<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 33-26322; 33-46827; 33-52254; 33-60290;
33-58303; 333-33863
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
ARKANSAS 91-1325756
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
(609) 282-1429
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 200,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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<PAGE> 2
PART I Financial Information
Item 1. Financial Statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- ------ ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $2,398,514; 1998 - $2,504,599) $ 2,403,033 $ 2,543,097
Equity securities, at estimated fair value
(cost: 1999 - $197,988; 1998 - $162,710) 192,351 158,591
Trading account securities, at estimated fair value 17,318 17,280
Real estate held-for-sale 25,960 25,960
Policy loans on insurance contracts 1,141,585 1,139,456
------------- -------------
Total Investments 3,780,247 3,884,384
CASH AND CASH EQUIVALENTS 110,877 95,377
ACCRUED INVESTMENT INCOME 74,349 73,459
DEFERRED POLICY ACQUISITION COSTS 412,783 405,640
FEDERAL INCOME TAXES - DEFERRED 20,245 9,403
REINSURANCE RECEIVABLES 4,096 2,893
AFFILIATED RECEIVABLES - NET 7,556 -
RECEIVABLES FROM SECURITIES SOLD 47,970 14,938
OTHER ASSETS 44,883 46,512
SEPARATE ACCOUNTS ASSETS 10,863,257 10,571,489
------------- -------------
TOTAL ASSETS $ 15,366,263 $ 15,104,095
============= =============
</TABLE>
See notes to finanical statements. (continued)
<PAGE> 3
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Continued) (Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,752,202 $ 3,816,744
Claims and claims settlement expenses 74,467 63,925
------------- -------------
Total policy liabilities and accruals 3,826,669 3,880,669
OTHER POLICYHOLDER FUNDS 17,471 20,802
LIABILITY FOR GUARANTY FUND ASSESSMENTS 13,755 13,864
FEDERAL INCOME TAXES - CURRENT 16,591 15,840
AFFILIATED PAYABLES - NET - 822
PAYABLE FOR SECURITIES PURCHASED 21,017 10,541
UNEARNED POLICY CHARGE REVENUE 60,721 55,235
OTHER LIABILITIES 25,068 24,273
SEPARATE ACCOUNTS LIABILITIES 10,856,239 10,559,459
------------- -------------
Total Liabilities 14,837,531 14,581,505
------------- -------------
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 195,978 173,496
Accumulated other comprehensive loss (16,570) (230)
------------- -------------
Total Stockholder's Equity 528,732 522,590
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,366,263 $ 15,104,095
============= =============
</TABLE>
See notes to financial statements.
<PAGE> 4
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 67,326 $ 70,998
Net realized investment gains (including net unrealized holding gains
(losses) on trading account securities) 1,357 10,458
Policy charge revenue 53,961 48,045
------------ ------------
Total Revenues 122,644 129,501
------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 44,848 50,319
Market value adjustment expense 835 1,392
Policy benefits (net of reinsurance recoveries: 1999 - $3,282
1998 - $3,741) 7,950 7,732
Reinsurance premium ceded 5,197 4,870
Amortization of deferred policy acquisition costs 16,695 16,673
Insurance expenses and taxes 12,531 12,272
------------ ------------
Total Benefits and Expenses 88,056 93,258
------------ ------------
Earnings Before Federal Income Tax Provision 34,588 36,243
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 14,150 12,248
Deferred (2,044) (2,959)
------------ ------------
Total Federal Income Tax Provision 12,106 9,289
------------ ------------
NET EARNINGS $ 22,482 $ 26,954
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 5
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET EARNINGS $ 22,482 $ 26,954
------------ ------------
OTHER COMPREHENSIVE INCOME:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (34,208) 3,447
Reclassification adjustment for gains included in net earnings (1,324) (10,404)
------------ ------------
Net unrealized losses on investment securities (35,532) (6,957)
Adjustments for:
Policyholder liabilities 5,808 4,148
Deferred policy acquisition costs 4,586 83
Deferred federal income taxes 8,798 954
------------ ------------
Total other comprehensive loss (16,340) (1,772)
------------ ------------
COMPREHENSIVE INCOME $ 6,142 $ 25,182
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 6
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common pain-in Retained comprehensive Stockholder's
stock capital earnings income (loss) equity
---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 2,000 $ 347,324 $ 80,735 $ 17,995 $ 448,054
Net earnings 92,761 92,761
Other comprehensive loss, net of tax (18,225) (18,225)
---------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,000 347,324 173,496 (230) 522,590
Net earnings 22,482 22,482
Other comprehensive loss, net of tax (16,340) (16,340)
---------- ----------- ----------- ------------- -------------
BALANCE, MARCH 31, 1999 $ 2,000 $ 347,324 $ 195,978 $ (16,570) $ 528,732
========== =========== =========== ============= =============
</TABLE>
See notes to financial statements.
