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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Nos. 33-26322; 33-46827; 33-52254; 33-60290; 33-58303
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
Arkansas 91-1325756
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
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(Address of Principal Executive Offices)
(609) 282-1429
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(Registrant's telephone no. including area code)
Securities registered pursuant to Section 12(b) or 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common 200,000
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REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
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PART I
Item 1. Business.
The Registrant is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc.("Merrill Lynch"), a corporation whose common stock is
traded on the New York Stock Exchange. The Registrant is engaged in the sale
of life insurance and annuity products. The Registrant was incorporated under
the laws of the State of Washington on January 27, 1986 by Family Life
Insurance Company ("Family Life") which at the time was an indirect wholly
owned subsidiary of Merrill Lynch. During 1986 and 1987 its insurance
activities were limited as the Registrant sought to obtain licenses from
various jurisdictions to conduct life insurance and annuity business. The
Registrant commenced the public sale of insurance products in 1988. The
products introduced during 1988 consisted of single premium and flexible
premium annuity contracts.
Effective December 28, 1990, the Registrant entered into an
indemnity reinsurance agreement with Family Life (the "Family Life agreement"),
whereby the Registrant agreed to indemnify Family Life for all of its
liabilities under life insurance and annuity contracts issued by it and
distributed by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S").
As a result of the Family Life agreement, the Registrant received from Family
Life $2,361,197,000, representing the value of the statutory reserve
liabilities attributable to such contracts, excluding variable annuity
contracts, less a ceding commission payable to Family Life. In March of 1991,
Family Life and the Registrant entered into an assumption reinsurance
agreement. Under the terms of the assumption reinsurance agreement, as state
regulatory approvals are obtained, these contracts become direct contract owner
obligations of the Registrant. At various dates during 1991, the Registrant
and two affiliates, Tandem Insurance Group, Inc. ("Tandem") and Royal Tandem
Life Insurance Company (now named ML Life Insurance Company of New York),
assumption reinsured substantially all of the contracts under the Family Life
agreement. The Registrant transferred to the two affiliates assets
approximately equal to the statutory reserve liabilities attributable to the
contracts assumption reinsured by them. Contracts not assumed remain subject
to the Family Life agreement, and the Registrant is responsible for the
servicing of these contracts. Those contracts assumed by Tandem subsequently
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became contracts of the Registrant as a result of the merger of Tandem with and
into the Registrant, as described below.
On June 12, 1991, Family Life was sold to Financial Industries
Corporation, and contemporaneously the Registrant became a direct wholly owned
subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"), an indirect wholly
owned subsidiary of Merrill Lynch.
On August 30, 1991, the Registrant redomesticated from the
State of Washington to the State of Arkansas and is subject to primary
regulation by the Arkansas Insurance Department.
On October 1, 1991, Tandem, an affiliate of the Registrant,
was merged with and into the Registrant. Tandem, which at the time of its
organization in 1952 was named Cornbelt Insurance Company, had various names
and was under various ownership until 1986. Tandem became a wholly owned
subsidiary of Tandem Financial Group, Inc. ("TFG"), a joint venture between
Merrill Lynch and The Equitable Life Assurance Society of the United States
("the Equitable"), on July 31, 1986, and in October 1989, Merrill Lynch
purchased the remaining interest in TFG from the Equitable and became its sole
shareholder. At that time, TFG and Tandem became indirect wholly owned
subsidiaries of Merrill Lynch. On September 6, 1990, TFG changed its name to
Merrill Lynch Insurance Group, Inc.
On December 31, 1990, pursuant to an indemnity reinsurance and
assumption agreement entered into on November 14, 1990 by Tandem and Royal
Tandem Life Insurance Company, Tandem and Royal Tandem Life Insurance Company
reinsured on a 100% indemnity basis all variable life insurance policies
("reinsured policies") issued by Monarch Life Insurance Company ("Monarch
Life") and sold through an affiliate of MLPF&S. As a result, Tandem became
obligated to reimburse Monarch Life for its net amount at risk with regard to
the reinsured policies. In connection with the indemnity reinsurance
agreement, assets of approximately $553 million supporting general account
reserves were transferred from Monarch Life to Tandem.
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On various dates during 1991, Tandem and Royal Tandem Life
Insurance Company assumed the reinsured policies, wherever permitted by
appropriate regulatory authorities, replacing Monarch Life. In connection with
the assumption, separate account assets and reserves associated with the
reinsured policies of approximately $2,625 million were transferred to Tandem.
The aggregate face amount of the reinsured policies assumed by Tandem was
approximately $6,200 million.
Information pertaining to contract owner deposits, contract
owner account balances, and capital contributions can be found in the
Registrant's financial statements which are contained herein.
The Registrant is currently licensed in 49 states, the
District of Columbia, the Virgin Islands, and Guam. During 1997, life
insurance and annuity sales were made in all states the Registrant was licensed
in, with the largest concentration in Florida, 16%, California, 11% and Texas,
10%, as measured by total contract owner deposits.
The Registrant's insurance products are sold primarily by
licensed agents affiliated with various Merrill Lynch Life Agencies ("MLLA").
Insurance sales are made by career life insurance agents whose sole
responsibility is the sale and servicing of insurance and by Financial
Consultants of MLPF&S who are also licensed as insurance agents. At December
31, 1997, approximately 12,233 agents affiliated with MLLA were authorized to
act for the Registrant.
Item 2. Properties.
The Registrant's home office is located in Little Rock,
Arkansas. In addition, personnel performing services for Merrill Lynch Life
pursuant to its Management Services Agreement operate in MLIG office space.
Merrill Lynch Insurance Group Services, Inc. ("MLIGS"), an affiliate of MLIG,
owns office space in Jacksonville, Florida. MLIGS also leases certain office
space in Springfield, Massachusetts from Picknelly Family Limited
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Partnership. MLIG occupies certain office space in Plainsboro, New Jersey
through Merrill Lynch. An allocable share of the cost of each of these
premises is paid by the Registrant through the service agreement with MLIG.
Item 3. Legal Proceedings.
There is no material pending litigation to which the
Registrant is a party or of which any of its property is the subject, and there
are no legal proceedings contemplated by any governmental authorities against
the Registrant of which it has any knowledge.
Item 4. Submission of Matters to a Vote of Security Holders.
Information called for by this item is omitted pursuant to
General Instruction I. of Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) The Registrant is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"), which is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. MLIG is the sole record holder of Registrant's
shares. Therefore, there is no public trading market for Registrant's common
stock.
On November 28, 1997, the Registrant paid a $24,970,000
ordinary dividend and a $110,030,000 extraordinary dividend to MLIG. On
November 27, 1996, the Registrant paid a $175,000,000 extraordinary dividend to
MLIG. The extraordinary dividends were paid pursuant to approval granted by
the Arkansas Insurance Commissioner. No other cash dividends have been
declared on Registrant's common stock at any time during the two most recent
fiscal years. Under laws applicable to insurance companies domiciled in the
State of Arkansas, the Registrant's ability to
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pay extraordinary dividends on its common stock is restricted. See Note 6 to
the Registrant's financial statements.
(b) Not applicable.
Item 6. Selected Financial Data.
Information called for by this item is omitted pursuant to
General Instruction I. of Form 10-K.
Item 7. Management's Narrative Analysis of Results of Operations.
Results of Operations
The Registrant's gross earnings are principally derived from
two sources: (i) the net income from investment of fixed rate life insurance and
annuity contract owner deposits less interest credited to contract owners,
commonly known as spread, and (ii) the charges imposed on variable life
insurance and variable annuity contracts. The costs associated with acquiring
contract owner deposits are amortized over the period in which the Registrant
anticipates holding those funds. In addition, the Registrant incurs expenses
associated with the maintenance of in-force contracts.
