<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 MARCH 31, 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 March 31, 1999, there were 117 holders of the Registrant's guaranteed
interest account with market value adjustment contracts.
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<PAGE> 2
THE MONY LIFE INSURANCE COMPANY OF AMERICA
INDEX TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
---- ----------- ----
<S> <C> <C> <C>
PART 1 FINANCIAL INFORMATION
1 Unaudited interim condensed balance sheets as of March 31,
1999 and December 31, 1998.................................. 3
Unaudited interim condensed statements of income and
comprehensive income for the three-month periods ended March
31, 1999 and 1998........................................... 4
Unaudited interim condensed statement of changes in equity
for the three-month period ended March 31, 1999............. 5
Unaudited interim condensed statements of cash flows for the
three-month periods ended March 31, 1999 and 1998........... 6
Notes to unaudited interim condensed financial statements... 7
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Investments................................................. 15
3 Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
PART II OTHER INFORMATION
1 Legal Proceedings........................................... 24
2 Changes in Securities and Use of Proceeds................... 25
3 Defaults upon Senior Securities............................. 25
4 Submission of Matters to a Vote of Security Holders......... 25
5 Other Information........................................... 25
6 Exhibits and Reports on Form 8-K............................ 25
SIGNATURES.................................................................. S-1
</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 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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MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturity securities available-for-sale, at fair
value..................................................... $1,073.0 $1,044.2
Mortgage loans on real estate............................... 126.4 120.1
Policy loans................................................ 53.2 52.1
Real estate to be disposed of............................... 1.3 0.0
Real estate held for investment............................. 6.9 8.3
Other invested assets....................................... 4.5 4.7
-------- --------
1,265.3 1,229.4
======== ========
Cash and cash equivalents................................... 142.4 133.4
Accrued investment income................................... 19.7 19.5
Amounts due from reinsurers................................. 23.6 24.4
Deferred policy acquisition costs........................... 334.3 318.6
Other assets................................................ 14.3 15.3
Separate account assets..................................... 4,096.7 4,148.8
-------- --------
Total assets...................................... $5,896.3 $5,889.4
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits...................................... $ 113.7 $ 112.0
Policyholders' account balances............................. 1,197.9 1,187.1
Other policyholders' liabilities............................ 57.3 56.9
Accounts payable and other liabilities...................... 64.7 67.9
Note payable to affiliate (Note 5).......................... 50.5 0.0
Current federal income taxes payable........................ 16.5 13.2
Deferred federal income taxes............................... 10.0 13.7
Separate account liabilities................................ 4,096.7 4,148.8
-------- --------
Total liabilities................................. 5,607.3 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........................................... 92.3 89.6
Accumulated other comprehensive income...................... 4.5 8.0
-------- --------
Total shareholder's equity........................ 289.0 289.8
-------- --------
Total liabilities and shareholder's equity........ $5,896.3 $5,889.4
======== ========
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
3
<PAGE> 5
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Universal life and investment-type product policy fees...... $32.5 $29.8
Premiums.................................................... 1.0 0.1
Net investment income....................................... 24.2 24.3
Net realized gains on investments........................... 0.2 1.5
Other income................................................ 1.6 1.8
----- -----
59.5 57.5
----- -----
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 9.8 8.2
Interest credited to policyholders' account balances........ 16.5 17.0
Amortization of deferred policy acquisition costs........... 10.0 10.7
Other operating costs and expenses.......................... 19.0 15.7
----- -----
55.3 51.6
----- -----
Income before income taxes.................................. 4.2 5.9
Income tax expense.......................................... 1.5 2.1
----- -----
Net income.................................................. 2.7 3.8
Other comprehensive loss, net............................... (3.5) (0.3)
----- -----
Comprehensive (loss) income................................. $(0.8) $ 3.5
===== =====
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
4
<PAGE> 6
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENT
OF CHANGES IN SHAREHOLDER'S EQUITY
THREE-MONTH PERIOD ENDED MARCH 31, 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........................... 2.7 2.7
Other comprehensive income:
Unrealized gains on investments,
net of unrealized losses,
reclassification adjustments,
and taxes....................... (3.5) (3.5)
---- ------ ------ ----- ------
Comprehensive loss..................... (0.8)
------
Balance, March 31, 1999................ $2.5 $189.7 $ 92.3 $ 4.5 $289.0
==== ====== ====== ===== ======
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
5
<PAGE> 7
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES....................... $(20.3) $ (5.9)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities.......................................... 47.2 46.1
Mortgage loans on real estate............................. 7.7 2.8