<PAGE> 7
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 22,482 $ 26,954
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 16,695 16,673
Capitalization of policy acquisition costs (19,252) (18,581)
Amortization (accretion) of investments (873) (2,115)
Net realized investment gains (1,357) (10,458)
Interest credited to policyholders' account balances 44,848 50,319
Benefit for deferred Federal income tax (2,044) (2,959)
Changes in operating assets and liabilities:
Accrued investment income (890) (2,068)
Affiliated receivables / payables (8,378) 51
Claims and claims settlement expenses 10,542 13,871
Federal income taxes - current 751 (9,190)
Other policyholder funds (3,331) (8,096)
Liability for guaranty fund assessments (109) (1,144)
Policy loans on insurance contracts (2,129) (3,488)
Trading account securities (44) (40)
Unearned policy charge revenue 5,486 2,763
Other, net 1,221 2,063
------------ ------------
Net cash and cash equivalents provided by operating activities 63,618 54,555
------------ ------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 225,972 285,119
Maturities for available-for-sale securities 134,871 149,017
Purchases of available-for-sale securities (310,576) (357,603)
Sales of real estate held-for-sale - 10,862
Recapture of investments in separate accounts 5,281 -
Investment in separate accounts (84) -
------------ ------------
Net cash and cash equivalents provided by investing activities $ 55,464 $ 87,395
------------ ------------
</TABLE>
See notes to financial statements. (continued)
<PAGE> 8
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from (payments for):
Policyholder deposits $ 250,215 $ 234,970
Policyholder withdrawals (including transfers to/from separate accounts) (353,797) (401,286)
------------- ------------
Net cash and cash equivalents used by financing activities (103,582) (166,316)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,500 (24,366)
CASH AND CASH EQUIVALENTS:
Beginning of year 95,377 86,388
------------- ------------
End of period $ 110,877 $ 62,022
============= ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 13,398 $ 21,438
Intercompany interest 184 209
</TABLE>
See notes to financial statements.
<PAGE> 9
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION:
Merrill Lynch Life Insurance Company (the "Company") is a wholly
owned subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG").
The Company is an indirect wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("Merrill Lynch & Co."). The Company sells life
insurance and annuity products, including variable life insurance
and variable annuities.
The unaudited condensed financial statements included herein have
been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the unaudited financial statements presented herein
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial
position and the results of operations in accordance with
generally accepted accounting principles for the periods
presented. The preparation of financial statements in conformity
with generally accepted accounting principles and prevailing
industry practice requires management to make estimates that
affect the reported amounts and disclosure of contingencies in
the financial statements. Actual results could differ from
those estimates. Results for the three month periods ended March
31, 1999 and 1998 are not necessarily indicative of annual
results. These unaudited financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's 1998 Annual Report on Form 10-K ("1998
10K").
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in
conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Arkansas and the
National Association of Insurance Commissioners. Statutory
capital and surplus at March 31, 1999 and December 31, 1998, was
$331 million and $299 million, respectively. For both three month
periods ended March 31, 1999 and 1998, statutory net income was
$33 million.
<PAGE> 10
NOTE 3. INVESTMENTS:
The Company's investments in debt and equity securities are
classified as either available-for-sale or trading and are
recorded at fair value. Unrealized gains and losses on available-
for-sale securities are included in accumulated other
comprehensive loss, which is a component of stockholder's equity.
Unrealized gains and losses on trading account securities are
included in net realized investment gains.
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale. The
Company adjusts those assets and liabilities as if the unrealized
investment gains or losses from available-for-sale investments
had actually been realized, with corresponding credits or charges
reported in stockholder's equity as a component of accumulated
other comprehensive income (loss), net of taxes. The following
reconciles net unrealized investment gains (losses) on available-
for-sale investments:
March 31, December 31,
1999 1998
------------ ------------
Assets:
Fixed maturity securities $ 4,519 $ 38,498
Equity securities (5,637) (4,119)
Deferred policy acquisition costs 4,263 (323)
Federal income taxes - deferred 8,922 124
Separate Accounts assets (5) 30
------------ ------------
12,062 34,210
------------ ------------
Liabilities:
Policyholders' account balances 28,632 34,440
------------ ------------
Stockholder's equity:
Accumlated other comprehensive loss $ (16,570) $ (230)
============ ============
The following summarizes the net impact of available-for-sale
securities and trading account securities on net realized
investment gains:
March 31, December 31,
1999 1998
------------ ------------
Available-for-sale securities:
Net realized investment gains $ 1,362 $ 9,200
Trading account securities:
Net realized investment gains 475 494
Net unrealized holding gains (losses) (480) 764
------------ ------------
Total net realized investment gains $ 1,357 $ 10,458
============ ============
<PAGE> 11
NOTE 4. ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and for
Hedging Activities". SFAS No. 133 requires all derivatives,
including certain derivatives embedded in other contracts, to be
recorded on the balance sheet at fair value. SFAS No. 133, which
is effective for the Company beginning January 1, 2000, is not
expected to have a material impact on the Company's financial
position or results of operations.
