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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, 1998
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)
<TABLE>
<S> <C>
Arkansas 91-1325756
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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800 Scudders Mill Road
Plainsboro, New Jersey 08536-1698
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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 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 and redomesticated to the State of Arkansas on
August 31, 1991. The Registrant is currently subject to primary regulation by
the Arkansas Insurance Department. The Registrant is a direct wholly owned
subsidiary of Merrill Lynch Insurance Group ("MLIG"). MLIG is an indirect
wholly owned subsidiary of Merrill Lynch & Co., Inc.("Merrill Lynch & Co."), a
corporation whose common stock is traded on the New York Stock Exchange.
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 1998, life insurance and annuity
sales were made in all states the Registrant was licensed in, with the largest
concentration in Florida, 15%, Texas, 12%, and California, 8%, as measured by
total contract owner deposits.
The Registrant's insurance products are sold primarily by licensed
agents affiliated with Merrill Lynch Life Agencies ("MLLA"). Career life
insurance agents, whose sole responsibility is the sale and servicing of
insurance, and Financial Consultants of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), who are also licensed as insurance agents, make all the
Registrant's insurance sales. At December 31, 1998, approximately 11,670 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 the Registrant 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 Partnership. MLIG
occupies certain office space in Plainsboro, New Jersey through Merrill Lynch &
Co. 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.
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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 MLIG, which is an
indirect wholly owned subsidiary of Merrill Lynch & Co. MLIG is the sole
record holder of Registrant's shares. Therefore, there is no public trading
market for Registrant's common stock.
During 1998, the Registrant did not pay any dividends. On November 28,
1997, the Registrant paid a $24,970,000 ordinary dividend and a $110,030,000
extraordinary dividend to MLIG. The extraordinary dividend was 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 pay extraordinary dividends
on its common stock is restricted. See Note 7 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 Discussion and Analysis of Financial Condition and Results
of Operations.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
BUSINESS ENVIRONMENT
The Registrant (also referred to as "Merrill Lynch Life") conducts its business
in the life insurance and annuity markets of the financial services industry.
These markets are faced with an increased strengthening of the regulatory
environment with particular emphasis on company solvency and sales practice
monitoring. Significant mergers within the financial services industry, as well
as legislative and judicial processes, are challenging the legal barriers that
have historically segregated many of its markets. The distribution channels for
life insurance and annuity products continue to diversify and now
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include banks, full service and discount securities brokers, financial planners
and the Internet.
Tax legislation, enacted during the third quarter 1997, increased the
competitiveness of non-insurance products in the individual retirement market by
reducing the long-term capital gains tax rate and creating new non-deductible
Individual Retirement Accounts (i.e., Roth IRAs). Additionally, current tax
legislative proposals, which are in various stages of the political process, may
have a material impact on the life insurance industry by reducing or eliminating
the tax advantages on certain products.
Demographically, the population is aging, which favors life insurance and
annuity products. In particular, management anticipates that markets will expand
for estate planning products and annuities, albeit in a more competitive
environment.
ECONOMIC ENVIRONMENT
During 1998, the propagation of economic instability among certain Asian,
Eastern European and Latin American economies, and its influence on investors
worldwide, contributed to the emergence of three important economic factors in
the U.S:
- - lower interest rates
- - widening credit spreads
- - equity market volatility
Investors' flight to quality resulted in an 83 basis point decrease on the
interest rate of the 30 year U.S. Treasury Bond, dropping its yield to 5.09% at
December 31, 1998. Similarly, rates on medium term U.S Treasury securities,
defined as 1 to 10 year terms, decreased 108 basis points to yield, on average,
4.56%.
In the corporate bond market, the combined effects of record levels of debt
issuance, investor concern regarding corporate earnings and the disappearance of
liquidity in certain markets resulted in a significant widening of interest rate
spreads as compared to U.S. Treasury securities. The spread between the 5-year
U.S Treasury Bond Index and the 5-year Corporate Financial Bond Index increased
from approximately 58 basis points at December 1997 to approximately 168 basis
points at December 1998.
Equity market volatility was prevalent primarily during the second half of 1998.
After increasing approximately 17% through mid-year, the Standard & Poor's 500
Composite Stock Price Index ("S&P Index") dipped 10% during the third quarter
before rebounding 21% during the fourth quarter.
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SUMMARY
Merrill Lynch Life sells variable and interest-sensitive life insurance and
annuity products through Merrill Lynch & Co.'s retail network of Financial
Consultants. Merrill Lynch Life competes for Merrill Lynch & Co.'s clients' life
insurance and annuity business with non-affiliated insurers whose products are
also sold through Merrill Lynch & Co.'s retail network ("non-proprietary
products"), and with insurers who solicit this business directly. The product
lines that Merrill Lynch Life offers are focused in the highly competitive
market segments of retirement and estate planning. Merrill Lynch Life competes
in these market segments by integrating its products into Merrill Lynch & Co.'s
planning-based financial management program.
Merrill Lynch Life's financial management is based on prudent investment
and liability management and regular monitoring of its risk profile. Merrill
Lynch Life also seeks to provide superior customer service and financial
management to promote the competitiveness of its products. Merrill Lynch Life's
customer service centers have established standards of performance that are
monitored on a regular basis. Managers and employees in the customer service
centers are periodically evaluated based on their performance in meeting these
standards.
Merrill Lynch Life has strategically placed its marketing emphasis on the sale
of variable annuities, modified guaranteed annuities and variable life insurance
products. These products are designed to address the retirement and estate
planning needs of Merrill Lynch & Co.'s clients. The variable annuity products
provide tax-deferred savings with the opportunity for diversified investing in a
wide selection of underlying mutual fund portfolios. The modified guaranteed
annuity product provides a guaranteed fixed interest-crediting rate for a period
selected by the contract owner, but imposes a market value adjustment for
withdrawals prior to the expiration of the guarantee period. Merrill Lynch Life
offers two primary types of variable life insurance. Both types allow the
policyholder to allocate the cash value of the policy to underlying mutual fund
portfolios. The first type of variable life insurance product provides life
insurance protection with the potential for maximum cash value accumulation in
accordance with federal income tax requirements. The second type of variable
life insurance product adopts a universal life design and is primarily utilized
in clients' estate planning strategies. The following table summarizes Merrill
Lynch Life's sales activity for the three years ending December 31, 1998:
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<TABLE>
<CAPTION>
Premiums Collected % Change
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1998 1997 1996 1998 - 1997 1997 - 1996
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(In Millions)
<S> <C> <C> <C> <C> <C>
Variable Annuities $ 1,002 $ 1,040 $ 512 -4% 103%
Modified Guaranteed 14 32 57 -56% -43%
Variable Life Insurance:
Cash Value Accumulation 80 74 54 8% 37%
Estate Planning 60 45 30 33% 50%
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140 119 84 18% 42%
------------ ------------ ------------ ------------- -------------
Other 9 15 21 -40% -29%
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Total Premiums $ 1,165 $ 1,206 $ 674 -3% 79%
============ ============ ============ ============= =============
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During 1998, Merrill Lynch Life's total sales decreased 3%, but remained strong
overall, exceeding the $1 billion level for the second consecutive year.
Variable annuity products continued to dominate overall sales by comprising 86%,
86% and 76% of total sales volume for the years ended 1998, 1997 and 1996,
respectively. Variable life insurance sales continued to produce solid growth by
increasing for the sixth consecutive year - since their introduction in the
fourth quarter 1992. Partially offsetting the strength of variable product sales
was the continued reduction in modified guaranteed annuity sales. Sales of this
product are reflective of the current interest rate environment and will
generally increase and decrease in a direct relationship with the increase and
decrease in interest rates. A more detailed analysis of variable product sales
follows.
