
1992 98,500 17,785 3,253
1996 112,750 59,750 4,011
Francis H. George 1995 108,500 37,042 3,862
Senior Vice-President and 1994 99,500 22,292 3,570
Actuary 1993 96,249 8,292 3,644
1992 93,000 18,710 3,502
1996 86,000 29,688 2,999
Paul E. Anderson 1995 79,000 24,500 2,753
Senior Vice-President and 1994 73,500 13,242 2,564
General Counsel 1993 70,000 11,454 2,456
1992 67,088 10,223 2,355
METLIFE TEXAS HOLDINGS, INC, AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------------------
Item 11. EXECUTIVE COMPENSATION (Continued)
Estimated Retirement Benefits
The following table of estimated retirement benefits sets forth the
estimated annual benefits payable on normal retirement date pursuant
to the TLIC Retirement Plan (the Retirement Plan) to persons in
specified compensation and years-of-service classifications. The
Retirement Plan is a noncontributory plan which provides for the
payment of retirement and death benefits for eligible employees of
TLIC.
Estimated Annual Pension for Representative Years of
Credit Service
----------------------------------------------------
Average Annual
Compensation 10 15 20 25 30 35
$100,000 $14,640 $21,960 $ 29,280 $ 35,340 $41,400 $ 47,460
125,000 19,140 28,710 38,280 46,215 54,150 62,085
150,000 23,640 35,460 47,280 57,090 66,900 76,710
175,000 28,140 42,210 56,280 67,965 79,650 91,335
200,000 32,640 48,960 65,280 78,840 92,400 105,960
225,000 37,140 55,710 74,280 89,715 105,150 120,585
250,000 41,640 62,460 83,280 100,590 117,900 135,210
275,000 46,140 69,110 92,280 111,465 130,650 149,835
300,000 50,640 75,960 101,280 122,340 143,400 164,460
The credited years of service for Messrs. Mayfield, Morton, Aupperle
and George are eight years for each (measured from the inception of
the Retirement Plan on July 31, 1988). The credited years of service
for Mr. Cates and Mr. Anderson are fifteen and six years,
respectively. Benefits are determined based on average base
compensation for the five years of highest compensation during the 10
years proceeding retirement. Compensation includes salary and the
December Bonus. Benefits are payable on a straight life annuity basis
or, for married employees, benefits are adjusted to provide for a
qualified joint and survivor annuity.
Payment of the amounts shown in the above table is subject to annual
limitations imposed by the Internal Revenue Code. The extent of any
reduction will vary in individual cases according to circumstances
existing at the time pension payments commence.
2A Savings and Investment Plan (the Plan) is available to substantially all
TLIC employees who have attained age 21 with at least one year of service. TLIC
makes a matching contribution of 100% of the first 3% of base salary
contributed by each participant. TLIC made matching contributions for
Messrs. Mayfield, Morton, Aupperle, George and Anderson of $6,825, $4,876,
$3,977, $3,675 and $2,721, respectively, in 1996.
TLIC paid $168, $336, $336, $336 and $278 for term life insurance for Messrs.
Mayfield, Morton, Aupperle, George and Anderson, respectively, in 1996.
-33-
METLIFE TEXAS, HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- --------------------------------------------------------------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the persons who own of record or
beneficially more than 5% of the common stock of the Registrant.
- ----------------------------------------------------------------------
(1) Title of (2) Name and (3) Amount and (4) Percent
class address of nature of of class
beneficial beneficial
owner ownership
- ----------------------------------------------------------------------
$1.00 par value Metropolitan Life 1,000 shares 100%
Common Stock Insurance Company,
One Madison Avenue,
New York, NY 10010
No director or officer of the Registrant or TLIC beneficially owns,
nor has the right to acquire, any equity securities of the Registrant
or its subsidiaries.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to July 31, 1988, Metropolitan, the Registrants sole
stockholder, made capital contributions totalling $60,000,000 of its
own funds to the Registrant to enable it to effectuate the acquisition
of TLIC. The transaction is more fully described in the Registrants
Form S-1 filed with the Securities and Exchange Commission
(Commission) (File No. 33-20104), which became effective on May
13,1988, and the Registrants Form 8-K dated July 31, 1988 which was
filed with the Commission on August 15, 1988, and was supplemented by
Form 8 dated October 12, 1988 which was filed with the Commission on
October 13, 1988. At December 31, 1996, the Registrant had a
liability to Metropolitan of $2,116,842 for costs that were paid by
Metropolitan. TLIC has a $7 million note payable to Metropolitan and
a $5.5 million note payable to MetLife Credit Corporation, a
subsidiary of Metropolitan (see Note 10 to the Consolidated Financial
Statements). Interest accrued on the notes was $919,000 in 1996,
$947,000 in 1995, $899,000 in 1994, $875,000 in 1993, $915,000 in 1992
and $1,033,000 in 1991. In December 1992, Metropolitan contributed to
Holdings and Holdings contributed to TLIC all of the stock of EL, Inc.
EL, Inc.s assets consisted of a piece of unimproved land and
approximately $400 in cash. During 1994, EL Inc. was dissolved and
its assets were transferred to TLIC.
-34-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- ------------------------------------------------------------------------
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) --The response to this portion of Item 14
is submitted as a separate section of this
report. See page 38.
(3) Listing of Exhibits
Exhibit 3 -- Certificate of incorporation and
by laws *
Exhibit 4 -- Instruments defining the rights of
security holders including indentures **
Exhibit 22 -- Subsidiaries of the Registrant
(b) There were no reports on Form 8-K filed by the Registrant in the
fourth quarter of 1996.
(c) Exhibits -- The response to this portion of Item 14
is submitted as a separate subsection of
Item 14 of this report. See Item 14
(a)(3).
(d) Financial Statement -- The response to this portion of Item 14
is submitted as a separate section of
this report. See page 38.
* Incorporated by reference to Item 14(a)(3) and Exhibit 3 of the
Registrants Form 10-K for the fiscal year ended December 31, 1988, as
filed with the Securities and Exchange Commission on March 29,1989.