NOTE 5. 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.
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 for the Company's financial statements included herein.
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 earnings from a specific
investment portfolio that does not support policyholder
liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts for the three months
ended March 31:
1999 1998
---------- ----------
Net Revenues (a):
Life Insurance $ 32,047 $ 30,724
Annuities 42,364 46,194
Other 3,385 2,264
---------- ----------
Total Net Revenues $ 77,796 $ 79,182
========== ==========
Net Earnings:
Life Insurance $ 8,352 $ 7,947
Annuities 11,930 17,535
Other 2,200 1,472
---------- ----------
Total Net Earnings $ 22,482 $ 26,954
========== ==========
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
<PAGE> 12
Item 2 Management's Narrative Analysis of the Results of
Operations
This Management's Narrative Analysis of the Results of Operations
addresses changes in revenues and expenses for the three month
periods ended March 31, 1999 and 1998. This discussion should
be read in conjunction with the accompanying unaudited financial
statements and notes thereto, in addition to the 1998 Financial
Statements and Notes to Financial Statements and the Management's
Narrative Analysis of the Results of Operations included in
the 1998 10K.
Business Overview
The Company's gross earnings are principally derived from two
sources:
- - the net earnings from investment of fixed rate life insurance
and annuity contract owner deposits less interest credited to
contract owners, commonly known as interest 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 the Company anticipates
holding those funds. In addition, the Company incurs expenses
associated with the maintenance of in-force contracts.
Life insurance premiums and annuity deposits recorded during the
first three months of 1999 and 1998 were $267 million and $273
million, respectively. Excluding internal tax-free exchanges,
life insurance premiums and annuity deposits received were $250
million and $235 million during the first three months of 1999
and 1998, respectively. Life insurance premiums and annuity
deposits by product were as follows:
Premiums Collected Change
---------------------- -------------------
1999 1998 1999-1998 %
------- ------- ---------- ------
($ In Millions)
Variable Annuities $ 223 $ 228 $ (5) -2%
Modified Guaranteed Annuites 4 4 - -
Variable Life Insurance 38 39 (1) -3%
Other 2 2 - -
------- ------- --------- -------
Total Premiums $ 267 $ 273 $ (6) -2%
======= ======= ========= =======
<PAGE> 13
Policy and contract surrenders decreased $28 million (or 12%) to
$206 million during the current three month period as compared to
the equivalent period in 1998 primarily due to reductions in
modified guaranteed annuity surrenders. During the current three
month period, modified guaranteed annuity surrenders decreased
$37 million (or 49%). The decrease in modified guaranteed
annuity surrender activity is primarily attributable to two
factors. First, there was a reduction in the number of contracts
reaching the end of their guarantee periods during the first
quarter 1999 as compared to the first quarter 1998. Second,
increases in medium term interest rates during the first quarter
1999 resulted in increased persistency. The market value
adjustment provision on these contracts has an inverse
relationship to changes in interest rates. Average interest
rates on 1 to 10 year term U.S. Treasury securities increased
approximately 68 basis points and 44 basis points from the third
and fourth quarters of 1998, respectively.
During the first three months of 1999, separate account assets
increased $292 million (or 2.8%) to $10.9 billion, primarily due
to strong investment performance associated with the generally
rising equity markets. During the first three months of 1999,
separate account assets increased $273 million due to price
appreciation in the underlying mutual funds supporting variable
products.
During the first quarter 1999, the increase in interest rates,
noted above, combined with increased credit exposure on certain
domestic security holdings resulted in a net decline in fair
value of the Company's investments of $35.5 million. After
adjusting for policyholder liabilities, deferred policy
acquisition costs and deferred federal income taxes, other
comprehensive losses were $16.3 million during the first quarter
1999.
To fund all business activities, the Company maintains a high
quality and liquid investment portfolio. As of March 31, 1999,
the Company's assets included $2.2 billion of cash, short-term
investments and investment grade publicly traded available-for-
sale securities that could be liquidated if funds were required.
<PAGE> 14
As of March 31, 1999, approximately $104 million (or 4.3%) of the
Company's fixed maturity securities were considered non-
investment grade. The Company defines non-investment grade as
unsecured corporate debt obligations which do not have a rating
equivalent to Standard and Poor's BBB- or higher (or similar
rating agency). Non-investment grade securities are speculative
and are subject to significantly greater risks related to the
creditworthiness of the issuers and the liquidity of the market
for such securities. The Company carefully selects, and closely
monitors, such investments.