1997 compared to 1996
The Registrant recorded net earnings of $81 million and $79
million for 1997 and 1996, respectively.
Net investment income and interest credited to policyholders'
account balances for 1997 as compared to 1996 have declined by approximately
$28 million and $26 million, respectively, resulting in a $2 million reduction
in interest spread. The reduction in net investment income is primarily
attributable to the reduction in fixed rate contracts in-force and stockholder
dividend payments. The reduction of interest credited to policyholders' account
balances is primarily attributable to the reduction in fixed rate contracts
in-force. Additionally, during 1997, certain policyholder reserves were
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determined to be in excess of amounts required, resulting in a $9 million
reduction to interest credited.
The Registrant experienced net realized investment gains of
$13 million and $9 million during 1997 and 1996, respectively. Realized gains
on mortgage loans increased $5.7 million partially offset by a $4.1 million
increase in realized losses on real estate. Also, during 1997, the Registrant
recognized a $1.0 million gain on the disposition of its seed money investment
in the separate account and $.7 million of gains on trading account securities.
Policy charge revenue increased $20 million (or 13%) during
1997 as compared to 1996. The increase in policy charge revenue is primarily
attributable to the increase in policyholders' variable account balances.
Asset based charges increased $20 million (or 22%) consistent with the growth
in the separate account assets. Non-asset based charges were flat during 1997
as compared to 1996.
Policy benefits increased approximately $6 million during 1997
to $27 million. This increase was primarily attributable to mortality costs
associated with Merrill Lynch Life's variable life products.
Reinsurance premium ceded increased $2 million to $18 million
during 1997. This increase is attributable to the combined effect of the
increasing age of policyholders and increased insurance in-force resulting from
the strong equity markets.
Amortization of deferred policy acquisition costs increased
$10 million during 1997 as compared to 1996. This increase is primarily
attributable to revised future gross profit assumptions associated with
management's decision to pay trail commissions on certain in-force life
insurance contracts during the first quarter 1997.
Insurance expenses and taxes increased $2 million during 1997
as compared to 1996. This is primarily attributable to an increase in
non-capitalizable commission expense paid on in-force life and annuity
contracts.
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The Registrant's effective federal income tax rate increased
to 33% for 1997 from 32% for 1996 principally as a result of year to year
differences in certain permanent adjustments.
Other Comprehensive Income
The Registrant recorded other comprehensive income of $12
million during 1997 as compared to an $11 million loss during 1996.
Other comprehensive income is impacted by the change in net
unrealized holding gains (losses) on investment securities and the related
adjustments to deferred policy acquisition costs, policyholders' liabilities
and deferred income taxes. Generally, the most significant factor that impacts
net unrealized holding gains (losses) on investment securities is changes in
interest rates. At December 31, 1997, interest rates had decreased by
approximately 56 basis points from December 31, 1996. This compares to the
approximately 79 basis point increase in interest rates from December 31, 1995
to December 31, 1996. Net unrealized holding gains (losses) have an inverse
relationship to changes in interest rates.
Segment Information
The Registrant's operations consist of one business segment,
which is the sale of life insurance and annuity products. The Registrant is
not dependent upon any single customer, and no single customer accounted for
more than 10% of its revenues during 1997.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements of Registrant are set forth in Part
IV hereof and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Information called for by items 10 through 13 of this part is
omitted pursuant to General Instruction I. of Form 10-K.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Financial Statements and Exhibits.
(1) The following financial statements of the Registrant
are filed as part of this report:
a. Independent Auditors' Report dated February 23, 1998.
b. Balance Sheets at December 31, 1997 and 1996.
c. Statements of Earnings for the Years Ended December
31, 1997, 1996 and 1995.
d. Statements of Comprehensive Income for the Years
Ended December 31, 1997, 1996 and 1995.
e. Statements of Stockholder's Equity for the Years
Ended December 31, 1997, 1996 and 1995.
f. Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.
g. Notes to Financial Statements for the Years Ended
December 31, 1997, 1996 and 1995.
(2) Not applicable.
(3) The following exhibits are filed as part of this
report as indicated below:
2.1 Merrill Lynch Life Insurance Company Board of
Directors Resolution in Connection with the Merger
between Merrill Lynch Life Insurance Company and
Tandem Insurance Group, Inc. (Incorporated by
reference to Exhibit 2.1, filed September 5, 1991, as
part of Post-Effective Amendment No. 4 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
2.2 Plan and Agreement of Merger between Merrill Lynch
Life Insurance Company and Tandem Insurance Group,
Inc. (Incorporated by reference to Exhibit 2.1a,
filed September 5, 1991, as part of Post-Effective
Amendment No. 4
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to the Registrant's registration statement on Form
S-1, File No. 33-26322.)
3.1 Articles of Incorporation of Merrill Lynch Life
Insurance Company. (Incorporated by reference to
Exhibit 3.1 to the Registrant's registration
statement on Form S-1, File No. 33-26322, filed
January 3, 1989.)
3.2 By-Laws of Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 3.2 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
3.3 Articles of Amendment, Restatement and
Redomestication of the Articles of Incorporation of
Merrill Lynch Life Insurance Company. (Incorporated
by reference to Exhibit 3(c) to the Registrant's
registration statement on Form S-1, File No.
33-46827, filed March 30, 1992.)
3.4 Amended and Restated By-Laws of Merrill Lynch Life
Insurance Company. (Incorporated by reference to
Exhibit 3(d) to the Registrant's registration
statement on Form S-1, File No. 33-46827, filed March
30, 1992.)
4.1 Group Modified Guaranteed Annuity Contract,
ML-AY-361. (Incorporated by reference to Exhibit
4.1, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-26322.)
4.2 Individual Certificate, ML-AY-362. (Incorporated by
reference to Exhibit 4.2, filed February 23, 1989, as
part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
4.2a Individual Certificate, ML-AY-362 KS. (Incorporated
by reference to Exhibit 4.2a, filed March 9, 1990, as
part of Post-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
4.2b Individual Certificate, ML-AY-378. (Incorporated by
reference to Exhibit 4.2b,
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filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.3 Individual Tax-Sheltered Annuity Certificate,
ML-AY-372. (Incorporated by reference to Exhibit
4.3, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-26322.)
4.3a Individual Tax-Sheltered Annuity Certificate,
ML-AY-372 KS. (Incorporated by reference to Exhibit
4.3a, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.4 Qualified Retirement Plan Certificate, ML-AY-373.
(Incorporated by reference to Exhibit 4.4 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.4a Qualified Retirement Plan Certificate, ML-AY-373 KS.
(Incorporated by reference to Exhibit 4.4a, filed
March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.5 Individual Retirement Annuity Certificate, ML-AY-374.
(Incorporated by reference to Exhibit 4.5 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.5a Individual Retirement Annuity Certificate, ML-AY-374
KS. (Incorporated by reference to Exhibit 4.5a,
filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5b Individual Retirement Annuity Certificate, ML-AY-375
KS. (Incorporated by reference to Exhibit 4.5b, filed
March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's
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registration statement on Form S-1, File No.
33-26322.)
4.5c Individual Retirement Annuity Certificate, ML-AY-379.
(Incorporated by reference to Exhibit 4.5c, filed
March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.6 Individual Retirement Account Certificate, ML-AY-375.
