<PAGE> 1
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, 1999
Commission File Nos. 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
800 Scudders Mill Road
Plainsboro, New Jersey 08536-1698
----------------------------------------
(Address of Principal Executive Offices)
(609) 282-1429
-----------------------------------------------
(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
--- ---
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 250,000
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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.
<PAGE> 2
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, Puerto Rico, the Virgin Islands, and Guam. During 1999, life insurance
and annuity sales were made in all states the Registrant was licensed in, with
the largest concentration in Florida, 16%, Texas, 9%, New Jersey, 8%, 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, 1999, approximately 11,179 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 1999, the Registrant paid a $29,207,000 ordinary dividend and a
$105,793,000 extraordinary dividend to MLIG. The extraordinary dividend was paid
pursuant to approval granted by the Arkansas Insurance Commissioner. The
Registrant also paid a stock dividend of 500,000 common shares to MLIG during
1999. No other cash or stock 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.
In addition to providing historical information, the Registrant (also
referred to as "Merrill Lynch Life") may make or publish forward-looking
statements about management expectations, strategic objectives, business
prospects, anticipated financial performance, and other similar matters. A
variety of factors, many of which are beyond Merrill Lynch Life's control,
affect the operations, performance, business strategy, and results of Merrill
Lynch Life and could cause actual results and experience to differ materially
from the expectations expressed in these statements. These factors include, but
are not limited to, the factors listed in the Business Environment and Economic
Environment sections listed below, as well as actions and initiatives taken by
both current and potential competitors and the effect of current, pending, and
future legislation and regulation. MERRILL LYNCH LIFE UNDERTAKES NO
RESPONSIBILITY TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
BUSINESS ENVIRONMENT
Merrill Lynch Life conducts its business in the life insurance and annuity
markets of the financial services industry. These markets are highly regulated
with particular emphasis on company solvency and sales practice monitoring.
The financial services industry continues to be affected by the intensifying
competitive environment as demonstrated by the following factors: consolidation
through mergers and acquisition, competition from new entrants, and traditional
competitors using the internet to establish or expand their businesses. In
addition, the passage of the Gramm-Leach-Bliley Act in November 1999 represented
a significant accomplishment in the effort to modernize the financial services
industry in the U.S. by substantially eliminating barriers between banking,
securities and insurance industries. This legislation, together with other
changes in the financial services industry made possible by previous reforms,
has increased the number of companies competing for a similar customer base.
Demographically, the population is aging, which favors life insurance and
annuity products. However, 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 the competitiveness of certain products or by
reducing or eliminating the tax advantages on certain products.
ECONOMIC ENVIRONMENT
Merrill Lynch Life's financial position and/or results of operations are
primarily impacted by the following economic factors:
- - fluctuations in medium term interest rates
- - fluctuations in credit spreads
- - equity market performance
Merrill Lynch Life defines medium term interest rates as the average interest
rate on U.S. Treasury securities with terms of 1 to 10 years. During 1999,
medium term interest rates increased approximately 168 basis points to yield, on
average, 6.24% at December 31, 1999.
Merrill Lynch Life defines credit spreads as the interest rate spread between
the 5-year U.S Treasury Bond Index and the 5-year Corporate Financial Bond
Index. During 1999, credit spreads contracted approximately 65 basis points from
the historically high levels experienced during 1998, and ended the year with a
spread of 103 basis points. During 1998, global economic instability contributed
to a significant widening of credit spreads.
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There are several standard indices published on a daily basis that measure
performance of selected components of the U.S. equity market. Examples include
the Dow Jones Industrial Average ("Dow"), NASDAQ Composite Index ("NASDAQ") and
the Standard & Poor's 500 Composite Stock Price Index ("S&P Index"). During
1999, the Dow, NASDAQ and S&P Index increased 25%, 86% and 20%, respectively,
with all three indices closing the year at historical highs. The investment
performance in the underlying mutual funds supporting Merrill Lynch Life's
variable products do not replicate the returns on any specific U.S. equity
market index, however investment performance will generally increase or decrease
with corresponding increases or decreases in the overall U.S. equity market.