Real estate............................................... 0.0 5.7
Other invested assets..................................... 0.5 0.8
Acquisitions of investments:
Fixed maturities.......................................... (89.0) (29.0)
Mortgage loans on real estate............................. (13.9) (7.0)
Real estate............................................... (0.2) (0.2)
Other invested assets..................................... (0.1) 0.0
Policy loans, net......................................... (1.1) (1.9)
Other, net................................................ (0.2) (0.0)
------ ------
Net cash (used in) provided by investing activities......... (49.1) 17.3
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of note payable.................................... 50.5 0.0
Receipts from annuity and universal life policies credited
to policyholders' account balances........................ 276.4 224.1
Return of policyholders' account balances on annuity and
universal life policies................................... (248.5) (223.1)
------ ------
Net cash provided by financing activities................... 78.4 1.0
------ ------
Net increase in cash and cash equivalents................... 9.0 12.4
Cash and cash equivalents, beginning of year................ 133.4 46.0
------ ------
Cash and cash equivalents, end of year...................... $142.4 $ 58.4
====== ======
</TABLE>
See accompanying notes to unaudited interim condensed financial statements.
6
<PAGE> 8
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 period ended March 31, 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 recently filed action and another 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
7
<PAGE> 9
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 judgment 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 judgment 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 April 19, 1999, plaintiffs filed a motion to the New York State
Court of Appeals for leave to appeal from the final determination of the
Appellate Division which affirmed the New York Supreme Court's order granting
summary judgement and dismissing the complaint. 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 MONY Life Insurance Company of America ("MLOA") in Kentucky state court
covering policyholders who purchased individual universal life insurance
policies from MLOA after January 1, 1988 claiming breach of contract and
violations of the Kentucky Consumer Protection Act. On March 26,1999, MLOA
removed that action to the United States District Court for the Eastern District
of Kentucky, requested the Judicial Panel on multidistrict litigation to
transfer 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. On April 19, 1999, the
Judicial Panel entered a conditional transfer order transferring the case to the
Federal District Court in Massachusetts. Plaintiffs have submitted a motion in
opposition to the transfer.
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 March 31, 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 consolidated financial position and the results
of operations of the Company.
At March 31, 1999, the Company had the following commitments outstanding:
$42.4 million of private fixed maturity securities with interest rates ranging
from 6.6% to 6.8%, $29.0 million for a fixed rate commercial mortgage loan with
an interest rate of 6.9% and $8.0 million of fixed rate agricultural loans with
periodic interest rate reset dates. The initial interest rates on such
agricultural loans range from 6.8% to 7.6%.
5. NOTE PAYABLE TO AFFILIATE
On March 5, 1999, MONY Life Insurance Company of America 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 is payable quarterly
to MBMC.
8
<PAGE> 10
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 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, 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
The following table presents summary financial information for the Company
for the three-month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIOD
ENDED MARCH 31,
---------------------
1999 1998
----- -----
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Universal life and investment-type product policy fees...... $32.5 $29.8
Premiums.................................................... 1.0 0.1
Net investment income....................................... 24.2 24.3
Net realized gains on investments........................... 0.2 1.5
Other income................................................ 1.6 1.8
----- -----
Total revenues.................................... 59.5 57.5
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 9.8 8.2
Interest credited to policyholders' account balances........ 16.5 17.0
Amortization of deferred policy acquisition costs........... 10.0 10.7
Other operating costs and expenses.......................... 19.0 15.7
----- -----
Total benefits and expenses....................... 55.3 51.6
Income before income taxes.................................. 4.2 5.9
Income tax expense.......................................... 1.5 2.1
----- -----
Net income.................................................. 2.7 3.8
Other comprehensive loss, net............................... (3.5) (0.3)
----- -----
Comprehensive (loss) income................................. $(0.8) $ 3.5
===== =====
</TABLE>
9
<PAGE> 11
RESULTS OF OPERATIONS --
For the Three-Month Period Ended March 31, 1999 Compared to the Three-Month
Period Ended March 31, 1998
Universal life and investment-type product fees were $32.5 million for the
three-month period ended March 31, 1999, an increase of $2.7 million, or 9.1%,
from $29.8 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 $15.1
million for the three-month period ended March 31, 1999, an increase
of $1.9 million, from $13.2 million reported in the comparable prior
year period. The increase in FPVA fees is primarily due to higher fees
for mortality and expense charges of $0.5 million due to higher
average fund value at March 31, 1999 of $3.8 billion compared to $3.6
billion at March 31, 1998. In addition, surrender charges were $1.3
million higher for the quarter ending March 31, 1999 compared to the
first quarter of 1998.
