<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: [ ]
MONY LIFE INSURANCE COMPANY OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
ARIZONA 86-0222062
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1740 BROADWAY
NEW YORK, NEW YORK 10019
(212) 708-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NONE
(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 [ ] No [X]
As of December 23, 1998, there were 2 holders of the Registrant's
guaranteed interest account with market value adjustment contracts.
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MONY LIFE INSURANCE COMPANY OF AMERICA
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: Unaudited Interim Condensed Financial Statements of
Admitted Assets, Liabilities, Capital & Surplus -- Statutory
Basis as of September 30, 1998, and December 31,
1997................................................ 3
Unaudited Interim Condensed Statements of Operations for the
three-months ended September 30, 1998 and 1997.............. 4
Unaudited Interim Condensed Statements of Operations for the
nine-months ended September 30, 1998 and 1997............... 5
Unaudited Interim Condensed Statements of Capital and
Surplus for the nine-months ended September 30, 1998 and
1997....................................................... 6
Unaudited Interim Condensed Statements of Cash Flows for the
nine-months ended September 30, 1998 and 1997............... 7
Notes to Unaudited Interim Condensed Statutory Financial
Statements................................................. 8-12
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13-24
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings................................... 25
ITEM 2: Changes in Securities and Use of Proceeds........... 25
ITEM 3: Defaults upon Senior Securities..................... 25
ITEM 4:Submission of Matters to a Vote of Security
Holders.............................................. 25
ITEM 5: Other Information................................... 25
ITEM 6: Exhibits and Reports on Form 8-K.................... 25
SIGNATURES........................................................... 26
</TABLE>
1
<PAGE> 3
FORWARD LOOKING STATEMENTS
The Management of MONY Life Insurance Company of America (the "Company")
has made in this report, and from time to time may make in its public filings
and press releases as well as in oral presentations and discussions,
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Forward-looking statements include, among
other things, discussions concerning the Company's potential exposure to market
risks, as well as statements expressing management's expectations, beliefs,
estimates, forecasts, projections and assumptions, as indicated by words such as
"believes," "estimates," "intends," "anticipates," "expects," "projects,"
"should," "probably," "risk," "target," "goals," "objectives," or similar
expressions. The Company claims the protection afforded by the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and assumes no duty to update any forward-looking statement.
Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those anticipated by forward-looking
statements due to a number of important factors including those discussed
elsewhere in this report and in the Company's and its parent company's other
public filings, press releases, oral presentations and discussions and the
following; (i) the success of the recently implemented "tiering" of the
Company's career agency sales force, and the ability to attract and retain
productive agents; (ii) The Company's ability to control operating expenses;
(iii) a successful appeal of the order of the New York Superintendent of
Insurance approving the parent company's Plan of Reorganization; (iv) a
successful appeal of the order of the New York Supreme Court granting the parent
company's motion for summary judgement in the case of Goshen v. The Mutual Life
Insurance Company of New York; (v) the performance of the stock markets; (vi)
the intensity of competition from other financial institutions; (vii) the
Company's mortality, morbidity, persistency and claims experience; (viii) the
Company's ability to develop, distribute and administer competitive products and
services in a timely, cost-effective manner; (ix) the Company's financial and
claims paying ratings; (x) the effect of changes in laws and regulations
affecting the Company's businesses, including changes in tax laws affecting
insurance and annuity products; (xi) market risks related to interest rates,
equity prices, derivatives, foreign currency exchange and credit; (xii) the
ability of the Company to identify and consummate on successful terms any future
acquisitions, and to successfully integrate acquired businesses with minimal
disruption and (xiii) the risks associated with Year 2000 non-compliance by the
Company, the parent company, and third-parties (including vendors and suppliers,
reinsurers and others doing business with the Company), unanticipated costs
associated with Year 2000 compliance due to, among other things the inability to
locate, correct and successfully test all relevant computer code according to
schedule, the continued availability of certain resources including personnel
and timely and accurate responses and corrections by third parties.
2
<PAGE> 4
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF
ADMITTED ASSETS, LIABILITIES, CAPITAL
AND SURPLUS -- STATUTORY BASIS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and invested assets:
Cash and short-term investments........................... $ 34,640 $ 45,956
Bonds..................................................... 1,053,051 1,074,724
Common stocks............................................. 37 981
Mortgage loans............................................ 136,930 134,828
Real estate............................................... 9,437 22,627
Policy loans.............................................. 50,494 45,892
Other invested assets..................................... 7,627 7,001
---------- ----------
Total cash and invested assets.................... 1,292,216 1,332,009
Investment income due and accrued........................... 21,718 22,402
Other assets................................................ 4,064 247
Separate account assets..................................... 3,745,009 3,606,711
---------- ----------
Total assets...................................... $5,063,007 $4,961,369
========== ==========
LIABILITIES, CAPITAL AND SURPLUS
Liabilities:
Life insurance and annuity reserves....................... $1,205,952 $1,241,979
Deposits left with the Company............................ 25,360 23,197
Policy claims in process of settlement.................... 8,216 8,331
Federal income taxes due or accrued....................... 28,575 17,837
Transfers from separate accounts.......................... (144,877) (128,943)
Other liabilities......................................... 25,865 32,869
Separate account liabilities.............................. 3,745,009 3,606,711
Interest maintenance reserve.............................. 5,205 3,965
Investment reserves....................................... 6,000 6,000
Asset valuation reserve................................... 14,950 16,272
---------- ----------
Total liabilities................................. 4,920,255 4,828,218
Capital and surplus:
Capital stock, $1.00 par value; authorized, 5,000,000
shares Issued and outstanding, 2,500,000 shares........ 2,500 2,500
Additional paid-in capital................................ 133,500 133,500
Unassigned funds.......................................... 6,752 (2,849)
---------- ----------
Total capital and surplus......................... 142,752 133,151
---------- ----------
Total liabilities, capital and surplus............ $5,063,007 $4,961,369
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS
OF OPERATIONS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Premiums, annuity considerations and fund deposits.......... $192,088 $198,373
Net investment income....................................... 24,034 25,154
Other income (net).......................................... 262 130
-------- --------
216,384 223,657
Policyholder and contractholder benefits.................... 118,278 103,717
Change in policy and contract reserves...................... (8,003) (12,920)
Commissions................................................. 8,139 9,424
Operating expenses.......................................... 22,165 14,007
Transfer to separate accounts............................... 73,729 95,790
-------- --------
214,308 210,018
Net gain from operations before federal income taxes........ 2,076 13,639
Federal income taxes........................................ 1,500 7,000
-------- --------
Net gain from operations.................................... 576 6,639
Net realized capital losses................................. (383) (1,998)
-------- --------
Net Income.................................................. $ 193 $ 4,641
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS
OF OPERATIONS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Premiums, annuity considerations and fund deposits.......... $634,908 $593,624
Net investment income....................................... 72,256 74,893
Other income (net).......................................... 248 248
-------- --------
707,412 668,765
Policyholder and contractholder benefits.................... 382,104 295,575
Change in policy and contract reserves...................... (33,864) (34,736)
Commissions................................................. 27,240 27,292
Operating expenses.......................................... 66,231 44,029
Transfer to separate accounts............................... 248,784 302,198
-------- --------
690,495 634,358
Net gain from operations before federal income taxes........ 16,917 34,407
Federal income taxes........................................ 9,087 17,390