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 conservative 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 product
provides tax-deferred savings with the opportunity for diversified investing in
a wide selection of underlying mutual fund portfolios. The modified guaranteed
annuity products provide a guaranteed fixed interest-crediting rate for a period
selected by the contract owner, but impose 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
contract owner 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, 1999:
<TABLE>
<CAPTION>
(In Millions) % Change
---------------------------------------------------- -------------------------------------
1999 1998 1997 1999 - 1998 1998 - 1997
---------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Variable Annuities $ 1,099 $ 1,002 $ 1,040 10% (4%)
Modified Guaranteed Annuities 35 14 32 150% (56%)
Variable Life Insurance:
Cash Value Accumulation 75 80 74 (6%) 8%
Estate Planning 61 60 45 2% 33%
---------------- -------------- -------------- ---------------- ----------------
136 140 119 (3%) 18%
---------------- -------------- -------------- ---------------- ----------------
Other 7 9 15 (22%) (40%)
---------------- -------------- -------------- ---------------- ----------------
Total Premiums Collected $ 1,277 $ 1,165 $ 1,206 10% (3%)
================ ============== ============== ================ ================
</TABLE>
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Merrill Lynch Life's total sales increased 10% during 1999, as compared to a 3%
decrease during 1998. Variable annuity products continued to dominate overall
sales by comprising 86% of total sales volume for each of the past three years.
Total variable life insurance sales declined 3% during 1999 as compared to an
18% increase during 1998. During 1999, modified guaranteed annuity sales
increased 150% as compared to a 56% decline during 1998. 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.
Management attributes the continued strength in variable annuity sales to the
combined effects of:
- - an increase in the number of annuity specialists supporting Merrill Lynch
Life's sales force
- - ongoing enhancements to Merrill Lynch Life's variable annuity product
- - a generally favorable economic environment
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 ("Estate Planning Specialist") while the other
specializes in annuity products ("Annuity Specialist"). Also, during 1999,
responsibility for single premium life products was transferred from the Annuity
Specialist to the Estate Planning Specialist. This increase in the number of
product specialists has resulted in a greater and more focused coverage of the
Merrill Lynch Life's sales force. In management's view, Merrill Lynch Life is
beginning to realize the benefits resulting from the implementation of this
distribution structure.
Merrill Lynch Life has continually expanded the number of investment options
available under certain of its variable annuity products to include a selection
of mutual funds with complementary investment objectives to its existing
portfolio. During the past three years, Merrill Lynch Life has added new funds
from affiliated investment advisors - Merrill Lynch Asset Management, LP,
Mercury Asset Management International, Ltd., and Hotchkis & Wiley - as well as
new funds from three unaffiliated investment advisors.
Management believes that variable annuity sales have been positively impacted by
the extended strength of the equity markets, which have generally increased over
the past five years. However, future variable annuity sales could be negatively
impacted due to increased volatility or a decline in the equity markets.
Merrill Lynch & Co. offers an optional 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 was awarded the 1999, 1998 and 1997 DALBAR Annuity
Service Award for its Retirement Plus variable annuity.
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 37%, 41% and 48% for 1999, 1998 and
1997, respectively.
Total variable life insurance sales decreased 3% during 1999 as compared to
record sales levels in 1998. However, sales of Merrill Lynch Life's estate
planning product increased 2% during 1999. Sales of this product have increased
for six consecutive years since its inception during the third quarter 1993.
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<PAGE> 6
Sales of Merrill Lynch Life's other variable life insurance product decreased 6%
during 1999, but have remained generally consistent over the past three years.
During 1999, policy and contract surrenders increased $77 million (or 9%) to
$957 million as compared to 1998 primarily due to an increase in variable
annuity surrenders. During 1999, variable annuity surrenders increased $209
million (or 70%) to $510 million. This increase is primarily a result of the
significant growth of this block of business over the past three years. Also
contributing to the increase in variable annuity surrenders is the impact of the
highly competitive retirement planning market. Variable annuity surrenders
resulting from exchanges to external entities increased $145 million as compared
to 1998. Partially offsetting the increase in variable annuity surrenders was a
decrease in modified guaranteed annuity surrenders of $97 million (or 37%)
during the same period. 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 interest rate guarantee
periods during 1999 as compared to 1998. Second, increases in medium term
interest rates during the current year resulted in increased persistency. The
market value adjustment provision on these contracts has an inverse relationship
to changes in interest rates.