Corporate sponsored variable universal life ("CSVUL") product fees
were $0.7 million for the three-month period ended March 31, 1999, a
decrease of $1.4 million, from $2.1 million reported in the comparable
prior year period. The decrease in CSVUL fees is primarily due to
lower loading charges of $0.9 million and unearned revenue (amounts
assigned to the policyholders for future services) of $0.6 million.
Variable universal life ("VUL") product fees were $6.6 million for the
three-month period ended March 31, 1999, an increase of $2.6 million,
from $4.0 million reported in the comparable prior year period. The
increase in VUL fees is primarily due to higher charges for the cost
of insurance, loading and surrender charges of $1.4 million, $0.6
million and $0.4 million, respectively.
Premium revenue was $1.0 million for the three-month period ended March 31,
1999, an increase of $0.9 million from $0.1 million reported in the comparable
prior year period. The increase was primarily the result of new premiums
relating to level term business, which the Company began offering during the
fourth quarter of 1997.
Net investment income was $24.2 million for the three-month period ended
March 31, 1999, a decrease of $0.1 million, or 0.4%, from $24.3 million reported
in the comparable prior year period. The decrease is primarily related to an
increase in the average balances of invested assets of $38.2 million between the
periods, which was more than offset by a 23 basis point drop in portfolio
yields.
Net realized gains on investments were $0.2 million for the three-month
period ended March 31, 1999, a decrease of $1.3 million, or 86.7%, from $1.5
million reported in the comparable prior year period. The decrease is primarily
due to lower sales gains on real estate of $0.9 million, lower gains on the sale
of other assets of $0.6 million, and higher losses on valuation allowances for
real estate held for sale of $0.3 million, partially offset by lower permanent
impairment losses for fixed maturities of $0.4 million.
Other income was $1.6 million for the three-month period ended March 31,
1999, a decrease of $0.2 million, or 11.1%, as compared to $1.8 million in the
comparable prior year period. The decrease is primarily due to lower funds
received on supplementary contracts.
Benefits to policyholders were $9.8 million for the three-month period
ended March 31, 1999, an increase of $1.6 million, or 19.5%, from $8.2 million
reported in the comparable prior year period. The increase is primarily due to
higher death claims, net of reinsurance.
Interest credited to policyholders' account balances was $16.5 million for
the three-month period ended March 31, 1999, a decrease of $0.5 million, or
2.9%, from $17.0 million reported in the comparable prior year period. The
decrease was primarily lower policyholders' account balances and modest declines
in interest crediting rates which reduced interest crediting by approximately
$0.8 million relating to the Company's single premium deferred annuity ("SPDA")
business. During 1999, SPDA account value decreased $12.6 million to $291.1
million at March 31, 1999 from $303.7 million at December 31, 1998. The decrease
in account value was due to continued withdrawals in 1999, as compared to 1998.
10
<PAGE> 12
Amortization of deferred policy acquisition costs ("DAC") was $10.0 million
for the three-month period ended March 31, 1999, a decrease of $0.7 million, or
6.5%, from $10.7 million reported in the comparable prior year period. The
decrease primarily consisted of lower amortization on universal life ("UL")
products based on revised mortality estimates.
