<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
COMMISSION FILE NUMBERS 33-26322; 33-46827; 33-52254; 33-60290;
33-58303; 333-33863
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
ARKANSAS 91-1325756
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
(609) 282-1429
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 200,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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<PAGE> 2
PART I Financial Information
Item 1. Financial Statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group,Inc.)
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ------ ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $2,347,787; 1998 - $2,504,599) $ 2,308,397 $ 2,543,097
Equity securities, at estimated fair value
(cost: 1999 - $204,978; 1998 - $162,710) 198,246 158,591
Trading account securities, at estimated fair value 18,543 17,280
Real estate held-for-sale 20,072 25,960
Policy loans on insurance contracts 1,142,884 1,139,456
------------- -------------
Total Investments 3,688,142 3,884,384
CASH AND CASH EQUIVALENTS 137,469 95,377
ACCRUED INVESTMENT INCOME 77,835 73,459
DEFERRED POLICY ACQUISITION COSTS 434,737 405,640
FEDERAL INCOME TAXES - DEFERRED 25,215 9,403
REINSURANCE RECEIVABLES 4,442 2,893
AFFILIATED RECEIVABLES - NET 4,520 -
RECEIVABLES FROM SECURITIES SOLD 12,366 14,938
OTHER ASSETS 46,430 46,512
SEPARATE ACCOUNTS ASSETS 11,527,108 10,571,489
------------- -------------
TOTAL ASSETS $ 15,958,264 $ 15,104,095
============= =============
</TABLE>
See notes to finanical statements. (continued)
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Continued) (Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,683,875 $ 3,816,744
Claims and claims settlement expenses 75,056 63,925
------------- -------------
Total policyholder liabilities and accruals 3,758,931 3,880,669
OTHER POLICYHOLDER FUNDS 19,838 20,802
LIABILITY FOR GUARANTY FUND ASSESSMENTS 13,685 13,864
FEDERAL INCOME TAXES - CURRENT 16,579 15,840
AFFILIATED PAYABLES - NET - 822
PAYABLE FOR SECURITIES PURCHASED 814 10,541
UNEARNED POLICY CHARGE REVENUE 67,004 55,235
OTHER LIABILITIES 20,914 24,273
SEPARATE ACCOUNTS LIABILITIES 11,515,779 10,559,459
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Total Liabilities 15,413,544 14,581,505
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STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 347,324
Retained earnings 219,431 173,496
Accumulated other comprehensive loss (24,035) (230)
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Total Stockholder's Equity 544,720 522,590
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,958,264 $ 15,104,095
============= =============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 130,162 $ 139,409
Net realized investment gains 5,139 13,300
Policy charge revenue 109,828 100,661
------------- -------------
Total Revenues 245,129 253,370
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 88,851 100,317
Market value adjustment expense 1,692 2,919
Policy benefits (net of reinsurance recoveries: 1999 - $7,410
1998 - $5,059) 16,080 15,438
Reinsurance premium ceded 10,735 9,855
Amortization of deferred policy acquisition costs 31,233 35,215
Insurance expenses and taxes 25,868 24,810
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Total Benefits and Expenses 174,459 188,554
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Earnings Before Federal Income Tax Provision 70,670 64,816
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 27,729 22,984
Deferred (2,994) (3,761)
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Total Federal Income Tax Provision 24,735 19,223
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NET EARNINGS $ 45,935 $ 45,593
============= =============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 62,836 $ 68,410
Net realized investment gains 3,782 2,842
Policy charge revenue 55,867 52,616
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Total Revenues 122,485 123,868
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BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 44,003 49,998
Market value adjustment expense 857 1,527
Policy benefits (net of reinsurance recoveries: 1999 - $4,128
1998 - $1,318) 8,130 7,706
Reinsurance premium ceded 5,538 4,985
Amortization of deferred policy acquisition costs 14,538 18,542
Insurance expenses and taxes 13,337 12,538
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Total Benefits and Expenses 86,403 95,296
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Earnings Before Federal Income Tax Provision 36,082 28,572
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 13,579 10,736
Deferred (950) (802)
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Total Federal Income Tax Provision 12,629 9,934