-------- --------
Net gain from operations.................................... 7,830 17.017
Net realized capital losses................................. (462) (3,895)
-------- --------
Net Income.................................................. $ 7,368 $ 13,122
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF
CAPITAL AND SURPLUS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Capital and surplus, beginning of period.................... $133,151 $121,814
Net income.................................................. 7,368 13,122
Change in net unrealized capital gains...................... 244 3,131
Change in non-admitted assets............................... 667 22
Change in asset valuation reserve........................... 1,322 (1,753)
-------- --------
Net change in capital and surplus for the period............ 9,601 14,522
Capital and surplus, end of period.......................... $142,752 $136,336
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS
OF CASH FLOWS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
CASH FROM OPERATIONS:
Premiums, annuity considerations and fund deposits........ $633,995 $ 593,624
Investment income, net of investment expenses............. 72,272 71,617
Other income.............................................. 248 247
Policy benefits paid...................................... (385,903) (295,944)
Transfers to separate accounts............................ (264,717) (331,069)
Commissions, other expenses and taxes paid................ (90,826) (70,065)
Federal income taxes (excluding tax on capital gains)..... 0 (3)
-------- ---------
Net cash from operations............................. (34,931) (31,593)
-------- ---------
CASH FROM INVESTMENTS:
Proceeds from investments sold, matured or repaid:
Bonds.................................................. 133,440 95,550
Stocks................................................. 955 1,050
Mortgage loans......................................... 16,301 31,220
Real estate............................................ 14,018 13,924
Other invested assets.................................. 609 5,389
Other.................................................. (6) 4,243
-------- ---------
Total investment proceeds......................... 165,317 151,376
-------- ---------
Cost of investments acquired:
Bonds.................................................. 109,527 124,137
Stocks................................................. 0 68
Mortgage loans......................................... 17,936 7,801
Real estate............................................ 382 1,030
Other invested assets.................................. 1,236 489
Change in policy loans................................. 4,602 3,851
-------- ---------
Total investments acquired........................ 133,683 137,376
-------- ---------
Net cash from investments............................ 31,634 14,000
-------- ---------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES:
Cash provided:
Increase in paid capital............................... 0 0
Other sources.......................................... (8,019) 589
-------- ---------
Net cash from financing and miscellaneous sources.... (8,019) 589
-------- ---------
Net change in cash and short-term investments........ (11,316) (17,004)
Cash and short-term investments, beginning of period........ 45,956 90,207
-------- ---------
Cash and short-term investments, end of period.............. $ 34,640 $ 73,203
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 9
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED STATUTORY FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
MONY Life Insurance Company of America (the "Company"), an Arizona
corporation, is a wholly owned subsidiary of The Mutual Life Insurance Company
of New York ("MONY"), a mutual life insurance company. The Company's primary
business is to provide interest-sensitive and variable life insurance and asset
accumulation products to business owners, growing families, and pre-retirees.
The Company's insurance and financial products are marketed and distributed
directly to individuals primarily through MONY's career agency sales force.
These products are sold throughout the United States (except New York) and
Puerto Rico.
On November 16, 1998, pursuant to an order by the New York Superintendent
of Insurance approving its Plan of Reorganization (the "Plan") under Section
7312 of the New York Insurance Law, as amended, MONY converted from a mutual
life insurance company to a stock life insurance company and became a wholly
owned subsidiary of The MONY Group Inc., (the "MONY Group"), a Delaware
corporation organized for the purpose of becoming the parent holding company of
MONY. Also, on November 16, 1998, the MONY Group consummated an initial public
offering (the "Offerings") of approximately 12.9 million shares of its common
stock at an initial public offering price of $23.50 per share. The shares of
common stock issued in the Offerings are in addition to approximately 34.1
million shares of common stock of the MONY Group which, pursuant to the Plan,
are distributable to MONY policyholders in exchange for their membership
interests in MONY. Effective November 16, 1998, MONY changed its name to MONY
Life Insurance Company ("MONY Life").
2. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed statutory financial statements
are prepared in conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Arizona ("statutory"), which is a
comprehensive basis of accounting other than generally accepted accounting
principles ("GAAP"). The preparation of statutory financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of results of
operations and changes in surplus during the reporting period. Actual results
could differ significantly from those estimates. The most significant estimates
made in conjunction with the preparation of the Company's statutory financial
statements include those used in determining (i) valuation reserves for mortgage
loans and real estate investments, and (ii) the liability for future policy
benefits.
These statutory statements should be read in conjunction with the statutory
financial statements of the Company for the year ended December 31, 1997. The
statutory results of operations for the three and nine-month period ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In financial statements prepared in conformity with statutory accounting,
the accounting treatment of certain items is different than for financial
statements prepared in conformity with GAAP. Some of the general differences
include:
- Policy acquisition costs, such as commissions and other costs incurred in
connection with acquiring new and renewal business, are expensed when
incurred; under GAAP, such costs are deferred and amortized over the
expected life of the contracts as a constant percentage based on the
present value of expected gross profits.
- Premiums for universal life and investment-type products are recognized
as revenue when due; under GAAP, they are reported as deposits to
policyholders' account balances. Revenues from these
8
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MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED STATUTORY FINANCIAL
STATEMENTS -- (CONTINUED)
contracts under GAAP consist of amounts assessed during the period
against policyholders' account balances for mortality, policy
administration and surrender charges.
- Policy reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, and are reported net
of reinsurance reserve credits; under GAAP, the reserves for interest
sensitive life and annuity products are equal to the fund value and are
reported gross of reinsurance reserve credits.
- No provision is made for deferred income taxes; under GAAP, deferred
income taxes result from temporary differences between the tax bases of
assets and liabilities and their reported amounts in the financial
statements.
- An interest maintenance reserve ("IMR") is established as a liability to
capture realized investment gains and losses, net of tax, on the sale of
fixed maturities and mortgage loans resulting from changes in the general
level of interest rates, and is amortized into income over the remaining
years to expected maturity of the assets sold; under GAAP, assets are
carried on the balance sheet, net of appropriate valuation allowances.
- An asset valuation reserve ("AVR"), based upon a formula prescribed by
the NAIC, is established as a liability to offset potential non-interest
related investment losses, and changes in the AVR are charged or credited
to surplus; under GAAP, no such reserve is required.
- Bonds in good standing are generally carried at amortized cost; under
GAAP, bonds which are classified as available for sale are carried at
fair value and the related change in unrealized gains and losses, net of
related deferred taxes and an adjustment for deferred policy acquisition
costs, is reported as a component of other comprehensive income in
equity.
- Certain assets designated as "non-admitted," are excluded from assets by
a direct charge to surplus; under GAAP, such assets are carried on the
balance sheet, net of appropriate valuation allowances.
- Methods used for calculating real estate and mortgage loan values and
real estate depreciation under statutory reporting are different from
those used for GAAP.
- Cash equivalents are defined as all highly liquid debt securities with
original maturities of twelve months or less; under GAAP, cash
equivalents are defined as short-term, highly liquid investments, which
generally have original maturities of three months or less.
The following is a description of the Company's principal statutory
accounting policies:
a. Premiums and Insurance Expenses
Premiums are included in revenue over the premium payment periods of the
related policies. Annuity considerations and fund deposits are included in
revenue as received.