Other operating costs and expenses were $19.0 million for the three-month
period ended March 31, 1999, an increase of $3.3 million, or 21.0%, from $15.7
million reported in the comparable prior year period. The increase is primarily
due to higher intercompany allocation of expenses from MONY Life.
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 life insurance and annuity products,
operating expenses and income taxes. The life insurance and annuity liabilities
relate to the Company's obligation to make benefit payments under its insurance
and annuity 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 March 31, 1999 and December 31, 1998.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
MARCH 31, PERCENT DECEMBER 31, PERCENT
1999 OF TOTAL 1998 OF TOTAL
--------- -------- ------------ --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal
provisions.................................. $ 58.7 1.3% $ 67.9 1.5%
Subject to discretionary withdrawal -- with
market value adjustment or at carrying value
less surrender charge....................... 3,868.7 87.8 3,938.6 87.8
-------- ----- -------- -----
Subtotal...................................... 3,927.4 89.1 4,006.5 89.3
Subject to discretionary withdrawal -- without
adjustment at carrying value................ 480.3 10.9 479.9 10.7
-------- ----- -------- -----
Total annuity reserves and deposit liabilities
(gross and net of reinsurance).............. $4,407.7 100.0% $4,486.4 100.0%
======== ===== ======== =====
</TABLE>
11
<PAGE> 13
The following table sets forth by product line the actual amounts paid in
connection with surrenders and withdrawals for the periods indicated.
SURRENDERS AND WITHDRAWALS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIOD
ENDED MARCH 31,
-------------------
1999 1998
------ -----
($ IN MILLIONS)
<S> <C> <C>
PRODUCT LINE:
Variable and universal life................................. $ 10.3 $ 7.2
Annuities(1)................................................ 152.2 91.3
------ -----
Total............................................. $162.5 $98.5
====== =====
</TABLE>
- ---------------
(1) Excludes approximately $106.0 million 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.
The Company's principal sources of liquidity to meet cash outflows are its
portfolio of liquid assets and its net operating cash flow. During the
three-month period ended March 31, 1999, the Company reported a net increase in
cash and cash equivalents of $9.0 million, as compared to a net increase in cash
and cash equivalents of $12.4 million during the three-month period ended March
31, 1998, a decrease of $3.4 million between the periods due primarily to an
increase in expenses allocated from MONY Life. In the first quarter of 1999,
cash flow from financing activities was $78.4 million, an increase of $77.4
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
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 March 31, 1999, the Company had
readily marketable fixed maturity securities with a carrying value of $1,073.0
million, which were comprised of $593.2 million public and $479.8 million
private fixed maturity securities. At that date, approximately 95.2% 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 March 31, 1999 the Company had cash
and cash equivalents of $142.4 million.
At March 31,1999, the Company had the following commitments outstanding:
$42.4 million of private fixed maturity securities with interest rates ranging
from 6.6% to 6.8%, $29.0 million for a fixed rate commercial mortgage loan with
an interest rate of 6.9% and $8.0 million of fixed rate agricultural loans with
periodic interest rate reset dates. The initial interest rates on such
agricultural loans range from 6.8% to 7.6%.
Of the $24.8 million of currently outstanding commercial mortgage loans in
the Company's investment portfolio at March 31, 1999, $7.4 million, $3.7
million, $4.6 million, and $0.0 million are scheduled to mature in 1999, 2000,
2001, and 2002, respectively.
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
12
<PAGE> 14
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 its non-IT systems in facilities and
equipment which may contain date logic in embedded chips. MONY Life and its
subsidiaries' overall goal is to have these 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.
The inventory and assessment phases of the Project were completed prior to
mid 1998. At March 31, 1999, all of the Company's application systems had been
remediated and current date tested. In addition, approximately 98% of the
Company's applications had been future date tested, with future date testing for
the remaining 2% scheduled for completion by mid-1999. Newly acquired
applications and new releases of software packages will be tested in 1999 as
they are implemented.
In late 1998 and early 1999, the Company 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 90% 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 was compliant and tested by
December 31, 1998. The remaining items will be resolved and tested by mid 1999.
