UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q
<TABLE>
<S> <C>
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
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or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 33-20104
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MetLife Texas Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3437648
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
One Madison Avenue, New York, New York 10010
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Registrants telephone number, including area code (212)578-3437
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Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.
Common Stock, $1.00 Par Value 1,000
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Title of Class Outstanding at June 30, 1997
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METLIFE TEXAS HOLDINGS, INC.
INDEX
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Part I. FINANCIAL INFORMATION Page No(s)
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Item 1. Financial Statements
Condensed Consolidated Statements of
Income for the quarters and six months
ended June 30, 1997 and 1996 (Unaudited) 3-4
Condensed Consolidated Balance Sheets
as of June 30, 1997 (Unaudited) and
December 31, 1996 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1997 and 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-9
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 10-16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K
(including Exhibit Index) 17
Signatures 18
METLIFE TEXAS HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
METLIFE TEXAS HOLDINGS INC. AND SUBSIDIARY
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> (In Thousands)
<C> <C> <C> <C>
Revenues:
Insurance revenues
Traditional life insurance premiums........ $ 3,429 $ 3,497 $ 7,087 $ 6,879
Universal life and investment product
policy charges........................... 4,123 3,770 8,535 7,399
Investment income (less related expenses).... 8,454 7,697 16,864 16,128
Trading securities-unrealized gain (loss).... - 505 - (205)
Realized gain (loss) on investments.......... 31 (854) 94 (352)
Other income................................. 40 152 501 218
------- ------- ------- -------
16,077 14,767 33,081 30,067
------- ------- ------- -------
Benefits, Claims and Expenses:
Policyholder benefits and claims............. 3,326 2,408 8,431 6,076
Change in liability for future
policyholder benefits...................... 6,963 6,187 14,182 12,416
Operating expenses........................... 2,234 2,000 4,665 4,110
Commissions, taxes and fees.................. 876 845 1,834 1,718
Amortization of policy acquisition costs..... 1,053 915 2,001 1,788
Amortization of cost of insurance acquired... 425 501 904 1,048
------- ------- ------- -------
14,877 12,856 32,017 27,156
------- ------- ------- -------
Income before income taxes................... 1,200 1,911 1,064 2,911
------- ------- ------- -------
-3
Provision (benefit) for federal income taxes
Current.................................... 704 442 837 1,281
Deferred................................... (306) 301 (542) (236)
------- ------- ------- -------
398 743 295 1,045
------- ------- ------- -------
Net income................................... $ 802 $ 1,168 $ 769 $ 1,866
======= ======= ======= =======
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) June 30, December 31,
1997 1996
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ASSETS (Unaudited)
Investments:
Fixed maturities available for sale.... $333,605 $321,578
Fixed maturities held to maturity...... 52,174 53,145
Equity securities...................... 3,113 2,854
Mortgage loans......................... 29,473 31,910
Cash and cash equivalents.............. 13,346 16,369
Policy loans........................... 30,717 30,230
Other.................................. 3,571 3,541
-------- --------
465,999 459,627
Deferred policy acquisition costs........... 52,411 48,348
Cost of insurance acquired.................. 38,368 39,033
Goodwill.................................... 4,055 4,154
Investment income due and accrued........... 6,736 6,473
Amounts due from reinsurers................. 6,714 7,423
Other....................................... 3,634 3,922
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TOTAL ASSETS $577,917 $568,980
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Policy liabilities.......................... $415,023 $408,441
Deferred federal income tax................. 16,308 16,933
Contingent notes payable.................... 7,874 7,874
Notes payable to affiliates................. 12,500 12,500
General expenses............................ 9,345 8,668
Other....................................... 22,224 20,602
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Total Liabilities........................... 483,274 475,018
-------- --------
Stockholders Equity:
Common stock, par value $1.00 (1,000 shares
authorized, issued and outstanding)....... 1 1
Additional paid-in capital.................. 60,200 60,200
Retained earnings........................... 32,922 32,153
Net unrealized investment gains on
fixed maturities available for sale and
equity securities......................... 1,520 1,608
