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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, 1999
[ ] 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: 333-65423
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 [X] No [ ]
As of September 30, 1999, there were 492 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 FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART 1 FINANCIAL INFORMATION
ITEM 1: Unaudited interim condensed balance sheets as of September
30, 1999 and December 31, 1998.............................. 3
Unaudited interim condensed statements of income and
comprehensive income for the three-month periods ended
September 30, 1999 and 1998................................. 4
Unaudited interim condensed statements of income and
comprehensive income for the nine-month periods ended
September 30, 1999 and 1998................................. 5
Unaudited interim condensed statement of changes in
shareholder's equity for the nine-month period ended
September 30, 1999.......................................... 6
Unaudited interim condensed statements of cash flows for the
nine-month periods ended September 30, 1999 and 1998........ 7
Notes to unaudited interim condensed financial statements... 8
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Investments................................................. 17
ITEM 3: Quantitative and Qualitative Disclosures About Market
risk........................................................ 26
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings........................................... 26
ITEM 2: Changes in Securities....................................... 26
ITEM 3: Defaults upon Senior Securities............................. 27
ITEM 4: Submission of Matters to a Vote of Security Holders......... 27
ITEM 5: Other Information........................................... 27
ITEM 6: Exhibits and Reports on Form 8-K............................ 27
SIGNATURES............................................................. S-1
</TABLE>
1
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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 career
agency sales force of MONY Life Insurance Company ("MONY Life"), 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 decision and order of the New
York State Appellate Division, First Department, affirming the successful appeal
of the decision and order of the New York Supreme Court grant of summary
judgement in the case of Goshen v. The Mutual Life Insurance Company of New
York; (v) the costs of defending litigation and the risk of unanticipated
material adverse outcomes in such litigation; (vi) the performance of the stock
markets; (vii) the intensity of competition for other financial institutions;
(viii) the Company's mortality, morbidity, persistency and claims experience;
(ix) the Company's ability to develop, distribute and administer competitive
products and services in a timely, cost-effective manner; (x) the Company's
financial and claims paying ratings; (xi) the effect of changes in laws and
regulations affecting the Company's businesses, including changes in tax laws
affecting insurance and annuity products; (xii) market risks related to interest
rates, equity prices, derivatives, foreign currency exchange and credit; (xiii)
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 (xiv) the risks associated with Year 2000 non-compliance
by the 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
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ITEM 1:
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value..................................................... $1,058.4 $1,044.2
Mortgage loans on real estate............................... 167.9 120.1
Policy loans................................................ 56.7 52.1
Real estate held for investment............................. 6.9 8.3
Other invested assets....................................... 2.6 4.7
-------- --------
1,292.5 1,229.4
======== ========
Cash and cash equivalents................................... 48.0 133.4
Accrued investment income................................... 22.1 19.5
Amounts due from reinsurers................................. 18.0 24.4
Deferred policy acquisition costs........................... 374.2 318.6
Other assets................................................ 23.6 15.3
Separate account assets..................................... 4,054.1 4,148.8
-------- --------
Total assets...................................... $5,832.5 $5,889.4
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits...................................... $ 124.4 $ 112.0
Policyholders' account balances............................. 1,166.3 1,187.1
Other policyholders' liabilities............................ 54.8 56.9
Accounts payable and other liabilities...................... 63.9 67.9
Note payable to affiliate (Note 5).......................... 49.5 0.0
Current federal income taxes payable........................ 17.5 13.2
Deferred federal income taxes............................... 10.4 13.7
Separate account liabilities................................ 4,054.1 4,148.8
-------- --------
Total liabilities................................. 5,540.9 5,599.6
Commitments and contingencies (Note 4)
Common stock, $1.00 par value; 5,000,000 shares authorized,
2,500,000 issued and outstanding.......................... 2.5 2.5
Capital in excess of par.................................... 189.7 189.7
Retained earnings........................................... 103.2 89.6
Accumulated other comprehensive (loss) income............... (3.8) 8.0
-------- --------
Total shareholder's equity........................ 291.6 289.8
-------- --------
Total liabilities and shareholder's equity........ $5,832.5 $5,889.4
======== ========
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
3
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MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Universal life and investment-type product policy fees...... $33.7 $29.4
Premiums.................................................... 1.1 0.5
Net investment income....................................... 23.1 23.4
Net realized gains on investments........................... 0.0 1.4
Other income................................................ 1.3 3.0
----- -----
Total revenues.................................... 59.2 57.7
----- -----
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 12.0 6.8
Interest credited to policyholders' account balances........ 15.5 18.5
Amortization of deferred policy acquisition costs........... 12.3 12.0
Other operating costs and expenses.......................... 12.9 17.1
----- -----
Total benefits and expenses....................... 52.7 54.4
----- -----
Income before income taxes.................................. 6.5 3.3
Income tax expense.......................................... 2.3 1.1
----- -----
Net income.................................................. 4.2 2.2
Other comprehensive (loss) income, net...................... (2.3) 3.9
----- -----
Comprehensive income........................................ $ 1.9 $ 6.1
===== =====
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
4
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MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Universal life and investment-type product policy fees...... $105.0 $ 89.2
Premiums.................................................... 3.4 1.0
Net investment income....................................... 71.4 71.2
Net realized gains on investments........................... 1.2 4.9
Other income................................................ 4.4 7.0
------ ------
Total revenues.................................... 185.4 173.3
------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 32.0 23.4
Interest credited to policyholders' account balances........ 48.1 52.0
Amortization of deferred policy acquisition costs........... 32.3 34.5
Other operating costs and expenses.......................... 52.1 53.3
------ ------
Total benefits and expenses....................... 164.5 163.2
------ ------
Income before income taxes.................................. 20.9 10.1
Income tax expense.......................................... 7.3 3.5
------ ------
Net income.................................................. 13.6 6.6
Other comprehensive (loss) income, net...................... (11.8) 4.4
------ ------
Comprehensive income........................................ $ 1.8 $ 11.0
====== ======
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
5
<PAGE> 7
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENT
OF CHANGES IN SHAREHOLDER'S EQUITY
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK OF PAR EARNINGS INCOME EQUITY
------ --------- -------- ------------- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998............... $2.5 $189.7 $ 89.6 $ 8.0 $289.8
Comprehensive income
Net income............................. 13.6 13.6
Other comprehensive (loss) income:
Unrealized gains on investments, net
of unrealized losses,
reclassification adjustments, and
taxes............................. (11.8) (11.8)
------
Comprehensive income..................... 1.8
---- ------ ------ ------ ------
Balance, September 30, 1999.............. $2.5 $189.7 $103.2 $ (3.8) $291.6
==== ====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
6
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MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------- -------
($ IN MILLIONS)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES....................... $ (45.6) $ (35.5)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities.......................................... 209.9 133.1
Mortgage loans on real estate............................. 15.5 16.3
Real estate............................................... 1.2 14.0
Other invested assets..................................... 3.8 1.5
Acquisitions of investments:
Fixed maturities.......................................... (267.8) (109.2)
Mortgage loans on real estate............................. (63.7) (17.9)
Real estate............................................... (0.3) (0.4)
Other invested assets..................................... (0.7) (4.8)
Policy loans, net......................................... (4.6) (0.7)
Other, net................................................ 0.3 0.2
------- -------
Net cash (used in) provided by investing activities......... (106.4) 32.1
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of note payable.................................... 50.5 0.0
Repayments of debt.......................................... (1.0) 0.0
Receipts from annuity and universal life policies credited
to policyholders' account balances........................ 929.3 641.6
Return of policyholders' account balances on annuity and
universal life policies................................... (912.2) (649.5)
------- -------
Net cash provided by (used in) financing activities......... 66.6 (7.9)
------- -------
Net decrease in cash and cash equivalents................... (85.4) (11.3)
Cash and cash equivalents, beginning of year................ 133.4 46.0
------- -------
Cash and cash equivalents, end of year...................... $ 48.0 $ 34.7
======= =======
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
7
<PAGE> 9
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
MONY Life Insurance Company of America (the "Company"), an Arizona stock
life insurance company, is a wholly-owned subsidiary of MONY Life Insurance
Company ("MONY Life"), a stock life insurance company. MONY Life is a
wholly-owned subsidiary of The MONY Group Inc. (the "MONY Group"), a Delaware
Corporation.