The costs of acquiring new business, primarily commissions, underwriting,
agency and other costs related to issuance, maintenance and settlement of
policies are charged to operations in the year incurred.
b. Investments
Bonds are stated at amortized cost, except those bonds not in good
standing, which are carried at NAIC-designated values, which approximate fair
value. Loan-backed bonds and structured securities are valued at amortized cost
using the effective interest method considering anticipated prepayments at the
date of purchase; significant changes in the estimated cash flows from the
original purchase assumptions are accounted for using the retrospective method.
Common stocks are carried at fair value. Policy loans are
9
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MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED STATUTORY FINANCIAL
STATEMENTS -- (CONTINUED)
carried at their unpaid principal balances. Short-term investments are carried
at amortized cost and consist of securities with original maturities of twelve
months or less.
Mortgage loans other than those in process of foreclosure are carried at
their unpaid principal balances adjusted for unamortized premium or discount.
Real estate owned for investment is carried at depreciated cost, less
encumbrances, if any. Joint ventures in real estate are included in Other
Invested Assets and are carried principally at their equity value. Other
investments are generally carried at cost.
Real estate acquired through foreclosure is carried at the lower of cost,
less accumulated depreciation and encumbrances, if any, or estimated fair value
at the time of foreclosure. There were no encumbrances on equity real estate as
of September 30, 1998 and December 31, 1997. Mortgage loans in process of
foreclosure are carried at the lower of the current carrying value or estimated
fair value. Fair value is determined by using the estimated discounted cash
flows expected from the underlying real estate properties. These projected cash
flows are based on estimates regarding future operating expenses, lease rates,
occupancy levels and investors' targeted yields.
The Company provides, through a direct charge to surplus, an investment
valuation reserve for permanent impairment of real estate investments, joint
ventures in real estate, mortgage loans delinquent for more than 60 days and
restructured mortgage loans. This reserve reflects, in part, the excess of the
carrying value of such assets over the estimated undiscounted cash flows
expected from the underlying real estate properties. These projected cash flows
are based on estimates similar to those described in the preceding paragraph.
The Company's investment valuation reserve was $6 million as of September 30,
1998 and December 31, 1997.
Derivative instruments are valued consistently with the items being hedged.
Hedges of fixed income assets and/or liabilities are valued at amortized cost.
Derivatives that cease to be effective hedges are valued at market value.
Realized capital gains and losses on sales of investments are determined on
the basis of specific identification. Unrealized capital gains and losses are
recorded directly to surplus. Investment income is recognized as earned.
Investment income earned includes the amortization of premium and accretion of
discount relative to bonds acquired at other than their par value and excludes
certain overdue due and accrued interest income.
c. Interest Maintenance Reserve and Asset Valuation Reserve
Realized investment gains and losses (net of tax) for bonds and mortgage
loans resulting from changes in interest rates are deferred, and credited or
charged to the IMR. These amounts are amortized into net income over the
remaining years to expected maturity of the assets sold. The AVR is based upon a
formula prescribed by the NAIC and functions as a reserve for potential
non-interest related investment losses. In addition, realized investment gains
and losses (not subject to the IMR) and unrealized gains and losses result in
changes in the AVR which are recorded directly to surplus.
d. Policy Reserves
Policy reserves for deferred annuity contracts are computed by using the
Commissioners' Annuity Reserve Valuation Method by using the 1971 IAM Table for
contracts issued before 1983 and the 1983 Table A for contracts issued since
1983 and prescribed statutory interest rates. Policy reserves for universal life
and single premium whole life contracts are computed by using the Commissioners'
Reserve Valuation Method and by using the 1958 and 1980 CSO Tables, and
prescribed statutory interest rates.
10
<PAGE> 12
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED STATUTORY FINANCIAL
STATEMENTS -- (CONTINUED)
e. Non-admitted Assets
Certain assets designated as "non-admitted" assets (principally
miscellaneous receivables) are excluded from the statements of admitted assets,
liabilities, capital and surplus.
f. Separate Account Assets and Liabilities
Separate account assets and liabilities represent primarily segregated
funds administered and invested by the Company for the benefit of certain
contractholders. Assets consist of securities reported at market value.
Premiums, benefits and expenses of the separate accounts are included in the
Company's statements of operations.
g. Depreciation
The Company uses the constant-yield method of depreciation for
substantially all investments in real estate and real estate joint ventures and
limited partnerships acquired prior to January 1, 1991. Acquisitions subsequent
to January 1, 1991 and foreclosed real estate are depreciated on the
straight-line method. Real estate assets and improvements are generally
depreciated over ten to forty-year periods and leasehold improvements are
depreciated over the lives of the leases. For the nine month period ended
September 30, 1998 and September 30, 1997, depreciation expense was $0.4 million
and $0.9 million respectively. Accumulated depreciation was $2.4 million and
$4.4 million for the nine months ended September 30, 1998 and the year ended
December 31, 1997, respectively.
h. Cash Flows
Short-term investments are characterized as cash equivalents for purposes
of the statements of cash flows.
4. COMMITMENTS AND CONTINGENCIES
In late 1995 and during 1996, a number of purported class actions were
commenced in various state and federal courts against the Company and MONY (the
"Companies") alleging that the Companies engaged in deceptive sales practices in
connection with the sale of whole and universal life insurance policies during
the period January 1, 1982 through December 31, 1995. Although the claims
asserted in each case are not identical, they seek substantially the same relief
under essentially the same theories of recovery (i.e. breach of contract, fraud,
negligent misrepresentation, negligent supervision and training, breach of
fiduciary duty, unjust enrichment and violation of state insurance and/or
deceptive business practice laws). The Companies have answered the complaints in
each action (except for one being voluntarily held in abeyance), has denied any
wrongdoing, and has asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified the Goshen
case, being the first of the aforementioned class actions filed, as a nationwide
class consisting of all persons or entities who have, or at the time of the
policy's termination had, an ownership interest in a whole or universal life
insurance policy issued by the Companies and sold on an alleged "vanishing
premium" basis during the period January 1, 1982 to December 31, 1995. On March
27, 1997, the Companies filed a motion to dismiss or, alternatively, for summary
judgment on all counts of the complaint. All of the other putative class actions
have been consolidated and transferred by the Judicial Panel on Multidistrict
Litigation to the United States District Court for the District of
Massachusetts, or are being voluntarily held in abeyance pending the outcome of
the Goshen case. The Massachusetts District Court in the Multidistrict
Litigation has entered an order recognizing the Goshen case as the lead case and
essentially holding all of the federal cases in abeyance pending the action of
the Goshen case.
11
<PAGE> 13
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED STATUTORY FINANCIAL
STATEMENTS -- (CONTINUED)
On October 21, 1997, the New York State Supreme Court granted the
Companies' motion for summary judgment and dismissed all claims filed in the
Goshen case against the Company. The order by the New York State Supreme Court
has been appealed to the Appellate Division by plaintiffs and all actions before
the United States District Court for the District of Massachusetts are still
pending.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts.
In the opinion of management of the Company, resolution of contingent
liabilities arising from litigation, income taxes and other matters will not
have a material adverse effect on the Company's statutory surplus or results of
operations.