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Total Stockholders Equity.................. 94,643 93,962
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $577,917 $568,980
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the
Six Months Ended
June 30,
1997 1996
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OPERATING ACTIVITIES
Net Income...................................$ 769 $ 1,866
Adjustments to reconcile net income to cash
provided by operating activities:
(Decrease) increase in liability for future
policy benefits and other policy
liabilities.............................. (1,136) 797
Amortization and depreciation.............. 3,297 3,262
Decrease in other assets................... 328 28
Deferred policy acquisition costs.......... (5,873) (5,082)
Increase in other non-policy related
liabilities.............................. 1,750 598
Decrease in trading securities............. - 13,134
Interest credited to policyholder accounts. 9,838 9,529
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CASH PROVIDED BY OPERATING ACTIVITIES.......... 8,973 24,132
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INVESTING ACTIVITIES
Purchase of investments and loans made.......(33,840) (49,051)
Sale or maturities of investments and
receipts from repayment of loans........... 23,955 41,948
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CASH USED BY INVESTING ACTIVITIES.............. (9,885) (7,103)
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FINANCING ACTIVITIES
Net receipts from (withdrawals by) universal
life policyholders credited to (withdrawn
from) policyholder account balances........ (2,120) 840
Other........................................ 9 314
------- -------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES... (2,111) 1,154
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(3,023) 18,183
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 16,369 20,930
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.....$13,346 $39,113
======= =======
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-6
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
NOTE 1 - CONTINGENT PAYMENT NOTES
MetLife Texas Holdings, Inc. (Holdings) issued 9.41% Contingent
Payment Notes (Notes) in the face amount of $12,800,000 in
connection with its acquisition of Texas Life Insurance Company
(TLIC) on July 31, 1988. The principal amount of these Notes is
due on December 31, 1997 (unless redeemed earlier at the option of
Holdings) and interest is payable semi-annually at the stated
interest rate of 9.41%. The principal and interest payments on the
Notes are, however, subject to reduction. In general, the
reduction is equal to the difference between the contractual terms
of, and amounts of principal and interest payments actually
received by TLIC on, certain specified real estate mortgage notes
receivable (Pool Loans). The holders of the Notes received no
interest for the six months ended June 30, 1997 and 1996.
The carrying value of the Notes in the accompanying Condensed
Consolidated Balance Sheets was reduced by a valuation allowance
for possible losses of $4,703,000 at both June 30, 1997 and
December 31, 1996. The carrying value of the related Pool Loans
was reduced by a valuation allowance of $2,603,000 at both June 30,
1997 and December 31, 1996.
See Note 9 to the consolidated financial statements included in the
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 for a description of certain restrictions on
Holdings contained in the indenture pursuant to which the Notes
were issued.
-7
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTE 2 - NOTES PAYABLE TO AFFILIATES
On June 30, 1989, TLIC issued a $7,000,000 note payable (called a
surplus debenture) to Metropolitan Life Insurance Company
(Metropolitan), the parent of Holdings. Such note has no specified
maturity date and semi-annual principal payments will not begin
until TLICs statutory surplus, as calculated under Texas insurance
regulations, increases to $50,000,000. TLICs statutory surplus
amounted to $27,450,000 at June 30, 1997. Interest is payable
semi-annually at any time TLICs statutory surplus is in excess of
$12,798,000. The note bears interest at a rate of 7.60% per annum
until June 30, 1999, at which time it will be adjusted to a rate
equal to 0.75% over the then five year U.S. Treasury note rate.
Interest of $266,000 was paid on June 30, 1997, January 2, 1997,
July 9, 1996 and January 2, 1996.
An additional $5,500,000 note payable (also called a surplus
debenture) was issued by TLIC to MetLife Credit Corp., a wholly-
owned subsidiary of Metropolitan, on December 31, 1990. Such note
has no specified maturity date and annual principal payments will
not begin until TLICs statutory surplus, as calculated under Texas
insurance regulations, increases to $40,000,000. This note must be
repaid in full before TLIC can make any principal payments on the
$7,000,000 note payable to Metropolitan discussed above. Interest
is payable monthly, at a variable interest rate which is set by
MetLife Credit Corp. on the first of each month, at any time TLICs
statutory surplus exceeds $10,000,000. $194,000 of interest was
paid for the first six months of 1997 and $197,000 was paid for the
comparable period of 1996.