** Incorporated by reference to Item 16 of the Registrants Form S-1, as
filed with the Securities and Exchange Commission on May 13, 1988.
-35-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
(Continued)
- -------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 31, 1997 METLIFE TEXAS HOLDINGS, INC.
(Registrant)
By: /s/ Stewart Nagler
-------------------------
Stewart G. Nagler
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
-------- ----- ----
/s/ Stewart Nagler President and Director March 31, 1997
- -----------------------
Stewart G.Nagler
/s/ Richard M. Blackwell Secretary, Vice-President March 31, 1997
- ------------------------ and Director
Richard M. Blackwell
/s/ Harold B. Leff Vice-President and Director March 31, 1997
- -------------------------
Harold B. Leff
/s/ Myron O. Schlanger Vice-President and Controller March 31, 1997
- ------------------------ (Principal Financial and
Myron O. Schlanger Accounting Officer)
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act
No annual report or proxy material has been or will be sent to the
Registrants security holders covering its fiscal year ended December 31,
1996
-36
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NEW YORK, NEW YORK
-37-
Item 14 (a) (1) and (2). FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of MetLife Texas Holdings,
Inc. and subsidiary are included in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Income and Retained Earnings for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994.
Notes to Consolidated Financial Statements - For the years ended
December 31, 1996, 1995, and 1994.
The following consolidated financial statement schedules of MetLife Texas
Holdings, Inc. and subsidiary are included in Item 14 (d):
Schedule I -- Summary of Investments Other Than Investments in
Related Parties - December 31, 1996
Schedule II -- Condensed Financial Information of Registrant at
December 31, 1996 and 1995 and for the years ended
December 31, 1996, 1995 and 1994
Schedule III --Supplementary Insurance Information for the years
ended December 31, 1996, 1995, and 1994
Schedule IV -- Reinsurance for the years ended December 31, 1996,
1995, and 1994
Schedule V -- Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995, and 1994
All other schedules to be consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions
or are inapplicable, or are included elsewhere in the consolidated
financial statements and therefore have been omitted.
-38-
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholder
MetLife Texas Holdings, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of MetLife Texas
Holdings, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedules listed in the Index at Item
14(d). These financial statements and financial statement schedules are the
responsibility of the Companys management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MetLife Texas Holdings, Inc. and
subsidiary at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
January 24, 1997
-39
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(Amounts in thousands)
1996 1995
------- -------
ASSETS
- ------
Investments--Note 5
Fixed maturities held to maturity - at amortized cost
(fair value of $54,229 in 1996 and $62,679 in 1995) $ 53,145 $ 59,406
Fixed maturities available for sale - at fair value
(amortized cost of $314,799 in 1996 and $260,159 in 1995) 321,578 276,101
Fixed maturities held for trading - at fair value
(amortized cost of $13,259 in 1995) 13,134
Equity securities available for sale - at fair value
(cost of $1,973 in 1996 and $2,959 in 1995) 2,854 3,362
First mortgage loans on real estate, net of allowance for
loss of $3,306 in 1996 and $3,302 in 1995--Notes 9 and 13 31,910 35,155
Real estate held for sale, net of allowance for loss of
$980 in 1995 982 1,261
Real estate, net of accumulated depreciation of $987 in
1996 and $882 in 1995 2,459 2,189
Policy loans 30,230 29,642
Short-term investments--at cost, which approximates market 100 100
Cash and cash equivalents, including interest-bearing amounts
of $2,697 in 1996 and $759 in 1995 16,369 20,930
-------- --------
Total Investments 459,627 441,280
Accrued investment income 6,473 6,194
Deferred policy acquisition costs 48,348 38,474
Cost of insurance acquired--Note 2 39,033 36,911
Cost in excess of net assets acquired--Note 2 4,154 4,352
Other assets--Note 8 11,345 9,509
-------- --------
$568,980 $536,720
======== ========
See notes to consolidated financial statements.
-40
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(Amounts in thousands, except share data)
1996 1995
--------- ---------
LIABILITIES AND STOCKHOLDERS EQUITY
Liability for future policyholder benefits $396,307 $373,580
Policyholder claims and benefits payable 12,134 11,245
Accrued general expenses, taxes, licenses and fees 8,668 9,659
Deferred tax liability--Note 7 16,933 17,044
Contingent payment notes--Note 9 7,874 7,874
Amount due to parent 2,431 2,117
Notes payable to affiliates--Note 10 12,500 12,500
Other liabilities 18,171 13,021
-------- --------
475,018 447,040
STOCKHOLDERS EQUITY:
Common stock, par value one dollar a share:
1,000 shares authorized, issued and outstanding 1 1
Additional paid-in capital 60,200 60,200
Retained earnings 32,153 26,845
Unrealized investment gains--Note 5 1,608 2,634
--------- --------
93,962 89,680
-------- --------
$568,980 $536,720
======== ========
See notes to consolidated financial statements.