FINANCIAL CONDITION
At December 31, 1999, Merrill Lynch Life's assets were $17.1 billion, or $2.0
billion higher than the $15.1 billion in assets at December 31, 1998. The
increase in assets is attributable to the growth in separate accounts assets,
which increased $2.3 billion (or 22%) to $12.9 billion. Merrill Lynch Life's
separate accounts assets benefited from strong investment performance associated
with the generally rising equity markets. During 1999, separate accounts assets
increased $2.2 billion due to price appreciation in the underlying mutual funds
supporting variable products. Also, net cash inflow to the variable products
contributed $121 million to the growth in separate accounts assets.
Assets excluding separate accounts assets ("general account assets") decreased
$275 million primarily due to three factors. First, Merrill Lynch Life paid a
$135 million dividend to its parent. Second, the rising interest rate
environment during 1999 contributed to a $152 million decrease in market values
on investment securities. After adjustments to deferred policy acquisition costs
and deferred federal income taxes, total general account assets decreased $82
million as a result of the rising interest rate environment. Third, Merrill
Lynch Life experienced a reduction in the number of fixed rate contracts
inforce.
During 1999, Merrill Lynch Life experienced contract owner withdrawals that
exceeded deposits by $32 million. The components of contract owner transactions
are as follows:
<TABLE>
<CAPTION>
(In Millions) 1999
---------------
<S> <C>
Premiums collected $ 1,277
Internal tax-free exchanges (81)
---------------
Net contract owner deposits 1,196
Contract owner withdrawals 1,569
Net transfers to/from separate accounts (341)
---------------
Net contract owner withdrawals 1,228
---------------
Net contract owner activity $ (32)
===============
</TABLE>
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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>
<CAPTION>
<S> <C>
Investment Grade Fixed Maturity Securities (Rated A or higher).......................... 35%
Policy Loans............................................................................ 33%
Investment Grade Fixed Maturity Securities (Rated BBB).................................. 24%
Equity Securities....................................................................... 5%
Non-Investment Grade Fixed Maturity Securities.......................................... 2%
Real Estate............................................................................. 1%
-----------
100%
===========
</TABLE>
Merrill Lynch Life's investment in collateralized mortgage obligations ("CMO")
and mortgage backed securities ("MBS") had a carrying value of $120 million as
of December 31, 1999. At December 31, 1999, approximately 76% of Merrill Lynch
Life's CMO and MBS holdings were fully collateralized by the Government National
Mortgage Association, the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation. At December 31, 1999, Merrill Lynch Life held
approximately $12 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, 1999, Merrill Lynch
Life held $102 million in emerging market securities with an approximate
unrealized loss of $7 million.
During 1999, Merrill Lynch Life sold one real estate property with a carrying
value of $5.9 million for a realized gain of $7.4 million.
As of December 31, 1999, Merrill Lynch Life had 44,186 life insurance and
annuity contracts inforce with interest rate guarantees. The estimated average
rate of interest credited on behalf of contract owners was 5.06% during 1999.
Invested assets supporting liabilities with interest rate guarantees had an
estimated effective yield of 6.85% during 1999. The number of life insurance and
annuity contracts inforce with interest rate guarantees decreased 11% as
compared to 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, 1999 and 1998, Merrill Lynch Life had accrued an estimated
liability for future guaranty fund assessments of $14.9 million and $13.9
million, respectively. Merrill Lynch Life regularly monitors public information
regarding insurer insolvencies and adjusts its estimated liability as
appropriate.
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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 inforce. 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, 1999, Merrill Lynch Life's assets included $1.8 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 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, 1999 and 1998, 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: A.M. Best - "A+" and Standard and Poors -
"AA-".
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 cash
dividends to MLIG of $135 million during 1999 and 1997. Merrill Lynch Life also
paid a $0.5 million stock dividend during 1999. No cash or stock 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.
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YEAR 2000 COMPLIANCE INITIATIVE
In 1999 Merrill Lynch Life completed its efforts to address the Year 2000
problem (the "Y2K problem") in conjunction with the Merrill Lynch & Co. Year
2000 Compliance Initiative (the "Y2K Initiative"). The Y2K problem was the
result of a widespread programming technique that caused 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 have caused serious failures in
information technology systems and other systems.
In 1995 Merrill Lynch & Co. established the Y2K Initiative to address the
internal and external risks associated with the Y2K problem. The Y2K Initiative
consisted of six phases, completed by the millennium: planning, pre-renovation,
renovation, production testing, certification, and integration testing.