During 1997, Merrill Lynch Life changed its distribution structure. Previously,
specialists supporting the sales force were responsible for both life and
annuity products. Beginning in 1997 and culminating during the second quarter
1998, Merrill Lynch Life created two specialist positions within each sales
district where it was geographically feasible. One specializes in estate
planning life insurance products while the other specializes in annuity and
single premium life products. The new distribution structure has resulted in a
greater and more focused coverage of Merrill Lynch Life's sales force and has,
in management's view, contributed to the continued strength in variable product
sales.
New variable annuity sales decreased 4% during 1998 as compared to record sales
levels in 1997. During 1997, variable annuity sales increased 103% as compared
to 1996. The decrease in 1998 sales occurred primarily during the second half of
the year amid increased volatility in the equity markets. Overall, variable
annuity sales have remained strong over the last two years. Management
attributes the strong variable annuity sales to enhanced sales efforts related
to the
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addition of new investment options. Since December 1996, Merrill Lynch Life has
added ten new investment options to certain of its variable annuity products,
some of which are managed by unaffiliated investment advisors. A number of these
mutual fund portfolios generally have aggressive growth investment objectives
that complement the underlying portfolios managed by Merrill Lynch Asset
Management, LP ("MLAM"), an indirect subsidiary of Merrill Lynch & Co.
Additionally, management believes that the generally favorable equity markets
over the past three years has also contributed to the strength of variable
annuity sales. During 1998, 1997 and 1996, the S&P Index has risen 27%, 31% and
20%, respectively. Future variable annuity sales could be negatively impacted by
continued volatility in the equity markets.
Merrill Lynch & Co. offers an asset allocation service to Merrill Lynch Life
variable annuity contract owners. An investment advisor allocates the
participating contract owner's account value among the available underlying
mutual fund portfolios based on the contract owner's investment objectives and
risk tolerance. Merrill Lynch Life does not receive any financial remuneration
from Merrill Lynch & Co. for this service; however, management believes that its
availability has had a positive effect on variable annuity sales volume.
As previously stated, one of Merrill Lynch Life's core goals is to provide
superior customer service to its clients. As evidence of progression towards
this goal Merrill Lynch Life received the DALBAR Annuity Service Award for its
Retirement Plus variable annuity during both 1998 and 1997.
Merrill Lynch & Co. offers for sale numerous non-proprietary variable annuity
products. Merrill Lynch Life's market share of variable annuity sales within the
Merrill Lynch & Co. distribution system was 41%, 48% and 38% for 1998, 1997 and
1996, respectively.
Variable life sales increased 18% during 1998 as compared to 1997 and 42% during
1997 as compared to 1996. Management attributes this increase to the
implementation of a marketing focus program for Merrill Lynch Life's Estate
Planning and Business Insurance Specialists. This program, implemented during
the first half of 1998, was designed to promote awareness of new product
enhancements. Additionally, variable life sales were favorably impacted by
Merrill Lynch & Co.'s planning-based financial management program for
individual investors. Approximately 68% of all financial plans completed
contained a recommendation that the purchase of life insurance may resolve an
identified need. The implementation of these recommendations has, in
management's view, contributed to the growth in variable life sales.
During 1998, policy and contract surrenders increased $124 million (or 16%) to
$879 million as compared to 1997. During 1998, variable annuity surrenders
increased $80 million (or 42%) to $270 million primarily due to growth of that
block of business. During the same period, modified guaranteed annuity
surrenders increased $86 million (or 48%) to $266 million due to the lower
interest rate environment during 1998 as compared to 1997. During periods of
lower interest rates, modified guaranteed annuity contractholders are more
inclined to surrender their contracts for two reasons. First, contractholders
can lock-in gains resulting from the market
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value adjustment, which is applied to withdrawals made prior to the expiration
of the stated guarantee period. The market value adjustment has an inverse
relationship to changes in interest rates. Second, interest-crediting rates
offered upon renewal are generally lower than the rates that had been credited
prior to the renewal date.
FINANCIAL CONDITION
At December 31, 1998, Merrill Lynch Life's assets were $15.1 billion, or $1.0
billion higher than the $14.1 billion in assets at December 31, 1997. The
increase in assets is attributable to increases in separate account assets.
During 1998, separate account assets increased $1.4 billion (or 15%) to $10.6
billion. The increase is attributable to two factors. First, the separate
accounts benefited from strong investment performance associated with the
generally rising equity markets. During 1998, the separate accounts increased
$1.1 billion due to price appreciation in the underlying mutual funds supporting
the variable products. Second, net cash inflow to the variable products
contributed $326 million to the growth in separate account assets.
General account assets decreased $373 million primarily due to the declining
number of fixed-rate contracts in-force. During 1998, credit spreads widened to
historically unprecedented levels, given the current level of U.S. Treasury
rates. This contributed to a $48 million decrease in market value on general
account assets. After adjustments to deferred policy acquisition costs and
deferred federal income taxes, total general account assets decreased $33
million as a result of the interest rate environment.
As a result of increased policy and contract surrenders during 1998, Merrill
Lynch Life experienced contract owner withdrawals that exceeded deposits.
Deposits for 1998 were $1.0 billion compared to withdrawals of $1.1 billion,
resulting in a net cash outflow from contract owner activity of $29 million.
Merrill Lynch Life maintains a conservative general account investment
portfolio. Merrill Lynch Life's investment in non-investment grade fixed
maturity securities and real estate are below the industry average. The
following schedule identifies Merrill Lynch Life's general account invested
assets by type:
<TABLE>
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Investment Grade Fixed Maturity Securities.................. 63%
Policy Loans................................................ 29%
Equity Securities........................................... 5%
Non-Investment Grade Fixed Maturity Securities.............. 3%
--------
100%
========
</TABLE>
Merrill Lynch Life's investment in collateralized mortgage obligations ("CMO")
and mortgage backed securities ("MBS") had a carrying value of $237 million as
of December 31, 1998. At December 31, 1998, approximately 71% of Merrill Lynch
Life's CMO and MBS holdings were fully collateralized by the Government National
Mortgage Association, the Federal National
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Mortgage Association or the Federal Home Loan Mortgage Corporation. At December
31, 1998, Merrill Lynch Life held approximately $66 million of CMO and MBS
securities that had relatively higher projected cash flow volatility in changing
interest rate environments as compared to Merrill Lynch Life's CMO and MBS
investment portfolio taken as a whole. CMO and MBS securities are structured to
allow the investor to determine, within certain limits, the amount of interest
rate risk, prepayment risk and default risk that the investor is willing to
accept. It is this level of risk that determines the degree to which the yields
on CMO and MBS securities will exceed the yields that can be obtained from
similarly rated corporate securities.
Merrill Lynch Life has exposure to selected emerging markets that include
securities issued by sovereigns or corporations of Asia (excluding Japan),
Eastern Europe, Latin America and Mexico. At December 31, 1998, Merrill Lynch
Life held $113 million in emerging market securities with an approximate
unrealized loss of $9 million.
During 1998, Merrill Lynch Life sold two real estate properties with a carrying
value of $5.6 million for a realized gain of $8.3 million.
As of December 31, 1998, Merrill Lynch Life had 49,668 life insurance and
annuity contracts in-force with interest rate guarantees. The estimated average
rate of interest credited on behalf of contract owners was 5.22% during 1998.
Invested assets with an estimated effective yield of 6.69% supported the
liabilities related to insurance contracts with interest rate guarantees during
1998.
Merrill Lynch Life has utilized public information to estimate the future
assessments it will incur as a result of life insurance company insolvencies. At
December 31, 1998 and 1997, Merrill Lynch Life had accrued an estimated
liability for future guaranty fund assessments of $13.9 million and $15.4
million, respectively. Merrill Lynch Life regularly monitors public information
regarding insurer insolvencies and adjusts its estimated liability as
appropriate.
LIQUIDITY AND CAPITAL RESOURCES
Merrill Lynch Life's liquidity requirements include the payment of sales
commissions and other underwriting expenses and the funding of its contractual
obligations for the life insurance and annuity contracts it has in-force.