-41-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in thousands)
<S> <C> <C> <C>
1996 1995 1994
--------- -------- -------
REVENUES:
Insurance Revenues--Note 8
Traditional life insurance premiums $ 14,436 $ 12,690 $ 10,836
Universal life and investment product policy charges 15,866 14,023 13,595
Net investment income--Note 5 32,654 31,217 27,685
Net realized gains (losses) on investments--Note 5 679 601 (1,404)
Other income 309 425 687
--------- -------- --------
63,944 58,956 51,399
--------- -------- --------
BENEFITS, CLAIMS AND EXPENSES:
Policyholder benefits and claims--Note 8 13,611 11,668 11,364
Change in liability for future policyholder benefits 24,984 23,124 21,081
Operating expenses 7,903 7,255 6,813
Commissions, taxes and fees 3,429 3,367 3,153
Amortization of deferred policy acquisition costs 3,592 3,955 3,222
Amortization of cost of insurance acquired 2,392 2,456 2,366
--------- -------- --------
55,911 51,825 47,999
--------- -------- --------
INCOME BEFORE INCOME TAXES 8,033 7,131 3,400
Income taxes--Note 7
Current 2,478 2,830 531
Deferred 247 (199) 652
-------- ------ -------
2,725 2,631 1,183
-------- ------- -------
NET INCOME 5,308 4,500 2,217
RETAINED EARNINGS AT BEGINNING OF YEAR 26,845 22,345 20,128
-------- ------- -------
RETAINED EARNINGS AT END OF YEAR $ 32,153 $ 26,845 $ 22,345
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-42-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in thousands) <C> <C> <C>
<S> 1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES:
Net income $ 5,308 $ 4,500 $ 2,217
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to policyholder accounts 19,268 18,471 17,878
Amortization and depreciation 6,706 7,154 6,342
Deferred income taxes 247 (199) 652
Changes in operating assets and liabilities:
Deferred policy acquisition costs (10,607) (9,838) (8,062)
Increase in liability for future policyholder benefits 5,715 4,652 3,203
Increase (decrease) in policyholder
claims and benefits payable 890 933 (4,295)
Fixed maturities held for trading 13,134 (13,134)
Other liabilities 2,973 4,673 1,995
Accrued investment income (279) (551) (350)
Other assets (5,001) (4,462) 3,081
------- ------- ------
CASH PROVIDED BY OPERATING ACTIVITIES 38,354 12,199 22,661
-------- ------- -------
INVESTING ACTIVITIES:
Proceeds from maturity of securities available for sale 25,588 23,914 29,021
Proceeds from sale of securities available for sale 97,064 4,091 68,253
Proceeds from maturity of fixed maturities held to maturity 10,823 9,100 12,048
Proceeds from sale of fixed maturities held to maturity 393
Proceeds from repayments of mortgage loans on real estate 4,969 3,971 6,083
Proceeds from sale of real estate 1,258 1,825 1,251
Proceeds from repayments of policy loans
and sale of other invested assets 10,238 7,448 7,808
Cost of securities available for sale acquired (175,810) (38,910) (132,984)
Cost of fixed maturities held to maturity acquired (4,495) (3,001) (5,173)
Cost of mortgage loans on real estate acquired (1,728) (873) (8,927)
Cost of real estate acquired (375) (194) (34)
Policy loans issued and other invested assets acquired (9,690) (10,017) (9,942)
-------- -------- --------
CASH USED IN INVESTING ACTIVITIES (42,158) (2,253) (32,596)
-------- -------- --------
FINANCING ACTIVITIES:
Receipts from universal life policyholders
credited to policyholder account balances 13,880 13,081 14,498
Return of policyholder account (16,136) (13,493) (11,944)
balances on universal life policies
Increase in due to parent 314 306 334
Other 1,185 998 983
-------- -------- ---------
-43
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in thousands)
(continued)
1996 1995 1994
---- ---- ----
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (757) 892 3,871
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,561) 10,838 (6,064)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,930 10,092 16,156
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,369 $ 20,930 $ 10,092
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-44
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND BUSINESS
MetLife Texas Holdings, Inc. (the Company), a wholly-owned subsidiary of
Metropolitan Life Insurance Company (Metropolitan), was incorporated under
the laws of the State of Delaware on November 20, 1987 to effect the
acquisition of Texas Life Insurance Company (Texas Life), its wholly-owned
subsidiary, pursuant to an Acquisition Agreement dated as of December 1,
1987 (see Note 2).
The Company, through Texas Life, offers a wide range of life and annuity
products through independent agents and other distribution channels and is
subject to competition from other U.S. insurers in the states in which the
Company conducts business. The Company is subject to regulation by the
Insurance Departments of states in which it is licensed, and undergoes
periodic examinations by those departments.
NOTE 2 - ACQUISITION OF TEXAS LIFE INSURANCE COMPANY
On July 31, 1988, the Company acquired all of the outstanding shares of
Texas Life, a Texas domiciled life insurance company, for $47,200,000 in
cash and $12,800,000 in 9.41% Contingent Payment Notes due in 1997 (the
Contingent Notes) (see Note 9). Metropolitans funding of the purchase price
of $60,000,000 has been recorded in the accompanying financial statements as
additional paid-in capital.
The acquisition has been accounted for as a purchase and, accordingly, the
acquired assets (including value of insurance acquired) and liabilities were
recorded at their estimated fair values of approximately $262,312,000 and
$208,668,000, respectively, at the date of acquisition. The cost of
insurance acquired is being amortized over the lives of the acquired
policies in relation to the remaining present value of estimated gross
profits from surrender charges and investment, mortality and expense margins
realized from such policies. Accumulated amortization of cost of insurance
acquired at December 31, 1996 and 1995 was approximately $23,004,000 and
$20,612,000, respectively. The excess of the purchase price over the fair
value of the net assets acquired is classified in the Consolidated Balance
Sheets as Cost in Excess of Net Assets Acquired and is being amortized over
30 years using the straight-line method. Accumulated amortization of cost
in excess of net assets acquired, at December 31, 1996 and 1995 was
approximately $1,871,000 and $1,673,000, respectively.
-45-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
- ---------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary and have been prepared in accordance with
generally accepted accounting principles (GAAP) which differ from statutory
accounting practices prescribed or permitted by regulatory authorities.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the consolidated financial statements and
revenues and expenses for the period. Actual results could differ
significantly from those estimates.
The estimates susceptible to significant change are those used in
determining deferred policy acquisition costs, the liability for future
policy benefits and claims and those used in determining valuation
allowances for mortgage loans on real estate and real estate. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 115 (SFAS No. 115) which established the current standards of financial
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
At acquisition of a security,
the Company must classify and account for debt and equity securities as follows:
a. Held-to-Maturity Securities - The security is reported at amortized cost
if the Company has the positive intent and ability to hold debt securities to
maturity.
b. Trading Securities - Investments bought and held principally for the
purpose of selling them in the near future, are reported at fair value and
unrealized gains and losses associated with the subsequent change in fair
value are included inearnings from operations.
c. Available for Sale - Investments not classified as held-to-maturity or
trading are reported at their fair values, and the unrealized gains and
losses, net of adjustments to deferred policy acquisition costs, cost of
insurance acquired and deferred income taxes associated with the subsequent
change in fair value are reported as a separate component of stockholders
equity. The adjustment todeferred policy acquisition costs and cost of
insurance acquired represents the change in amortization of deferred policy
acquisition costs and cost ofinsurance acquired that would have been required
as a charge or credit to
operations had such unrealized amounts been realized.