The Company's primary business is to provide asset accumulation and life
insurance 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 Life's career agency sales force. These
products are sold in 49 states (not including New York), the District of
Columbia, the U.S. Virgin Islands and Puerto Rico.
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed financial statements are
prepared in conformity with generally accepted accounting principles ("GAAP")
which 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 revenues and expenses during the reporting period. In the opinion of
management, these statements include all adjustments which were normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements should be
read in conjunction with the financial statements of the Company for the year
ended December 31, 1998 in the Company's 1998 Report on Form 10-K. The results
of operations for the three-month and nine-month periods ended September 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
3. FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary, at the
end of each successive interim period to reflect the current estimate of the
annual effective tax rate.
4. COMMITMENTS AND CONTINGENCIES
In late 1995 and thereafter, a number of purported class actions were
commenced in various state and federal courts against MONY Life and the Company
("the Companies") alleging that the Companies engaged in deceptive sales
practices in connection with the sale of whole and/or universal life insurance
policies from the early 1980s to the mid 1990s. 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/or violation of state insurance and/or
deceptive business practice laws). Plaintiffs in these cases (including the
Goshen case discussed below) seek primary equitable relief (e.g. reformation,
specific performance, mandatory injunctive relief prohibiting the Companies from
canceling policies for failure to make required premium payments, imposition of
a constructive trust and/or creation of a claims resolution facility to
adjudicate any individual issues remaining after resolution of all class-wide
issues) as opposed to compensatory damages, although they seek compensatory
damages in unspecified amounts. The Company has answered the complaints in each
action (except for one action 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
8
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MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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 Company
filed a motion to dismiss or, alternatively, for summary judgement on all counts
of the complaint. All of the other putative class actions (with one exception
discussed below) 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 essentially holding all of the federal cases in
abeyance pending the action of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgement and dismissed all claims filed in the Goshen case
against the Company on the merits. On March 18, 1999, the order by the New York
State Supreme Court was affirmed by the New York State Appellate Division, First
Department. On June 8, 1999, plaintiffs obtained leave from the New York State
Court of Appeals to appeal the Appellate Division decision. Briefs will be filed
during the summer and early fall, and oral argument before the Court of Appeals
took place on October 14, 1999. All actions before the United States District
Court for the District of Massachusetts are still pending.
In addition, on or about February 25, 1999, a purported class action was
filed against the Company in Kentucky state court covering policyholders who
purchased individual universal life insurance policies from the Company after
January 1, 1988, claiming breach of contract and violations of the Kentucky
Consumer Protection Act. On March 26, 1999, the Company removed that action to
the United States District Court for the Eastern District of Kentucky, and on
August 11, 1999 obtained an order from the Judicial Panel on Multidistrict
Litigation transferring the action to the Multidistrict Litigation in the
District of Massachusetts.
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.
While the outcome of such matters cannot be predicted with certainty, in
the opinion of management, any additional liability beyond that recorded in the
financial statements at September 30, 1999, resulting from the resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
Insurance companies are subject to assessments up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, such assessments will not have a
material adverse effect on the financial position and the results of operations
of the Company.
At September 30, 1999, the Company had commitments outstanding of $0.9
million for fixed rate agricultural loans with periodic interest rate reset
dates. The initial interest rates on such agricultural loans range from 7.3% to
8.1%. There were no outstanding commitments for private fixed maturity
securities or commercial mortgages as of September 30, 1999.
5. NOTE PAYABLE TO AFFILIATE
On March 5, 1999, the Company borrowed $50.5 million from MONY Benefits
Management Corp. ("MBMC"), an affiliate, in exchange for a note payable in the
same amount. The note bears interest at 6.75% per annum and matures on March 5,
2014. Principal and interest are payable quarterly to MBMC. The carrying value
of the note as of September 30, 1999 is $49.5 million.
6. TERMINATION OF INTERCOMPANY REINSURANCE AGREEMENTS
Effective September 1, 1999, the Company recaptured its reinsurance
agreements with MONY Life for all in force and new business. The Company
simultaneously entered into new reinsurance agreements with third party
reinsurers which reinsured the same block of business as that previously
reinsured by MONY Life. Under the new reinsurance agreements, the Company
increased its retention limits on new business for any one person for individual
products from $0.5 million to $4.0 million and on last survivor products from
$0.5 million to $6.0 million.
9
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses financial condition and results of
operations of the Company for the periods indicated. This discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the Company's unaudited interim condensed financial
statements and the related notes to the unaudited interim condensed financial
statements included elsewhere herein, and with the Management's Discussion and
Analysis of Financial Condition and Results of Operations section included in
the Company's 1998 Report on Form 10-K.
The Company is a stock life insurance company organized in the state of
Arizona and is the corporate successor of VICO Credit Life Insurance Company,
incorporated in Arizona on March 6, 1969. The Company is a wholly-owned
subsidiary of MONY Life Insurance Company, a stock life insurance company
domiciled in the state of New York. MONY Life, formerly The Mutual Life
Insurance Company of New York, is a wholly-owned subsidiary of The MONY Group, a
Delaware Corporation organized to be the parent holding company of MONY Life.
The Company's primary business is to provide asset accumulation and life
insurance products to business owners, growing families, and pre-retirees. The
Company's insurance and financial products are marketed and distributed directly
to individuals primarily through MONY Life's career agency sales force. These
products are sold in 49 states (not including New York), the District of
Columbia, the U.S. Virgin Islands and Puerto Rico.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Universal life and investment-type product policy
fees................................................ $33.7 $29.4 $105.0 $ 89.2
Premiums............................................ 1.1 0.5 3.4 1.0
Net investment income............................... 23.1 23.4 71.4 71.2
Net realized gains on investments................... 0.0 1.4 1.2 4.9
Other income........................................ 1.3 3.0 4.4 7.0
----- ----- ------ ------
Total revenues............................ 59.2 57.7 185.4 173.3
BENEFITS AND EXPENSES:
Benefits to policyholders........................... 12.0 6.8 32.0 23.4
Interest credited to policyholders' account
balances.......................................... 15.5 18.5 48.1 52.0
Amortization of deferred policy acquisition costs... 12.3 12.0 32.3 34.5
Other operating costs and expenses.................. 12.9 17.1 52.1 53.3
----- ----- ------ ------
Total benefits and expenses............... 52.7 54.4 164.5 163.2
Income before income taxes.......................... $ 6.5 $ 3.3 $ 20.9 $ 10.1
===== ===== ====== ======
</TABLE>
10
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For the Three-Month Period Ended September 30, 1999 Compared to the Three-Month
Period Ended
September 30, 1998
Universal life ("UL") and investment-type product fees were $33.7 million
for the three-month period ended September 30, 1999, an increase of $4.3
million, or 14.6%, from $29.4 million reported in the comparable prior year
period. The principal reasons for the change from period to period are as
follows:
Flexible premium variable annuity ("FPVA") product fees were $15.6
million for the three-month period ended September 30, 1999, an increase
of ($1.7) million, from $13.9 million reported in the comparable prior
year period. The increase in FPVA fees is primarily due to higher
surrender charges of $1.5 million.