Merrill Lynch Life has developed and utilizes a cash flow projection system and
regularly performs asset / liability duration matching in the management of its
asset and liability portfolios. Merrill Lynch Life anticipates funding all its
cash requirements utilizing cash from operations, normal investment maturities
and anticipated calls and repayments, consistent with prior years. As of
December 31, 1998, Merrill Lynch Life's assets included $2.3 billion of cash,
short-term investments and investment grade publicly traded available-for-sale
securities that could be liquidated if funds were required.
In order to continue to market life insurance and annuity products, Merrill
Lynch Life must meet or exceed the statutory capital and surplus requirements of
the insurance departments of the
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states in which it conducts business. Statutory accounting practices differ from
generally accepted accounting principles ("GAAP") in two major respects. First,
under statutory accounting practices, the acquisition costs of new business are
charged to expense, while under GAAP they are amortized over a period of time.
Second, under statutory accounting practices, the required additions to
statutory reserves for new business in some cases may initially exceed the
statutory revenues attributable to such business. These practices result in a
reduction of statutory income and surplus at the time of recording new business.
The National Association of Insurance Commissioners utilizes the Risk Based
Capital ("RBC") adequacy monitoring system. The RBC calculates the amount of
adjusted capital that a life insurance company should have based upon that
company's risk profile. As of December 31, 1998 and 1997, based on the RBC
formula, Merrill Lynch Life's total adjusted capital level was well in excess of
the minimum amount of capital required to avoid regulatory action.
Merrill Lynch Life has received claims paying ability ratings from the major
insurance rating agencies as follows: Standard and Poor's - "AA-", Fitch
Investor Services - "AA" and Moody's - "Aa3". Additionally, during 1998,
Merrill Lynch Life's A.M. Best rating was upgraded from "A" to "A+".
Merrill Lynch Life has developed a comprehensive capital management plan that
will continue to provide appropriate levels of capital for the risks Merrill
Lynch Life assumes, but will allow Merrill Lynch Life to reduce its absolute
level of surplus. In implementing this plan, Merrill Lynch Life paid dividends
to MLIG of $135 million and $175 million during 1997 and 1996, respectively. No
dividends were paid during 1998.
Merrill Lynch Life believes that it will be able to fund the capital and surplus
requirements of projected new business from current statutory earnings and
existing statutory capital and surplus. If sales of new business significantly
exceed projections, Merrill Lynch Life may have to look to its parent and other
affiliated companies to provide the capital or borrowings necessary to support
its current marketing efforts. Merrill Lynch Life's future marketing efforts
could be hampered should its parent and/or affiliates be unwilling to commit
additional funding.
YEAR 2000 COMPLIANCE
As the millennium approaches, Merrill Lynch Life has undertaken initiatives to
address the Year 2000 problem (the "Y2K problem") in conjunction with the
Merrill Lynch & Co. Year 2000 Compliance Initiative. The Y2K problem is the
result of a widespread programming technique that causes computer systems to
identify a date based on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19." As a result, the year 2000
would be stored as "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
(e.g., computer databases) and non-information technology systems (e.g.,
elevators) to produce incorrect data or cease operating completely.
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Merrill Lynch Life believes that it has identified and evaluated its internal
Y2K problem and is devoting sufficient resources to renovating technology
systems that are not already Year 2000 compliant. The resource-intensive
renovation phase (as discussed further) of Merrill Lynch Life's Year 2000
efforts was approximately 92% completed as of year-end 1998. Merrill Lynch Life
will focus primarily on completing its renovation efforts and testing and on
integration of the Year 2000 programs during the remainder of 1999. In order to
focus attention on the Y2K problem, management has deferred certain other
technology projects; however this deferral is not expected to have a material
adverse effect on Merrill Lynch Life's business, results of operations, or
financial condition.
The failure of Merrill Lynch Life's technology systems relating to a Y2K problem
would likely have a material adverse effect on Merrill Lynch Life's business,
results of operations, or financial condition. This effect could include
disruption of normal business transactions, such as the processing of
contractholder transactions, the valuation of contractholder liabilities and the
recording and valuation of assets. The Y2K problem could also increase Merrill
Lynch Life's exposure to risk and its need for liquidity.
In 1995, Merrill Lynch & Co. established the Year 2000 Compliance Initiative,
which is an enterprisewide effort to address the risks associated with the Y2K
problem, both internal and external. The Year 2000 Compliance Initiative's
efforts to address the risks associated with the Y2K problem have been organized
into six segments or phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.
The planning phase involved defining the scope of the Year 2000 Compliance
Initiative, including its annual budget and strategy, and determining the level
of expert knowledge available within Merrill Lynch & Co. regarding particular
systems or applications. The pre-renovation phase involved developing a detailed
enterprisewide inventory of applications and systems, identifying the scope of
necessary renovations to each application or system, and establishing a
conversion schedule. During the renovation phase, source codes are actually
converted, date fields are expanded or windowed (windowing is used on an
exception basis only), test data is prepared, and each system or application is
tested using a variety of Year 2000 scenarios. The production testing phase
validates that a renovated system is functionally the same as the existing
production version, that renovation has not introduced defects, and that
expanded or windowed date fields continue to handle current dates properly. The
certification phase validates that a system can run successfully in a Year 2000
environment. The integration testing phase, which will occur throughout 1999,
validates that a system can successfully interface with both internal and
external systems. Finally, as Merrill Lynch Life continues to implement new
systems, they are also being tested for Year 2000 readiness.
In 1996 and 1997, as part of the planning and pre-renovation phases, both plans
and funding of plans for inventory, preparation, renovation, and testing of
computer systems for the Y2K problem were approved. All plans for both
mission-critical and non-mission-critical systems are
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tracked and monitored. The work associated with the Year 2000 Compliance
Initiative has been accomplished by Merrill Lynch & Co. employees, with the
assistance of consultants where necessary.
As part of the production testing and certification phases, Merrill Lynch Life
has performed, and will continue to perform, both internal and external Year
2000 testing intended to address the risks from the Y2K problem. As of year-end
1998, production testing was approximately 92% completed.
Merrill Lynch Life continues to survey and communicate with third parties whose
Y2K readiness is important to the company. Information technology and
non-information technology vendors and service providers are contacted in order
to obtain their Y2K compliance plans. Based on the nature of the response and
the importance of the product or service involved, Merrill Lynch Life determines
if additional testing is needed. The results of these efforts are maintained in
a database that is accessible throughout Merrill Lynch & Co. Third parties that
have been contacted include vendors and service providers; a process to access
and rate their responses has been developed. This information will be used by
Merrill Lynch Life to manage risk resulting from the Y2K problem. Management is
unable at this point to ascertain whether all significant third parties will
successfully address the Y2K problem. Merrill Lynch Life will continue to
monitor third parties' Year 2000 readiness to determine if additional or
alternative measures are necessary. In connection with information technology
and non-information technology products and services, contingency plans may
include selection of alternate vendors or service providers and changing
business practices so that a particular system is not needed. In light of the
interdependency of the parties in or serving the financial markets, however,
there can be no assurance that all Y2K problems will be identified and
remediated on a timely basis or that all remediation will be successful. The
failure of exchanges, clearing organizations, vendors, service providers,
counterparties, regulators, or others to resolve their own processing issues in
a timely manner could have a material adverse effect on Merrill Lynch Life's
business, results of operations, and financial condition.
The primary costs associated with the Year 2000 Compliance Initiative are
incurred by Merrill Lynch & Co. and are not directly allocated to the various
business units. These costs include planning and oversight of the Year 2000
Compliance Initiative, as well as certain Information Systems personnel costs
involved in implementation and testing. All other costs incurred by Merrill
Lynch Life, primarily non-Information Systems personnel costs, systems upgrades
and replacement of desk-top software, have not been material to Merrill Lynch
Life's results of operations or financial condition. However, there can be no
assurance that the costs associated with remediation efforts or the possible
failure of remediation efforts would not have a material adverse effect on
Merrill Lynch Life's business, results of operations, and financial condition.