-46
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Investments:
- -----------
As of January 1, 1994, adoption of SFAS No. 115, resulted in the classification
of approximately $78,333,000 of the Companys investments in fixed maturities to
held-to-maturity, and approximately $226,759,000 to available for sale. In
addition, the Company reduced stockholders equity, after giving consideration to
the impact upon deferred policy acquisition costs and cost of insurance
acquired, by approximately $2,680,000.
Realized investment gains and losses on fixed maturities held to maturity are
calculated based on amortized cost. Realized investment gains on equity
securities and fixed maturities available for sale are calculated based on cost
at date of disposal.
Realized gains and losses on sales of investments are recognized utilizing the
specific identification method and include allowances for losses on
investments.
Cash Equivalents: The Company considers all highly liquid investments (cash and
short-term investments) with a maturity of three months or less when
purchased tobe cash equivalents.
Financial Instruments: Financial instruments are reflected in the accompanying
balance sheets on the following bases (fair values were determined in
accordance with Statements of Financial Accounting Standards No. 107):
Cash and cash equivalents, short-term investments - at cost, which
approximates fair value.
Equity securities available for sale (common and certain preferred stock) -
at fair value as determined from quoted market prices provided by independent
pricing services.
Fixed maturities held to maturity (bonds and preferred stocks) - at cost,
adjusted for amortization of premium or discount and other-than-temporary
market value declines. Fair values are based on quoted market prices provided
by independent pricing services. Fair values of private placement securities
are provided by independent securities advisors.
Fixed maturities available for sale (bonds and preferred stocks) - at fair
value. Fair values are based on quoted market prices provided by independent
pricing services.
Fixed maturities held for trading (bonds and preferred stocks) - at fair
value. Fair values are based on quoted market prices provided by independent
pricing services.
-47-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
First mortgage loans on real estate - performing mortgage loans are reported at
unpaid balances, less a reserve for possible losses. Mortgage loans in default
or in process of foreclosure, if any, are reported at the lower of unpaid
balance or estimated market value of the underlying collateral. The fair
values of mortgage loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to borrowers
with similar credit ratings and maturities.
Policy loans - at unpaid balances. The fair values are estimated using
discounted cash flow analyses, using the 15 year U.S. Treasury bill rate.
Loans with similar characteristics are aggregated for purposes of the
calculation.
Contingent payment notes - at the unpaid principal balance less an allowance
for possible losses on the mortgage pool loans (see Note 9).
Notes payable to affiliates - at unpaid balances. The fair values are
estimated by discounting the expected future cash flows at interest rates
currently available to the Company for debt with similar expected maturities.
Deferred Policy Acquisition Costs: Commissions and other costs that vary with
and are primarily related to the production of new business have been
deferred. Acquisition costs of universal life and investment products are
being amortized over the lives of the policies in relation to the remaining
present value of estimated gross profits from surrender charges and
investment, mortality and expense margins. Traditional life insurance
acquisition costs are being amortized over the premium-paying period of the
related policies in proportion to the ratio of the annual premium revenue to
the total premium revenue anticipated. Such anticipated premium revenue was
estimated using the same assumptions for computing policy benefit reserves.
The amortization period is limited to 25 years for permanent insurance and
10 years for term insurance.
Universal Life Policies and Investment Products: Universal life policies
include universal life insurance and other interest-sensitive life insurance
policies. Investment products include individual and group deferred
annuities, and annuities without life contingencies. Revenues for universal
life policies and investment products consist of policy charges for the cost
of insurance, policy administration, and surrenders that have been assessed
against policy account balances during the period. Benefit reserves for
universal life policies and investment products represent policy account
balances before applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances and interest credited to policy
account balances. Interest crediting rates for universal life policies and
investment products ranged from 4.5% to 6.5% in 1996, 5.0% to 6.75% in 1995,
and 5.5% to 7.0% in 1994.
-48-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Traditional Life Insurance Products: Traditional life insurance products
include those products with fixed and guaranteed premiums and benefits and
consist principally of whole life insurance policies and limited-payment life
insurance policies. Premiums for
traditional life insurance policies are recognized as revenues when due. The
liabilities
for policy benefits and expenses for traditional life insurance policies are
computed using a net level method including assumptions as to investment
yields, mortality, withdrawals, and other assumptions based on the Companys
experience modified as necessary to reflect anticipated trends and to include
provisions for possible unfavorable
deviations. Reserve investment yield assumptions are level and range from
5.5% to 7.5%. The weighted average assumed investment yield for those life
insurance policy reserves was 7.5% in 1996, 1995, and 1994. Policy benefit
claims are charged to expense in the period that the claims are incurred.
Income Taxes: Income taxes are determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
(SFAS No. 109). Under SFAS
No. 109 deferred tax assets and liabilities at the balance sheet date
represent the future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Depreciation: Provision for depreciation is computed using the straight-line
method over
the estimated useful lives of the assets.
Estimated useful lives are as follows:
Building 50 years
Building improvements 10 years
Furniture and equipment 3 -10 years
Total depreciation expense for the years ended December 31, 1996, 1995, and
1994 was approximately $650,000, $553,000, and $557,000, respectively.
Real Estate: The Companys investments in real estate are reflected at cost,
less allowances for depreciation and possible losses.
Business Segments: The Companys business is a single segment.
Reinsurance Contracts: In the normal course of business, the Company seeks to
limit its exposure to loss on any single insured and to recover a portion of
benefits paid by ceding reinsurance to other insurance enterprises or
reinsurers under yearly renewable term (YRT) and co-insurance contracts. The
Companys maximum retention on any one risk is
$250,000 through age 65, decreasing to $50,000 thereafter. Amounts
recoverable or deemed recoverable under reinsurance contracts are recorded as
reinsurance receivables. The cost
of reinsurance related to long-duration contracts is accounted for over the
life of the underlying reinsured policies using assumptions consistent with
those used to account for the underlying policies.