Ongoing testing for Year 2000 compliance is continuing in 1999 as applications,
systems software and hardware is upgraded or replaced. Approximately 50% of
critical non-IT systems had been remediated as of March 31, 1999, and ongoing
testing for year 2000 compliance will continue through 1999.
As part of the Project, significant service and information providers,
external vendors, suppliers, and other third parties (including
telecommunication, electrical, security, and HVAC systems), that are believed to
be critical to business operations after January 1, 2000, have been identified
and contacted. 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 March 31, 1999 was
$1.9 million. The future cost of completing the Year 2000 Project is estimated
to be approximately $0.5 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
13
<PAGE> 15
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 consolidated financial position and results of its
operations.
Contingency Plans
The Company has retained outside consultants to assist in the development
of Business Continuity Plans, 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 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 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. The scheduled
date for completion of the Contingency Plan is mid-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.
14
<PAGE> 16
INVESTMENTS
The yield on general account invested assets (including net realized gains
and losses on investments) was 7.2% and 7.8% for the three-month periods ended
March 31, 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 periods
ended March 31, 1999 and 1998, respectively.
INVESTMENT RESULTS BY ASSET CATEGORY
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTHS ENDED THREE-MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
Investment income................................ 7.2% $ 18.6 7.4% $ 19.6
Net realized gains (losses)...................... 0.1 0.4 0.0 0.0
---- -------- ---- --------
Total............................................ 7.3% $ 19.0 7.4% $ 19.6
Ending assets.................................... $1,056.4 $1,057.2
MORTGAGE LOANS:
Investment income................................ 7.8% $ 2.4 7.7% $ 2.6
Net realized gains (losses)...................... 0.0 0.0 0.0 0.0
---- -------- ---- --------
Total............................................ 7.8% $ 2.4 7.7% $ 2.6
Ending assets.................................... $ 126.4 $ 136.7
REAL ESTATE:(2)
Investment income................................ 4.8% $ 0.1 8.1% $ 0.4
Net realized gains (losses)...................... (9.7) (0.2) 18.3 0.9
---- -------- ---- --------
Total............................................ (4.9)% $ (0.1) 26.4% $ 1.3
Ending assets.................................... $ 8.2 $ 17.4
POLICY LOANS:
Investment income................................ 9.9% $ 1.3 9.4% $ 1.1
Net realized gains (losses)...................... 0.0 0.0 0.0 0.0
---- -------- ---- --------
Total............................................ 9.9% $ 1.3 9.4% $ 1.1
Ending assets.................................... $ 53.2 $ 47.8
CASH & CASH EQUIVALENTS:
Investment income................................ 4.6% $ 1.6 7.7% $ 1.0
Net realized gains (losses)...................... 0.0 0.0 0.0 0.0
---- -------- ---- --------
Total............................................ 4.6% $ 1.6 7.7% $ 1.0
Ending assets.................................... $ 142.4 $ 58.4
OTHER INVESTED ASSETS:
Investment income(3)............................. 8.7% $ 0.1 8.4% $ 0.1
Net realized gains (losses)...................... 0.0 0.0 50.5 0.6
---- -------- ---- --------
Total............................................ 8.7% $ 0.1 58.9% $ 0.7
Ending assets.................................... $ 4.5 $ 4.4
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE-MONTHS ENDED THREE-MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
TOTAL BEFORE INVESTMENT EXPENSES:
Investment income(4)............................. 7.1% $ 24.1 7.5% $ 24.8
Net realized gains (losses)...................... 0.1 0.2 0.5 1.5
---- -------- ---- --------
Total............................................ 7.2% $ 24.3 8.0% $ 26.3
Ending assets.................................... $1,391.1 $1,321.9
Investment expenses net of other fee income(5)... 0.0% $ 0.1 (0.2)% $ (0.5)
TOTAL AFTER INVESTMENT EXPENSES:
Investment income(5)............................. 7.1% $ 24.2 7.3% $ 24.3
Net realized gains (losses)...................... 0.1 0.2 0.5 1.5
---- -------- ---- --------
Total............................................ 7.2% $ 24.4 7.8% $ 25.8
Ending assets.................................... $1,391.1 $1,321.9
Net unrealized gains (losses) on fixed
maturities..................................... 16.6 25.6
-------- --------
Total invested assets............................ $1,407.7 $1,347.5
======== ========
</TABLE>
- ---------------
(1) Yields are based on quarterly average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(2) Equity real estate income is shown net of operating expenses and
depreciation.