The Company has exposure to selected emerging markets that
include securities issued by sovereigns or corporations of Asia
(excluding Japan), Latin America and Mexico. At March 31, 1999,
the Company held $76 million in emerging market securities with
an approximate unrealized loss of $7.2 million.
Year 2000 Compliance
As the Year 2000 approaches, the Company has undertaken
initiatives to address the Year 2000 problem (the "Y2K problem")
in conjunction with the Merrill Lynch & Co. Year 2000 Compliance
Initiative. Refer to the 1998 10K for a full description. The
failure of the Company's technology systems relating to a Y2K
problem would likely have a material adverse effect on the
Company's business, results of operations, and financial
condition. This effect could include disruption of normal
business transactions, such as the processing of policyholder
transactions, the valuation of policyholder liabilities and the
recording and valuation of assets. The Y2K problem could also
increase the Company's exposure to risk and legal liability and
its need for liquidity.
The renovation phase and production testing phase of the
Company's Year 2000 efforts, as described in the 1998 10K, are
complete.
In light of the interdependency of the parties in or serving the
financial markets, there can be no assurance that all Y2K
problems will be identified and remedied on a timely basis or
that all remediation will be successful. Disruption or
suspension of activity in the world's financial markets is also
possible. Management is unable at this point to ascertain whether
all significant third parties will successfully address the Y2K
problem. The Company will continue to monitor third parties'
Year 2000 readiness to determine if additional or alternative
measures are necessary. The failure of exchanges, clearing
organizations, vendors, service providers, clients and
counterparties, regulators, or others to resolve their own
processing issues in a timely manner could have a material
adverse effect on the Company'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. As of March
31, 1999, Merrill Lynch & Co.'s total estimated expenditures for
the Year 2000 Compliance Initiative are approximately $520
million, of which $157 million remains to be spent. 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. The Company's
expenditures associated with Year 2000 efforts as of March 31,
1999 have not been material to the Company's results of
operations, liquidity, 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 the Company's business, results
of operations, and financial condition.
<PAGE> 15
Results of Operations
For the three month periods ended March 31, 1999 and 1998, the
Company reported net earnings of $22 million and $27 million,
respectively.
Net earnings derived from interest spread increased $1.8 million
during the first quarter 1999 as compared to the first quarter
1998. The increase in interest spread is primarily due a $1.4
million increase in real estate income. Overall, net investment
income and interest credited to policyholders' account balances
continue to decline due to the reduction in fixed rate contracts
in-force.
Net realized investment gains decreased $9.1 million during the
current three month period as compared to the same period during
1998. During the first three months of 1998, the Company
realized a $7.1 million gain on the sale of one commercial real
estate property. The remaining $2.0 million decrease in net
realized investment gains is primarily due to increased credit
related losses during the current three month period as compared
to the same period 1998.
Policy charge revenue increased $5.9 million (or 12%) during the
first quarter 1999 as compared to the same period during 1998.
The increase in policy charge revenue is primarily attributable
to the increase in contract holders' variable account balances.
Average variable account balances increased $1.2 billion (or 13%)
during the first quarter 1999 as compared to the same period in
1998. Asset based policy charges increased $4.2 million (or 13%)
consistent with the growth in separate account assets. Non-asset
based policy charges increased $1.7 million (or 10%).
The market value adjustment expense is attributable to the
Company'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. The
market value adjustment expense decreased $0.6 million (or 40%)
during the current three month period consistent with the
decrease in surrender activity.
Reinsurance premium ceded increased $0.3 million (or 7%) to $5.2
million during 1999. The increase is attributable to the
combined effect of the increasing age of policyholders and
increased insurance in-force.
The Company's effective federal income tax rate increased to 35%
for 1999 from 26% for 1998 principally as a result of year to
year differences in certain permanent adjustments.
Segment Information
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 the Company's
consolidated financial condition and results of operations
presented herein.
<PAGE> 16
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
None.
I-2
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ JOSEPH E. CROWNE
-----------------------------------------
Joseph E. Crowne
Senior Vice President and
Chief Financial Officer
Date: May 14, 1999
I-3
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 2,403,033
<EQUITIES> 192,351
<MORTGAGE> 0
<REAL-ESTATE> 25,960
<TOTAL-INVEST> 3,780,247
<CASH> 110,877
<RECOVER-REINSURE> 4,096
<DEFERRED-ACQUISITION> 412,783
<TOTAL-ASSETS> 15,366,263
<POLICY-LOSSES> 74,467
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 17,471
<POLICY-HOLDER-FUNDS> 3,752,202
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 526,732
<TOTAL-LIABILITY-AND-EQUITY> 15,366,263
0
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<INCOME-TAX> 12,106
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<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