Variable universal life and corporate sponsored variable universal life
("CSVUL") product fees were $9.5 million for the three-month period
ended September 30, 1999, an increase of $5.2 million, from $4.3 million
reported in the comparable prior year period. The increase in fees is
primarily due to higher charges for the cost of insurance, loading and
surrender charges of $3.3 million, $0.3 million and $0.3 million,
respectively, and lower unearned revenue (amounts assigned to the
policyholders for future services) of $1.8 million.
Offsetting this was a decrease in the fee income for Universal Life of
$0.8 million due primarily to lower surrender fees and lower fee income
for Group Universal Life ("GUL") of $0.7 million primarily due to lower
cost of insurance charges.
Premium revenue was $1.1 million for the three-month period ended September
30, 1999, an increase of $0.6 million, or 120.0%, from $0.5 million reported in
the comparable prior year period. The increase was primarily the result of
renewal premiums from level term business.
Net investment income was $23.1 million for the three-month period ended
September 30, 1999, a decrease of $0.3 million, or 1.3%, from $23.4 million
reported in the comparable prior year period. The decrease is primarily related
to a 41 basis point decrease in portfolio yields, which was partially offset by
an increase in the average balances of invested assets of $61.9 million.
Net realized gains on investments were $0.0 million for the three-month
period ended September 30, 1999, a decrease of $1.4 million, or 100.0%, from
$1.4 million reported in the comparable prior year period. The decrease is due
to changes in sales gains on fixed maturities of $1.1 million, losses on
allowances for mortgage loans of $0.2 million and sales gains on mortgages of
$0.1 million.
Other income was $1.3 million for the three-month period ended September
30, 1999, a decrease of $1.7 million, or 56.7%, as compared to $3.0 million in
the comparable prior year period. The decrease is primarily due to lower
revenues from supplementary contracts and miscellaneous nonrecurring revenues
which were recorded in the comparable prior year period.
Benefits to policyholders were $12.0 million for the three-month period
ended September 30, 1999, an increase of $5.2 million, or 76.5%, from $6.8
million reported in the comparable prior year period. The increase is primarily
due to higher death claims in all products, primarily UL, and lower reinsurance
credits.
Interest credited to policyholders' account balances was $15.5 million for
the three-month period ended September 30, 1999, a decrease of $3.0 million, or
16.2%, from $18.5 million reported in the comparable prior year period. The
decrease was primarily due to: (i) CSVUL funds that were in the general account
in 1998 and were transferred to the separate account in 1999 and (ii) lower
single premium deferred annuity ("SPDA") account balances and modest declines in
crediting rates which reduced interest crediting amounts by approximately $0.8
million. During 1999, SPDA account value decreased $11.6 million to $264.7
million at September 30, 1999 from $276.3 million at June 30, 1999. The decrease
in account value was due to continued withdrawals in 1999.
Amortization of deferred policy acquisition costs ("DAC") was $12.3 million
for the three-month period ended September 30, 1999, an increase of $0.3
million, or 2.5%, from $12.0 million reported in the comparable prior year
period. The increase primarily resulted from an increase of $0.8 million in VUL
from better mortality experience, partially offset by a $0.4 million decrease in
amortization for SPDA.
11
<PAGE> 13
Other operating costs and expenses were $12.9 million for the three-month
period ended September 30, a decrease of $4.2 million, or 24.6%, from $17.1
million reported in the comparable year. The decrease is due to lower
intercompany allocation of expenses from MONY Life, which also had lower
expenses than reported in the comparable year.
For the Nine-Month Period Ended September 30, 1999 Compared to the Nine-Month
Period Ended September 30, 1998
Universal life and investment-type product fees were $105.0 million for the
nine-month period ended September 30, 1999, an increase of $15.8 million, or
17.7%, from $89.2 million reported in the comparable prior year period. The
principal reasons for the change from period to period are as follows:
FPVA product fees were $47.1 million for the nine-month period ended
September 30, 1999, an increase of $5.6 million, from $41.5 million
reported in the comparable prior year period. The increase in FPVA fees
is primarily due to higher surrender charges of $4.4 million.
Variable universal life and corporate sponsored variable universal life
product fees were $27.3 million for the nine-month period ended
September 30, 1999, an increase of $11.4 million, from $15.9 million
reported in the comparable prior year period. The increase in fees is
primarily due to higher charges for the cost of insurance, loading and
surrender charges of $6.7 million, $1.4 million and $1.3 million,
respectively, and lower unearned revenue (amounts assigned to the
policyholders for future services) of $2.4 million.
Premium revenue was $3.4 million for the nine-month period ended September
30, 1999, an increase of $2.4 million from $1.0 million reported in the
comparable prior year period. The increase was primarily the result of an
increase of renewal premiums and new premiums relating to level term business,
which has been trending upward since the Company began offering this product
during the fourth quarter of 1997.
Net investment income was $71.4 million for the nine-month period ended
September 30, 1999, an increase of $0.2 million, or 0.3%, from $71.2 million
reported in the comparable prior year period. The increase is primarily related
to an increase in the average balances of invested assets of $38.1 million
between the periods, which was partially offset by a 19 basis point decrease in
portfolio yields.
Net realized gains on investments were $1.2 million for the nine-month
period ended September 30, 1999, a decrease of $3.7 million, or 75.5%, from $4.9
million reported in the comparable prior year period. The decrease is primarily
due to changes in sales gains on real estate of $1.6 million, lower sales gains
on fixed maturities of $1.5 million, lower mortgage sales gains of $0.4 million
and higher losses on provisions for allowances on mortgage loans of $0.6
million.
Other income was $4.4 million for the nine-month period ended September 30,
1999, a decrease of $2.6 million, or 37.1%, as compared to $7.0 million in the
comparable prior year period. The decrease is primarily due to lower revenues
from supplementary contracts and miscellaneous nonrecurring revenues which were
recorded in the comparable prior year.
Benefits to policyholders were $32.0 million for the nine-month period
ended September 30, 1999, an increase of $8.6 million, or 36.8%, from $23.4
million reported in the comparable prior year period. The increase is primarily
due to higher death claims in all products, primarily UL, offset with higher
reinsurance credits.
Interest credited to policyholders' account balances was $48.1 million for
the nine-month period ended September 30, 1999, a decrease of $3.9 million, or
7.5%, from $52.0 million reported in the comparable prior year period. The
decrease was primarily due to lower SPDA account balances and modest declines in
crediting rates which reduced interest crediting amounts by approximately $3.4
million. During 1999, SPDA account value decreased $39.0 million to $264.7
million at September 30, 1999 from $303.7 million at December 31, 1998 as a
result of continued withdrawals in 1999.