RESULTS OF OPERATIONS
Merrill Lynch Life's gross earnings are principally derived from two sources:
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- - the net earnings from investment of fixed rate life insurance and annuity
contract owner deposits less interest credited to contract owners,
commonly known as spread, and
- - 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 Merrill Lynch Life anticipates holding those funds. In
addition, Merrill Lynch Life incurs expenses associated with the maintenance of
in-force contracts.
1998 compared to 1997
Merrill Lynch Life recorded net earnings of $93 million and $81 million for 1998
and 1997, respectively.
Net earnings derived from interest spread decreased $22.8 million during 1998 as
compared to 1997. During 1997, Merrill Lynch Life determined that certain
policyholder reserves exceeded amounts required resulting in reductions to those
reserves. Excluding these reductions, interest spread decreased $13.0 million
during 1998 as compared to 1997. The reduction in interest spread is primarily a
result of Merrill Lynch Life's $135 million dividend payment to its stockholder
during the fourth quarter 1997 and the declining number of fixed rate contracts
in-force.
Merrill Lynch Life experienced net realized investment gains of $12.5 million
and $13.3 million during 1998 and 1997, respectively. During 1998, Merrill Lynch
Life recorded $8.3 million in realized gains due to the sale of two real estate
properties. Conversely, during 1997, Merrill Lynch Life incurred $4.3 million in
realized losses, including valuation adjustments, on real estate investment
sales. Realized investment gains on real estate were offset by increased
credit-related losses, during 1998, primarily from the sale of emerging market
securities. Realized losses from the sale of emerging market securities
increased $6.1 million during 1998 as compared to 1997. Additionally, during
1997, Merrill Lynch Life realized a $6.3 million gain on the repayment of its
remaining mortgage loan investments and a $1.0 million gain on the redemption of
its investment in the separate accounts.
The market value adjustment expense is attributable to Merrill Lynch Life's
modified guaranteed annuity product. This contract provision results in a market
value adjustment to the cash surrender value of those contracts that are
surrendered before the expiration of their interest rate guarantee period.
During 1998, the market value adjustment expense increased $1.4 million (or 36%)
as compared to 1997 consistent with the increase in surrender activity resulting
from the lower interest rate environment in 1998.
Policy charge revenue increased $18.7 million (or 10%) during 1998 as compared
to 1997. The increase in policy charge revenue is primarily attributable to the
increase in policyholders' variable account balances. During 1998, average
variable account balances increased $1.3
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<PAGE> 14
billion (or 16%) as compared to 1997. During the same time period, asset based
policy charges increased $19.5 million (or 17%) consistent with the growth in
the separate account assets. Non-asset based charges decreased $0.8 million (or
1%) during 1998 as compared to 1997.
Policy benefits increased $4.9 million during the current year to $31.9 million.
This increase was primarily attributable to increased mortality for variable
life insurance products, as well as normal reserve increases for the mortality
component of variable annuity products.
Reinsurance premium ceded increased $2.1 million to $20.0 million during 1998.
This increase is attributable to the combined effect of the increasing age of
policyholders and increased insurance in-force.
Amortization of deferred policy acquisition costs decreased $27.3 million during
1998 as compared to 1997. Approximately $26.4 million of the decrease is
attributable to the retrospective adjustment of deferred policy acquisition
costs as a result of revising estimated future gross profits assumptions for
certain life insurance and annuity products.
Insurance expenses and taxes increased $2.6 million during 1998 as compared to
1997. This is primarily attributable to an increase in non-capitalizable
asset-based commissions paid on in-force life and annuity contracts.
Merrill Lynch Life's effective federal income tax rate decreased to 30% for 1998
from 33% for 1997 principally due to adjustments for foreign tax credits
recorded during 1998.
1997 compared to 1996
Merrill Lynch Life 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 determined to be
in excess of amounts required, resulting in a $9 million reduction to interest
credited.
Merrill Lynch Life 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, Merrill Lynch Life 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.
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<PAGE> 15
Policy charge revenue increased $20 million (or 13%) during the current year 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 the current year to
$27 million. This increase was primarily attributable to mortality costs
associated with Merrill Lynch Life's variable life product.
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
the current year 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.
Merrill Lynch Life'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.
Segment Information
Merrill Lynch Life's operating results are categorized into two business
segments: Life Insurance and Annuities. Merrill Lynch Life's Life Insurance
segment consists of variable life insurance products and interest-sensitive life
products. Merrill Lynch Life's Annuity segment consists of variable annuities
and interest-sensitive annuities. All other earnings represent earnings on
assets that do not support contractholder liabilities. Net earnings by segment
were as follows:
<TABLE>
<CAPTION>
Segment 1998 1997 1996
------- ---- ---- ----
<S> <C> <C> <C>
Life Insurance $35 $26 $29
Annuities $52 $45 $39
Other $ 6 $10 $11
</TABLE>
The products that comprise the Life Insurance and Annuity segments generally
possess similar economic characteristics. As such, the financial condition and
results of operations of each business segment are generally consistent with
Merrill Lynch Life's consolidated financial
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<PAGE> 16
condition and results of operations presented herein.
Merrill Lynch Life is not dependent upon any single customer, and no single
customer accounted for more than 10% of its revenues during 1998.
Inflation
Merrill Lynch Life's operations have not been materially impacted by inflation
and changing prices during the preceding three years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the potential change in a financial instrument's value caused by
fluctuations in certain underlying risk factors. Merrill Lynch Life is primarily
subject to market risk resulting from fluctuations in interest rates and credit
spreads.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of investments, primarily fixed maturity securities and
preferred equity securities, as well as interest sensitive liabilities. Changes
in interest rates have an inverse relationship to the value of investments and
interest sensitive liabilities. Merrill Lynch Life manages interest rate risk as
part of its asset / liability management strategy. For each portfolio,
management monitors the expected changes in assets and liabilities, as produced
by Merrill Lynch Life's model, resulting from various interest rate scenarios.
Based on these results, management closely matches the duration and convexity of
insurance liabilities to the duration and convexity of assets supporting those
liabilities.
The following table presents the estimated net impact on the fair value of
non-trading investments and interest sensitive liabilities resulting from
various hypothetical interest rate scenarios, based on assumptions contained in
Merrill Lynch Life's model:
<TABLE>
<CAPTION>
Change in Interest Rates Change in Fair Value
<S> <C>
+ 100 basis points ($24.0)
+ 50 basis points ($12.3)
- 50 basis points $13.5
- 100 basis points $29.0
</TABLE>
Merrill Lynch Life's model is based on existing business inforce as of year-end
1998 without considering the impact of new life insurance and annuity sales on
assets or liabilities. The model incorporates Merrill Lynch Life's fixed
maturity securities and preferred equity investments excluding variable rate
securities with rate resettings in less than ninety days, securities with a
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<PAGE> 17
maturity of less than ninety days, and securities that are in or near default.
The changes in interest rate scenarios, noted above, assume parallel shifts in
the yield curve occurring uniformly throughout the year.
Additionally, certain products have features that mitigate the impact of
interest rate risk. Examples include surrender charges, market value
adjustments, and resetting of interest credited rates (subject to certain
guaranteed minimum crediting rates). For interest sensitive life products the
guaranteed minimum rate is 4%. For interest sensitive annuity products,
excluding modified guaranteed annuities, the guaranteed minimum rates range from
4% to 5%, with the greatest concentration at 4%. Modified guaranteed annuity
products do not have minimum rate guarantees.
Credit Spread Risk
Credit spread risk arises from the possibility that changes in credit spreads
will affect the value of investments. Credit spreads represent the credit risk
premiums required by market participants for a given credit quality, i.e., the
additional yield that a debt instrument issued by a AA-rated entity must produce
over a risk-free alternative (e.g., U.S. Treasury instrument).