(3) Excludes amounts referred to in (5) below.
(4) Total investment income includes non-cash income from amortization,
payment-in-kind distributions and undistributed equity earnings of $1.3
million and $0.9 million for the three-months ended March 31, 1999 and 1998,
respectively. In addition, real estate investment income is shown net of
depreciation of $0.1 million and $0.0 million for the aforementioned
periods, respectively.
(5) Includes other miscellaneous fee income of approximately $0.7 million and
$0.4 million for the three-months ended March 31, 1999 and 1998,
respectively.
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities and privately
placed debt securities, and represented 76.2% and 76.6% of total invested assets
at March 31, 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 March 31,
1999, 95.2% were investment grade and 4.8% were below investment grade, where
47.1%, 48.1%, 4.2%, 0.3%, 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
16
<PAGE> 18
negotiations or (ii) 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.
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 MARCH 31, AS OF DECEMBER 31,
1999 1998
--------------- ------------------
($ IN MILLIONS)
<S> <C> <C>
Total fixed maturities (public and private)................. $1,073.0 $1,044.2
======== ========
Problem fixed maturities.................................... 4.7 4.4
Potential problem fixed maturities.......................... 14.6 16.4
Restructured fixed maturities............................... 2.9 2.7
-------- --------
Total problem, potential problem & restructured fixed
maturities................................................ $ 22.2 $ 23.5
======== ========
Total problem, potential problem & restructured fixed
maturities as a percent of total fixed maturities......... 2.1% 2.3%
======== ========
</TABLE>
At March 31, 1999, the Company's largest unaffiliated single concentration
of fixed maturities was $77.3 million of Federal Home Loan Mortgage Corporation
("FHLMC") which represents 5.5% of total invested assets. No other individual
non-government issuer represents more than 1.5% of invested assets.
The Company held approximately $243.9 million and $232.8 million of
mortgage-backed and asset-backed securities as of March 31, 1999 and December
31, 1998, respectively. Of such amounts, $103.1 million and $108.3 million, or
42.3% and 46.5%, respectively, represented agency-issued pass-through and
collateralized mortgage obligations ("CMOs") secured by Federal National
Mortgage Association, FHLMC and Government National Mortgage Association. The
balance of such amounts was comprised of other types of mortgage-backed and
asset-backed securities. The Company believes that its active monitoring of its
portfolio of mortgage-backed securities and the limited extent of its holdings
of more volatile types of mortgage-backed securities mitigate the Company's
exposure to losses from prepayment risk associated with interest rate
fluctuations for this portfolio. At March 31, 1999 and December 31, 1998, 88.0%
and 91.2%, respectively, of the Company's mortgage-backed and asset-backed
securities were assigned a NAIC Designation of 1. In addition, the Company
believes that it holds a relatively low percentage of CMOs compared to other
life insurance companies.
17
<PAGE> 19
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
CMOs........................................................ $141.5 $147.7
Pass-through securities..................................... 0.1 0.1
Commercial MBSs............................................. 5.2 5.4
Asset-backed securities..................................... 97.1 79.6
------ ------
Total MBSs and asset backed securities...................... $243.9 $232.8
====== ======
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of March
31, 1999 and December 31, 1998 is as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less.......................... $ 93.1 $ 93.5 $ 90.0 $ 90.4
Due after one year through five years............ 293.6 300.0 306.8 315.5
Due after five years through ten years........... 320.1 327.1 284.7 299.2
Due after ten years.............................. 109.4 108.5 105.2 106.3
-------- -------- -------- --------
Subtotal......................................... 816.2 829.1 786.7 811.4
Mortgage-backed and other asset-backed
securities..................................... 240.2 243.9 227.5 232.8
-------- -------- -------- --------
Total.................................. $1,056.4 $1,073.0 $1,014.2 $1,044.2
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Mortgage loans comprised 9.0% and 8.8% of total invested assets as of March
31, 1999 and December 31, 1998, respectively. Mortgage loans consist of
commercial and agricultural loans. As of March 31, 1999 and December 31, 1998,
commercial mortgage loans comprised $24.8 million and $27.6 million or 19.6% and
23.0% of total mortgage loan investments, respectively. Agricultural loans
comprise $101.6 and $92.5 million, or 80.4% and 77.0% of total mortgage loans,
respectively.