(Incorporated by reference to Exhibit 4.6, filed
February 23, 1989, as part of Pre-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.6a Individual Retirement Account Certificate, ML-AY-380.
(Incorporated by reference to Exhibit 4.6a, filed
March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.7 Section 457 Deferred Compensation Plan Certificate,
ML-AY-376. (Incorporated by reference to Exhibit 4.7
to the Registrant's registration statement on Form
S-1, File No. 33-26322, filed January 3, 1989.)
4.7a Section 457 Deferred Compensation Plan Certificate,
ML-AY-376 KS. (Incorporated by reference to Exhibit
4.7a, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.8 Tax-Sheltered Annuity Endorsement, ML-AY-366.
(Incorporated by reference to Exhibit 4.8 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.8a Tax-Sheltered Annuity Endorsement, ML-AY-366 190.
(Incorporated by reference to Exhibit 4.8a, filed
March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
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4.8b Tax-Sheltered Annuity Endorsement, ML-AY-366 1096.
(Incorporated by reference to Exhibit 4(h)(3), filed
March 27, 1997, as part of Post-Effective Amendment
No. 2 to the Registrant's registration statement on
Form S-1, File No. 33-58303.)
4.9 Qualified Retirement Plan Endorsement, ML-AY-364.
(Incorporated by reference to Exhibit 4.9 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.10 Individual Retirement Annuity Endorsement, ML-AY-368.
(Incorporated by reference to Exhibit 4.10 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.10a Individual Retirement Annuity Endorsement, ML-AY-368
190. (Incorporated by reference to Exhibit 4.10a,
filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.10b Individual Retirement Annuity Endorsement, ML009.
(Incorporated by reference to Exhibit 4(j)(3) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60290, filed March 31, 1994.)
4.11 Individual Retirement Account Endorsement, ML-AY-365.
(Incorporated by reference to Exhibit 4.11 to the
Registrant's registration statement on Form S-1, File
No. 33-26322, filed January 3, 1989.)
4.11a Individual Retirement Account Endorsement, ML- AY-365
190. (Incorporated by reference to Exhibit 4.11a,
filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.12 Section 457 Deferred Compensation Plan Endorsement,
ML-AY-367. (Incorporated by reference to Exhibit
4.12 to the Registrant's registration
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statement on Form S-1, File No. 33-26322, filed
January 3, 1989.)
4.12a Section 457 Deferred Compensation Plan Endorsement,
ML-AY-367 190. (Incorporated by reference to Exhibit
4.12a, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.13 Qualified Plan Endorsement, ML-AY-369. (Incorporated
by reference to Exhibit 4.13 to the Registrant's
registration statement on Form S-1, File No.
33-26322, filed January 3, 1989.)
4.13a Qualified Plan Endorsement, ML-AY-448. (Incorporated
by reference to Exhibit 4.13a, filed March 9, 1990,
as part of Post-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
4.14 Application for Group Modified Guaranteed Annuity
Contract. (Incorporated by reference to Exhibit 4.14
to the Registrant's registration statement on Form
S-1, File No. 33-26322, filed January 3, 1989.)
4.15 Annuity Application for Individual Certificate Under
Modified Guaranteed Annuity Contract. (Incorporated
by reference to Exhibit 4.15 to the Registrant's
registration statement on Form S-1, File No.
33-26322, filed January 3, 1989.)
4.16 Form of Company Name Change Endorsement.
(Incorporated by reference to Exhibit 4.16, filed
September 5, 1991, as part of Post-Effective
Amendment No. 4 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.17 Group Modified Guaranteed Annuity Contract,
ML-AY-361/94. (Incorporated by reference to Exhibit
4(a)(2), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-60290.)
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4.18 Individual Certificate, ML-AY-362/94. (Incorporated
by reference to Exhibit 4(b)(4), filed December 7,
1994, as part of Post-Effective Amendment No. 3 to
the Registrant's registration statement on Form S-1,
File No. 33-60290.)
4.19 Individual Tax-Sheltered Annuity Certificate,
ML-AY-372/94. (Incorporated by reference to Exhibit
4(c)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-60290.)
4.20 Qualified Retirement Plan Certificate, ML-AY-373/94.
(Incorporated by reference to Exhibit 4(d)(3), filed
December 7, 1994, as part of Post-Effective Amendment
No. 3 to the Registrant's registration statement on
Form S-1, File No. 33-60290.)
4.21 Individual Retirement Annuity Certificate,
ML-AY-374/94. (Incorporated by reference to Exhibit
4(e)(5), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-60290.)
4.22 Individual Retirement Account Certificate,
ML-AY-375/94. (Incorporated by reference to Exhibit
4(f)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-60290.)
4.23 Section 457 Deferred Compensation Plan Certificate,
ML-AY-376/94. (Incorporated by reference to Exhibit
4(g)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-60290.)
4.24 Qualified Plan Endorsement, ML-AY-448/94.
(Incorporated by reference to Exhibit 4(m)(3), filed
December 7, 1994, as part of Post-Effective Amendment
No. 3 to the Registrant's registration statement on
Form S-1, File No. 33-60290.)
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10.1 Management Services Agreement between Family Life
Insurance Company and Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 10.1
to the Registrant's registration statement on Form
S-1, File No. 33-26322, filed January 3, 1989.)
10.2 General Agency Agreement between Merrill Lynch Life
Insurance Company and Merrill Lynch Life Agency, Inc.
(Incorporated by reference to Exhibit 10.2, filed
February 23, 1989, as part of Pre-Effective Amendment
No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
10.3 Service Agreement among Merrill Lynch Insurance
Group, Inc., Family Life Insurance Company and
Merrill Lynch Life Insurance Company. (Incorporated
by reference to Exhibit 10.3, filed March 13, 1991,
as part of Post-Effective Amendment No. 2 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
10.3a Amendment to Service Agreement among Merrill Lynch
Insurance Group, Inc., Family Life Insurance Company
and Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 10(c)(2) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60290, filed March 31, 1994.)
10.4 Indemnity Reinsurance Agreement between Merrill Lynch
Life Insurance Company and Family Life Insurance
Company. (Incorporated by reference to Exhibit 10.4,
filed March 13, 1991, as part of Post-Effective
Amendment No. 2 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
10.5 Assumption Reinsurance Agreement between Merrill
Lynch Life Insurance Company, Tandem Insurance Group,
Inc. and Royal Tandem Life Insurance Company and
Family Life Insurance Company. (Incorporated by
reference to Exhibit 10.6, filed April 24, 1991, as
part of Post-Effective
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Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
10.6 Amended General Agency Agreement between Merrill
Lynch Life Insurance Company and Merrill Lynch Life
Agency, Inc. (Incorporated by reference to Exhibit
10(g) to the Registrant's registration statement on
Form S-1, File No. 33-46827, filed March 30, 1992.)
10.7 Indemnity Agreement between Merrill Lynch Life
Insurance Company and Merrill Lynch Life Agency, Inc.
(Incorporated by reference to Exhibit 10(h) to the
Registrant's registration statement on Form S-1, File
No. 33-46827, filed March 30, 1992.)
10.8 Management Agreement between Merrill Lynch Life
Insurance Company and Merrill Lynch Asset Management,
Inc. (Incorporated by reference to Exhibit 10(i) to
the Registrant's registration statement on Form S-1,
File No. 33-46827, filed March 30, 1992.)
10.9 Amendment No. 1 to Indemnity Reinsurance Agreement
between Family Life Insurance Company and Merrill
Lynch Life Insurance Company. (Incorporated by
reference to Exhibit 10.5, filed April 24, 1991, as
part of Post-Effective Amendment No. 3 to the
Registrant's registration statement on Form S-1, File
No. 33-26322.)