The following table presents the estimated net impact on the fair value of
non-trading investments resulting from various hypothetical fluctuations in
credit spreads, based on assumptions contained in Merrill Lynch Life's model:
<TABLE>
<CAPTION>
Change in Credit Spreads Change in Fair Value
<S> <C>
+ 50 basis points ($40.3)
+ 10 basis points ($8.1)
- 10 basis points $8.3
- 50 basis points $41.5
</TABLE>
Merrill Lynch Life's model is based on existing business inforce as of year-end
1998 without considering the impact of new life insurance and annuity sales on
assets. The model incorporates Merrill Lynch Life's fixed maturity securities
and preferred equity investments excluding securities with a maturity of less
than ninety days and securities that are in or near default. The changes in
credit spreads, noted above, assume a uniform occurrence throughout the year.
Liability valuations for modified guaranteed annuities mitigate Merrill Lynch
Life's exposure to credit spread risk. Contractholder surrender values reflect
changes in spread between corporate bonds and U.S. Treasury securities since the
market value adjusted account value is based on current crediting rates for new
and renewal contracts. These crediting rates are adjusted weekly and reflect
current market conditions.
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<PAGE> 18
Credit Risk
Credit risk represents the loss that Merrill Lynch Life would incur if an issuer
fails to perform its contractual obligations and the value of the security held
has been permanently impaired or is deemed worthless. Merrill Lynch Life manages
its credit risk by setting investment policy guidelines that assure
diversification with respect to investment, issuer, geographic location and
credit quality. Management regularly monitors compliance of each investment
portfolio's status with the investment policy guidelines, including timely
updates of credit-related securities.
A number of assumptions must be made to obtain the expected fair value changes
noted above. There is no reason to believe that historically simulated interest
rate and credit spread movements have any predictive power for future fair value
changes. The unprecedented volatility experienced during the third quarter 1998
demonstrates the limitations of these models.
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.
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 22, 1999.
b. Balance Sheets at December 31, 1998 and 1997.
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<PAGE> 19
c. Statements of Earnings for the Years Ended December 31,
1998, 1997 and 1996.
d. Statements of Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996.
e. Statements of Stockholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996.
f. Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996.
g. Notes to Financial Statements for the Years Ended December
31, 1998, 1997 and 1996.
(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 to the
Registrant's registration statement on Form S-1, File No.
33-26322.)
3.1 Articles of Amendment, Restatement and Redomestication of
the Articles of Incorporation of Merrill Lynch Life
Insurance Company. (Incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 10 to Merrill Lynch
Life Variable Annuity Separate Account A's registration
statement on Form N-4, File No. 33-43773, filed December
10, 1996.)
3.2 Amended and Restated By-Laws of Merrill Lynch Life
Insurance Company. (Incorporated by reference to Exhibit
6(b) to Post-
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<PAGE> 20
Effective Amendment No. 10 to Merrill Lynch Life Variable
Annuity Separate Account A's registration statement on Form
N-4, File No. 33-43773, filed December 10, 1996.)
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, 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.)
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<PAGE> 21
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 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.)
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<PAGE> 22
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.)
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,
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<PAGE> 23
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 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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<PAGE> 24
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.)
10.1 Management Services Agreement between Family Life Insurance
Company and Merrill Lynch Life Insurance Company.
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<PAGE> 25
(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 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.)
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<PAGE> 26
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.)
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 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.
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<PAGE> 27
(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, 1998.
-27-
<PAGE> 28
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ........................................................................
Balance Sheets at December 31, 1998 and 1997 ........................................................
Statements of Earnings for the Years Ended December 31, 1998, 1997 and 1996..........................
Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996..............
Statements of Stockholder's Equity for the Years Ended December 31, 1998, 1997 and 1996 .............
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996........................
Notes to Financial Statements for the Years Ended December 31, 1998, 1997 and 1996 ..................
</TABLE>
<PAGE> 29
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, 1998
and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $2,504,599; 1997 - $2,927,562) $ 2,543,097 $ 3,008,608
Equity securities, at estimated fair value
(cost: 1998 - $162,710; 1997 - $72,599) 158,591 73,612
Trading account securities, at estimated fair value 17,280 15,625
Real estate held-for-sale 25,960 31,805
Policy loans on insurance contracts 1,139,456 1,118,139
------------- -------------
Total Investments 3,884,384 4,247,789
CASH AND CASH EQUIVALENTS 95,377 86,388
ACCRUED INVESTMENT INCOME 73,459 78,224
DEFERRED POLICY ACQUISITION COSTS 405,640 365,105
FEDERAL INCOME TAXES - DEFERRED 9,403 -
REINSURANCE RECEIVABLES 2,893 1,617
AFFILIATED RECEIVABLES - NET - 166
RECEIVABLES FROM SECURITIES SOLD 14,938 75,820
OTHER ASSETS 46,512 49,353
SEPARATE ACCOUNTS ASSETS 10,571,489 9,149,119
------------- -------------
TOTAL ASSETS $ 15,104,095 $ 14,053,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
- ------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,816,744 $ 4,188,110
Claims and claims settlement expenses 63,925 50,574
------------- -------------
Total policy liabilities and accruals 3,880,669 4,238,684
OTHER POLICYHOLDER FUNDS 20,802 27,160
LIABILITY FOR GUARANTY FUND ASSESSMENTS 13,864 15,374
FEDERAL INCOME TAXES - DEFERRED - 1,183
FEDERAL INCOME TAXES - CURRENT 15,840 24,438
AFFILIATED PAYABLES - NET 822 -
PAYABLES FOR SECURITIES PURCHASED 10,541 95,135
UNEARNED POLICY CHARGE REVENUE 55,235 32,102
OTHER LIABILITIES 24,273 22,332
SEPARATE ACCOUNTS LIABILITIES 10,559,459 9,149,119
------------- -------------
Total Liabilities 14,581,505 13,605,527
------------- -------------
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 173,496 80,735
Accumulated other comprehensive income (loss) (230) 17,995
------------- -------------
Total Stockholder's Equity 522,590 448,054
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,104,095 $ 14,053,581
============= =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 272,038 $ 308,702 $ 336,661
Net realized investment gains 12,460 13,289 8,862
Policy charge revenue 197,662 178,933 158,829
------------ ------------ ------------
Total Revenues 482,160 500,924 504,352
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 195,676 209,542 235,255
Market value adjustment expense 5,528 4,079 6,071
Policy benefits (net of reinsurance recoveries: 1998 - $9,761;
1997 - $10,439; 1996 - $8,317) 31,891 27,029 21,052
Reinsurance premium ceded 19,972 17,879 15,582
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Insurance expenses and taxes 51,735 49,105 47,077
------------ ------------ ------------
Total Benefits and Expenses 349,637 379,745 387,073
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 132,523 121,179 117,279
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 40,535 52,705 22,814
Deferred (773) (12,261) 15,078
------------ ------------ ------------
Total Federal Income Tax Provision 39,762 40,444 37,892
------------ ------------ ------------
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (31,718) 22,347 (79,749)
Reclassification adjustment for gains included in net earnings (15,932) (12,390) (8,622)
------------ ------------ ------------
Net unrealized gains (losses) on investment securities (47,650) 9,957 (88,371)
Adjustments for:
Policyholder liabilities 14,483 10,094 58,415
Deferred policy acquisition costs 5,129 (822) 12,411
Income tax (expense) benefit related to items of
other comprehensive income 9,813 (6,730) 6,141
------------ ------------ ------------
Other comprehensive income (loss), net of tax (18,225) 12,499 (11,404)
------------ ------------ ------------
COMPREHENSIVE INCOME $ 74,536 $ 93,234 $ 67,983
============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<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, 1996 $ 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 loss, net of tax (11,404) (11,404)
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 498,820
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
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
=========== =========== =========== ============ =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 92,761 $ 80,735 $ 79,387