-49-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Accounting by Creditors for Impairment of a Loan: In accordance with the
provisions of Statement of Financial Accounting Standards No. 114
(SFAS 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, the Company has identified those loans
that are impaired and thus probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement.
Total impaired loans were $2,951,000 at December 31, 1996 and 1995. The
allowance for credit losses was approximately $3,306,000 and $3,302,000,
respectively, at December 31, 1996 and 1995. At December 31, 1996 and 1995
the allowance for credit losses included approximately $355,000 and $351,000,
respectively for loans evaluated on a collective
basis. Total impaired loans for which no allowance for credit losses has
been provided was approximately $207,000 at December 31, 1995. The Companys
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 1996 and 1995 was
approximately $2,951,000 and $2,860,000, respectively and the related
interest income recognized during the period related to impaired loans was
approximately $144,805 and $275,000, respectively on the cash basis of
accounting.
Activity in the allowance for credit losses for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
--------- ----------
Balance at beginning of year $ 3,302,000 $ 3,307,000
Provision (reduction) for impaired loans (5,000)
Write-downs (310,000)
Recoveries 314,000
----------- -----------
Balance at end of year $ 3,306,000 $ 3,302,000
========== ===========
</TABLE>
Recently Issued Accounting Pronouncements: During 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use
of the asset and its eventual disposition to the carrying amount of the
asset. Adoption had no significant impact on the Companys consolidated
financial position.
Reclassifications: Certain reclassifications have been made to the 1995 and
1994 consolidated financial statements to conform to the 1996 presentation.
-50-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4--SIGNIFICANT RISKS AND UNCERTAINTIES
The following is a description of the most significant risks facing life and
health insurers and how the Company mitigates those risks:
Legal/Regulatory Risk - Is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses not
anticipated by the insurer in pricing its products. That is, regulatory
initiatives that reduce insurer profits, new legal theories or insurance
company insolvencies through guarantee fund assessments may create costs for
the insurer beyond those recorded in the consolidated financial statements and
impact the recoverability of deferred policy acquisition costs, cost of
insurance acquired, and cost in excess of net assets acquired. The Company
mitigates this risk by offering a wide range of products and by operating in
32 states, thus reducing its exposure to any single product or jurisdiction.
Credit Risk - Is the risk that issuers of securities owned by the Company or
mortgagors of mortgage loans on real estate owned by the Company will default
or that other parties, including reinsurers, which owe the Company money,
will not pay. The Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining sound reinsurance and credit and
collection policies and
by providing for any amounts deemed uncollectible.
Interest Rate Risk - Is the risk that interest rates will change and cause a
decrease in the value of an insurers investments. This change in rates may
cause certain interest-sensitive products to become uncompetitive. To the
extent that liabilities come due more quickly than assets mature, an insurer
would have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss. The Company mitigates this risk by charging fees
for non-conformance with certain policy provisions, by offering products that
transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its assets
with the expected payout of its liabilities.
NOTE 5--INVESTMENTS
Major categories of investment income for the three years ended
December 31, 1996 are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
1996 1995 1994
----------- -------- --------
Fixed maturities held to maturity $ 5,137 $ 5,595 $ 6,255
Fixed maturities available for sale 21,074 18,945 15,869
Fixed maturities held for trading 586 1,071
Equity securities available for sale 125 180 157
First mortgage loans on real estate 2,987 3,345 3,575
Real estate 554 590 856
Policy loans 2,143 1,968 1,846
Short-term investments 1,290 934 809
Other (20) 2 (17)
------- ------- -------
33,876 32,630 29,350
Investment expenses (1,222) (1,413) (1,665)
-------- -------- --------
$ 32,654 $ 31,217 $ 27,685
======== ======== ========
</TABLE>
-51-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 5--INVESTMENTS--Continued
Net realized gains (losses) on investments for the three years ended December
31, 1996 are summarized as follows (amounts in thousands):
1996 1995 1994
--------- ------ --------
Fixed maturities held to maturity $ 57 $ 115 $ (34)
Fixed maturities available for sale 1,423 (80) (1,286)
Fixed maturities held for trading (945) 559
Preferred stocks available for sale 151 163 49
Other (7) (156) (133)
------ ------ -------
$ 679 $ 601 $(1,404)
====== ====== =======
The unrealized investment gain of approximately $1,608,000 as of December 31,
1996 is comprised of total unrealized gains of investments carried at fair
value of approximately $7,591,000, less adjustments to deferred policy
acquisition costs and cost of insurance acquired of approximately $5,059,000
and net deferred income tax of approximately $924,000. The unrealized
investment gain of approximately $2,634,000 as of December 31, 1995 is
comprised of total unrealized gains of investments carried at fair value of
approximately $16,346,000, less adjustments to deferred policy acquisition
costs and cost of insurance acquired of approximately $12,431,000 and
deferred income tax of approximately $1,281,000.
There was one non-income producing investment as of December 31, 1996 with a
fair value of approximately $17,000 and two non-income producing investments at
December 31, 1995 with a fair value of approximately $184,000.
No investment in any person or its affiliates exceeded 10% of stockholders
equity at December 31, 1996 and 1995.
Investments with an amortized cost of $3,006,000 at December 31, 1996 were on
deposit with regulatory authorities in accordance with statutory requirements.