23.1 Consent of Deloitte & Touche LLP is filed herewith.
24.1 Power of attorney of Joseph E. Crowne. (Incorporated
by reference to Exhibit 24(a) to the Registrant's
registration statement on Form S-1, File No.
33-58303, filed March 29, 1995.)
24.2 Power of attorney of David M. Dunford. (Incorporated
by reference to Exhibit 24(b) to the Registrant's
registration statement on Form S-1, File No.
33-58303, filed March 29, 1995.)
24.3 Power of attorney of Barry G. Skolnick.
(Incorporated by reference to Exhibit 24(e) to the
- 16 -
<PAGE> 18
Registrant's registration statement on Form S-1,
File No. 33-58303, filed March 29, 1995.)
24.4 Power of attorney of Anthony J. Vespa. (Incorporated
by reference to Exhibit 24(f) to the Registrant's
registration statement on Form S-1, File No.
33-58303, filed March 29, 1995.)
24.5 Power of attorney of Gail R. Farkas. (Incorporated
by reference to Exhibit 24(g) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-58303, filed March
26, 1996.)
27.1 Financial Data Schedule is filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter
of the fiscal year ended December 31, 1997.
- 17 -
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . .
Statements of Comprehensive Income for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . .
Statements of Stockholder's Equity for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . .
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . .
Notes to Financial Statements for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill
Lynch Life Insurance Company (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of
December 31, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $2,927,562; 1996 - $3,232,643) $ 3,008,608 $ 3,301,588
Equity securities, at estimated fair value
(cost: 1997 - $72,599; 1996 - $32,988) 73,612 35,977
Trading account securities, at estimated fair value 15,625 -
Mortgage loans - 70,503
Real estate held-for-sale 31,805 28,851
Policy loans on insurance contracts 1,118,139 1,092,071
-------------- --------------
Total Investments 4,247,789 4,528,990
-------------- --------------
CASH AND CASH EQUIVALENTS 86,388 94,991
ACCRUED INVESTMENT INCOME 78,224 86,186
DEFERRED POLICY ACQUISITION COSTS 365,105 366,461
REINSURANCE RECEIVABLES 1,617 2,642
AFFILIATED RECEIVABLES - NET 166 -
RECEIVABLES FROM SECURITIES SOLD 75,820 -
OTHER ASSETS 49,353 42,861
SEPARATE ACCOUNTS ASSETS 9,149,119 7,615,362
-------------- --------------
TOTAL ASSETS $ 14,053,581 $ 12,737,493
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,188,110 $ 4,480,048
Claims and claims settlement expenses 50,574 39,666
-------------- --------------
Total policy liabilities and accruals 4,238,684 4,519,714
OTHER POLICYHOLDER FUNDS 27,160 19,420
LIABILITY FOR GUARANTY FUND ASSESSMENTS 15,374 18,773
FEDERAL INCOME TAXES - DEFERRED 1,183 6,714
FEDERAL INCOME TAXES - CURRENT 24,438 20,968
AFFILIATED PAYABLES - NET - 6,164
PAYABLES FOR SECURITIES PURCHASED 95,135 13,483
OTHER LIABILITIES 54,434 37,243
SEPARATE ACCOUNTS LIABILITIES 9,149,119 7,605,194
-------------- --------------
Total Liabilities 13,605,527 12,247,673
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 402,937
Retained earnings 80,735 79,387
Accumulated other comprehensive income 17,995 5,496
-------------- --------------
Total Stockholder's Equity 448,054 489,820
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,053,581 $ 12,737,493
============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 308,702 $ 336,661 $ 376,166
Net realized investment gains 13,289 8,862 4,525
Policy charge revenue 178,933 158,829 141,722
-------------- -------------- --------------
Total Revenues 500,924 504,352 522,413
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 209,542 235,255 261,760
Market value adjustment expense 4,079 6,071 5,805
Policy benefits (net of reinsurance recoveries: 1997 - $10,439;
1996 - $8,317; 1995 - $6,482) 27,029 21,052 19,374
Reinsurance premium ceded 17,879 15,582 13,896
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Insurance expenses and taxes 49,105 47,077 44,124
------------- -------------- --------------
Total Benefits and Expenses 379,745 387,073 403,628
------------- -------------- --------------
Earnings Before Federal Income Tax Provision 121,179 117,279 118,785
------------- -------------- --------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 52,705 22,814 38,335
Deferred (12,261) 15,078 3,968
-------------- -------------- --------------
Total Federal Income Tax Provision 40,444 37,892 42,303
-------------- -------------- --------------
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period 22,347 (79,749) 310,981
Reclassification adjustment for gains included in net earnings (12,390) (8,622) (4,351)
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities 9,957 (88,371) 306,630
Adjustments for:
Policyholder liabilities 10,094 58,415 (123,856)
Deferred policy acquisition costs (822) 12,411 (89,261)
Income tax (expense) benefit related to items of
other comprehensive income (6,730) 6,141 (32,729)
-------------- -------------- --------------
Other comprehensive income, net of tax 12,499 (11,404) 60,784
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 93,234 $ 67,983 $ 137,266
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,000 $ 535,450 $ 66,005 $ (43,884) $ 559,571
Dividend to Parent (33,995) (66,005) (100,000)
Net earnings 76,482 76,482
Other comprehensive income, net of tax 60,784 60,784
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,000 501,455 76,482 16,900 596,837
Dividend to Parent (98,518) (76,482) (175,000)
Net earnings 79,387 79,387
Other comprehensive income, net of tax (11,404) (11,404)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 489,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,000 $ 347,324 $ 80,735 $ 17,995 $ 448,054
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 80,735 $ 79,387 $ 76,482
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Capitalization of policy acquisition costs (71,577) (43,668) (54,014)
Amortization, (accretion) and depreciation of investments (4,672) (4,836) (6,763)
Net realized investment gains (13,289) (8,862) (4,525)
Interest credited to policyholders' account balances 209,542 235,255 261,760
Provision (benefit) for deferred Federal income tax (12,261) 15,078 3,968
Changes in operating assets and liabilities:
Accrued investment income 7,962 5,756 3,191
Claims and claims settlement expenses 10,908 9,854 3,635
Federal income taxes - current 3,470 13,935 4,759
Other policyholder funds 7,740 5,813 (7,614)
Liability for guaranty fund assessments (3,399) (2,371) (3,630)
Affiliated payables (6,330) 3,735 5,542
Policy loans on insurance contracts (26,068) (52,804) (54,054)
Trading account securities (14,928) - -
Other, net 11,721 (2,393) (12,280)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 251,665 315,915 275,126
-------------- -------------- ---------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 846,041 847,091 620,853
Maturities of available-for-sale securities 595,745 536,449 570,923
Purchases of available-for-sale securities (1,156,222) (956,840) (816,564)
Mortgage loans principal payments received 68,864 22,789 30,767
Purchases of mortgage loans (5,375) - (3,608)
Sales of real estate held-for-sale 6,060 5,407 9,710
Improvements to real estate held-for-sale - - (683)
Recapture of investment in Separate Accounts 11,026 8,829 6,559
Investment in Separate Accounts (21) (10,063) (377)
-------------- -------------- ---------------
Net cash and cash equivalents provided
by investing activities 366,118 453,662 417,580
-------------- -------------- ---------------
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Concluded) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (135,000) $ (175,000) $ (100,000)
Policyholders' account balances:
Deposits 1,101,934 542,062 567,430
Withdrawals (including transfers to/from Separate Accounts) (1,593,320) (1,090,572) (1,250,299)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (626,386) (723,510) (782,869)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,603) 46,067 (90,163)
CASH AND CASH EQUIVALENTS
Beginning of year 94,991 48,924 139,087
-------------- ------------- -------------
End of year $ 86,388 $ 94,991 $ 48,924
============== ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal Federal iincome taxes $ 49,235 $ 8,880 $ 33,576
Interest 842 988 1,310
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance
Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are variable life
insurance, variable annuities, market value adjusted annuities,
and immediate annuities. The Company is currently licensed to
sell insurance in forty-nine states, the District of Columbia,
the U.S. Virgin Islands and Guam. The Company markets its
products solely through the retail network of Merrill Lynch,
Pierce, Fenner & Smith, Incorporated ("MLPF&S"), a wholly-owned
broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts
and disclosure of contingencies in the financial statements.