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Capitalization of policy acquisition costs (80,241) (71,577) (43,668)
Amortization (accretion) of investments (5,350) (4,672) (4,836)
Net realized investment gains (12,460) (13,289) (8,862)
Interest credited to policyholders' account balances 195,676 209,542 235,255
Provision (benefit) for deferred Federal income tax (773) (12,261) 15,078
Changes in operating assets and liabilities:
Accrued investment income 4,765 7,962 5,756
Claims and claims settlement expenses 13,351 10,908 9,854
Federal income taxes - current (8,598) 3,470 13,935
Other policyholder funds (6,358) 7,740 5,813
Liability for guaranty fund assessments (1,510) (3,399) (2,371)
Affiliated receivables/payables 988 (6,330) 3,735
Policy loans on insurance contracts (21,317) (26,068) (52,804)
Trading account securities (287) (14,928) -
Unearned policy charge revenue 23,133 11,269 7,801
Other, net 3,506 452 (10,194)
Net cash and cash equivalents provided ----------- ----------- -----------
by operating activities 242,121 251,665 315,915
----------- ----------- -----------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 893,619 846,041 847,091
Maturities of available-for-sale securities 451,759 595,745 536,449
Purchases of available-for-sale securities (1,028,086) (1,156,222) (956,840)
Mortgage loans principal payments received - 68,864 22,789
Purchases of mortgage loans - (5,375) -
Sales of real estate held-for-sale 14,135 6,060 5,407
Recapture of investment in Separate Accounts - 11,026 8,829
Investment in Separate Accounts (12,000) (21) (10,063)
Net cash and cash equivalents provided ----------- ----------- -----------
by investing activities 319,427 366,118 453,662
----------- ----------- -----------
</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, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (135,000) $ (175,000)
Policyholders' account balances:
Deposits 1,042,509 1,101,934 542,062
Withdrawals (including transfers to/from Separate Accounts) (1,595,068) (1,593,320) (1,090,572)
Net cash and cash equivalents used ------------ ------------ ------------
by financing activities (552,559) (626,386) (723,510)
============ ============ ============
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,989 (8,603) 46,067
CASH AND CASH EQUIVALENTS
Beginning of year 86,388 94,991 48,924
------------ ------------ ------------
End of year $ 95,377 $ 86,388 $ 94,991
============ ============ ============
Supplementary Disclosure of Cash Flow Information
Cash paid to affiliates for:
Federal income taxes $ 49,133 $ 49,235 $ 8,880
Interest 860 842 988
</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
Description of Business: 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 primarily 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.
Basis of Reporting: 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.
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.
To facilitate comparisons with the current year, certain
amounts in the prior years have been reclassified.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for mortality
risk and the cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
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 as a component of accumulated other
comprehensive income (loss), net of tax. Unrealized gains and
losses on trading account securities are included in net
realized investment gains (losses). 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.
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain 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 (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.
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.
<PAGE>
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 7.5%. 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:
1998 1997 1996
----------- ----------- -----------
Beginning balance $ 102,252 $ 112,249 $ 124,833
Capitalized amounts 6,085 5,077 5,077
Interest accrued 7,669 9,653 10,669
Amortization (14,213) (24,727) (28,330)
----------- ----------- -----------
Ending balance $ 101,793 $ 102,252 $ 112,249
=========== =========== ===========
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.
1999 $ 7,045
2000 $ 6,110
2001 $ 5,670
2002 $ 5,400
2003 $ 5,386
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. At December 31, 1998, the
$12,030 excess of Separate Accounts Assets over Separate
Accounts liabilities represents the Company's temporary
investment in certain investment divisions that were made to
facilitate the establishment of those investment divisions.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
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.
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:
<PAGE>
Interest-sensitive life products 4.00% - 5.70%
Interest-sensitive deferred annuities 3.40% - 8.69%
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.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
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.
Unearned Policy Charge Revenue: Certain variable life insurance
products contain policy charges that are assessed at policy
issuance. These policy charges are deferred and amortized into
policy charge revenue based on the estimated future gross
profits for each group of contracts. The Company records a
liability equal to the unamortized balance of these policy
charges.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See Note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
<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:
1998 1997
------------ -------------
Assets:
Fixed maturity securities (1) $ 2,543,097 $ 3,008,608
Equity securities (1), (2) 158,591 73,612
Trading account securities (1) 17,280 15,625
Policy loans on insurance contracts (3) 1,139,456 1,118,139
Cash and cash equivalents (4) 95,377 86,388
Separate Accounts assets (5) 10,571,489 9,149,119
------------- -------------
Total financial instruments $ 14,525,290 $ 13,451,491
============= =============
(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, 1998 and 1997, securities without a
readily ascertainable market value, having an amortized cost of
$376,993 and $389,728, had an estimated fair value of $375,470
and $396,253, respectively.
(2) The Company has investments in two limited partnerships that
do not have readily ascertainable market values. Management has
estimated the fair value as equal to cost based on the review of
the underlying investments of the partnerships. At December 31,
1998 and 1997, the Company's limited partnership investments were
$11,569 and $4,744, respectively.
(3) 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.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) 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>
1998
-----------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,079,867 $ 56,703 $ 29,078 $ 2,107,492
Mortgage-backed securities 229,197 7,908 43 237,062
U.S. Government and agencies 150,500 6,393 1,328 155,565
Foreign governments 21,157 35 2,996 18,196
Municipals 23,878 905 1 24,782
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,504,599 $ 71,944 $ 33,446 $ 2,543,097
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 151,130 $ 699 $ 4,823 $ 147,006
Limited partnerships 11,569 - - 11,569
Common stocks 11 5 - 16
------------ ------------ ------------ ------------
Total equity securities $ 162,710 $ 704 $ 4,823 $ 158,591
============ ============ ============ ============
</TABLE>
<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
Limited partnerships 4,744 - - 4,744
Common stocks 10 11 - 21
------------ ------------ ------------ ------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============ ============ ============ ============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------ ------------
Fixed maturity securities:
Due in one year or less $ 383,825 $ 383,628
Due after one year through five years 926,665 950,938
Due after five years through ten years 599,278 610,339
Due after ten years 365,634 361,130
------------ ------------
2,275,402 2,306,035
Mortgage-backed securities 229,197 237,062
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
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, 1998 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------ ------------
AAA $ 479,923 $ 495,661
AA 146,703 148,169
A 756,880 773,977
BBB 992,041 1,005,835
Non-investment grade 129,052 119,455
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
<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 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 income (loss), net
of taxes. The following reconciles net unrealized investment
gains (losses) on available-for-sale investments at December 31:
1998 1997
------------ ------------
Assets:
Fixed maturity securities $ 38,498 $ 81,046
Equity securities (4,119) 1,013
Deferred policy acquisition costs (323) (5,452)
Federal income taxes - deferred 124 -
Separate Accounts assets 30 -
------------ ------------
34,210 76,607
------------ ------------
Liabilities:
Policyholders' account balances 34,440 48,923
Federal income taxes - deferred - 9,689
------------ ------------
34,440 58,612
------------ ------------
Stockholder's equity:
Accumulated other comprehensive income (loss) $ (230) $ 17,995
============ ============
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 included in net
realized investment gains were $932 and $520 at December 31,
1998 and 1997, respectively.
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
---------- ---------- ----------
Proceeds $ 893,619 $ 846,041 $ 847,091
Gross realized investment gains 20,232 16,783 19,078
Gross realized investment losses 17,429 7,193 10,749
<PAGE>
The Company had investment securities with a carrying value of
$27,189 and $26,508 that were deposited with insurance
regulatory authorities at December 31, 1998 and 1997,
respectively.
At December 31, 1998, the Company's $12,030 investment in
Separate Account assets included $30 of unrealized gains.
During 1997, the Company realized a $1,005 gain on the sale of
its investment in the Separate Accounts.