At September 30, 1998, the Company had a commitment to issue $10.4 million
fixed rate farm loans with an interest rate of 6.75% to 7.50%. There were no
outstanding bond or commercial mortgage commitments as of September 30, 1998.
5. RELATED PARTY TRANSACTIONS:
During 1998, the Company made effective two additional investment advisory
and service agreements with related parties.
The Company has an Investment Advisory Agreement with MONY Private Assets
Trust to act as investment advisors to and manager for the Trust. The fees are
computed in accordance with the terms of the agreement.
The Company has a service agreement with MONY (the Parent), whereby MONY
makes available services for the conduct of the Company's business as investment
advisor to MONY Private Assets Trust. The fees are computed in accordance with
the terms of the agreement.
12
<PAGE> 14
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses the statutory-basis financial condition
and results of operations of MONY Life Insurance Company of America ("MLOA" or
the "Company") for the periods indicated. This discussion should be read in
conjunction with the Company's statutory-basis financial statements, notes to
statutory-basis financial statements and other statutory-basis financial
information included elsewhere.
The following summarizes the Company's statutory-basis results of
operations for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTH PERIODS MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
($ MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
REVENUES:
Premiums, Annuity Considerations, and Fund Deposits..... $192.1 $198.4 $634.9 $593.6
Net Investment Income................................... 24.0 25.1 72.3 74.9
Other Income, Net....................................... 0.3 0.1 0.2 0.3
------ ------ ------ ------
Total Income....................................... 216.4 223.6 707.4 668.8
BENEFITS & EXPENSES:
Policyholder and Contractholder Benefits................ 118.3 103.7 382.1 295.6
Change in Policy and Contract Reserves.................. (8.0) (12.9) (33.9) (34.7)
Commissions............................................. 8.1 9.4 27.3 27.3
Operating Expenses...................................... 22.2 14.0 66.2 44.0
Transfers to Separate Accounts.......................... 73.7 95.8 248.8 302.2
------ ------ ------ ------
Total Benefits and Expenses........................ 214.3 210.0 690.5 634.4
Net Gain from Operations Before Federal Income Taxes.... 2.1 13.6 16.9 34.4
Federal Income Taxes.................................... 1.5 7.0 9.1 17.4
------ ------ ------ ------
Net Gain from Operations................................ 0.6 6.6 7.8 17.0
Net Realized Capital Gains/(Losses)..................... (0.4) (2.0) (0.4) (3.9)
------ ------ ------ ------
Net Income.............................................. $ 0.2 $ 4.6 $ 7.4 $ 13.1
====== ====== ====== ======
</TABLE>
Three Month Period Ended September 30, 1998 Compared to the Three Month Period
Ended September 30, 1997
Net gain from operations before federal income taxes was $2.1 million for
the three month period ended September 30, 1998 as compared to $13.6 million for
the three month period ended September 30, 1997, a decrease of $11.5 million or
84.6%. The principal reason for the decrease was lower premiums and annuity
considerations of $6.3 million, higher policyholder and contractholder benefits
of $14.6 million, higher operating expenses of $8.2 million, increased policy
and contract reserves of $4.9 million, offset with $22.1 million in lower
transfers to separate accounts.
Premiums, Annuity Considerations, and Fund Deposits were $192.1 million for
the three month period ended September 30, 1998, a decrease of $6.3 million or
3.2%, from $198.4 million recorded for the three month period ended September
30, 1997. The principal reasons for the change from period to period are as
follows:
Total premiums and annuity considerations were $65.3 million for the
three months ended September 30, 1998 compared to $37.6 million for the
same period in 1997, an increase of $27.7 million.
13
<PAGE> 15
The new Corporate Sponsored Variable Universal Life (CSVUL) product,
introduced in 1997, accounted for most of the change in premiums with an
increase of $24.8 million as compared to the prior year three month period.
Annuity and other fund deposits decreased from $152.8 million for the
three month period ended September 30, 1997 to $118.0 million for the three
month period ended September 30, 1998, a decrease of $34.8 million. Most of
the decrease is explained by flexible premium variable annuity sales (FPVA)
declining by $33.8 million between the periods.
Net investment income decreased by $1.1 million or 4.5%, to $24.0 million
for September 30, 1998 from $25.1 million at September 30, 1997 due primarily to
lower interest rates on new investments and declining asset balances in the
general account.
Policyholder and Contractholder Benefits were $118.3 million for the three
month period ended September 30, 1998, an increase of $14.6 million or 14.1%,
from $103.7 million recorded for the three month period ended September 30,
1997. The principal reasons for the change from period to period are as follows:
Death benefits for the three month period ended September 30, 1998
were $6.5 million compared to $8.3 million in the prior year period, a
decrease of $1.8 million due to lower payouts for death claims for the
single premium whole life product, and better experience on reinsured
business.
Annuity benefits at $6.3 million for the three month period ended
September 30, 1998 increased slightly by $0.5 million from the prior year
three month period. Annuity benefits were $5.8 million for the third
quarter of 1997.
Surrenders for the three month period ended September 30, 1998 were
$96.4 million compared to $76.5 million for the three month period ended
September 30, 1997. The increase of $19.9 million was due to increased
withdrawals of FPVA contracts partially offset by lower withdrawals of
single premium deferred annuities ("SPDA's").
Payments on supplementary contracts without life contingencies
decreased by $4.0 million from $12.0 million for the three month period
ended September 30, 1997 to $8.0 million for the three month period ended
September 30, 1998.
Change in policy and contract reserves went from ($12.9) million for the
three months ended September 30, 1997 to ($8.0) million for the comparable
period in 1998, a $4.9 million change or 38.1%. The principal reasons for the
change are as follows:
The change in reserve for life policies was an increase of $4.8
million for the three month period ended September 30, 1998 compared to an
increase of $6.9 million for the three months ended September 30, 1997, a
$2.1 million lower reserve change between the periods. This change is due
primarily to lower premiums and higher surrenders for the universal life
product during the third quarter of 1998 versus the third quarter of 1997.
The change in liability for premiums and other deposit funds had a
decrease of $17.5 million in the three month period ended September 30,
1997 compared to a decrease of $14.8 million for the three month period
ended September 30, 1998. The decrease in both years reflects reduced
deposit liabilities for single premium deferred annuities.
Commissions decreased slightly by $1.3 million from $9.4 million in the
third quarter of 1997 to $8.1 million in the third quarter of 1998 due to lower
volume of sales of variable annuity products between the periods.
Operating Expenses increased by $8.2 million or 58.6% from $14.0 million
for the three month period ended September 30, 1997 to $22.2 million to the
comparable three month period in 1998. The principal reason for the increase is
that the Company incurs higher charges from the parent company for services
provided based on the Company's production levels and changes in the mix of
product sales.
14
<PAGE> 16
Transfers to separate accounts decreased by $22.1 million or 23.0% from
$95.8 million for the three month period ended September 30, 1997 to $73.7
million for the three month period ended September 30, 1998. This decrease is
due to lower FPVA deposits in addition to higher FPVA withdrawals and asset
charges for the third quarter of 1998 compared to the similar period in 1997.
Federal income taxes decreased from $7.0 million in the three month period
ended September 30, 1997 to $1.5 million in the three month period ended
September 30, 1998, a decrease of $5.5 million, due primarily to lower operating
income.