NOTE 3 - REINSURANCE
Reinsurance receivables of $6,243,000 and $6,569,000 are recorded
in accordance with Statement of Financial Accounting Standards No.
113 Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, and are included in other assets in the
accompanying June 30, 1997 and December 31, 1996 Condensed
Consolidated Balance Sheets, respectively. For the six months
ended June 30, 1997 and June 30, 1996, earned premiums ceded were
$4,018,000 and $4,111,000, respectively, and recoveries recognized
under reinsurance contracts were $3,743,000 and $2,574,000,
respectively.
-8
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY
NOTE 4 - MORTGAGE LOANS
As of January 1, 1995, Holdings adopted Statement of Accounting
Standards No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118, Accounting by Creditors for the
Impairment of a Loan - Income Recognition and Disclosure, which
addresses the accounting by creditors for the impairment of certain
loans. Total impaired loans and the allowance for all known credit
losses on mortgages were $2,954,000 and $3,306,000, respectively,
at June 30, 1997. Holdings primary policy is to utilize the cash
basis of accounting for the recognition of interest income on
impaired loans.
The average recorded investment in impaired loans during the six
months ended June 30, 1997 was $2,953,000 and the related interest
income recognized during the period related to impaired loans was
$77,000 on both the accrual and cash bases of accounting.
Comparable amounts for the six months ended June 30, 1996 were
$2,952,000 and $96,000, respectively.
Activity in the allowance for credit losses for the six months
ended June 30, 1997 and 1996 were as follows:
1997 1996
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Balance at end of prior year $3,306,000 $3,302,000
Provision for impaired loans - -
Write-downs - (310,000)
Recoveries - 98,000
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Balance at June 30 $3,306,000 $3,090,000
========== ==========
-9
METLIFE TEXAS HOLDINGS, INC.
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
HISTORICAL RESULTS OF OPERATIONS
MetLife Texas Holdings, Inc. (Holdings) is a wholly-owned
subsidiary of Metropolitan Life Insurance Company (Metropolitan)
and was formed for the purpose of acquiring Texas Life Insurance
Company (TLIC). Holdings unconsolidated revenues are exclusively
attributable to its interest bearing investments. Therefore, the
changes in the Condensed Consolidated Statements of Income that are
discussed below are primarily attributable to TLIC.
SECOND QUARTER RESULTS
TLICs sales in annualized premiums, which represent the
annualization of first year premiums on business issued during the
current period and are used to measure production, were $2.2
million for the quarter ended June 30, 1997, down $124,000, or
5.3%, from the quarter ended June 30, 1996. This reflected a
$283,000, or 16.3%, increase in universal life product sales with
decreases of $190,000, or 73.6%, in permanent traditional life
product sales and $217,000, or 64.0%, in term life sales.
Consolidated second quarter 1997 revenues increased $1,310,000, or
8.9%, over the second quarter of 1996 primarily related to a
$757,000, or 9.8%, increase in net investment income due to
increased yields on invested assets and an $885,000 increase in
realized capital gains ($31,000 of gains in the second quarter of
1997 versus $854,000 of losses for the comparable period of 1996
resulting from the sale of TLICs aggressive mortgage-backed
securities program in 1996). These increases were partially offset
by a $505,000 decrease in unrealized gains on the trading
portfolio, since the entire portfolio was liquidated in the second
quarter of 1996.
Consolidated second quarter 1997 benefits, claims and expenses
increased $2,021,000, or 15.7%, over the comparable period of 1996.
This was primarily attributable to a $776,000, or 12.5%, increase
in the change in liability for future policyholder benefits and
claims related to the increased traditional life business in force
and the aging of the block of business in force, and a $918,000, or
38.1%, increase in policyholder benefits primarily attributable to
increased death claims.
Federal income taxes decreased $345,000, or 46.4%, for the second
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METLIFE TEXAS HOLDINGS, INC.
quarter of 1997 versus the comparable period of 1996. This
resulted from a $262,000 increase in current taxes and an
offsetting $607,000 increase in deferred tax benefits. Current
taxes increased $380,000 as a result of realized capital losses
from the liquidation of TLICs trading portfolio in the second
quarter of 1996, $296,000 due to the difference between the tax and
book basis of policyholder reserves and $143,000 due to the
difference between the tax and book basis of deferred policy
acquisition costs. These increases were partially offset by a
decrease of $602,000 related to the decrease in statutory earnings.