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NET EARNINGS $ 23,453 $ 18,638
============= =============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET EARNINGS $ 45,935 $ 45,593
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OTHER COMPREHENSIVE LOSS:
Net unrealized losses on investment securities:
Net unrealized holding losses arising during the period (74,819) (157)
Reclassification adjustment for gains included in net earnings (5,337) (13,208)
------------ ------------
Net unrealized losses on investment securities (80,156) (13,365)
Adjustments for:
Policyholder liabilities 24,112 4,923
Deferred policy acquisition costs 19,421 (408)
Deferred federal income taxes 12,818 3,097
------------ ------------
Total other comprehensive loss (23,805) (5,753)
------------ ------------
COMPREHENSIVE INCOME $ 22,130 $ 39,840
============ ============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET EARNINGS $ 23,453 $ 18,638
------------ ------------
OTHER COMPREHENSIVE LOSS:
Net unrealized losses on investment securities:
Net unrealized holding losses arising during the period (40,611) (3,604)
Reclassification adjustment for gains included in net earnings (4,013) (2,804)
------------ ------------
Net unrealized losses on investment securities (44,624) (6,408)
Adjustments for:
Policyholder liabilities 18,304 775
Deferred policy acquisition costs 14,835 (491)
Deferred federal income taxes 4,020 2,144
------------ ------------
Total other comprehensive loss (7,465) (3,980)
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COMPREHENSIVE INCOME $ 15,988 $ 14,658
============ ============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Stockholder's
stock capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 2,000 $ 347,324 $ 80,735 $ 17,995 $ 448,054
Net earnings 92,761 92,761
Other comprehensive loss, net of tax (18,225) (18,225)
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,000 347,324 173,496 (230) 522,590
Net Earnings 45,935 45,935
Other comprehensive loss, net of tax (23,805) (23,805)
----------- ----------- ----------- ------------- -------------
BALANCE, JUNE 30, 1999 $ 2,000 $ 347,324 $ 219,431 $ (24,035) $ 544,720
=========== =========== =========== ============= =============
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 45,935 $ 45,593
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 31,233 35,215
Capitalization of policy acquisition costs (40,909) (38,536)
Amortization (accretion) of investments (1,323) (4,157)
Interest credited to policyholders' account balances 88,851 100,317
Benefit for deferred Federal income tax (2,994) (3,761)
(Increase) decrease in operating assets:
Trading account securities (556) (377)
Accrued investment income (4,376) 430
Affiliated receivables (4,520) (2,062)
Other (1,467) 492
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 11,131 12,085
Other policyholder funds (964) (3,736)
Liability for guaranty fund assessments (179) (893)
Federal income taxes - current 739 (10,702)
Affiliated payables (822) -
Unearned policy charge revenue 11,769 7,540
Other (3,359) (3,556)
Other operating activities:
Net realized investment gains (5,139) (13,300)
Policy loans on insurance contracts (3,428) (1,662)
------------ ------------
Net cash and cash equivalents provided by operating activities 119,622 118,930
------------ ------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 432,272 492,553
Maturities of available-for-sale securities 255,577 269,089
Purchases of available-for-sale securities (582,380) (592,830)
Sales of real estate held-for-sale 13,282 10,862
Recapture of investments in separate accounts 6,653 -
Investment in separate accounts (5,326) (12,000)
------------ ------------
Net cash and cash equivalents provided by investing activities $ 120,078 $ 167,674
------------ ------------
</TABLE>
See notes to financial statements. (continued)
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from (payments for):
Policyholder deposits $ 553,542 $ 518,798
Policyholder withdrawals (including transfers to/from separate accounts) (751,150) (840,551)
------------ ------------
Net cash and cash equivalents used by financing activities (197,608) (321,753)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,092 (35,149)
CASH AND CASH EQUIVALENTS:
Beginning of year 95,377 86,388
------------ ------------
End of period $ 137,469 $ 51,239
============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 26,990 $ 33,686
Intercompany interest 359 470
</TABLE>
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION:
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
life insurance and annuity products, including
variable life insurance and variable annuities.