-52-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 5--INVESTMENTS--Continued
The amortized cost, unrealized gains and losses, and fair values of investments
in fixed maturities and equity securities available for sale, fixed maturities
held to maturity, and fixed maturities held for trading as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Amounts in thousands)
Fixed Maturities Available for Sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 30,586 $ 346 $ 164 $ 30,768
Obligations of states and
political subdivisions 8,475 141 8,334
Corporate securities 155,898 4,945 1,195 159,648
Mortgage-backed government
securities 110,125 2,835 195 112,765
Mortgage-backed corporate
securities 9,715 365 17 10,063
-------- -------- --------- ---------
$ 314,799 $ 8,491 $ 1,712 $ 321,578
======== ======== ========= =========
Equity Securities Available
for Sale $ 1,973 $ 919 $ 38 $ 2,854
======== ======== ========= =========
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(Amounts in thousands)
Fixed Maturities Held to
Maturity:
Corporate securities $ 51,884 $ 1,856 $ 838 $ 52,902
Mortgage-backed government
securities 27 27
Mortgage-backed corporate
securities 1,234 76 10 1,300
--------- --------- --------- ---------
$ 53,145 $ 1,932 $ 848 $ 54,229
========= ========= ========= =========
</TABLE>
-53
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 5--INVESTMENTS--Continued
The amortized cost, unrealized gains and losses, and fair values of investments
in fixed maturities and equity securities available for sale, fixed maturities
held to maturity, and fixed maturities held for trading as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(Amounts in thousands)
Fixed Maturities Available for Sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 27,993 $ 972 $ 47 $ 28,918
Obligations of states and
political subdivisions 4,347 143 4,490
Corporate securities 132,877 9,205 917 141,165
Mortgage-backed government
securities 82,178 5,865 183 87,860
Mortgage-backed corporate
securities 12,764 919 15 13,668
-------- --------- --------- ---------
$ 260,159 $ 17,104 $ 1,162 $ 276,101
========== ========= ========= =========
Equity Securities $ 2,959 $ 442 $ 38 $ 3,362
Available for Sale ========== ========= ========= =========
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- --------- ------
(Amounts in thousands)
Fixed Maturities Held to Maturity:
Corporate securities $ 57,091 $ 3,723 $ 716 $ 60,098
Mortgage-backed government
securities 41 5 46
Mortgage-backed corporate
securities 2,274 261 2,535
--------- --------- --------- ---------
$ 59,406 $ 3,989 $ 716 $ 62,679
========= ========= ========= =========
</TABLE>
-54-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 5--INVESTMENTS--Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(Amounts in thousands)
Fixed Maturities Held for Trading:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 374 $ 9 $ -- $ 383
Mortgage-backed government
securities 9,173 464 336 9,301
Mortgage-backed corporate
securities 3,712 80 342 3,450
-------- --------- -------- ---------
$ 13,259 $ 553 $ 678 $ 13,134
========= ========= ======== =========
</TABLE>
The amortized costs and fair values of debt securities held to maturity,
available for sale and held for trading at December 31, 1996, by contractual
maturity for U.S. Treasury and corporate securities and expected maturities for
mortgage-backed securities are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S>
1996
-----------------------------------------------
Available for Sale Held to Maturity
------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- ------- --------- -------
(Amounts in thousands) (Amounts in thousands)
<C> <C> <C> <C>
Due in 1 year or less $ 10,590 $ 10,587 $ 5,046 $ 5,051
Due after 1 year through 5 years 39,950 40,142 15,378 15,490
Due after 5 years through 10 years 95,770 97,120 25,083 25,440
Due after 10 years 168,489 173,729 7,638 8,248
-------- -------- -------- --------
$314,799 $321,578 $ 53,145 $ 54,229
======== ======== ======== ========
</TABLE>
Total gains of approximately $1,665,000 and $792,000 and losses of
approximately $487,000 and $1,737,000 were realized on disposals of debt
securities available for sale and held for trading, respectively, during
1996. In 1996, there were no sales of securities classified as held to
maturity. Total gains of approximately $75,000, $138,000 and $634,000 and
losses of approximately $155,000, $23,000 and $75,000 were realized on
disposals of debt securities available for sale, held to maturity, and held
for trading, respectively, during 1995. The 1995 sales of debt securities
held to maturity were made due to tender offers made relating to certain
securities which had experienced significant downgrades of their
respective credit ratings.
During 1996, 1995, and 1994 Texas Life incurred investment expenses and
mortgage loan consulting fees to Metropolitan totaling $443,000, $603,000,
and $577,000, respectively.
-55-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 6--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," (SFAS 107) requires disclosure of fair value
information about existing on and off-balance sheet financial instruments. In
cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cashflows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. The derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
the immediate settlement of the instruments. SFAS 107 excludes certain assets
and liabilities from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
Carrying amounts and fair values of financial instruments subject to SFAS
No. 107 were as follows as of December 31 (amounts in thousands):
<TABLE>
<CAPTION>
<S>
1996 1995
-------------------- ---------------------
<C> <C> <C> <C>
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Assets
- ------
Investments:
Fixed maturities held-to-maturity $ 53,145 $ 54,229 $ 59,406 $ 62,679
Fixed maturities available for sale 321,578 321,578 276,101 276,101
Fixed maturities held for trading 13,134 13,134
Equity securities 2,854 2,854 3,3 62 3,362
Mortgage loans on real estate 31,910 38,142 35,155 42,289
Policy loans 30,230 34,507 29,642 36,283
Short-term investments 100 100 100 100
Cash and cash equivalents 16,369 16,369 20,930 20,930
Liabilities
- -----------
Contingent payment notes 7,874 7,445 7,874 7,122
Notes payable to affiliates 12,500 14,057 12,500 15,363
</TABLE>
The fair values of the Companys supplementary contracts without life
contingencies and annuities approximates their carrying amounts.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since December 31, 1996,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
-56-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 7--INCOME TAXES
A reconciliation of the statutory income tax rate to the effective rate is as
follows:
1996 1995 1994
-------- -------- --------
Statutory income tax rate 35.0% 35.0% 35.0%
Adjustments:
Other (1.1) 1.9 (.2)
---- ---- ----
Effective income tax rate 33.9% 36.9% 34.8%
===== ==== ====
Under prior tax law, a portion of gain from operations was not subject to
current income taxation, but was accumulated, for tax purposes, in a
memorandum account designated as policyholders surplus. As a result of the
Tax Reform Act of 1984, this account was frozen at its December 31, 1983
level of $5,552,000. Should the policyholders surplus account exceed a
maximum permissible limit, or should special cash distributions in excess of
approximately $30,705,000 be made to shareholders, such excesses would be
subject to federal income taxes at rates then effective. Deferred taxes have
not been provided on amounts designated as
policyholders surplus since the Company contemplates no action and can
foresee no events which would cause any such taxes to become payable.