Amortization of deferred policy acquisition costs ("DAC") was $32.3 million
for the nine-month period ended September 30, 1999, a decrease of $2.2 million,
or 6.4%, from $34.5 million reported in the comparable prior year period. The
decrease primarily consisted of a decrease in the FPVA amortization due to the
effect of the exchange program offered by the Company wherein contractholders
surrendered old FPVA contracts and reinvested the proceeds therefrom in a now
enhanced FPVA product offered by the Company.
12
<PAGE> 14
Other operating costs and expenses were $52.1 million for the nine-month
period ended September 30, 1999, a decrease of $1.2 million, or 2.3%, from $53.3
million reported in the comparable prior year period. The decrease is due to
lower intercompany allocation of expenses from MONY Life, which also had lower
expenses than reported in the comparable year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash inflows are provided mainly from annuity considerations
and deposit funds, investment income and maturities and sales of invested assets
and term life insurance premiums. Cash outflows primarily relate to the
liabilities associated with its various annuity and life insurance products,
operating expenses, income taxes, acquisitions of invested assets, and principal
and interest on its outstanding debt obligations. The annuity and life insurance
liabilities relate to the Company's obligation to make benefit payments under
its annuity and insurance contracts, as well as the need to make payments in
connection with policy surrenders, withdrawals and loans. The Company develops
an annual cash flow projection which shows expected asset and liability cash
flows on a monthly basis. At the end of each quarter actual cash flows are
compared to projections, projections for the balance of the year are adjusted in
light of the actual results, if appropriate, and investment strategies are also
changed, if appropriate. The quarterly cash flow reports contain relevant
information on all of the following: new product sales and deposits versus
projections, existing liability cash flow versus projections and asset portfolio
cash flow versus projections. An interest rate projection is a part of the
initial annual cash flow projections for both assets and liabilities. Actual
changes in interest rates during the year and, to a lesser extent, changes in
rate expectations will impact the changes in projected asset and liability cash
flows during the course of the year. When the Company is formulating its cash
flow projections it considers, among other things, its expectations about sales
of the Company's products, its expectations concerning customer behavior in
light of current and expected economic conditions, its expectations concerning
competitors and the general outlook for the economy and interest rates.
The events most likely to cause an adjustment in the Company's investment
policies are: (i) a significant change in its product mix, (ii) a significant
change in the outlook for either the economy in general or for interest rates in
particular and (iii) a significant reevaluation of the prospective risks and
returns of various asset classes.
The following table sets forth the withdrawal characteristics and the
surrender and withdrawal experience of the Company's total annuity reserves and
deposit liabilities at September 30, 1999 and December 31, 1998.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
SEPTEMBER 30, PERCENT DECEMBER 31, PERCENT
1999 OF TOTAL 1998 OF TOTAL
------------- -------- ------------ --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal
provisions...................................... $ 61.3 1.4% $ 67.9 1.5%
Subject to discretionary withdrawal -- with market
value adjustment or at carrying value less
surrender charges............................... 3,769.5 88.0 3,938.6 87.8
-------- ----- -------- -----
Subtotal.......................................... 3,830.8 89.4 4,006.5 89.3
Subject to discretionary withdrawal -- without
adjustment at carrying value.................... 453.2 10.6 479.9 10.7
-------- ----- -------- -----
Total annuity reserves and deposit liabilities
(gross and net of reinsurance).................. $4,284.0 100.0% $4,486.4 100.0%
======== ===== ======== =====
</TABLE>
13
<PAGE> 15
The following table sets forth by product line the actual amounts paid in
connection with surrenders and withdrawals for the periods indicated.
SURRENDERS AND WITHDRAWALS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
--------- ------ -------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PRODUCT LINE:
Variable and universal life..................... $ 8.3 $ 7.0 $ 27.7 $ 21.1
Annuities(1).................................... 165.6 89.3 498.4 293.0
------ ----- ------ ------
TOTAL................................. $173.9 $96.3 $526.1 $314.1
====== ===== ====== ======
</TABLE>
- ---------------
(1) Excludes $188.4 million and $441.0 million for the three-month and
nine-month periods ended September 30, 1999, respectively relating to
surrenders associated with an exchange program offered by the Company
wherein contractholders surrendered old FPVA contracts and reinvested the
proceeds therefrom in a new enhanced FPVA product offered by the Company.
Annuity surrenders have increased for the three-month and nine-month
periods ended September 30, 1999 as compared to the comparable prior year
periods primarily due to the aging of the block of business and consequent
decrease in surrender charge rates and due to an increase in replacement
activity. In July 1999, the Company has responded to this trend by enhancing its
variable annuity products by offering new investment fund choices.
During the nine-month period ended September 30, 1999, the Company reported
cash used in operations of $45.6 million, as compared to cash used in operations
of $35.5 million during the nine-month period ended September 30, 1998, an
increase of $10.1 million between the periods due primarily to higher general
expenses and death benefits. In 1999, net cash flow provided by financing
activities was $66.7 million, an increase of $74.6 million as compared to the
prior year. This increase is primarily due to the issuance of a note payable to
MBMC in the amount of $50.5 million (see Note 5 in Unaudited Interim Condensed
Financial Statements) and an increase in general account deposits from
policyholders. The Company's liquid assets include U.S. Treasury holdings,
short-term money market investments and marketable long-term fixed maturity
securities. Management believes that the Company's sources of liquidity are
adequate to meet its anticipated needs. As of September 30, 1999, the Company
had readily marketable fixed maturity securities with a carrying value of
$1,058.4 million, which were comprised of $560.9 million public and $497.5
million private fixed maturity securities. At that date, approximately 94.4% of
the Company's fixed maturity securities were designated in NAIC rating
categories 1 and 2 (considered investment grade, with a rating of "Baa" or
higher by Moody's or "BBB" or higher by S&P). In addition, at September 30,
1999, the Company had cash and cash equivalents of $48.0 million.
At September 30, 1999, the Company had commitments outstanding of $0.9
million for fixed rate agricultural loans with periodic interest rate reset
dates. The initial interest rates on such agricultural loans range from 7.3% to
8.1%. There were no outstanding commitments for private fixed maturity
securities or commercial mortgages as of September 30, 1999.
Of the $56.6 million commercial mortgage loans in the Company's investment
portfolio at September 30, 1999, $2.1 million, $3.7 million, $4.6 million, and
$8.6 million are scheduled to mature in 1999, 2000, 2001, and 2002,
respectively.
At September 30, 1999, aggregate maturities of long-term debt based on
required remaining principal payments for 1999 and the succeeding four years are
$0.5 million, $2.1 million, $2.3 million, $2.4 million and $2.6 million,
respectively, and $39.6 million thereafter.
14
<PAGE> 16
Aggregate contractual debt service payments on the Company's debt at
September 30, 1999, for the remainder of 1999 and the succeeding four years are
$1.3 million, $5.4 million, $5.4 million, $5.4 million and $5.4 million,
respectively and $55.1 million thereafter.