The interim financial statements for the three and
six month periods are unaudited. In the opinion of
management, these unaudited financial statements
include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation
of the financial position and the results of
operations in accordance with generally accepted
acounting principles. These unaudited financial
statements should be read in conjunction with the
audited financial statements included in the
Company's Annual Report included as an exhibit to
Form 10-K for the year ended December 31, 1998. The
nature of the Company's business is such that the
results of any interim period are not necessarily
indicative of results for a full year. Certain
reclassifications have also been made to prior period
financial statements, where appropriate, to conform
to the current period presentation.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting
records in conformity with accounting practices
prescribed or permitted by the Insurance Department
of the State of Arkansas and the National Association
of Insurance Commissioners. Statutory capital and
surplus at June 30, 1999 and December 31, 1998, was
$361 million and $299 million, respectively. For the
six month periods ended June 30, 1999 and 1998,
statutory net income was $58 million and $48 million,
respectively.
NOTE 3. INVESTMENTS:
The Company's investments in debt and equity
securities are classified as either available-for-
sale or trading and are recorded at fair value.
Unrealized gains and losses on available-
for-sale securities are included in accumulated other
comprehensive loss, which is a component of
stockholder's equity. Unrealized gains and losses on
trading account securities are included in net
realized investment gains.
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 available-for-sale
investments had actually been realized, with
corresponding credits or charges reported in
stockholder's equity as a component of accumulated
other comprehensive loss, net of taxes. The following
reconciles net unrealized investment gains (losses)
on available-for-sale investments:
June 30, December 31,
1999 1998
----------- -----------
Assets:
Fixed maturity securities $ (39,390) $ 38,498
Equity securities (6,732) (4,119)
Deferred policy acquisition costs 19,098 (323)
Federal income taxes - deferred 12,942 124
Separate Accounts assets 375 30
----------- -----------
(13,707) 34,210
----------- -----------
Liabilities:
Policyholders' account balances 10,328 34,440
----------- -----------
Stockholder's equity:
Accumlated other comprehensive loss $ (24,035) $ (230)
=========== ===========
The following summarizes the net impact of available-for-sale
securities, trading account securities and real estate held-
for-sale on net realized investment gains:
June 30, June 30,
1999 1998
----------- -----------
Available-for-sale securities:
Net realized investment gains (losses) $ (2,963) $ 4,935
Trading account securities:
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ JOSEPH E. CROWNE
-----------------------------------------
Joseph E. Crowne
Senior Vice President and
Chief Financial Officer
Date: August 13, 1999
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EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 2,308,397
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 198,246
<MORTGAGE> 0
<REAL-ESTATE> 20,072
<TOTAL-INVEST> 3,688,142
<CASH> 137,469
<RECOVER-REINSURE> 4,442
<DEFERRED-ACQUISITION> 434,737
<TOTAL-ASSETS> 15,958,264
<POLICY-LOSSES> 75,056
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 19,838
<POLICY-HOLDER-FUNDS> 3,683,875
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 542,720
<TOTAL-LIABILITY-AND-EQUITY> 15,958,264
0
<INVESTMENT-INCOME> 130,162
<INVESTMENT-GAINS> 5,139
<OTHER-INCOME> 109,828
<BENEFITS> 16,080
<UNDERWRITING-AMORTIZATION> 31,233
<UNDERWRITING-OTHER> 25,868
<INCOME-PRETAX> 70,670
<INCOME-TAX> 24,735
<INCOME-CONTINUING> 45,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,935
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