Deferred tax benefits increased $265,000 due to the difference
between the tax and book basis of invested assets, $42,000 due to
the difference between the tax and book basis of deferred policy
acquisition costs and $249,000 due to the difference between the
tax and book basis of future policyholder liabilities.
As a result of the items discussed above, net income decreased
$366,000, or 31.3%, for the second quarter of 1997 versus the
comparable period of 1996.
YEAR-TO-DATE RESULTS
TLICs sales in annualized premiums were $4.3 million for the six
months ended June 30, 1997, up $86,000, or 2.1%, over the
comparable period of 1996. During this period, sales of universal
life products increased $660,000, or 20.8%, while sales of
traditional life products decreased $240,000, or 55.6%, and sales
of term life products decreased $334,000, or 58.6%.
Consolidated year-to-date revenue increased $3,014,000, or 10.0%,
over the first six months of 1996 primarily related to (i) a
$1,136,000, or 15.4%, increase in universal life and investment
product policy charges related to increased sales of new products
and the increase in business in force; (ii) a $736,000, or 4.6%,
increase in net investment income related to an increase in
invested assets and increased yields on invested assets and (iii) a
$446,000 increase in realized capital gains (from a loss of
$352,000 for the six months ended June 30, 1996 to a gain of
$94,000 for the comparable period of 1997) as discussed previously
in the quarterly results.
Benefits, claims and expenses increased $4,861,000, or 17.9%, for
the first six months of 1997 over the comparable period of 1996.
This increase is primarily attributable to a $1,766,000, or 14.2%,
increase in the change in liability for future policyholder
benefits related to the increase in traditional life insurance in
force and the aging of the block of traditional life business in
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METLIFE TEXAS HOLDINGS, INC.
force, and a $2,355,000, or 38.8%, increase in policyholder
benefits primarily related to increased death claims.
Additionally, operating expenses increased $555,000, or 13.5%, over
the same period due to increased expenses related to increased
sales.
Federal income taxes decreased $750,000, or 71.8%, for the first
six months of 1997 versus 1996. This resulted from a $444,000, or
34.7%, decrease in current taxes and a $306,000 increase in
deferred tax benefits. Current income taxes decreased $1,056,000
due to a decrease in statutory earnings with partially offsetting
increases of $329,000 due to the difference between the tax and
book basis of policyholder reserves, premiums and expenses and
$301,000 due to the increase in realized capital gains. Deferred
income tax benefits increased $428,000 due to the difference
between the tax and book basis of policyholder reserves and
$186,000 related to the difference between the tax and book basis
of non-policy related liabilities and certain non-investment
related assets. These increases were partially offset by decreases
of $191,000 due to the difference between the tax basis and book
basis of invested assets and $246,000 due to the difference between
the tax and book basis of deferred policy acquisition costs.
As a result of the items discussed above, net income for the six
months ended June 30, 1997 decreased $1,097,000, or 58.8%, from the
comparable period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Holdings sole activities consist of the investment of its assets
in certain high grade, liquid investments permitted by the
indenture pursuant to which its Contingent Payment Notes (Notes)
were issued (see Note 1 to the accompanying financial statements),
administration of its Notes and ownership of the outstanding stock
of its wholly-owned subsidiary, TLIC. The Contingent Payment Notes
come due December 1997. On June 30, 1997, Holdings had $18,200,000
of high-grade liquid investments to make the required principal
payments, if any, on the Notes in December 1997. It is likely that
Holdings will be required to make a payment on the Notes at their
maturity in December 1997; however, it is impossible to predict, at
this time, the amount of such payment, primarily because the
remaining pool loans need to be valued as part of the determination
of such payment.