From 1992 through 1998, the Company discontinued originating new commercial
mortgage loans. In 1999, the Company began originating new commercial mortgage
loans but is following a more selective program involving the investment of new
funds in this asset category.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $3.3 million and represented less than
0.3% of general account invested assets as of March 31, 1999. Total mortgage
loans to the 5 largest borrowers accounted in the aggregate for 53.6% of the
total carrying value of the commercial loan portfolio and less than 1.0% of
total invested assets at March 31, 1999.
18
<PAGE> 20
The following table presents the Company's commercial mortgage loan
maturity profile for the periods indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1999 1998
----------------- -------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- --------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1 year or less................................... $ 8.9 35.9% $ 9.2 33.3%
Over 1 year but less than or equal to 2 years.... 5.0 20.2 3.8 13.8
Over 2 years but less than or equal to 3 years... 1.8 7.2 5.6 20.3
Over 3 years but less than or equal to 4 years... 0.0 0.0 0.0 0.0
Over 4 years but less than or equal to 5 years... 0.0 0.0 0.0 0.0
Over 5 years but less than or equal to 6 years... 2.4 9.7 0.0 0.0
Over 6 years but less than or equal to 7 years... 0.0 0.0 2.4 8.7
Over 7 years but less than or equal to 8 years... 3.3 13.3 3.2 11.6
Over 8 years but less than or equal to 9 years... 1.4 5.6 1.4 5.1
Over 9 years but less than or equal to 10
years.......................................... 0.0 0.0 0.0 0.0
Over 10 years.................................... 2.0 8.1 2.0 7.2
----- ----- ----- -----
Total.................................. $24.8 100.0% $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
19
<PAGE> 21
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
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $24.8 $27.6
===== =====
Problem commercial mortgages................................ 0.0 0.0
Potential problem commercial mortgages...................... 0.0 0.0
Restructured commercial mortgages........................... 12.5 13.5
----- -----
Total problem and restructured commercial mortgages......... $12.5 $13.5
===== =====
Total valuation allowances/writedowns as a percent of
problem and restructured commercial mortgages at carrying
value before valuation allowances and writedowns (1)...... 3.8% 3.6%
===== =====
</TABLE>
- ---------------
(1) As of March 31, 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 and restructured
mortgage loans, the Company 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 March 31, 1999 and December 31, 1998, such reserves were
$0.3 million, and $0.4 million, respectively.
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the Company relative to agricultural
mortgages defined as problem, potential problem and restructured as of each of
the aforementioned dates indicated.
20
<PAGE> 22
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED AGRICULTURAL
MORTGAGES AT CARRYING VALUE
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
Total agricultural mortgages................................ $101.6 $92.5
====== =====
Problem agricultural mortgages (1).......................... 0.3 0.0
Potential problem agricultural mortgages.................... 0.4 0.4
Restructured agricultural mortgages......................... 0.9 0.8
------ -----
Total problem, potential problem & restructured agricultural
mortgages (2)............................................. $ 1.6 $ 1.2
====== =====
Total valuation allowances/writedowns as a percent of
problem and restructured agricultural mortgages at
carrying value before valuation allowances and writedowns
(2)....................................................... 5.9% 0.0%
====== =====
</TABLE>
- ---------------
(1) Problem agricultural mortgages included delinquent mortgage loans of $0.3
million and $0.0 million at March 31, 1999 and December 31, 1998,
respectively. There were no mortgage loans in the process of foreclosure as
of such dates.
(2) As of March 31, 1999 and December 31, 1998, there were $0.1 million and $0.0
million of 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 March 31, 1999 and December 31,
1998, such reserves were $1.0 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 March 31, 1999 and December 31, 1998, the
carrying value of the Company's real estate investments was $8.2 million and
$8.3 million, respectively, or 0.6% 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 March 31, 1999 and December 31, 1998, respectively. The
carrying value of real estate to be disposed of aggregated $1.3 million and $0.0
million as of March 31, 1999 and December 31, 1998, respectively.