The National Association of Insurance Commissioners ("NAIC") established
Risk Based Capital ("RBC") requirements to help state regulators monitor and
safeguard life insurers' financial strength by identifying those companies that
may be inadequately capitalized. The RBC guidelines provide a method to measure
the adjusted capital (statutory-basis capital and surplus plus the Asset
Valuation Reserve ("AVR") and other adjustments) that a life insurance company
should have for regulatory purposes, taking into consideration the risk
characteristics of such company's investments and products. A life insurance
company's RBC ratio will vary over time depending upon many factors, including
its earnings, the nature, mix and credit quality of its investment portfolio and
the nature and volume of the products that is sells.
While the RBC guidelines are intended to be a regulatory tool only, and are
not intended as a means to rank insurers generally, comparisons of RBC ratios of
life insurers have become generally available. The Company's adjusted RBC
capital ratio at September 30, 1999 and December 31, 1998, was in excess of the
minimum required RBC.
YEAR 2000
State of Readiness
The Company has a service agreement with MONY Life whereby MONY Life
provides services and equipment including computer and information systems to
the Company to conduct its business.
In 1996, the Company in conjunction with MONY Life and affiliates
(hereafter collectively referred to as "MONY Life and its subsidiaries")
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 Life and its subsidiaries retained Command Systems, Inc., and
Keane, Inc. to assist in bringing its computer and information systems into Year
2000 compliance. MONY Life and its subsidiaries overall goal for information
technology ("IT") related items was 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 Life and its subsidiaries' have also
retained a consulting firm to assist in the evaluation of Year 2000 issues
affecting MONY Life and its subsidiaries' facilities, equipment and related
systems which may contain date logic in embedded chips. Essentially all of these
items have been remedied as of September 30, 1999, and ongoing testing for year
2000 compliance will continue through 1999.
The scope of the Project includes: ensuring the compliance of all
applications, operating systems and hardware on mainframe, PC and local area
network ("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.
The inventory and assessment phases of the Project were completed prior to
mid 1998. At September 30, 1999, all of the Company's existing application
systems had been remediated, current date tested and future date tested. Newly
acquired applications and new releases of software packages are being tested in
1999 as they are implemented.
15
<PAGE> 17
In late 1998 and early 1999, MONY Life and its subsidiaries contracted with
a consulting firm to perform an Independent Validation and Verification ("IV&V")
of the Year 2000 remediation of selected critical applications. The results of
the IV&V indicated that the Company's remediation and testing processes were
highly effective and had achieved a high level of compliance.
Approximately 99% of the operating systems, systems software, and hardware
for mainframe, PC and LAN platforms are deemed compliant based on information
supplied by vendors verbally, in writing, or on the vendor's Internet site.
Essentially all critical hardware and software were compliant and tested by
December 31, 1998. The few remaining items will be resolved and tested prior to
October 31, 1999. Ongoing testing for Year 2000 compliance is continuing in 1999
as applications, systems software and hardware are upgraded or replaced.
Approximately 90% of critical non-IT systems had been remediated as of September
30, 1999, and ongoing testing for year 2000 compliance will continue through
1999.
As part of the Project, we identified and contacted significant service and
information providers, external vendors, suppliers, and other third parties
(including telecommunication, electrical, security, and HVAC systems), that we
believe will be critical to business operations after January 1, 2000.
Procedures are being undertaken to ascertain with reasonable certainty their
current and reasonably anticipated states of Year 2000 readiness through
questionnaires, compliance letters, interviews, on-site visits, and other
available means.
Costs
The estimated total cost of the Year 2000 Project is approximately $2.4
million. The total amount expended on the Project through September 30, 1999 was
$2.2 million. The future cost of completing the Year 2000 Project is estimated
to be approximately $0.2 million, which is being funded through operating cash
flows. These amounts also include costs associated with the development of
contingency plans.
Risks
The Company 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 will be entirely error-free, or those
external parties on which the Company relies will be Year 2000 compliant in a
timely manner, or that the Company's or external parties' contingency plans will
mitigate sufficiently the effects of any noncompliance. Based upon currently
available information and considering the Company's Year 2000 Project status,
management believes that the most reasonably likely worst case scenario would be
short-term interruptions to Company business operations. However, Year 2000
related failures in the Company's systems or equipment and/or failure of
external parties to achieve Year 2000 compliance could have a material adverse
effect on the Company's financial position and results of its operations.
Contingency Plans
The Company has retained outside consultants to assist in the development
of a Business Continuity Plan ("BCP"), which include 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 Y2K related failures of third parties,
among other factors that are critical to the ongoing operation of the business.
The Contingency Plan provides alternate means of processing critical work and
services, as well as a methodology for selection and retention of alternate
service providers, vendors, and suppliers if necessary. At September 30, 1999,
development of BCP has been completed. Additional testing, maintenance and
refinement of BCP will continue through 1999. The scheduled date for completion
of the Contingency Plan is September 30, 1999, with ongoing evaluation and
refinements through 1999. The Company believes that due to the pervasive and
evolving 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.
16
<PAGE> 18
INVESTMENTS
The yield on general account invested assets (including net realized gains
and losses on investments) was 6.8% and 7.6% for the three-month periods ended
September 30, 1999 and 1998, respectively. The yield on general account invested
assets (including net realized gains and losses on investments) was 7.2% and
7.8% for the nine-month periods ended September 30, 1999 and 1998, respectively.
The following table illustrates the yields on average assets for each of
the components of the Company's investment portfolio for the three-month and
nine-month periods ended September 30, 1999 and 1998, respectively.