Net Realized Capital Losses changed by $1.6 million from ($2.0) million for
the three months ended September 30, 1997 to ($0.4) million for the comparable
period in 1998. Following is a summary of the change in realized capital gains
and (losses) for the periods indicated by asset type:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
--------------
1998 1997
----- -----
($ MILLIONS)
<S> <C> <C>
REALIZED CAPITAL GAINS (LOSSES)
Bonds....................................................... $ 0.7 $(2.9)
Common stock................................................ 0.0 0.7
Real estate and mortgage loans.............................. 0.1 0.5
----- -----
Subtotal.................................................. 0.8 (1.7)
Taxes....................................................... (0.3) (0.1)
Transferred to Interest Maintenance Reserve (IMR), net of
taxes..................................................... (0.9) (0.2)
----- -----
Net realized capital losses............................... $(0.4) $(2.0)
===== =====
</TABLE>
The change in net realized capital losses for the three month period ended
September 30, 1998 as compared to the three month period ended September 30,
1997 is primarily the result of higher bond prepayment gains as well as the
disposal of a defaulted bond in the third quarter of 1997 at a loss. During the
third quarter of 1998 and 1997, realized capital gains resulting from changes in
interest rates on fixed income securities of $0.9 million (net of $0.5 million
tax) and $0.2 million (net of $0.1 million tax), respectively, were transferred
to the Company's IMR for future amortization into net income.
Nine Month Period Ended September 30, 1998 Compared to the Nine Month Period
Ended September 30, 1997:
Net gain from operations before federal income taxes was $16.9 million for
the nine month period ended September 30, 1998 as compared to $34.4 million for
the nine months ended September 30, 1997, a decrease of $17.5 million or 50.9%.
The principal reason for the decrease was higher premiums and annuity
considerations of $41.3 million and lower transfers to separate accounts of
$53.4 million, more than offset by higher policyholder and contractholder
benefit expense of $86.5 million and higher operating expense of $22.2 million
and lower net investment income of $2.6 million between the periods.
Premiums, Annuity Considerations, and Fund Deposits were $634.9 million for
the nine month period ended September 30, 1998, an increase of $41.3 million or
7.0%, from $593.6 million recorded for the nine month period ended September 30,
1997. The principal reasons for the change from period to period are as follows:
Total premiums and annuity considerations were $192.6 million for the
nine month period ended September 30, 1998 compared to $103.4 million for
the nine month period ended September 30, 1997, an increase of $89.2
million. The new Corporate Sponsored Variable Universal Life (CSVUL)
product, introduced in 1997, accounted for most of the change in premiums
with an increase of $79.1 million for the nine months ended September 30,
1998 as compared to the prior year period. Premiums for the Variable
Universal Life (VUL) product, increased $18.1 million for the first nine
months of 1998 as
15
<PAGE> 17
compared to the prior year nine month period in 1997. These increases were
partially offset by an increase of $8.1 million in premiums paid to
reinsurers from $7.1 million for the nine months ended September 30, 1997
to $15.2 million for the comparable period in 1998 mostly due to the CSVUL
and VUL production increases.
Annuity and other fund deposits decreased from $468.8 million for the
nine month period ended September 30, 1997 to $421.1 million for the nine
month period ended September 30, 1998, a decrease of $47.7 million.
Flexible premium variable annuity sales declined by $45.2 million and
single premium deferred annuity sales decreased by $2.2 million between the
periods.
Net investment income decreased by $2.6 million or 3.5%, to $72.3 million
for the nine months ended September 30, 1998 from $74.9 million for the prior
year period ended September 30, 1997 due primarily to lower interest rates on
new investments and declining asset balances in the general account.
Policyholder and Contractholder Benefits were $382.1 million for the nine
month period ended September 30, 1998, an increase of $86.5 million or 29.3%,
from $295.6 million recorded for the nine month period ended September 30, 1997.
The principal reasons for the change from period to period are as follows:
Death benefits for the nine month period ended September 30, 1998 were
$18.1 million compared to $19.6 million for the nine month period ended
September 30, 1997, a decrease of $1.5 million due to lower payouts for
death claims for the universal life product.
Annuity benefits at $22.0 million for the nine month period ended
September 30, 1998 are $4.3 million higher than the $17.7 million for the
comparable nine month period in 1997 due primarily to increased payouts on
FPVA contracts resulting from death claims.
Surrenders for the nine month period ended September 30, 1998 were
$314.1 million compared to $225.0 million for the nine month period ended
September 30, 1997. This increase of $89.1 million was due to increased
withdrawals of FPVA contracts partially offset by lower withdrawals of
single premium deferred annuities ("SPDA's").
Payments on supplementary contracts without life contingencies
decreased by $5.7 million from $30.2 million for the nine months ended
September 30, 1997 to $24.5 million for the nine month period ended
September 30, 1998.
Change in policy and contract reserves went from ($34.7) million for the
nine months ended September 30, 1997 to ($33.9) million for the comparable
period in 1998, a $0.8 million change or 2.3%. The principal reasons for the
change are as follows:
The change in reserve for life policies was an increase of $19.6
million for the nine month period ended September 30, 1998 compared to an
increase of $18.8 million for the nine month ended September 30, 1997, a
$0.8 million change due primarily to higher reserves for single premium
whole life, and level term insurance offset with lower reserves for
variable universal life.
The change in liability for premiums and other deposit funds had a
decrease of $52.0 million in the nine month period ended September 30, 1997
compared to a decrease of $55.6 million for the nine month period ended
September 30, 1998. The change reflects lower deposit liabilities due to
decreased deposits for all products and increased flexible premium variable
annuity (FPVA) withdrawals.
The change in reserves for supplementary contracts without life
contingencies increased by $3.7 million from a credit of $1.6 million for
the nine month period ended September 30, 1997 to a charge of $2.1 million
for the nine month period ended September 30, 1998.
Commissions remained flat between the nine month period ended September 30,
1998 and the prior year period at approximately $27.3 million for both periods.
Operating Expenses increased by $22.2 million or 50.4% from $44.0 million
for the nine month period ended September 30, 1997 to $66.2 million for the
comparable period in 1998. The principal reason for the
16
<PAGE> 18
increase is that the Company incurred higher charges from the parent company for
services provided based on the Company's production levels and changes in the
mix of product sales.
Transfers to separate accounts decreased by $53.4 million or 17.7% from
$302.2 million for the nine month period ended September 30, 1997 to $248.8
million for the nine month period ended September 30, 1998. The decrease was due
to lower FPVA deposits in addition to higher FPVA withdrawals and asset charges
for the first nine months of 1998 compared to the similar period in 1997.
Federal income taxes decreased from $17.4 million for the nine month period
ended September 30, 1997 to $9.1 million for the nine month period ended
September 30, 1998 due primarily to lower operating income.