All outstanding mortgage loans were repaid during 1997.
Information on impaired loans for the years ended December 31
follows:
1997 1996
----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668
Interest income recognized (cash basis) 2,830 4,848
For the years ended December 31, 1997 and 1996, $7,891 and
$28,555, respectively, of real estate held-for-sale was
acquired in satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 202,313 $ 236,325 $ 266,916
Equity securities 9,234 3,020 1,876
Mortgage loans - 4,627 9,764
Real estate held-for-sale 2,264 1,939 563
Policy loans on insurance contracts 59,236 57,998 56,512
Cash and cash equivalents 3,912 9,570 6,710
Other 761 709 899
------------ ----------- -----------
Gross investment income 277,720 314,188 343,240
Less investment expenses (5,682) (5,486) (6,579)
------------ ----------- -----------
Net investment income $ 272,038 $ 308,702 $ 336,661
============ =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 2,617 $ 6,149 $ 4,690
Equity securities 186 3,441 3,639
Trading account securities 1,368 697 -
Investment in Separate Accounts - 1,005 106
Mortgage loans - 6,252 599
Real estate held-for-sale 8,290 (4,252) (171)
Cash and cash equivalents (1) (3) (1)
------------ ----------- -----------
Net realized investment gains $ 12,460 $ 13,289 $ 8,862
============ =========== ===========
<PAGE>
The following is a reconciliation of the change in valuation
allowances that were recorded to reflect other-than-temporary
declines in the estimated fair value of mortgage loans for the
years ended December 31, 1997 and 1996.
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ----------- ----------- -----------
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
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>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Provision for income taxes computed at
Federal statutory rate $ 46,383 $ 42,413 $ 41,048
Decrease in income taxes resulting from:
Dividend received deduction (3,664) (1,969) (3,135)
Foreign tax credit (2,957) - -
Other - - (21)
------------ ------------ ------------
Federal income tax provision $ 39,762 $ 40,444 $ 37,892
============ ============ ============
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 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>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 11,062 $ (2,422) $ (5,770)
Policyholders' account balances (10,950) (16,099) 15,004
Liability for guaranty fund assessments 529 1,190 760
Investment adjustments (1,350) 5,070 5,122
Other (64) - (38)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ (773) $ (12,261) $ 15,078
============ ============ ============
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 106,132 $ 95,182
Investment adjustments 1,951 601
Liability for guaranty fund assessments 4,852 5,381
Net unrealized investment loss on investment securities 124 -
------------ ------------
Total deferred tax assets 113,059 101,164
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 99,732 88,670
Net unrealized investment gain on investment securities - 9,689
Other 3,924 3,988
------------ ------------
Total deferred tax liabilities 103,656 102,347
------------ ------------
Net deferred tax (asset) liability $ (9,403) $ 1,183
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
NOTE 5. 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 $750 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 $589 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $13,124,108 $ 3,259,006 $ 1,771 $ 9,866,872 0%
</TABLE>
The Company has 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.
NOTE 6. 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 $43,179, $43,028 and $43,515 for the years
ended December 31, 1998, 1997 and 1996, respectively. The
Company is allocated interest expense on its accounts payable
to MLIG that approximates the daily Federal funds rate. Total
intercompany interest paid was $860, $842 and $988 for 1998,
1997 and 1996, 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
$1,915, $1,913 and $2,279 for 1998, 1997 and 1996,
respectively.
MLIG has entered into agreements with MLAM and Hotchkis & Wiley
("H&W"), a division of MLAM, with respect to administrative
services for the Merrill Lynch Series Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., and Hotchkis & Wiley Variable
Trust (collectively, "the Funds"). The Company invests in the
various mutual fund portfolios of the Funds in connection with
the variable life insurance and annuity contracts the Company
has in-force. Under this agreement, MLAM and H&W pay
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Funds to MLAM
and H&W. The Company received from MLIG its allocable share of
such compensation in the amount of $20,289, $19,057 and $16,514
during 1998, 1997 and 1996, respectively.
<PAGE>
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 $79,117, $72,729 and $42,639 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
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 7. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
The Company paid no dividends in 1998. During 1997 and 1996,
the Company paid dividends of $135,000 and $175,000,
respectively, to MLIG. Of these stockholders' dividends,
$110,030 and $175,000 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, 1998 and 1997, approximately $29,707 and
$24,304, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1998 and 1997, were $299,069 and $245,042,
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 1998, 1997 and 1996 was
$55,813, $81,963 and $93,532, 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 that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998 and 1997, based on the
RBC formula, the Company's total adjusted capital level was
473% and 394%, respectively, of the minimum amount of capital
required to avoid regulatory action.
<PAGE>
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of Arkansas will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
NOTE 8. 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). The Company has utilized public information to
estimate what future assessments it will incur as a result of
insolvencies. At December 31, 1998 and 1997, the Company has
established an estimated liability for future guaranty fund
assessments of $13,864 and $15,374, 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.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1998, $6,569 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
products. The Company's Annuity segment consists of variable
annuities and interest sensitive annuities
<PAGE>
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, marketing and sales management functions, within
MLIG, are organized according to these two business segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 35,228 $ 32,765 $ 8,369 $ 76,362
Other revenues 84,836 124,864 422 210,122
------------ ------------ ------------ ------------
Net revenues 120,064 157,629 8,791 286,484
------------ ------------ ------------ ------------
Policy benefits 18,397 13,494 - 31,891
Reinsurance premiums ceded 19,972 - - 19,972
DAC amortization 13,040 31,795 - 44,835
Other non-interest expenses 18,030 39,233 - 57,263
------------ ------------ ------------ ------------
Total non-interest expenses 69,439 84,522 - 153,961
------------ ------------ ------------ ------------
Net earnings before Federal income
tax provision 50,625 73,107 8,791 132,523
Income tax expense 16,033 20,653 3,076 39,762
------------ ------------ ------------ ------------
Net earnings $ 34,592 $ 52,454 $ 5,715 $ 92,761
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,069,649 $ 8,885,981 $ 148,465 $15,104,095
Deferred policy acquisition costs $ 207,713 $ 197,927 $ - $ 405,640
Policy liabilities and accruals $ 2,186,001 $ 1,694,668 $ - $ 3,880,669
Other policyholder funds $ 16,033 $ - $ 4,769 $ 20,802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 38,826 $ 47,973 $ 12,361 $ 99,160
Other revenues 86,301 102,782 3,139 192,222
------------ ------------ ------------ ------------
Net revenues 125,127 150,755 15,500 291,382
------------ ------------ ------------ ------------
Policy benefits 15,876 11,153 - 27,029
Reinsurance premiums ceded 17,879 - - 17,879
DAC amortization 36,180 35,931 - 72,111
Other non-interest expenses 16,545 36,639 - 53,184
------------ ------------ ------------ ------------
Total non-interest expenses 86,480 83,723 - 170,203
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 38,647 67,032 15,500 121,179
Income tax expense 12,753 22,265 5,426 40,444
------------ ------------ ------------ ------------
Net earnings $ 25,894 $ 44,767 $ 10,074 $ 80,735
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,925,872 $ 7,998,461 $ 129,248 $14,053,581
Deferred policy acquisition costs $ 182,610 $ 182,495 $ - $ 365,105
Policy liabilities $ 2,229,533 $ 2,009,151 $ - $ 4,238,684
Other policyholder funds $ 18,788 $ - $ 8,372 $ 27,160
</TABLE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 40,805 $ 44,994 $ 15,607 $ 101,406
Other revenues 78,759 86,430 2,502 167,691
------------ ------------ ------------ ------------
Net revenues 119,564 131,424 18,109 269,097
------------ ------------ ------------ ------------
Policy benefits 12,150 8,902 - 21,052
Reinsurance premiums ceded 15,582 - - 15,582
DAC amortization 30,988 31,048 - 62,036