INVESTMENT RESULTS BY ASSET CATEGORY
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTH PERIOD THREE-MONTH PERIOD NINE-MONTH PERIOD NINE-MONTH PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- ------------------- ------------------- -------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- -------- -------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES:
Investment income...... 7.2% $ 19.6 7.3% $ 19.6 7.4% $ 57.6 7.4% $ 58.8
Net realized gains
(losses)............. 0.1 0.3 0.5 1.4 0.1 1.1 0.3 2.3
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 7.3% $ 19.9 7.8% $ 21.0 7.5% $ 58.7 7.7% $ 61.1
Ending assets.......... $1,073.3 $1,052.5 $1,073.3 $1,052.5
MORTGAGE LOANS:
Investment income...... 8.2% $ 3.3 8.3% $ 2.8 8.0% $ 8.6% 8.3% $ 8.3
Net realized gains
(losses)............. (0.3) (0.1) 0.0 0.0 (0.4) (0.4) 0.6 0.6
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 7.9% $ 3.2 8.3% $ 2.8 7.6% $ 8.2 8.9% $ 8.9
Ending assets.......... $ 167.9 $ 134.7 $ 167.9 $ 134.7
REAL ESTATE:(3)
Investment income...... 5.3% $ 0.1 (8.2)% $ (0.2) 7.0% $ 0.4 2.5% $ 0.3
Net realized gains
(losses)............. 0.0 0.0 0.0 0.0 (3.5) (0.2) 11.9 1.4
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 5.3% $ 0.1 (8.2)% $ (0.2) 3.5% $ 0.2 14.4% $ 1.7
Ending assets.......... $ 6.9 $ 9.5 $ 6.9 $ 9.5
POLICY LOANS:
Investment income...... 5.8% $ 0.8 7.3% $ 0.9 7.1% $ 2.9 7.2% $ 2.6
Net realized gains
(losses)............. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 5.8% $ 0.8 7.3% $ 0.9 7.1% $ 2.9 7.2% $ 2.6
Ending assets.......... $ 56.7 $ 50.5 $ 56.7 $ 50.5
CASH & CASH
EQUIVALENTS:
Investment income...... 4.2% $ 0.5 5.3% $ 0.4 4.3% $ 2.9 6.6% $ 2.0
Net realized gains
(losses)............. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 4.2% $ 0.5 5.3% $ 0.4 4.3% $ 2.9 6.6% $ 2.0
Ending assets.......... $ 48.0 $ 34.7 $ 48.0 $ 34.7
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTH PERIOD THREE-MONTH PERIOD NINE-MONTH PERIOD NINE-MONTH PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- ------------------- ------------------- -------------------
YIELD(2) AMOUNT YIELD(2) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- -------- -------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INVESTED ASSETS:
Investment income(4)... 30.2% $ 0.2 9.0% $ 0.1 14.4% $ 0.4 5.5% $ 0.2
Net realized gains
(losses)............. (30.2) (0.2) 0.0 0.0 25.2 0.7 16.7 0.6
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 0.0% $ 0.0 9.0% $ 0.1 39.6% $ 1.1 22.2% $ 0.8
Ending assets.......... $ 2.7 $ 4.5 $ 2.7 $ 4.5
TOTAL BEFORE INVESTMENT
EXPENSES:
Investment income(5)... 7.2% $ 24.5 7.3% $ 23.6 7.2% $ 72.8 7.4% $ 72.2
Net realized gains
(losses)............. 0.0 0.0 0.4 1.4 0.1 1.2 0.5 4.9
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 7.2% $ 24.5 7.7% $ 25.0 7.3% $ 74.0 7.9% $ 77.1
Ending assets.......... $1,355.5 $1,286.4 $1,355.5 $1,286.4
Investment expenses,
net of fee
income(6)............ (0.4)% $ (1.4) (0.1)% $ (0.2) (0.1)% $ (1.4) (0.1)% $ (1.0)
TOTAL AFTER INVESTMENT
EXPENSES:
Investment income(6)... 6.8% $ 23.1 7.2% $ 23.4 7.1% $ 71.4 7.3% $ 71.2
Net realized gains
(losses)............. 0.0 0.0 0.4 1.4 0.1 1.2 0.5 4.9
----- -------- ---- -------- ---- -------- ---- --------
Total.................. 6.8% $ 23.1 7.6% $ 24.8 7.2% $ 72.6 7.8% $ 76.1
Ending assets.......... $1,355.5 $1,286.4 $1,355.5 $1,286.4
Net unrealized gains
(losses) on fixed
maturities........... (14.9) 43.7 (14.9) 43.7
-------- -------- -------- --------
Total invested
assets............... $1,340.6 $1,330.1 $1,340.6 $1,330.1
======== ======== ======== ========
</TABLE>
- ---------------
(1) Yields are based on year-to-date average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(2) Yields are based on quarterly average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(3) Equity real estate income is shown net of operating expenses and
depreciation.
(4) Excludes amounts referred to in (6) below.
(5) Total investment income includes non-cash income from amortization and
payment-in-kind distributions of $0.4 million and $0.2 million for the
three-months ended September 30, 1999 and 1998, respectively. In addition,
real estate investment income is shown net of depreciation of $0.1 million
and $0.5 million for the aforementioned periods, respectively. Total
investment income includes non-cash income from amortization and
payment-in-kind distributions of $2.2 million and $1.3 million for the
nine-months ended September 30, 1999 and 1998, respectively. In addition,
real estate investment income is shown net of depreciation of $0.3 million
and $0.5 million for the aforementioned periods, respectively.
(6) Includes other miscellaneous fee income of approximately $0.7 million and
$0.6 million for the three-months ended September 30, 1999 and 1998,
respectively. Includes other miscellaneous fee income of approximately $2.1
million and $1.5 million for the nine-months ended September 30, 1999 and
1998, respectively.
18
<PAGE> 20
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities and privately
placed debt securities, and represented 78.9% and 76.6% of total invested assets
at September 30, 1999 and December 31, 1998, respectively.
The Securities Valuation Office of the NAIC evaluates the bond 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' credit
ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered
investment grade ("Baa" or higher by Moody's, or "BBB" or higher by S&P) 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 S&P).
Of the Company's total portfolio of fixed maturity securities at September
30, 1999, 94.4% were investment grade and 5.6% were below investment grade
(48.4%, 46.0%, 4.7%, 0.6%, 0.3% and 0.0% were NAIC Designations of 1, 2, 3, 4, 5
and 6, respectively).
The Company reviews all fixed maturity securities at least once each
quarter and identifies investments that management concludes require additional
monitoring. Among the criteria are: (i) violation of financial covenants, (ii)
public securities trading at a substantial discount as a result of specific
credit concerns and (iii) other subjective factors relating to the issuer.
The Company defines problem securities in the fixed maturity category as
securities (i) as to which principal and/or interest payments are in default or
are to be restructured pursuant to commenced negotiations or (ii) are issued by
a company that went into bankruptcy subsequent to the acquisition of such
securities or (iii) are deemed to have other than temporary impairments to
value.
The Company defines potential problem securities in the fixed maturity
category as securities that are deemed to be experiencing significant operating
problems or difficult industry conditions. Typically these credits are
experiencing or anticipating liquidity constraints, having difficulty meeting
projections/budgets and would most likely be considered a below investment grade
risk.
The Company defines restructured securities in the fixed maturity category
as securities where a concession has been granted to the borrower related to the
borrower's financial difficulties that the Company would not have otherwise
considered. The Company restructures certain securities in instances where a
determination was made that greater economic value will be realized under the
new terms than through liquidation or other disposition. The terms of the
restructure generally involve some or all of the following characteristics: a
reduction in the interest rate, an extension of the maturity date and a partial
forgiveness of principal and/or interest.
19
<PAGE> 21
The following table sets forth the total carrying values of the Company's
fixed maturity portfolio, as well as its problem, potential problem and
restructured fixed maturities as of the dates indicated:
PROBLEM, POTENTIAL PROBLEM AND
RESTRUCTURED FIXED MATURITIES AT FAIR VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31
1999 1998
------------- -----------
($ IN MILLIONS)
<S> <C> <C>
Total fixed maturities (public and private)................ $1,058.4 $1,044.2
======== ========
Problem fixed maturities................................... 4.8 4.4
Potential problem fixed maturities......................... 11.5 16.4
Restructured fixed maturities.............................. 2.5 2.7
-------- --------
Total problem, potential problem & restructured fixed
maturities............................................... $ 18.8 $ 23.5
======== ========
Total problem, potential problem & restructured fixed
maturities as a percent of total fixed maturities........ 1.8% 2.3%
======== ========
</TABLE>
At September 30, 1999, the Company's largest unaffiliated single
concentration of fixed maturities was $65.5 million of Federal Home Loan
Mortgage Corporation ("FHLMC") which represents 4.9% of total invested assets.
No other individual non-government issuer represents more than 1.5% of invested
assets.