Net Realized Capital Losses changed by $3.5 million from ($3.9) million for
the nine months ended September 30, 1997 to ($0.4) million for the comparable
period in 1998. Following is a summary of the change in realized capital gains
and (losses) for the periods indicated by asset type:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
--------------
1998 1997
----- -----
($ MILLIONS)
<S> <C> <C>
REALIZED CAPITAL GAINS (LOSSES)
Bonds....................................................... $ 1.9 $(3.4)
Common stock................................................ 0.2 0.7
Real estate and mortgage loans.............................. 1.0 0.0
Other invested assets....................................... 0.0 (0.2)
Derivative instruments...................................... 0.0 (0.0)
----- -----
Subtotal.................................................. 3.1 (2.9)
Taxes....................................................... (1.6) (0.4)
Transferred to Interest Maintenance Reserve (IMR), net of
taxes..................................................... (1.9) (0.6)
----- -----
Net realized capital losses............................... $(0.4) $(3.9)
===== =====
</TABLE>
The change in net realized capital losses for the first nine months of 1998
as compared to the first nine months of 1997 is primarily the result of higher
gains on the sale of real estate properties and higher bond and mortgage
prepayment gains for the first nine months of 1998, as well as the disposal of a
defaulted bond in the first nine months of 1997 at a loss. During the first nine
months of 1998 and 1997, realized capital gains resulting from changes in
interest rates on fixed income securities of $1.9 million (net of $1.0 million
tax) and $0.6 million (net of $0.4 million tax), respectively, were transferred
to the Company's IMR for future amortization into net income.
Financial Position
The asset mix of the Company as of September 30, 1998 and December 31, 1997
continues to reflect management's commitment to provide adequate liquidity and
limit new investments to investment grade bonds, with some selective purchases
of National Association of Insurance Commissioners ("NAIC") category 3 bonds and
agricultural mortgages.
17
<PAGE> 19
The Company's assets as of September 30, 1998 and December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1998 % 1997 %
-------- ----- -------- -----
($ MILLIONS)
<S> <C> <C> <C> <C>
Bonds.......................................... $1,053.0 81.5 $1,074.7 80.7
Cash and short-term investments................ 34.6 2.7 46.0 3.5
Common stocks.................................. 0.0 0.0 1.0 0.1
Mortgage loans on real estate
Commercial mortgages......................... 29.2 2.3 35.3 2.6
Agricultural mortgages....................... 107.7 8.3 99.5 7.5
Policy loans................................... 50.5 3.9 45.9 3.4
Real estate
Foreclosed................................... 4.2 0.3 14.9 1.1
For investment............................... 5.3 0.4 7.7 0.6
Other invested assets.......................... 7.7 0.6 7.0 0.5
-------- ----- -------- -----
Total invested assets.......................... 1,292.2 100.0 1,332.0 100.0
Other.......................................... 25.8 22.7
-------- --------
Total General Accounts Assets.................. 1,318.0 1,354.7
Separate Accounts.............................. 3,745.0 3,606.7
-------- --------
Total Assets................................... $5,063.0 $4,961.4
======== ========
</TABLE>
Bonds eligible for amortization under rules promulgated by the NAIC are
carried at amortized cost, while all other bonds are carried at values adopted
by the NAIC, which approximate fair market value. Loan backed bonds and
structured securities are valued at amortized cost using the effective interest
method considering anticipated prepayments at the date of purchase; significant
changes in the estimated cash flows from the original purchase assumptions are
accounted for using the retrospective method.
Real estate acquired through foreclosure is carried at the lower of cost or
the estimated fair value at the time of foreclosure, less accumulated
depreciation and encumbrances. Mortgage loans in process of foreclosure are also
carried at the lower of cost or the estimated fair value. Fair value is
determined by using the estimated discounted cash flows expected from the
underlying real estate properties. These projected cash flows are based on
estimates regarding future operating expenses, lease rates, occupancy levels and
investors' targeted yields.
The Company provides, through a direct charge to surplus, an investment
valuation reserve for permanent impairment of real estate investments, joint
venture partnerships in real estate, mortgage loans delinquent for more than 60
days and restructured mortgage loans. This reserve reflects, in part, the excess
of the carrying value of such assets over the estimated undiscounted cash flows
expected from the underlying real estate properties. These projected cash flows
are based on estimates similar to those described in the preceding paragraph. As
of September 30, 1998 and December 31, 1997, the Company's investment reserve
for its mortgage loans and real estate investments was $6 million.
Cash and short-term investment balances were $34.6 million and $46.0
million, at September 30, 1998 and December 31, 1997, respectively, and have
decreased each period as cash proceeds were reinvested in long term bonds.
The increase in separate account assets from $3,606.7 million at December
31, 1997 to $3,745.0 million at September 30, 1998 is primarily a result of
flexible premium variable annuity, variable universal life, and corporate
sponsored variable universal life production, offset in part by withdrawals
related to the FPVA product.
18
<PAGE> 20
Bonds
The Securities Valuation Office (SVO) of the NAIC evaluates the investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC Designations". The NAIC Designations
closely mirror the nationally recognized securities rating organizations'
definitions for marketable bonds. NAIC Designations 1 and 2 include bonds
considered investment grade (Baa or higher by Moody's or BBB or higher by
Standard and Poors) by such rating organizations. NAIC Designations 3 through 6
are referred to as below investment grade (Ba or lower by Moody's or BB or lower
by Standard and Poors).
The following tables show the Company's bond investments by NAIC
designation at September 30, 1998 and December 31, 1997.
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
TOTAL TOTAL
PUBLICLY PRIVATELY
NAIC RATINGS TRADED % PUBLIC PLACED % PRIVATE TOTAL % TOTAL
- ------------ -------- -------- --------- --------- -------- -------
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class 1.......................... $362.5 62.3% $137.9 29.2% $ 500.4 47.5%
Class 2.......................... 199.2 34.3 290.7 61.6 489.9 46.5
------ ----- ------ ----- -------- -----
Subtotal......................... 561.7 96.6 428.6 90.8 990.3 94.0
Class 3.......................... 19.7 3.4 37.1 7.9 56.8 5.4
Class 4.......................... 0.0 0.0 5.9 1.3 5.9 0.6
Class 5.......................... 0.0 0.0 0.0 0.0 0.0 0.0
Class 6.......................... 0.0 0.0 0.0 0.0 0.0 0.0
------ ----- ------ ----- -------- -----
Totals........................... $581.4 100.0% $471.6 100.0% $1,053.0 100.0%
====== ===== ====== ===== ======== =====
</TABLE>
DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL TOTAL
PUBLICLY PRIVATELY
NAIC RATINGS TRADED % PUBLIC PLACED % PRIVATE TOTAL % TOTAL
- ------------ -------- -------- --------- --------- -------- -------
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class 1.......................... $390.6 63.0% $162.7 35.8% $ 553.3 51.5%
Class 2.......................... 203.3 32.8 238.4 52.4 441.7 41.1
------ ----- ------ ----- -------- -----
Subtotal......................... 593.9 95.8 401.1 88.2 995.0 92.6
Class 3.......................... 21.0 3.4 45.6 10.0 66.6 6.2
Class 4.......................... 5.0 0.8 7.5 1.7 12.5 1.1
Class 5.......................... 0.0 0.0 0.0 0.0 0.0 0.0
Class 6.......................... 0.0 0.0 0.6 0.1 0.6 0.1
------ ----- ------ ----- -------- -----
Totals........................... $619.9 100.0% $454.8 100.0% $1,074.7 100.0%
====== ===== ====== ===== ======== =====
</TABLE>
Total public and private bonds decreased to $1,053.0 million at September
30, 1998 from $1,074.7 million at December 31, 1997. Bonds represented
approximately 81.5% and 80.7% of total general account invested assets at
September 30, 1998, December 31, 1997, respectively. The Company selectively
invests in privately placed bonds to enhance the overall value of the portfolio,
increase diversification and obtain higher yields than are possible with
comparable public market securities. Private placement investments are made
after extensive analysis of the financial condition of the borrower and include
protective covenants to assure future quality of the Company's investments. A
significant portion of bond investments is in high quality publicly traded bonds
in order to maintain and manage liquidity and reduce the risk of default in the
portfolio. The bond portfolio was comprised of 55.2% public bonds and 44.8%
private placements at September 30, 1998 and 57.7% in public bonds and 42.3% in
private placements at December 31, 1997.