Actual results could differ from those estimates.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance
and annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for
the Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.70%
Interest-sensitive deferred annuities 3.55% - 8.77%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company, subject
to minimum guarantees, after initial guaranteed rates expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are unreported
as of the valuation date.
Reinsurance: In the normal course of business, the Company seeks
to limit its exposure to loss on any single insured life and to
recover a portion of benefits paid by ceding reinsurance to
other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company from
its obligations to policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company. The
Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $635 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $2,879,306.
The Company entered into an indemnity reinsurance agreement with
an unaffiliated insurer whereby the Company coinsures, on a
modified coinsurance basis, 50% of the unaffiliated insurer's
variable annuity premiums sold through the Merrill Lynch & Co.
distribution system. At December 31, 1997, the Company's quota
share of variable annuity premiums related to this agreement was
$35 million.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying amount
of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, that are primarily
related to and vary with the production of new business. Certain
costs and expenses reported in the statements of earnings are
net of amounts deferred. Policy acquisition costs can also arise
from the acquisition or reinsurance of existing in-force
policies from other insurers. These costs include ceding
commissions and professional fees related to the reinsurance
assumed. The deferred costs are amortized in proportion to the
estimated future gross profits over the anticipated life of the
acquired insurance contracts utilizing an interest methodology.
The Company has entered into an assumption reinsurance agreement
with an unaffiliated insurer. The acquisition costs relating to
this agreement are being amortized over a twenty-year period
using an effective interest rate of 9.01%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions are capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1997 1996 1995
------------ ------------ ------------
Beginning balance $ 112,249 $ 124,833 $ 133,388
Capitalized amounts 5,077 5,077 13,708
Interest accrued 9,653 10,669 11,620
Amortization (24,727) (28,330) (33,883)
------------ ------------ ------------
Ending balance $ 102,252 $ 112,249 $ 124,833
============ ============ ============
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the next
five years. The amortization may be adjusted based on periodic
evaluation of the expected gross profits on the reinsured policies.
1998 11,030
1999 9,927
2000 8,935
2001 8,041
2002 7,237
Investments: The Company's investments in debt and equity securities
are classified as either available-for-sale or trading and are
reported at estimated fair value. Unrealized gains and losses on
available-for-sale securities are included in stockholder's equity,
net of tax. Unrealized gains and losses on trading account
securities are included in net realized investment gains. If a
decline in value of a security is determined by management to be
other-than-temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded as net realized
investment gains (losses).
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a
rating equivalent to Standard and Poor's (or similar rating
agency) BBB- or higher.
During the first quarter 1997, the Company terminated its
interest rate swap contracts that were carried at estimated fair
value and recorded as a component of fixed maturity securities.
Interest income and realized and unrealized gains and losses
were recorded on the same basis as fixed maturity securities
available-for-sale.
As of December 31, 1997, the Company had no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In
establishing valuation allowances, management considered, among
other things, the estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans based on the
cash payment interest rate of the loan, which may be different
from the accrual interest rate of the loan for certain
outstanding mortgage loans. The Company recognized a realized
gain at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments of
mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Real estate held-for-sale, is stated at estimated fair value
less estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Investments in limited partnerships are carried at cost.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal tax liability.
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State Insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of the
Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Statements of Comprehensive Income: During 1997, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 defines comprehensive income as all non-
owner changes in equity during a period. Comprehensive
income is reported in the Statements of Comprehensive Income
included in the financial statements for the years ended
December 31, 1997, 1996 and 1995.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities:
Securities (1) $ 3,008,608 $ 3,301,858
Interest rate swaps (2) - (270)
-------------- -------------
Total fixed maturity securities 3,008,608 3,301,588
-------------- -------------
Equity securities (1) 73,612 35,977
Trading account securities (1) 15,625 -
Mortgage loans (3) - 70,503
Policy loans on insurance contracts (4) 1,118,139 1,092,071
Cash and cash equivalents (5) 86,388 94,991
Separate Accounts assets (6) 9,149,119 7,615,362
-------------- --------------
Total financial instruments recorded as assets $ 13,451,491 $ 12,210,492
============== ==============
</TABLE>
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk, based
upon the assumption that such securities will be held to
maturity. Such estimated fair values do not necessarily
represent the values for which these securities could have
been sold at the dates of the balance sheets. At December
31, 1997 and 1996, securities without a readily
ascertainable market value, having an amortized cost of
$389,728 and $338,515, had an estimated fair value of
$396,253 and $348,066, respectively.
(2) Estimated fair values for the Company's interest rate swaps
are based on a discounted cash flow model.
(3) The estimated fair value of mortgage loans approximates
the carrying value.
(4) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are
fully collateralized by the account value of the associated
insurance contracts, and the spread between the policy loan
interest rate and the interest rate credited to the account
value held as collateral is fixed.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) Assets held in Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity securities and equity securities (excluding
trading account securities) as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,412,171 $ 73,318 $ 6,963 $ 2,478,526
Mortgage-backed securities 339,015 12,320 224 351,111
U.S. Government and agencies 119,107 2,767 111 121,763
Foreign governments 36,585 198 1,125 35,658
Municipals 20,684 866 - 21,550
------------- ------------- ------------- -------------
Total fixed maturity securities $ 2,927,562 $ 89,469 $ 8,423 $ 3,008,608
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 67,845 $ 1,187 $ 185 $ 68,847
Common stocks 4,754 11 - 4,765
------------- ------------- ------------- -------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 2,652,225 $ 67,590 $ 11,765 $ 2,708,050
Mortgage-backed securities 503,997 12,447 1,948 514,496
U.S. Government and agencies 54,386 2,303 158 56,531
Foreign governments 18,111 182 140 18,153
Municipals 3,924 434 - 4,358
------------- ------------- ------------- -------------
Total fixed maturity securities $ 3,232,643 $ 82,956 $ 14,011 $ 3,301,588
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 30,554 $ 2,983 $ 85 $ 33,452
Common stocks 2,434 91 - 2,525
------------- ------------- ------------- -------------
Total equity securities $ 32,988 $ 3,074 $ 85 $ 35,977
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------- --------------
Fixed maturity securities:
Due in one year or less $ 224,663 $ 225,887
Due after one year through five years 1,343,383 1,380,248
Due after five years through ten years 740,784 764,272
Due after ten years 279,717 287,090
------------- --------------
2,588,547 2,657,497
Mortgage-backed securities 339,015 351,111
------------- --------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= ==============
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------- -------------
AAA $ 623,503 $ 642,188
AA 169,805 172,454
A 926,398 950,610
BBB 1,046,614 1,080,036
Non-investment grade 161,242 163,320
------------- -------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= =============
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized investment gains
or losses from securities classified as available-for-sale had actually
been realized, with corresponding credits or charges reported directly to
stockholder's equity. The following reconciles the net unrealized
investment gain on investment securities classified as available- for-
sale as of December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities $ 81,046 $ 68,945
Equity securities 1,013 2,989
Deferred policy acquisition costs (5,452) (4,630)
Separate Accounts assets - 168
-------------- --------------
76,607 67,472
-------------- --------------
Liabilities:
Policyholders' account balances 48,923 59,017
Federal income taxes - deferred 9,689 2,959
-------------- --------------
58,612 61,976
-------------- --------------
Stockholder's equity:
Net unrealized investment gain on investment securities $ 17,995 $ 5,496
============== ==============
</TABLE>
During the third quarter 1997, the Company provided $15,000
initial funding for a trading portfolio, composed of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities earned as of
December 31, 1997, and included in net realized investment gains
are $520.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it held for the purpose of
minimizing exposure to fluctuations in interest rates related
to specific investment securities held. The notional
amount of such swaps outstanding at December 31 1996 was
approximately $9,000. The swaps were transacted with
investment grade counterparties. As of December 31, 1996, the
Company's interest rate swap contracts were in a $270
unrealized loss position. During 1997, 1996
and 1995, there were no realized investment gains or losses
recorded.