The Company held approximately $215.9 million and $232.8 million of
mortgage-backed and asset-backed securities as of September 30, 1999 and
December 31, 1998, respectively. Of such amounts, $86.9 million and $108.3
million, or 40.2% and 46.5%, respectively, represented agency-issued
pass-through and collateralized mortgage obligations ("CMOs") secured by Federal
National Mortgage Association, FHLMC and Government National Mortgage
Association. The balance of such amounts was comprised of other types of
mortgage-backed and asset-backed securities. The Company believes that its
active monitoring of its portfolio of mortgage-backed securities and the limited
extent of its holdings of more volatile types of mortgage-backed securities
mitigate the Company's exposure to losses from prepayment risk associated with
interest rate fluctuations for this portfolio. At September 30, 1999 and
December 31, 1998, 87.1% and 91.2%, respectively, of the Company's
mortgage-backed and asset-backed securities were assigned a NAIC Designation of
1. In addition, the Company believes that it holds a relatively low percentage
of CMOs compared to other life insurance companies.
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
CMOs....................................................... $122.9 $147.7
Pass-through securities.................................... 0.1 0.1
Commercial MBSs............................................ 4.6 5.4
Asset-backed securities.................................... 88.3 79.6
------ ------
Total MBSs and asset-backed securities........... $215.9 $232.8
====== ======
</TABLE>
20
<PAGE> 22
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of
September 30, 1999 and December 31, 1998 is as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 68.0 $ 68.4 $ 90.0 $ 90.4
Due after one year through five years.... 284.6 286.1 306.8 315.5
Due after five years through ten years... 364.2 354.6 284.7 299.2
Due after ten years...................... 139.4 133.4 105.2 106.3
-------- -------- -------- --------
Subtotal....................... 856.2 842.5 786.7 811.4
Mortgage-backed and other asset-backed
securities............................. 217.1 215.9 227.5 232.8
-------- -------- -------- --------
Total.......................... $1,073.3 $1,058.4 $1,014.2 $1,044.2
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Mortgage loans comprised 12.5% and 8.8% of total invested assets as of
September 30, 1999 and December 31, 1998, respectively. Mortgage loans consist
of commercial and agricultural loans. As of September 30, 1999 and December 31,
1998, commercial mortgage loans comprised $56.6 million and $27.6 million or
33.7% and 23.0% of total mortgage loan investments, respectively. Agricultural
loans comprised $111.3 and $92.5 million, or 66.3% and 77.0% of total mortgage
loan investments at September 30, 1999 and December 31, 1998, respectively.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $28.9 million and represented 2.2% of
general account invested assets as of September 30, 1999. No other mortgage loan
represents more than 0.5% of invested assets. Total mortgage loans to the 5
largest borrowers accounted in the aggregate for 77.2% of the total carrying
value of the commercial loan portfolio and less than 3.3% of total invested
assets at September 30, 1999.
The following table presents the Company's commercial mortgage loan
maturity profile for the periods indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1999 1998
------------------- ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------ -------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1 year or less........................................... $ 5.8 10.2% $ 9.2 33.3%
Over 1 year but less than or equal to 2.................. 4.6 8.1 3.8 13.8
Over 2 years but less than or equal to 3................. 0.0 0.0 5.6 20.3
Over 3 years but less than or equal to 4................. 8.7 15.4 0.0 0.0
Over 4 years but less than or equal to 5................. 28.5 50.4 0.0 0.0
Over 5 years but less than or equal to 6................. 2.4 4.2 0.0 0.0
Over 6 years but less than or equal to 7................. 3.2 5.7 2.4 8.7
Over 7 years but less than or equal to 8................. 1.4 2.5 3.2 11.6
Over 8 years but less than or equal to 9................. 0.0 0.0 1.4 5.1
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1999 1998
------------------- ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------ -------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Over 9 years but less than or equal to 10................ 0.0 0.0 0.0 0.0
Over 10 years............................................ 2.0 3.5 2.0 7.2
----- ----- ----- ------
Total.......................................... $56.6 100.0% $27.6 100.0%
===== ===== ===== ======
</TABLE>
Problem, Potential Problem and Restructured Commercial Mortgages
Commercial mortgage loans are stated at their unpaid principal balances,
net of valuation allowances and writedowns for impairment. The Company provides
valuation allowances for commercial mortgage loans considered to be impaired.
Mortgage loans are considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When the Company
determines that a loan is impaired, a valuation allowance for loss is
established for the excess of the carrying value of the mortgage loan over its
estimated fair value. Estimated fair value is based on either the present value
of expected future cash flows discounted at the loan's original effective
interest rate, the loan's observable market price or the fair value of the
collateral. The provision for loss is reported as a realized loss on investment.
The Company reviews its mortgage loan portfolio and analyzes the need for a
valuation allowance for any loan which is delinquent for 60 days or more, in
process of foreclosure, restructured, on "watchlist", or which currently has a
valuation allowance. Loans which are delinquent and loans in process of
foreclosure are categorized by the Company as "problem" loans. Loans with
valuation allowances, but which are not currently delinquent, and loans which
are on watchlist are categorized by the Company as "potential problem" loans.
Loans for which the original terms of the mortgages have been modified or for
which interest or principal payments have been deferred are categorized by the
Company as "restructured" loans.
The following table presents the carrying amounts of problem, potential
problem and restructured commercial mortgage loans relative to the carrying
value of all commercial mortgage loans as of the dates indicated. The table also
presents the valuation allowances and writedowns recorded by the Company
relative to commercial mortgages defined as problem, potential problem and
restructured as of each of the dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED COMMERCIAL MORTGAGES AT CARRYING
VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30 DECEMBER 30,
1999 1998
------------ ------------
($ IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $56.6 $27.6
===== =====
Problem commercial mortgages................................ $ 0.0 $ 0.0
Potential problem commercial mortgages...................... 0.0 0.0
Restructured commercial mortgages(1)........................ 12.5 13.5
----- -----
Total problem, potential problem & restructured commercial
mortgages................................................. $12.5 $13.5
===== =====
Total valuation allowances/writedowns as a percent of
problem, potential problem and restructured commercial
mortgages at carrying value before valuation allowances
and writedowns............................................ 3.8% 3.6%
===== =====
</TABLE>
- ---------------
(1) As of September 30, 1999 and December 31, 1998, there were $0.5 million of
valuation allowances/writedowns relating to restructured commercial
mortgages.
In addition to valuation allowances and impairment writedowns recorded on
specific commercial mortgage loans classified as problem, potential problem, and
restructured mortgage loans, the Company
22
<PAGE> 24
records a non-specific estimate of expected losses on all other such mortgage
loans based on its historical loss experience for such investments. As of
September 30, 1999 and December 31, 1998, such reserves were $0.7 million, and
$0.4 million, respectively.
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of each of the dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED AGRICULTURAL MORTGAGES AT CARRYING
VALUE
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER
1999 1998
------------- --------
($ IN MILLIONS)
<S> <C> <C>
Total agricultural mortgages................................ $111.3 $92.5
====== =====
Problem agricultural mortgages(1)........................... $ 0.9 $ 0.0
Potential problem agricultural mortgages.................... 0.0 0.4
Restructured agricultural mortgages......................... 1.0 0.8
------ -----
Total problem, potential problem and restructured
agricultural mortgages(2)................................. $ 1.9 $ 1.2
====== =====
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 1.7% 1.3%
====== =====
</TABLE>
- ---------------
(1) Problem agricultural mortgages included delinquent mortgage loans of $0.8
million and $0.0 million at September 30, 1999 and December 31, 1998,
respectively, and mortgage loans in the process of foreclosure of $0.1
million and $0.0 million, at such dates, respectively.
(2) As of September 30, 1999 and December 31, 1998, there were no valuation
allowances/writedowns relating to problem, potential problem and
restructured agricultural mortgages.