The Company closely monitors property net operating income on a cash basis,
along with occupancy levels of the Company's commercial real estate properties
owned for more than one year, which comprise a significant portion (91% at March
31, 1999) of the Company's equity real estate portfolio.
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
21
<PAGE> 23
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1999 1998
--------------- ------------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $0.5 $0.5
Real estate(1).............................................. 1.9 1.9
---- ----
Total............................................. $2.4 $2.4
==== ====
</TABLE>
- ---------------
(1) Includes $1.6 million as of March 31, 1999 and December 31, 1998, relating
to impairments taken upon foreclosure of mortgage loans.
CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
Mortgages................................................... $1.9 $1.9
Real estate................................................. 0.2 0.0
---- ----
Total............................................. $2.1 $1.9
==== ====
</TABLE>
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
Fixed maturities............................................ $0.5 $0.5
Mortgages................................................... 1.9 1.9
Real estate................................................. 2.1 1.9
---- ----
Total............................................. $4.5 $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 March 31, 1999 is
not materially different from that presented in the Company's 1998 Annual Report
on Form 10-K at December 31, 1998.
22
<PAGE> 24
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
Financial Statements). At March 31, 1999, the fair value of the note payable was
$51.1 million. The table below shows the potential fair value exposure to an
immediate 100 basis point decrease in interest rates at March 31, 1999.
NOTE PAYABLE -- FAIR VALUE
<TABLE>
<CAPTION>
AT
MARCH 31, -100 BASIS
1999 POINT CHANGE
--------- ------------
($ IN MILLIONS)
<S> <C> <C>
Note payable................................................ $51.1 4.7
</TABLE>
23
<PAGE> 25
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 recently filed action and another 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
judgment 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 judgment 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 April 19, 1999, plaintiffs filed a motion to the New York State
Court of Appeals for leave to appeal from the final determination of the
Appellate Division which affirmed the New York Supreme Court's order granting
summary judgement and dismissing the complaint. 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 MONY Life Insurance Company of America ("MLOA") in Kentucky state court
covering policyholders who purchased individual universal life insurance
policies from MLOA after January 1, 1988 claiming breach of contract and
violations of the Kentucky Consumer Protection Act. On March 26, 1999, MLOA
removed that action to the United States District Court for the Eastern District
of Kentucky, requested the Judicial Panel on multidistrict litigation to
transfer 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. On April 19, 1999, the
Judicial Panel entered a conditional transfer order transferring the case to the
Federal District Court in Massachusetts. Plaintiffs have submitted a motion in
opposition to the transfer.
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 March 31, 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
24
<PAGE> 26
have a material adverse effect on the consolidated financial position and the
results of operations of the Company.
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 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.
25
<PAGE> 27
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 Signatory
and Principal Financial Officer)
Date: May 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
MARCH 31, 1999 OF MONY LIFE INSURANCE COMPANY OF AMERICA.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,073
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 126
<REAL-ESTATE> 8
<TOTAL-INVEST> 1,265
<CASH> 142
<RECOVER-REINSURE> 24<F1>
<DEFERRED-ACQUISITION> 334
<TOTAL-ASSETS> 5,896
<POLICY-LOSSES> 114
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 57
<POLICY-HOLDER-FUNDS> 1,198
<NOTES-PAYABLE> 51
0
0
<COMMON> 3
<OTHER-SE> 286
<TOTAL-LIABILITY-AND-EQUITY> 5,896
34<F2>
<INVESTMENT-INCOME> 24
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 2
<BENEFITS> 10
<UNDERWRITING-AMORTIZATION> 10
<UNDERWRITING-OTHER> 19
<INCOME-PRETAX> 4
<INCOME-TAX> 1
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>INCLUDES REINSURANCE RECOVERABLE ON PAID AND UNPAID LOSSES.
<F2>INCLUDES PREMIUMS AND UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES.
</FN>
</TABLE>