Texas Life is consolidated with Holdings and is ultimately consolidated with
MetLife and its affected affiliates for federal income tax purposes. In
accordance with the tax sharing agreement between MetLife and its affiliates,
Texas Life made $-0- and $1,300,000, of tax payments during 1996 and 1995,
respectively. Texas Life accrued approximately $2,073,000 to MetLife for
settlement of its December 31, 1996 federal income taxes during 1997. There
were no income tax payments during 1994.
Deferred taxes are recorded based upon temporary differences between the
financial statement and tax bases of assets and liabilities due to the
recognition of certain revenue and expense items in different years. The
deferred tax provision for the three years ended December 31, 1996 relates to
the following (amounts in thousands):
1996 1995 1994
-------- --------- --------
Invested assets $ (205) $ 291 $ 791
Deferred acquisition costs 1,645 1,193 1,462
Costs of insurance acquired (837) (860) (828)
General expenses adjustment (414) (349) (344)
Policyholder liabilities 91 (368) (560)
Other (33) (106) 131
-------- --------- --------
$ 247 $ (199) $ 652
======== ========= ========
-57-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 7--INCOME TAXES--Continued
The tax effects of temporary differences giving rise to the significant
components of the net deferred tax liability are recorded as of December 31,
1996 and 1995 as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S>
1996
- ---------------------------------------------------------------------------------
Deferred Tax Liabilities Deferred Tax Assets
- ---------------------------------------- -------------------------------------
<S> <C> <S> <C>
Fixed maturities held for trading Allowance for loss on first mortgage
and available for sale $ 2,386 loans on real estate $ 584
Equity securities available for sale 23 Accrued investment income 144
Deferred policy acquisition costs 12,342 Liability for future policy-
Cost of insurance acquired 13,661 holder benefits 6,415
Contingent payments notes 1,660 Other assets 8,561
---------
Other liabilities 2,565
---------
$ 32,637 $ 15,704
========= =========
1995
- ----------------------------------------------------------------------------------
Deferred Tax Liabilities Deferred Tax Assets
- ------------------------------------ ------------------------------------
Fixed maturities held for trading Allowance for loss on real estate $ 298
and available for sale $ 5,626 Allowance for loss on first mortgage
Equity securities available for sale 55 loans on real estate 383
Deferred policy acquisition costs 9,697 Accrued investment income 144
Cost of insurance acquired 12,919 Liability for future policyholder
Contingent payments notes 1,660 benefits 7,277
Other liabilities 2,130 Other assets 6,941
-------- -------
$ 32,087 $15,043
======== =======
</TABLE>
A valuation allowance was not considered necessary at December 31, 1996 or 1995.
NOTE 8--REINSURANCE TRANSACTIONS
Reinsurance contracts do not relieve the Company from its obligations to pay
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectable. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its
exposure to significant losses from reinsurance insolvencies. Reinsurance
receivables of approximately $6,569,000 and $5,385,000 are included in other
assets at December 31, 1996 and 1995, respectively. Policyholder benefits
have been respectively reduced by approximately $5,467,000 in 1996,
$4,280,000 in 1995, and $5,672,000 in 1994 for the effect of reinsurance.
-58-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 8--REINSURANCE TRANSACTIONS--Continued
The effect of reinsurance on direct premiums and amounts assessed against
policyholders is as follows for the years ended December 31, 1996, 1995, and
1994 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------- ------- -------
Direct premiums and amounts
assessed against policyholders $ 37,439 $ 33,668 $ 30,824
Reinsurance ceded 7,137 6,955 6,393
---------- ---------- ----------
Net premiums and universal life and
investment product charges $ 30,302 $ 26,713 $ 24,431
========== ========== ==========
</TABLE>
NOTE 9--CONTINGENT PAYMENT NOTES
The 9.41% Contingent Payment Notes were issued in connection with the
acquisition of Texas Life (see Note 2). Principal and interest payments are
subject to a reduction as provided for in the Indenture Agreement. The
principal amount of the notes is due on December 31, 1997 unless redeemed
earlier at the option of the Company and interest is payable semi-annually at
the stated interest rate of 9.41%.
In general, the reduction is equal to the difference between contractual terms
and amounts of principal and interest payments actually received by the Company
on certain specified real estate mortgage notes receivable (Pool Loans) with an
initial unpaid principal balance of $27,299,000 and an unpaid principal balance
of approximately $85,000 and $2,266,000 at December 31, 1996 and 1995,
respectively. Losses incurred on the Pool Loans of approximately $4,703,000 at
December 31, 1996 and 1995 was deducted from the Contingent Payment notes on
the consolidated balance sheets.
While the Contingent Payment Notes are outstanding, the Company is restricted
from: (1) creating liens with respect to its properties, (2) creating debt or
entering into guaranties or loans, (3) changing the nature of its business,
capital structure, certificate of incorporation, by-laws, business objectives,
purposes or operation; (4) payment of dividends or any other action with
respect to its capital stock and (5) transactions with its affiliates. In
addition, the Company is required to maintain the face value of its
unconsolidated assets, excluding its investment in Texas Life, at no less
than $12,200,000, less certain adjustments.
Interest expense for the years ended December 31, 1996, 1995, and 1994 of
approximately $1,184,000, $998,000, and $983,000, respectively, is included in
operating expenses on the Consolidated Statements of Income. Under the terms
of the Indenture Agreement, no interest was paid during the years ended
December 31, 1996, 1995 and 1994, respectively.
-59-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 10--NOTES PAYABLE TO AFFILIATES
On December 31, 1990, Texas Life issued for cash a $5,500,000 note payable to
MetLife Credit Corporation (MetLife Credit), a subsidiary of Metropolitan.
The note has no specified maturity date and annual principal payments of up to
$550,000 will not begin until statutory surplus, as calculated under Texas
insurance regulations, increases to $40,000,000. Texas Lifes statutory
surplus at December 31, 1996 was approximately $26,327,000. Interest is
payable monthly at any time statutory surplus exceeds $10,000,000. The
interest rate is adjusted monthly to be equal to 1.5% above the rate at
which MetLife Funding, Inc., a subsidiary of Metropolitan, would loan funds to
Metropolitan. As of December 31, 1996, the interest rate on this note
payable was 7.30%. Interest in the amount of $389,000, $417,000, and $313,000
was paid in 1996, 1995, and 1994, respectively.