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 846,041 $ 847,091 $ 620,853
Gross realized investment gains 16,783 19,078 14,196
Gross realized investment losses 7,193 10,749 10,813
The Company had investment securities with a carrying value
of $26,508 and $27,726 that were deposited with insurance
regulatory authorities at December 31, 1997 and 1996,
respectively.
During 1997, the Company realized a $1,005 gain on the sale of
its remaining investment in the Separate Accounts. At December
31, 1996, the Company had invested $10,168 in Separate Accounts,
including $168 of unrealized gains. The investments in Separate
Accounts are for the purpose of providing original funding of
certain mutual fund portfolios available as investment options to
variable life and annuity policyholders.
At December 31, 1997, the Company held no mortgage loans on real
estate. The carrying value and established valuation allowances
of impaired mortgage loans on real estate as of December 31,
1996 were $44,239 and $17,652, respectively.
Additional information on impaired loans for the years ended
December 31 follows:
1997 1996 1995
----------- ----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668 $ 124,089
Interest income recognized (cash-basis) 2,830 4,848 5,482
For the years ended December 31, 1997, 1996 and 1995, $7,891,
$28,555 and $1,300, respectively, of real estate held-for-sale
was acquired in satisfaction of debt.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 236,325 $ 266,916 $ 305,648
Equity securities 3,020 1,876 1,329
Mortgage loans 4,627 9,764 12,250
Real estate held-for-sale 1,939 563 153
Policy loans on insurance contracts 57,998 56,512 53,576
Cash and cash equivalents 9,570 6,710 8,463
Other 709 899 1,753
------------ ------------ ------------
Gross investment income 314,188 343,240 383,172
Less investment expenses (5,486) (6,579) (7,006)
------------ ------------ ------------
Net investment income $ 308,702 $ 336,661 $ 376,166
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 6,149 $ 4,690 $ 1,908
Equity securities 3,441 3,639 1,475
Trading account securities 697 - -
Investment in Separate Accounts 1,005 106 (369)
Mortgage loans 6,252 599 334
Real estate held-for-sale (4,252) (171) 1,177
Cash and cash equivalents (3) (1) -
------------ ------------ ------------
Net realized investment gains $ 13,289 $ 8,862 $ 4,525
============ ============ ============
</TABLE>
<PAGE>
The following is a reconciliation of the change in valuation
allowances that have been recorded to reflect other-than-
temporary declines in estimated fair value of mortgage loans
for the years ended December 31:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ------------ ----------- -----------
Mortgage loans:
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
1995 40,070 - 4,189 35,881
The Company held no investments at December 31, 1997 which have
been non-income producing for the preceding twelve months.
The Company has committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1997, $4,744 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 42,413 $ 41,048 $ 41,575
Increase (decrease) in income taxes resulting
from:
Dividend received deduction (1,969) (3,135) (532)
Release of policyholders' surplus - - 1,991
Tax deductible interest - - (718)
Other - (21) (13)
---------- ---------- ----------
Federal income tax provision $ 40,444 $ 37,892 $ 42,303
========== ========== ==========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (2,422) $ (5,770) $ (2,179)
Policyholders' account balances (16,099) 15,004 66
Liability for guaranty fund assessments 1,190 760 249
Investment adjustments 5,070 5,122 5,563
Other - (38) 269
-------------- -------------- --------------
Deferred Federal income tax
provision (benefit) $ (12,261) $ 15,078 $ 3,968
============== ============== ==============
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 95,182 $ 79,083
Investment adjustments 601 5,671
Liability for guaranty fund assessments 5,381 6,571
-------------- --------------
Total deferred tax assets 101,164 91,325
-------------- --------------
Deferred tax liabilities:
Deferred policy acquisition costs 88,670 91,092
Net unrealized investment gain on investment securities 9,689 2,959
Other 3,988 3,988
-------------- --------------
Total deferred tax liabilities 102,347 98,039
-------------- --------------
Net deferred tax liability $ 1,183 $ 6,714
================ ==============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
<PAGE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $43,028, $43,515 and $41,729 for the years
ended December 31, 1997, 1996 and 1995, respectively. The
Company is allocated interest expense on its accounts payable
to MLIG which approximates the daily Federal funds rate. Total
intercompany interest paid was $842, $988 and $1,310 for 1997,
1996 and 1995, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$1,913, $2,279 and $2,635 for 1997, 1996 and 1995,
respectively.
MLAM and MLIG have entered into an agreement with respect to
administrative services for the Merrill Lynch Series Fund, Inc.
("Series Fund") and Merrill Lynch Variable Series Funds, Inc.
("Variable Series Funds"). The Company invests in the various
mutual fund portfolios of the Series Fund and the Variable
Series Funds in connection with the variable life and annuities
the Company has in-force. Under this agreement, MLAM pays
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Series Fund
and the Variable Series Funds to MLAM. The Company received
from MLIG its allocable share of such compensation in the
amount of $19,057, $16,514 and $13,293 during 1997, 1996 and
1995, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $72,729, $42,639 and $43,984 for
1997, 1996 and 1995, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it entered into with Merrill
Lynch Capital Services, Inc. ("MLCS") with a guarantee from
Merrill Lynch & Co. At December 31, 1996, the notional amount
of such interest rate swap contracts outstanding was $9,000.
Net interest received from these interest rate swap contracts
was $4, ($117), and $256 for 1997, 1996 and 1995, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
During 1997, the Company sold its investment in 2141 E.
Camelback, Corp. to Merrill Lynch Mortgage Capital, Inc. The
investment was sold at its carrying value of $5,375.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1997, 1996, and 1995 the Company paid dividends of
$135,000, $175,000, and $100,000, respectively, to MLIG. Of
these stockholder's dividends, $110,030, $175,000 and $73,757,
respectively, were extraordinary dividends as defined by
Arkansas Insurance Law and were paid pursuant to approval
granted by the Arkansas Insurance Commissioner.
At December 31, 1997 and 1996, approximately $24,304 and
$24,970, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1997 and 1996, was $245,042 and $251,697,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes, and valuing securities on a different basis. The
Company's statutory net income for 1997, 1996 and 1995 was
$81,963, $93,532 and $121,451, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. As of December 31, 1997 and 1996, based on the
RBC formula, the Company's total adjusted capital level was
394% and 403%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result of
the insolvency of an insurer. At the time an insolvency occurs,
the guaranty association assesses the remaining members of the
association an amount sufficient to satisfy the insolvent
insurer's policyholder obligations (within specified limits).