In addition to valuation allowances and impairments writedowns recorded on
specific agricultural mortgage loans classified as problem, potential problem,
and restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other agricultural mortgage loans based on its historical
loss experience for such investments. As of September 30, 1999 and December 31,
1998, such reserves were $1.1 million and $0.9 million, respectively.
EQUITY REAL ESTATE
The Company holds real estate as part of its general account investment
portfolio. The Company has adopted a policy of not investing new funds in equity
real estate except to safeguard values in existing investments or to honor
outstanding commitments. As of September 30, 1999 and December 31, 1998, the
carrying value of the Company's real estate investments was $6.9 million and
$8.3 million, respectively, or 0.5% and 0.6%, respectively, of general account
invested assets. The Company owns investment real estate, real estate acquired
upon foreclosure and minority owned joint ventures.
Equity real estate is categorized as either "Real estate held for
investment" or "Real estate to be disposed of". Real estate to be disposed of
consists of properties for which the Company has commenced marketing efforts.
The carrying value of real estate held for investment totaled $6.9 million and
$8.3 million as of September 30, 1999 and December 31, 1998, respectively. The
carrying value of real estate to be disposed of was $0.0 million as of September
30, 1999 and December 31, 1998, respectively.
23
<PAGE> 25
The Company closely monitors property net operating income on a cash basis,
along with occupancy levels of the Company's commercial real estate properties
owned for more than one year, which comprise a significant portion (89% at
September 30, 1999) of the Company's equity real estate portfolio.
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $0.5 $0.5
Real estate(1).............................................. 1.4 1.9
---- ----
Total............................................. $1.9 $2.4
==== ====
</TABLE>
- ---------------
(1) Includes $1.2 million and $1.6 million as of September 30, 1999 and December
31, 1998, respectively, relating to impairments taken upon foreclosure of
mortgage loans.
CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Mortgages.................................................. $2.3 $1.9
Real estate................................................ 0.0 0.0
---- ----
Total............................................ $2.3 $1.9
==== ====
</TABLE>
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities........................................... $0.5 $0.5
Mortgages.................................................. 2.3 1.9
Real estate................................................ 1.4 1.9
---- ----
Total............................................ $4.2 $4.3
==== ====
</TABLE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's 1998 Annual Report on Form 10-K for a description of
the Company's exposures to market risk, as well as the Company's objectives,
policies and strategies relating to the management of such risks. The relative
sensitivity to changes in fair value from interest rates and equity prices
relating to fixed maturity securities and mortgage loans at September 30, 1999
is not materially different from that presented in the Company's 1998 Annual
Report on Form 10-K at December 31, 1998.
24
<PAGE> 26
INTEREST RATE RISK
In addition to its interest rate risk relating to fixed maturity securities
and mortgage loans, the Company has interest rate exposure relating to the note
payable to an affiliate which has a fixed interest rate (see Note 5 to the
Unaudited Interim Condensed Financial Statements). At September 30, 1999, the
fair value of the note payable was $48.2 million. The table below shows the
potential fair value exposure to an immediate 100 basis point decrease in
interest rates at September 30, 1999.
NOTE PAYABLE -- FAIR VALUE
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, -100 BASIS
1999 POINT CHANGE
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
Note payable............................... $48.2 3.0
</TABLE>
25
<PAGE> 27
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In late 1995 and thereafter, a number of purported class actions were
commenced in various state and federal courts against MONY Life and the Company
("the Companies") alleging that the Companies engaged in deceptive sales
practices in connection with the sale of whole and/or universal life insurance
policies from the early 1980s to the mid 1990s. 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/or violation of state insurance and/or
deceptive business practice laws). Plaintiffs in these cases (including the
Goshen case discussed below) seek primary equitable relief (e.g. reformation,
specific performance, mandatory injunctive relief prohibiting the Companies from
canceling policies for failure to make required premium payments, imposition of
a constructive trust and/or creation of a claims resolution facility to
adjudicate any individual issues remaining after resolution of all class-wide
issues) as opposed to compensatory damages, although they seek compensatory
damages in unspecified amounts. The Company has answered the complaints in each
action (except for one action 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 Company filed a motion to dismiss or, alternatively, for summary
judgement on all counts of the complaint. All of the other putative class
actions (with one exception discussed below) 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 essentially holding all of the federal cases in abeyance pending the
action of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgement and dismissed all claims filed in the Goshen case
against the Company on the merits. On March 18, 1999, the order by the New York
State Supreme Court was affirmed by the New York State Appellate Division, First
Department. On June 8, 1999, plaintiffs obtained leave from the New York State
Court of Appeals to appeal the Appellate Division decision. Briefs will be filed
during the summer and early fall, and oral argument before the Court of Appeals
took place on October 14, 1999. All actions before the United States District
Court for the District of Massachusetts are still pending.
In addition, on or about February 25, 1999, a purported class action was
filed against the Company in Kentucky state court covering policyholders who
purchased individual universal life insurance policies from the Company after
January 1, 1988, claiming breach of contract and violations of the Kentucky
Consumer Protection Act. On March 26, 1999, the Company removed that action to
the United States District Court for the Eastern District of Kentucky, and on
August 11, 1999 obtained an order from the Judicial Panel on Multidistrict
Litigation transferring the action to the Multidistrict Litigation in the
District of Massachusetts and sought a stay of further proceedings in the
Kentucky District Court pending a determination on multidistrict transfer. There
can be no assurance that the present or any future litigation relating to sales
practices will not have a material adverse effect on the Company.
In addition to the foregoing, from time to time the Company is a party to
litigation and arbitration proceedings in the ordinary course of its business,
none of which is expected to have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
None
26
<PAGE> 28
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 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter covered by this
report.
27
<PAGE> 29
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.
MONY LIFE INSURANCE COMPANY OF
AMERICA
By: /s/ RICHARD DADDARIO
------------------------------------
Richard Daddario
Director, Vice President and
Controller
(Authorized Financial Officer)
Signatory and Principal
Date: November 13, 1999
S-1
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM BALANCE SHEETS AND STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1999 OF MONY LIFE INSURANCE COMPANY OF AMERICA.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 1,058
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 168
<REAL-ESTATE> 7
<TOTAL-INVEST> 1,293
<CASH> 48
<RECOVER-REINSURE> 18<F1>
<DEFERRED-ACQUISITION> 374
<TOTAL-ASSETS> 5,833
<POLICY-LOSSES> 124
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 55
<POLICY-HOLDER-FUNDS> 1,166
<NOTES-PAYABLE> 50<F4>
0
0
<COMMON> 3
<OTHER-SE> 289
<TOTAL-LIABILITY-AND-EQUITY> 5,833
108<F2>
<INVESTMENT-INCOME> 71
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 4
<BENEFITS> 32
<UNDERWRITING-AMORTIZATION> 32
<UNDERWRITING-OTHER> 52<F3>
<INCOME-PRETAX> 21
<INCOME-TAX> 7
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>INCLUDES REINSURANCE RECOVERABLE ON PAID AND UNPAID LOSSES.
<F2>INCLUDES PREMIUMS AND UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES.
<F3>CONSISTS OF OTHER OPERATING COSTS AND EXPENSES.
<F4>CONSISTS OF LONG-TERM DEBT ONLY.
</FN>
</TABLE>