For the six months ended June 30, 1997 Holdings had a loss of
$144,000, on a stand alone basis, versus income of $33,000 for the
comparable period of 1996. June 30, 1997 results are not
necessarily indicative of the results that may be expected for the
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METLIFE TEXAS HOLDINGS, INC.
year ended December 31, 1997. Under the terms of the ndenture,
Holdings paid no interest on the Notes in 1996 or the first half of
1997 because of accumulated losses on the underlying pool loans.
Holdings funds, including earnings on its investments, are
sufficient to make any required payments on the Notes.
On June 30, 1989, TLIC issued a $7 million note payable to
Metropolitan and, on December 31, 1990, it issued a $5.5 million
note payable to MetLife Credit Corp., a wholly-owned subsidiary of
Metropolitan (see Note 2 to the accompanying condensed consolidated
financial statements). While both of these notes are considered a
liability by the Registrant for financial reporting purposes under
generally accepted accounting principles, they are surplus for TLIC
on a statutory basis. The $7 million note payable was issued to
provide additional statutory surplus to TLIC for expansion of
premium writings. Increases in first year premium volume reduce
statutory surplus since, for statutory purposes, acquisition costs
are expensed rather than deferred. The $5.5 million note payable
is being used to provide a voluntary statutory reserve for mortgage
loans and foreclosed properties. The Registrant has no outstanding
borrowings other than the Notes and TLICs notes payable to
Metropolitan and MetLife Credit Corp. and has no need or plans to
borrow funds in the foreseeable future other than additional notes
which may be issued to affiliates by TLIC to provide additional
statutory surplus. Borrowings by Holdings are prohibited by the
terms of the indenture pursuant to which the Notes were issued.
The Registrant is involved in the life insurance business solely
through its ownership of TLIC. The liabilities of TLIC are
predominantly long-term in nature and, therefore, in order to match
these liabilities with assets, TLIC has long-term fixed maturity
investments such as bonds and mortgages.
Most of TLICs invested assets are investment grade securities to
provide ample protection for its policyholders. As of June 30,
1997, TLIC had $4,953,000 of securities rated below investment
grade by the National Association of Insurance Commissioners,
representing 1.3% of its total investment securities. One of these
investments, which is carried on the balance sheet at $86,000, was
in default as to interest at June 30, 1997.
TLIC has mortgage loans with a carrying value of $29,473,000
($32,779,000 book value less $3,306,000 reserve for losses) at June
30, 1997. The carrying value of these mortgage loans comprises
6.3% of total invested assets. The reserve represents 10.1% of
total mortgage loan book value. Management believes that the
reserve for losses is adequate.
-13
METLIFE TEXAS HOLDINGS, INC.
Delinquent mortgage loans (those overdue more than 90 days) totaled
$3,173,000 at June 30, 1997 and $2,954,000 at December 31, 1996 and
are comprised of three performing cash flow commercial loans, one
performing residential loan and one non-performing commercial loan.
Expressed as a percentage of mortgage loans, delinquencies were
9.7% at June 30, 1997, 8.4% at December 31, 1996 and 8.1% at June
30, 1996.
Included in the mortgage loan balance is $2,288,000 of loans on
watch (i.e., loans which are not delinquent over 90 days but are
being monitored more closely for possible problems in the future).
Of the six loans included in this category, five loans totaling
$2,218,000 are current and one loan totaling $70,000 is 30 days
overdue.
TLICs mortgage loan portfolio includes $15,494,000 of commercial
loans, $16,947,000 of agricultural loans, $49,000 of loans on
apartments and $289,000 of residential loans. 46.6% of these loans
are in Texas and the remaining 53.4% are spread over 13 states.
The gross yield on all mortgage loans was 8.0% for the six months
ended June 30, 1997 and 8.1% for the year ended December 31, 1996.
Since its acquisition by Holdings, TLIC has made eleven new
commercial mortgage loans, with a book value aggregating
$5,038,000, fifteen purchase money mortgages on foreclosed real
estate aggregating $4,163,000 and 44 agricultural loans aggregating
$20,203,000 through Metropolitans Agricultural Investments
Department, for a total of $29,404,000. Since its acquisition by
Metropolitan, TLICs policy relating to new loans is not to loan
more than 75% of appraised value based on earnings conditions at
the time of the loan. Additionally, these loans are issued to
borrowers having strong financial backgrounds. Collateral on loans
generally includes personal guarantees for the entire amount of the
mortgage indebtedness as well as a lien on the mortgaged property.