During 1991, and to a lesser extent 1992, there were certain
highly publicized life insurance insolvencies. The Company has
utilized public information to estimate what future assessments
it will incur as a result of these insolvencies. At December 31,
1997 and 1996, the Company has established an estimated
liability for future guaranty fund assessments of $15,374 and
$18,773, respectively. The Company regularly monitors public
information regarding insurer insolvencies and adjusts its
estimated liability as appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
<PAGE> 21
NOTE 8. LIFE INSURANCE IN FORCE
<TABLE>
<CAPTION>
Ceded to Assumed Percentage
Gross other from other Net of amount
amount companies companies amount assumed to
net
<S> <C> <C> <C> <C> <C>
Life insurance
in force 10,568,021 2,879,306 1,843,104 9,531,819 19%
</TABLE>
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Life Insurance Company
-------------------------------------
(Registrant)
Date: March 27, 1998 By: /s/ Joseph E. Crowne, Jr.
---------------------------------
Joseph E. Crowne, Jr.
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Chairman of the Board, President March 27, 1998
- ----------------------------------- and Chief Executive Officer --------------
Anthony J. Vespa
/s/ Joseph E. Crowne, Jr. Director, Senior Vice President, March 27, 1998
- ----------------------------------- Chief Financial Officer, Chief --------------
Joseph E. Crowne, Jr. Actuary and Treasurer
/s/ Barry G. Skolnick Director, Senior Vice President and March 27, 1998
- ----------------------------------- General Counsel* --------------
Barry G. Skolnick
* Director, Senior Vice President and March 27, 1998
- ----------------------------------- Chief Investment Officer --------------
David M. Dunford
* Director and Senior Vice President March 27, 1998
- ----------------------------------- --------------
Gail R. Farkas
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
<PAGE> 23
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
No annual report covering the Registrant's last fiscal year or proxy
material has been or will be sent to Registrant's security holder.
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
2.1 Merrill Lynch Life Insurance Company Board Incorporated by reference to Exhibit 2.1,
of Directors Resolution in Connection with filed September 5, 1991, as part of
the Merger between Merrill Lynch Life Post-Effective Amendment No. 4
Insurance Company and Tandem Insurance to the Registrant's registration statement
Group, Inc. on Form S-1, File No. 33-26322.
2.2 Plan and Agreement of Merger between Incorporated by reference to Exhibit 2.1a,
Merrill Lynch Life Insurance Company and filed September 5, 1991, as part of
Tandem Insurance Group, Inc. Post-Effective Amendment No. 4 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
3.1 Articles of Incorporation of Merrill Lynch Incorporated by reference to Exhibit 3.1
Life Insurance Company. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
3.2 By-Laws of Merrill Lynch Life Insurance Incorporated by reference to Exhibit 3.2
Company. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
3.3 Articles of Amendment, Restatement and Incorporated by reference to Exhibit 3(c)
Redomestication of the Articles of to the Registrant's registration statement
Incorporation of Merrill Lynch Life on Form S-1, File No. 33-46827, filed
Insurance Company. March 30, 1992.
</TABLE>
- E-1 -
<PAGE> 25
<TABLE>
<S> <C> <C>
3.4 Amended and Restated By-Laws of Merrill Incorporated by reference to Exhibit 3(d)
Lynch Life Insurance Company. to the Registrant's registration
statement on Form S-1, File No. 33-46827,
filed March 30, 1992.
4.1 Group Modified Guaranteed Annuity Incorporated by reference to Exhibit 4.1,
Contract, ML-AY-361. filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.2 Individual Certificate, ML-AY-362. Incorporated by reference to Exhibit 4.2,
filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.2a Individual Certificate, ML-AY-362 KS. Incorporated by reference to Exhibit 4.2a,
filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.2b Individual Certificate, ML-AY-378. Incorporated by reference to Exhibit 4.2b,
filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
</TABLE>
- E-2 -
<PAGE> 26
<TABLE>
<S> <C> <C>
4.3 Individual Tax-Sheltered Annuity Incorporated by reference to Exhibit 4.3,
Certificate, ML-AY-372. filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.3a Individual Tax-Sheltered Annuity Incorporated by reference to Exhibit 4.3a,
Certificate, ML-AY-372 KS. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.4 Qualified Retirement Plan Certificate, Incorporated by reference to Exhibit 4.4
ML-AY-373. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.4a Qualified Retirement Plan Certificate, Incorporated by reference to Exhibit 4.4a,
ML-AY-373 KS. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.5 Individual Retirement Annuity Certificate, Incorporated by reference to Exhibit 4.5
ML-AY-374. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
</TABLE>
- E-3 -
<PAGE> 27
<TABLE>
<S> <C> <C>
4.5a Individual Retirement Annuity Certificate, Incorporated by reference to Exhibit 4.5a,
ML-AY-374 KS. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.5b Individual Retirement Annuity Certificate, Incorporated by reference to Exhibit 4.5b,
ML-AY-375 KS. filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.
4.5c Individual Retirement Annuity Certificate, Incorporated by reference to Exhibit 4.5c,
ML-AY-379. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.6 Individual Retirement Account Certificate, Incorporated by reference to Exhibit 4.6,
ML-AY-375. filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.6a Individual Retirement Account Certificate, Incorporated by reference to Exhibit 4.6a,
ML-AY-380. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
</TABLE>
- E-4 -
<PAGE> 28
<TABLE>
<S> <C> <C>
4.7 Section 457 Deferred Compensation Plan Incorporated by reference to Exhibit 4.7
Certificate, ML-AY-376. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.7a Section 457 Deferred Compensation Plan Incorporated by reference to Exhibit 4.7a,
Certificate, ML-AY-376 KS. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.8 Tax-Sheltered Annuity Endorsement, Incorporated by reference to Exhibit 4.8
ML-AY-366. to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed
January 3, 1989.
4.8a Tax-Sheltered Annuity Endorsement, Incorporated by reference to Exhibit 4.8a,
ML-AY-366 190. filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.8b Tax-Sheltered Annuity Endorsement, Incorporated by reference to Exhibit
ML-AY-366 1096. 4(h)(3), filed March 27, 1997, as part of
Post-Effective Amendment No. 2 to the
Registrant's registration statement on
Form S-1, File No. 33-58303.
4.9 Qualified Retirement Plan Endorsement, Incorporated by reference to Exhibit 4.9
ML-AY-364. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
</TABLE>
- E-5 -
<PAGE> 29
<TABLE>
<S> <C> <C>
4.10 Individual Retirement Annuity Endorsement, Incorporated by reference to Exhibit 4.10
ML-AY-368. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.10a Individual Retirement Annuity Endorsement, Incorporated by reference to Exhibit
ML-AY-368 190. 4.10a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.10b Individual Retirement Annuity Endorsement, Incorporated by reference to Exhibit
ML-009. 4(j)(3) to Post-Effective Amendment No. 1
to the Registrant's registration statement
on Form S-1, File No. 33-60290, filed
March 31, 1994.