Other non-interest expenses 18,169 34,979 - 53,148
------------ ------------ ------------ ------------
Total non-interest expenses 76,889 74,929 - 151,818
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 42,675 56,495 18,109 117,279
Income tax expense 13,895 17,658 6,339 37,892
------------ ------------ ------------ ------------
Net earnings $ 28,780 $ 38,837 $ 11,770 $ 79,387
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,623,370 $ 6,957,228 $ 156,895 $12,737,493
Deferred policy acquisition costs $ 194,979 $ 171,482 $ - $ 366,461
Policy liabilities and accruals $ 2,638,177 $ 1,881,537 $ - $ 4,519,714
Other policyholder funds $ 16,256 $ - $ 3,164 $ 19,420
</TABLE>
<PAGE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Life Insurance
Variable life insurance $ 91,806 $ 92,245 $ 89,897
Interest-sensitive life insurance 28,258 32,882 29,667
------------ ------------ ------------
Total Life Insurance 120,064 125,127 119,564
------------ ------------ ------------
Annuities
Variable annuities 105,545 88,509 70,116
Interest-sensitive annuities 52,084 62,246 61,308
------------ ------------ ------------
Total Annuities 157,629 150,755 131,424
------------ ------------ ------------
Other 8,791 15,500 18,109
------------ ------------ ------------
Total $ 286,484 $ 291,382 $ 269,097
============ ============ ============
</TABLE>
<PAGE> 30
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 26, 1999 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 26, 1999
Anthony J. Vespa and Chief Executive Officer --------------
/s/ Joseph E. Crowne, Jr. Director, Senior Vice President, March 26, 1999
- ----------------------------- Chief Financial Officer, Chief --------------
Joseph E. Crowne, Jr. Actuary and Treasurer
/s/ Barry G. Skolnick Director, Senior Vice President March 26, 1999
- ----------------------------- and General Counsel* --------------
Barry G. Skolnick
*
- ----------------------------- Director, Senior Vice President March 26, 1999
David M. Dunford and Chief Investment Officer --------------
*
- ----------------------------- Director and Senior Vice President March 26, 1999
Gail R. Farkas --------------
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
<PAGE> 31
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> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
2.1 Merrill Lynch Life Insurance Company Incorporated by reference to Exhibit 2.1,
Board of Directors Resolution in Connection filed September 5, 1991, as part of
with the Merger between Merrill Lynch Post-Effective Amendment No. 4 to the
Life Insurance Company and Tandem Insurance Registrant's registration statement on
Group, Inc. Form S-1, File No. 33-26322.
2.2 Plan and Agreement of Merger between Incorporated by reference to Exhibit
Merrill Lynch Life Insurance Company and 2.1a, 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 Amendment, Restatement and Incorporated by reference to Exhibit 6(a)
Redomestication of the Articles of to Post-Effective Amendment No. 10 to
Incorporation of Merrill Lynch Life Merrill Lynch Life Variable Annuity
Insurance Company Separate Account A's registration
statement on Form N-4, File No. 33-43773,
filed December 10, 1996.
3.2 Amended and Restated By-Laws of Merrill Incorporated by reference to Exhibit 6(b)
Lynch Life Insurance Company to Post-Effective Amendment No. 10 to
Merrill Lynch Life Variable Annuity
Separate Account A's registration
statement on Form N-4, File No. 33-43773,
filed December 10, 1996.
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.
</TABLE>
E-1
<PAGE> 33
<TABLE>
<S> <C> <C>
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.
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
Certificate, ML-AY-372 KS 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, 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.
</TABLE>
E-2
<PAGE> 34
<TABLE>
<S> <C> <C>
4.4a Qualified Retirement Plan Certificate, Incorporated by reference to Exhibit
ML-AY-373 KS 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 Incorporated by reference to Exhibit 4.5
Certificate, ML-AY-374 to the Registrant's registration
statement on Form S-1, File No. 33-26322, filed
January 3, 1989.
4.5a Individual Retirement Annuity Incorporated by reference to Exhibit
Certificate, ML-AY-374 KS 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 Incorporated by reference to Exhibit
Certificate, ML-AY-375 KS 4.5b, 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 Incorporated by reference to Exhibit
Certificate, ML-AY-379 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 Incorporated by reference to Exhibit 4.6,
Certificate, 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.
</TABLE>
E-3
<PAGE> 35
<TABLE>
<S> <C> <C>
4.6a Individual Retirement Account Incorporated by reference to Exhibit
Certificate, ML-AY-380 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 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
Certificate, ML-AY-376 KS 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, 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
ML-AY-366 190 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.
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-4
<PAGE> 36
<TABLE>
<S> <C> <C>
4.10 Individual Retirement Annuity Incorporated by reference to Exhibit 4.10
Endorsement, 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 Incorporated by reference to Exhibit
Endorsement, 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 Incorporated by reference to Exhibit
Endorsement, 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 Incorporated by reference to Exhibit 4.11
Endorsement, 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 Incorporated by reference to Exhibit
Endorsement, 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.
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.
</TABLE>
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<S> <C> <C>
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
Annuity Contract 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 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.
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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.
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.
4.24 Qualified Plan Endorsement 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 Incorporated by reference to Exhibit 10.1
Family Life Insurance Company and Merrill to the Registrant's registration
Lynch Life Insurance Company statement on Form S-1, File No. 33-26322, filed
January 3, 1989.
10.2 General Agency Agreement between Merrill Incorporated by reference to Exhibit
Lynch Life Insurance Company and Merrill 10.2, 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.
10.3 Service Agreement among Merrill Lynch Incorporated by reference to Exhibit
Insurance Group, Family Life Insurance 10.3, 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 10(c)(2) to Post-Effective Amendment No.
Life Insurance Company and Merrill Lynch Life 1 to the Registrant's registration
Insurance Company statement on Form S-1, File No. 33-60290,
filed March 31, 1994.
10.4 Indemnity Reinsurance Agreement between Incorporated by reference to Exhibit
Merrill Lynch Life Insurance Company and 10.4, 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
Merrill Lynch Life Insurance Company, 10.6, 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.
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10.6 Amended General Agency Agreement between Incorporated by reference to Exhibit
Merrill Lynch Life Insurance Company and 10(g) to the Registrant's registration
Merrill Lynch Life Agency, Inc. statement on Form S-1, File No. 33-46827,
filed March 30, 1992.
10.7 Indemnity Agreement between Merrill Lynch Incorporated by reference to Exhibit
Life Insurance Company and Merrill Lynch 10(h) to the Registrant's registration
Life Agency, Inc. statement on Form S-1, File No. 33-46827,
filed March 30, 1992.
10.8 Management Agreement between Merrill Incorporated by reference to Exhibit
Lynch Life Insurance Company and Merrill Lynch 10(i) to the Registrant's registration
Asset Management, Inc. statement 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
Agreement between Family Life Insurance 10.5, 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.
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 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.
</TABLE>
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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 Exhibit 27.1
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 2,543,097
<EQUITIES> 158,591
<MORTGAGE> 0
<REAL-ESTATE> 25,960
<TOTAL-INVEST> 3,884,384
<CASH> 95,377
<RECOVER-REINSURE> 2,893
<DEFERRED-ACQUISITION> 405,640
<TOTAL-ASSETS> 15,104,095
<POLICY-LOSSES> 63,925
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 20,802
<POLICY-HOLDER-FUNDS> 3,816,744
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 520,590
<TOTAL-LIABILITY-AND-EQUITY> 15,104,095
0
<INVESTMENT-INCOME> 272,038
<INVESTMENT-GAINS> 12,460
<OTHER-INCOME> 197,662
<BENEFITS> 31,891
<UNDERWRITING-AMORTIZATION> 44,835
<UNDERWRITING-OTHER> 51,735
<INCOME-PRETAX> 132,523
<INCOME-TAX> 39,762
<INCOME-CONTINUING> 92,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,761
<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
</TABLE>