Loans generally mature within ten years, with recent ten year loans
containing a provision for adjustment in the interest rate after
three or five years.
As of June 30, 1997, TLIC had $982,000 of foreclosed real estate
consisting of one acreage loan with residential development.
Due to the relatively small amount of TLICs below investment grade
and non-performing investments, they have not had, and are not
expected to have, a material effect on TLICs financial condition
or results of operations.
TLIC maintains liquidity through its selection of investments.
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METLIFE TEXAS HOLDINGS, INC.
Over 80 percent of its securities at June 30, 1997 were readily
marketable securities, primarily publicly traded bonds and stocks.
TLIC must maintain adequate liquidity to provide funds needed to
make current payments to policyholders. Significant changes in
market interest rates could affect TLICs liquidity. TLIC has
utilized an asset/liability matching process to help determine the
investment rate it can credit to its policyholders. TLICs
universal life insurance products are credited an interest rate
based upon earnings from allocated assets less an interest rate
margin. Managements philosophy has been to maintain a credited
interest rate based on the returns on its allocated investments
rather than to credit current market rates to its previously issued
policies. Significant increases in its competitors credited rates
could cause TLIC either to reduce its margin or to credit a rate
that may be noncompetitive, which may result in surrenders of
policies. However, TLIC has high surrender charges on most of its
universal life products during the first ten policy years (and
during the ten years following any increases in the policy face
amount) that would discourage surrenders or result in low surrender
values. A reduction in market interest rates could reduce the
reinvestment rate of its fixed investments and result in a lower
than expected yield. However, in this environment, TLIC could
reduce the rates credited to the products underlying these
investments and maintain its interest rate margin without risking
significant amounts of surrenders of policies. Thus, changes
(other than sudden significant changes) in the interest rate
environment and the resulting changes in the interest rates
credited to policyholders would not significantly affect withdrawal
experience because of the significance of surrender charges to
policyholders.
However, a sudden significant increase in current market rates
could have a material adverse impact on TLICs liquidity because
policyholders might convert to products of competitors to which
higher rates are credited. Conversely, sudden declines in interest
rates could materially increase TLICs liquidity if the issuers of
TLICs fixed rate long-term investments exercise their bond call
options or refinance at lower rates the mortgages that are owned by
TLIC. Although they can significantly affect TLICs liquidity, the
impact of sudden increases or decreases in the interest rate
environment would be tempered by the fact that 37% of TLICs
insurance in force is traditional life insurance, which is not as
susceptible to changes in the interest rate environment (29% of
TLICs insurance in force is term insurance, which has no cash
surrender value and is not impacted by changes in the interest
rate).
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METLIFE TEXAS HOLDINGS, INC.
In addition to the large amount of readily marketable securities
referred to above, it is also TLICs policy to maintain at least
$5,000,000 of cash and short-term investments less any commitments
for investment purchases within the next month. At June 30, 1997,
it had approximately $1,718,000 of cash and $5,631,000 of short-
term investments. There were no investment commitments for July
1997.
-16
METLIFE TEXAS HOLDINGS, INC.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Neither Holdings nor its subsidiary are involved in any material
pending or threatened legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
4.1 Form of Indenture, dated as of July 27, 1988, between
Registrant and Bankers Trust Company, as Trustee, is
herein incorporated by reference to Exhibit 4.1 to
Registrants Form S-1 filed with the Securities and
Exchange Commission (File No. 33-20104), which became
effective on May 13, 1988.
28.1 Registrants Form 10-K for the fiscal year ended
December 31, 1996, filed with the Securities and
Exchange Commission on March 31, 1997 is herein
incorporated by reference.
(b) Reports on Form 8-K - No report on Form 8-K was filed
during the quarter ended June 30, 1997.
-17
METLIFE TEXAS HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
METLIFE TEXAS HOLDINGS, INC.
(Registrant)
Date: August 12, 1997 By Myron O. Schlanger
-----------------------------
Myron O. Schlanger
Vice-President and Controller
(Chief Financial Officer)
-18
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