4.11 Individual Retirement Account Endorsement, Incorporated by reference to Exhibit 4.11
ML-AY-365. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.11a Individual Retirement Account Endorsement, Incorporated by reference to Exhibit
ML-AY-365 190. 4.11a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.12 Section 457 Deferred Compensation Plan Incorporated by reference to Exhibit 4.12
Endorsement, ML-AY-367. to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
</TABLE>
- E-6 -
<PAGE> 30
<TABLE>
<S> <C> <C>
4.12a Section 457 Deferred Compensation Plan Incorporated by reference to Exhibit
Endorsement, ML-AY-367 190. 4.12a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.13 Qualified Plan Endorsement, ML-AY-369. Incorporated by reference to Exhibit 4.13
to the Registrant's registration statement
on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.13a Qualified Plan Endorsement, ML-AY-448. Incorporated by reference to Exhibit
4.13a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
4.14 Application for Group Modified Guaranteed Incorporated by reference to Exhibit 4.14
Annuity Contract. to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed
January 3, 1989.
4.15 Annuity Application for Individual Incorporated by reference to Exhibit 4.15
Certificate Under Modified Guaranteed to the Registrant's registration statement
Annuity Contract. on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.16 Form of Company Name Change Endorsement. Incorporated by reference to Exhibit 4.16,
filed September 5, 1991, as part of
Post-Effective Amendment No. 4 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
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<TABLE>
<S> <C> <C>
4.17 Group Modified Guarantee Annuity Contract. Incorporated by reference to Exhibit
4.(a)(2), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
4.18 Individual Contract. Incorporated by reference to Exhibit
4.(b)(4), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
4.19 Individual Tax-Sheltered Annuity Incorporated by reference to Exhibit
Certificate. 4.(c)(3), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
4.20 Qualified Retirement Plan Certificate. Incorporated by reference to Exhibit
4.(d)(3), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
4.21 Individual Retirement Annuity Certificate. Incorporated by reference to Exhibit
4.(e)(5), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
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<TABLE>
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4.22 Individual Retirement Account Certificate. Incorporated by reference to Exhibit
4.(f)(3), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
4.23 Section 457 Deferred Compensation Plan Incorporated by reference to Exhibit
Certificate. 4.(g)(3), filed December 7, 1994, as part
of Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-60290.
Incorporated by reference to Exhibit
4.(m)(3), filed December 7, 1994, as part
Qualified Plan Endorsement. of Post-Effective Amendment No. 3 to the
4.24 Registrant's registration statement on
Form S-1, File No. 33-60290.
10.1 Management Services Agreement between Incorporated by reference to Exhibit 10.1
Family Life Insurance Company and Merrill to the Registrant's registration statement
Lynch Life Insurance Company. on Form S-1, File No. 33-26322, filed
January 3, 1989.
10.2 General Agency Agreement between Merrill Incorporated by reference to Exhibit 10.2,
Lynch Life Insurance Company and Merrill filed February 23, 1989, as part of
Lynch Life Agency, Inc. Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
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10.3 Service Agreement among Merrill Lynch Incorporated by reference to Exhibit 10.3,
Insurance Group, Family Life Insurance filed March 13, 1991, as part of
Company and Merrill Lynch Life Insurance Post-Effective Amendment No. 2 to the
Company. Registrant's registration statement on
Form S-1, File No. 33-26322.
10.3a Amendment to Service Agreement among Incorporated by reference to Exhibit
Merrill Lynch Insurance Group, Family Life 10(c)(2) to Post-Effective Amendment No. 1
Insurance Company and Merrill Lynch Life to the Registrant's registration statement
Insurance Company. on Form S-1, File No. 33-60290, filed
March 31, 1994.
10.4 Indemnity Reinsurance Agreement between Incorporated by reference to Exhibit 10.4,
Merrill Lynch Life Insurance Company and filed March 13, 1991, as part of
Family Life Insurance Company. Post-Effective Amendment No. 2 to the
Registrant's registration statement on
Form S-1, File No. 33-26322.
10.5 Assumption Reinsurance Agreement Between Incorporated by reference to Exhibit 10.6,
Merrill Lynch Life Insurance Company, filed April 24, 1991, as part of
Tandem Insurance Group, Inc. and Royal Post-Effective Amendment No. 3 to the
Tandem Life Insurance Company and Family Registrant's registration statement on
Life Insurance Company. Form S-1, File No. 33-26322.
10.6 Amended General Agency Agreement between Incorporated by reference to Exhibit 10(g)
Merrill Lynch Life Insurance Company to the Registrant's registration
and Merrill Lynch Life Agency, Inc. statement on Form S-1, File No. 33-46827,
filed March 30, 1992.
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10.7 Indemnity Agreement between Merrill Lynch Incorporated by reference to Exhibit 10(h)
Life Insurance Company and Merrill Lynch to the Registrant's registration statement
Life Agency, Inc. on Form S-1, File No. 33-46827, filed
March 30, 1992.
10.8 Management Agreement between Merrill Incorporated by reference to Exhibit 10(i)
Lynch Life Insurance Company and Merrill to the Registrant's registration statement
Lynch Asset Management, Inc. on Form S-1, File No. 33-46827, filed
March 30, 1992.
10.9 Amendment No. 1 to Indemnity Reinsurance Incorporated by reference to Exhibit 10.5,
Agreement between Family Life Insurance filed April 24, 1991, as part of
Company and Merrill Lynch Life Insurance Post-Effective Amendment No. 3 to the
Company. Registrant's registration statement on
Form S-1, File No. 33-26322.
23.1 Consent of Deloitte & Touche LLP. Exhibit 23.1.
24.1 Power of attorney of Joseph E. Crowne. Incorporated by reference to Exhibit 24(a)
to the Registrant's registration statement
on Form S-1, File No. 33-58303, filed
March 29, 1995.
24.2 Power of attorney of David M. Dunford. Incorporated by reference to Exhibit 24(b)
to the Registrant's registration statement
on Form S-1, File No. 33-58303, filed
March 29, 1995.
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24.3 Power of attorney of Barry G. Skolnick. Incorporated by reference to Exhibit 24(e)
to the Registrant's registration statement
on Form S-1, File No. 33-58303, filed
March 29, 1995.
24.4 Power of attorney of Anthony J. Vespa. Incorporated by reference to Exhibit 24(f)
to the Registrant's registration statement
on Form S-1, File No. 33-58303, filed
March 29, 1995.
24.5 Power of attorney of Incorporated by reference to Exhibit 24(g)
Gail R. Farkas. to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-58303, filed March
26, 1996.
27.1 Financial Data Schedule Exhibit 27.1
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<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 23,
1998, filed with the Merrill Lynch Life Insurance Company Annual Report on Form
10-K, into the Registration Statement on Form S-3 of Merrill Lynch Life
Insurance Company (No. 333-33863).
/s/ Deloitte & Touche LLP
New York, New York
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 3,008,608
<EQUITIES> 73,612
<MORTGAGE> 0
<REAL-ESTATE> 31,805
<TOTAL-INVEST> 4,247,789
<CASH> 86,388
<RECOVER-REINSURE> 1,617
<DEFERRED-ACQUISITION> 365,105
<TOTAL-ASSETS> 14,053,581
<POLICY-LOSSES> 50,574
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 27,160
<POLICY-HOLDER-FUNDS> 4,188,110
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 446,054
<TOTAL-LIABILITY-AND-EQUITY> 14,053,581
0
<INVESTMENT-INCOME> 308,702
<INVESTMENT-GAINS> 13,289
<OTHER-INCOME> 178,933
<BENEFITS> 27,029
<UNDERWRITING-AMORTIZATION> 72,111
<UNDERWRITING-OTHER> 49,105
<INCOME-PRETAX> 121,179
<INCOME-TAX> 40,444
<INCOME-CONTINUING> 80,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,735
<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
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