19
<PAGE> 21
At September 30, 1998, approximately 94.0% of the bond portfolio is held in
NAIC category 1 and 2 bonds and 100% of its publicly traded bonds were rated in
the top three quality categories. There were $0.0 and $0.6 million of
non-performing bonds (NAIC category 6) held at September 30, 1998 and December
31, 1997, respectively.
The Company held $236.5 million of mortgage and asset-backed securities as
of September 30, 1998, which represents 18.3% of the total invested assets. Of
that amount, $113.1 million (47.8%) are agency-issued pass throughs and
collateralized mortgage obligations (CMO's) secured by GNMA, FNMA and FHLMC, and
$123.4 million (52.2%) were other types of mortgage and asset-backed securities.
The Company actively monitors prepayment risk using quantitative and qualitative
methods. Management believes that its active monitoring of its portfolio of
mortgage-backed securities and the limited extent of its holdings of more
volatile types of mortgage-backed securities mitigate exposure to losses from
prepayment risks associated with rate fluctuations for this portfolio.
Maturities of Bonds
The amortized cost and estimated market value of bonds by final maturity
date (excluding scheduled sinking funds) as of September 30, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
($ MILLIONS)
<S> <C> <C> <C> <C>
Due one year or less.............................. $ 86.2 $ 86.9 $ 23.2 $ 23.3
Due after one year through five years............. 346.2 358.6 411.4 418.1
Due after five years through ten years............ 343.3 364.6 380.4 391.3
Due after ten years............................... 277.3 286.1 259.7 266.7
-------- -------- -------- --------
$1,053.0 $1,096.2 $1,074.7 $1,099.4
======== ======== ======== ========
</TABLE>
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.
Mortgage Loans
As of September 30, 1998, the mortgage loan portfolio is comprised of $29.2
million in commercial loans and $107.7 million in agricultural mortgages. Total
mortgage loans represent 10.6% of the general account invested assets.
The Company has followed a strategy of reducing its commercial mortgage
portfolio through sales to third parties, encouraging prepayments, paydowns, and
repayments. Since 1991, the Company has not actively made any new commercial
loans (other than refinancing existing mortgages and a limited number of
purchase money mortgages on selected sales of real estate).
The Company reduced its commercial mortgage loan portfolio to $29.2 million
as of September 30, 1998, from $35.3 million as of December 31, 1997.
20
<PAGE> 22
The following table provides the disposition of commercial mortgage
maturities during the nine month period ended September 30, 1998 and year ended
December 31, 1997:
DISPOSITION OF SCHEDULED MATURITIES
OF COMMERCIAL MORTGAGE LOANS
($ MILLIONS)
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- ------------
<S> <C> <C>
Repayment...................................... $0.4 $3.6
Extension(1)................................... 1.8 0.0
Borrower Extensions(2)......................... 1.9 0.0
In Process of Negotiation...................... 0.8 0.0
Restructure Below Market....................... 0.0 0.0
---- ----
Total................................ $4.9 $3.6
==== ====
</TABLE>
- ---------------
(1) Includes loans which have had their maturity date extended with all other
terms remaining the same.
(2) Includes loans which have had their maturity date extended with a change in
interest rates.
The agricultural loan balance increased to $107.7 million at September 30,
1998 from $99.5 million at December 31, 1997. The increase from December 31,
1997 to September 30, 1998 is explained by $17.9 million of new loans offset by
prepayments and paydowns of $9.7 million.
A schedule of commercial and agricultural mortgage loan maturities as of
September 30, 1998 and December 31, 1997 is as follows:
MORTGAGE LOAN MATURITY SCHEDULE
($ MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------------------
TOTAL
COMMERCIAL % AGRICULTURAL % MORTGAGES %
---------- ----- ------------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
One year or less................ $ 5.2 17.8 $ 0.0 0.0 $ 5.2 3.8
Over 1 to 3 years............... 13.4 45.9 4.4 4.1 17.8 13.0
Over 3 to 5 years............... 1.0 3.4 10.8 10.0 11.8 8.6
Over 5 to 10 years.............. 7.5 25.7 28.2 26.2 35.7 26.1
Over 10 years................... 2.1 7.2 64.3 59.7 66.4 48.5
----- ----- ------ ----- ------ -----
Total................. $29.2 100.0 $107.7 100.0 $136.9 100.0
===== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------
TOTAL
COMMERCIAL % AGRICULTURAL % MORTGAGES %
---------- ----- ------------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
One year or less................ $ 4.6 13.1 $ 0.0 0.0 $ 4.6 3.4
Over 1 to 3 years............... 13.7 38.6 3.1 3.1 16.8 12.5
Over 3 to 5 years............... 5.4 15.4 12.5 12.6 17.9 13.3
Over 5 to 10 years.............. 9.5 26.9 26.5 26.6 36.0 26.7
Over 10 years................... 2.1 6.0 57.4 57.7 59.5 44.1
----- ----- ------ ----- ------ -----
Total................. $35.3 100.0 $ 99.5 100.0 $134.8 100.0
===== ===== ====== ===== ====== =====
</TABLE>
21
<PAGE> 23
The table below provides the problem mortgage loan balance at September 30,
1998 and December 31, 1997 and includes both commercial and agricultural loans.
PROBLEM COMMERCIAL & AGRICULTURAL MORTGAGE LOANS
($ MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Over 90 days....................................... $ 0.0 $ 0.0
In Process of Foreclosure.......................... 0.6 0.6
Restructured loans in Good Standing................ 14.8 14.1
----- -----
Total.............................................. $15.4 $14.7
===== =====
</TABLE>
Equity Real Estate:
Equity real estate is made up of investment real estate, foreclosed
commercial properties and real estate partnerships (included in other assets of
$7.1 million and $7.0 million at September 30, 1998 and December 31, 1997,
respectively). Real estate investments are 1.3% of general account invested
assets as of September 30, 1998.
Below is a table of the carrying values at September 30, 1998 and December
31, 1997 for these investments:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
($ MILLIONS)
<S> <C> <C>
Real Estate for Investment......................... $ 5.3 $ 7.7
Foreclosed Urban Properties........................ 4.2 14.9
----- -----
Subtotal Real Estate............................. 9.5 22.6
Real Estate Partnerships........................... 7.1 7.0
----- -----
Grand Total Real Estate.......................... $16.6 $29.6
===== =====
</TABLE>
Total real estate decreased from $29.6 million at December 31, 1997 to
$16.6 million at September 30, 1998 primarily due to sales of real estate
properties.
Commitments
At September 30, 1998, the Company had commitments to issue $10.4 million
of fixed rate farm loans with periodic interest rate reset dates. The initial
interest rates on such loans range from approximately 6.75% to 7.50%. There were
no outstanding commercial mortgage or bond commitments as of September 30, 1998.