On June 30, 1989, Texas Life issued for cash a $7,000,000 note payable to
Metropolitan. The note payable has no specified maturity date and semi-annual
principal payments will
not begin until statutory surplus, as calculated under Texas insurance
regulations, increases to $50,000,000. Interest is payable semi-annually at
any time statutory surplus exceeds $12,798,000. The interest rate is subject
to adjustment every five years to a
rate equal to .75% over the then five year U.S. Treasury note rate. The
interest rate as determined on June 30, 1994 is 7.6%. Interest paid in 1996,
1995, and 1994 was approximately $532,000, $532,000, and $613,000,
respectively.
Interest expense totalling approximately $919,000, $947,000, and $899,000
was incurred in
1996, 1995 and 1994, respectively in connection with notes payable to
affiliates.
NOTE 11--STATUTORY INFORMATION
Generally, the net assets of the Company available for payment as dividends
are restricted by the Texas Insurance Code. At December 31, 1996,
$15,500,000 of stockholders equity represents net assets of Texas Life that
can be transferred in the form of dividends; however, payment of dividends
may require prior approval by insurance regulatory authorities.
Stockholders equity as determined in accordance with statutory accounting
practices for Texas Life as of December 31, 1996 and 1995 was $29,504,000
and $27,886,000, respectively. As permitted by the Texas Department of
Insurance (the Department), statutory stockholders equity of Texas Life
includes as surplus two notes payable to affiliates discussed in Note 10. As
defined in the note agreements, and approved by the Department, Texas Life
may repay the notes in certain instances without prior approval of
the Department. Net income as determined in accordance with statutory
accounting practices for Texas Life for the three years ended December 31,
1996, 1995, and 1994 was approximately $104,000, $200, and $1,856,000,
respectively.
NOTE 12--EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit retirement plan which covers
substantially all full-time employees. Annual contributions to the plan for
1996, 1995, and 1994 were approximately $176,000, $165,000, and $170,000,
respectively and are expensed as incurred. The actuarial present value of
accumulated plan benefits, as estimated by the Companys consulting actuary as of
December 31, 1996, and net plan assets, consisting of an annuity contract
issued by Texas Life, for the plan were $1,079,000 and $1,443,000,
respectively. An assumed rate of return of 8.0% was used in determining the
actuarial present value of accumulated plan benefits.
-60-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
NOTE 12--EMPLOYEE BENEFIT PLANS--Continued
The Company has a plan for its full-time employees under Section 401(k) of the
Internal Revenue Code. This plan enables the employees to contribute a
percentage of their salary to the plan and the Company will match 100% of the
first 3% contributed by the employee. The Companys matching contributions for
1996, 1995, and 1994 were approximately $90,000, $83,000, and $79,000,
respectively, and were expensed as incurred.
In addition to the Companys defined benefit retirement plan, the Company
sponsors a benefit health care plan that provides post-retirement medical
benefits beginning at age 65 to full-time employees who have worked 20 years
and attained age 55 while in service with the Company. Benefits are provided
through an insurance company whose premiums are based on the benefits paid
during the year. Total benefits paid were approximately $31,000, $31,000,
and $28,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. The liability as determined under the provisions of SFAS
No. 106 , Employers Accounting for Post-Retirement Benefits Other Than
Pensions, was not material to the accompanying consolidated financial
statements.
NOTE 13--CONCENTRATIONS OF CREDIT RISK
Most of the Companys real estate held for sale and first mortgage loans on real
estate are located in the State of Texas, and are collateralized by the
underlying property. The Companys policy at the time of the making of the loan
is to limit any one mortgage loan to 75% of its appraised value.
-61-
<TABLE>
<CAPTION>
<S>
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
December 31, 1996
(Dollars in thousands)
Column A Column B Column C Column D
- ---------------------------------------------------------------------------
Amount at
which shown
in the
Fair
Type of Investment Cost Value balance sheet
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
Available for Sale:
United States Government and government
agencies and authorities...............$ 88,359 $ 89,366 $ 89,366
Foreign governments....................... 8,475 8,334 8,334
Public utilities.......................... 25,937 26,808 26,808
All other corporate bonds................. 192,028 197,070 197,070
--------- -------- --------
Total Available for Sale 314,799 321,578 321,578
--------- -------- --------
Held to Maturity:
United States Government and government
agencies and authorities............... 27 27 27
Foreign governments........................ - - -
Public Utilities.......................... . 1,923 2,091 1,923
All other corporate bonds.................. 51,195 52,111 51,195
--------- ------- --------
Total Held to Maturity 53,145 54,229 53,145
--------- ------- --------
TOTAL FIXED MATURITIES 367,944 $375,807 374,723
--------- -------- --------
Equity securities:
Common stocks:
Industrial, miscellaneous, and all other. 1,063 $ 1,700 1,700
Nonredeemable preferred stocks............. 910 1,154 1,154
-------- -------- --------
TOTAL EQUITY SECURITIES................. 1,973 $ 2,854 2,854
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000829321
<NAME>METLIFE TEXAS HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 321578
<DEBT-CARRYING-VALUE> 53145
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2854
<MORTGAGE> 31910
<REAL-ESTATE> 3441
<TOTAL-INVEST> 459627
<CASH> 16369
<RECOVER-REINSURE> 6569
<DEFERRED-ACQUISITION> 48348
<TOTAL-ASSETS> 568980
<POLICY-LOSSES> 396307
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7874
0
0
<COMMON> 1
<OTHER-SE> 93961
<TOTAL-LIABILITY-AND-EQUITY> 568980
14436
<INVESTMENT-INCOME> 32654
<INVESTMENT-GAINS> 679
<OTHER-INCOME> 16175
<BENEFITS> 38595
<UNDERWRITING-AMORTIZATION> 3592
<UNDERWRITING-OTHER> 13724
<INCOME-PRETAX> 8033
<INCOME-TAX> 2725
<INCOME-CONTINUING> 5308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5308
<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>