Liquidity
Net cash used by operations was $34.9 million for the nine months ended
September 30, 1998 versus $31.6 million for the nine months ended September 30,
1997. The increase in uses of $3.3 million for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997, is primarily
due to higher premiums and annuity considerations of $40.4 million and lower
transfers to separate accounts of $66.4 million which was more than offset by
higher policy benefit payments of $90.0 million and higher commission expenses
paid of $20.8 million.
As of September 30, 1998, the Company had highly liquid assets of
approximately $1.0 billion. Highly liquid assets are comprised of public bonds
($561.7 million) and private bonds ($428.6 million) in NAIC credit quality
category ratings of 1 and 2 (investment grade), and cash and short term
investments of $34.6 million.
22
<PAGE> 24
YEAR 2000:
State of Readiness
In 1996, MONY, the parent company, initiated a formal Year 2000 Project
(the "Project") to resolve the Year 2000 issue. The scope of the Project was
identified, and funding was established. In early 1997, MONY retained Command
Systems, Inc., and Keane, Inc. to assist MONY and the Company in bringing
computer and information systems into Year 2000 compliance. MONY's overall goal
for IT-related items is to have business-critical hardware and software
compliant by December 31, 1998, with additional testing and enterprise
end-to-end testing occurring in 1999. MONY has also retained Technology Resource
Solutions to assist in the evaluation of Year 2000 issues affecting the
Company's non-IT systems in facilities and equipment which may contain date
logic in embedded chips. The Company's overall goal is to have all non-IT
systems compliant by mid-1999.
The scope of the Project includes ensuring the compliance of all
applications, operating systems and hardware on mainframe, PC and LAN platforms;
ensuring the compliance of voice and data network software and hardware;
addressing issues related to non-IT systems in buildings, facilities and
equipment which may contain date logic in embedded chips; and addressing the
compliance of key vendors and other third parties.
The phases of the Project are (i) inventorying Year 2000 items and
assigning priorities; (ii) assessing the Year 2000 compliance of items; (iii)
remediating or replacing items that are determined not to be Year 2000
compliant; (iv) testing items for Year 2000 compliance; and (v) designing and
implementing Year 2000 contingency and business continuity plans. To determine
that all IT systems (whether internally developed or purchased) are Year 2000
compliant, each system is tested using a standard testing methodology which
includes unit testing, baseline testing, and future date testing. Future date
testing includes critical dates near the end of 1999 and into the year 2000,
including leap year testing. For business-critical non-IT systems in buildings,
facilities and equipment, approximately 50% had been remediated as of September
30, 1998.
The inventory and assessment phases of the Project were completed prior to
mid 1998. At September 30, 1998, approximately 80% of the Company's application
systems had been remediated, tested and re-implemented into production.
Approximately 85% of the operating systems, systems software, and hardware for
mainframe, PC and LAN platforms were deemed compliant based on information
supplied by vendors verbally, in writing, or on the vendor's Internet site.
Based on information obtained, business critical items are scheduled to be
compliant and tested by December 31, 1998. Ongoing testing for Year 2000
compliance will take place in the fourth quarter of 1998 and during 1999 as
applications, systems software and hardware is upgraded or replaced. For
business-critical non-IT systems in buildings, facilities and equipment,
approximately 50% had been remediated as of September 30, 1998.
As part of the Project, significant service providers, vendors, suppliers,
and other third parties that are believed to be critical to business operations
after January 1, 2000, have been identified and steps are being undertaken in an
attempt to reasonably ascertain their stage of Year 2000 readiness through
questionnaires, interviews, on-site visits, and other available means.
Costs
The estimated total cost to MLOA of the Year 2000 Project is approximately
$1.1 million. The total amount expended on the Project through September 30,
1998 was $0.7 million. These amounts include costs associated with the current
development of contingency plans.
Risks
MLOA believes that completed and planned modifications and conversions of
its internal systems and equipment will allow it to be Year 2000 compliant in a
timely manner. There can be no assurance, however, that the Company's internal
systems or equipment or those third parties on which the Company relies will be
Year 2000 compliant in a timely manner or that the Company's or third parties'
contingency plans will mitigate the effects of any noncompliance. The failure of
the systems or equipment of MLOA, MONY or third parties (which the Company
believes is the most reasonable likely worst case scenario) could affect the
23
<PAGE> 25
distribution and sale of interest sensitive life insurance and asset
accumulation products and could have a material effect on the Company's
statutory surplus and results of operations.
Contingency Plans
MONY and MLOA have retained outside consultants to assist in the
development of Business Continuity Plans, which includes identification of third
party service providers, information systems, equipment, facilities, and other
items which are mission critical to the operation of the business. In
conjunction with this effort, the Company is developing a Year 2000 Contingency
Plan (the "Contingency Plan") to address failures due to the Year 2000 problem
of third parties and other items, which are critical to the ongoing operation of
the business. The Contingency Plan includes the performance of alternate
processing as well as consideration for changing third party service providers,
vendors, and suppliers if necessary. The scheduled date for completion of the
Contingency Plan is mid 1999. MLOA believes that due to the pervasive nature of
potential Year 2000 issues, the contingency planning process is an ongoing one
that will require further modifications as the Company obtains additional
information regarding the status of third party Year 2000 readiness.
24
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
There have been no new material legal proceedings, and no material
developments to ongoing legal matters as discussed in footnote 4 to the Notes to
the Unaudited Interim Condensed Statutory Financial Statements.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter covered by this
report.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MONY LIFE INSURANCE COMPANY OF AMERICA
By: /s/ Richard Daddario Executive Vice President and
------------------------------------- Chief Financial Officer
Richard Daddario
Date: December 29, 1998
-----------------------------------
/s/ Larry Cohen Vice President and Controller
- ------------------------------------------ (Chief Accounting Officer)
Larry Cohen
Date: December 29, 1998
-----------------------------------
26
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONY
LIFE INSURANCE COMPANY OF AMERICA AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<DEBT-HELD-FOR-SALE> 1,074,724,000 1,053,051,000
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 981,000 37,000
<MORTGAGE> 134,828,000 136,930,000
<REAL-ESTATE> 22,627,000 9,437,000
<TOTAL-INVEST> 1,286,053,000 1,257,576,000
<CASH> 45,956,000 34,640,000
<RECOVER-REINSURE> 249,000 3,933,000
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 4,961,369,000 5,063,007,000
<POLICY-LOSSES> 1,241,979,000 1,205,952,000
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 31,528,000 33,576,000
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 2,500,000 2,500,000
<OTHER-SE> 130,651,000 140,252,000
<TOTAL-LIABILITY-AND-EQUITY> 4,961,369,000 5,063,007,000
799,035,000 634,908,000
<INVESTMENT-INCOME> 99,006,000 72,256,000
<INVESTMENT-GAINS> (3,544,000) (462,000)
<OTHER-INCOME> 332,000 248,000
<BENEFITS> 64,502,000 348,240,000
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 105,726,000 93,471,000
<INCOME-PRETAX> 27,109,000 16,455,000
<INCOME-TAX> 17,390,000 9,087,000
<INCOME-CONTINUING> 9,719,000 7,830,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,719,000 7,830,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