Contingency plans were established in the event of any failures or disruptions.
Through the date of this filing, there have been no material failures or
disruptions of systems or services at Merrill Lynch Life attributable to the Y2K
problem. Similarly we have not been notified of any material failure or
disruption of systems or services affecting third parties in their capacity to
transact business with Merrill Lynch Life or in Merrill Lynch Life's capacity to
transact business with others. Merrill Lynch Life continues to monitor the
performance of its systems for any possible future failures or disruptions
attributable to the Y2K problem. In light of the dependency of the parties in or
serving the financial markets, the failure or disruption of systems or services
of exchanges, clearing organizations, vendors, service providers,
counterparties, regulators or others could have a material adverse effect on
Merrill Lynch Life's business, results of operations, and financial condition.
The primary costs associated with the Y2K Initiative were incurred by Merrill
Lynch & Co. and were not directly allocated to the various business units.
Merrill Lynch & Co.'s total expenditures for the entire Y2K Initiative were
approximately $512 million, including approximately $102 million of occupancy,
communications, and other related overhead expenditures, as Merrill Lynch & Co.
is applying a fully costed pricing methodology for this project. Of the total
estimated expenditures, approximately $12 million, related to continued
testing, contingency planning, risk management and the wind down of the
efforts, has not yet been spent. Included in the overall Merrill Lynch & Co.
expenditures were estimated total Year 2000 expenditures for Information
Systems personnel responsible for the ongoing maintenance and support of the
Company's information technology of approximately $3.0 million.
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<PAGE> 10
RESULTS OF OPERATIONS
Merrill Lynch Life'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 Merrill Lynch Life anticipates holding those funds. In
addition, Merrill Lynch Life incurs expenses associated with the maintenance of
inforce contracts.
1999 compared to 1998
Merrill Lynch Life recorded net earnings of $96 million and $93 million for 1999
and 1998, respectively.
Net earnings derived from interest spread increased $1.6 million during 1999 as
compared to 1998. The increase in interest spread is primarily due to a $1.5
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 inforce.
Merrill Lynch Life experienced net realized investment gains of $8.9 million and
$12.5 million during 1999 and 1998, respectively. The following table provides
net realized investment gains (losses) by type:
<TABLE>
<CAPTION>
Realized Gain (Loss) 1999 1998 Difference
-------------------------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C>
Interest related gains $ 7.8 $ 17.9 $ (10.1) (1)
Credit related losses (11.6) (15.1) 3.5 (2)
Trading account 4.8 1.4 3.4 (3)
Real estate 7.4 8.3 (0.9) (4)
Investment in Separate Accounts 0.5 - 0.5 (5)
------------------ ------------------ ----------------
$ 8.9 $ 12.5 $ (3.6)
================== ================== ================
</TABLE>
(1) The decrease in interest related gains is primarily
attributable to reduced sales of investments supporting
modified guaranteed annuity products. This reduction in
investment sales is attributable to lower surrender activity
during 1999 as compared to 1998.
(2) Prior year credit related losses were impacted by Merrill
Lynch Life's increased exposure in emerging market
securities.
(3) Merrill Lynch Life's trading account, which is compromised of
convertible debt and equity securities, was positively
impacted by favorable equity market performance, particularly
during December 1999.
(4) Merrill Lynch Life sold one property during 1999 as compared
to three properties during 1998.
(5) Positively impacted by favorable equity market performance.
The market value adjustment expense is attributable to Merrill Lynch Life's
modified guaranteed annuity products. This contract provision results in a
market value adjustment to the cash surrender value of those
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<PAGE> 11
contracts that are surrendered before the expiration of their interest rate
guarantee period. During 1999, the market value adjustment expense decreased
$3.1 million (or 57%) as compared to 1998 consistent with the decrease in
surrender activity resulting from the higher interest rate environment in 1999.
Policy charge revenue increased $35.4 million (or 18%) during 1999 as compared
to 1998. The increase in policy charge revenue is primarily attributable to the
increase in contract owners' variable account balances. During 1999, average
variable account balances increased $1.5 billion (or 15%) as compared to 1998.
During the same time period, asset based policy charges increased $22.2 million
(or 17%) consistent with the growth in average variable account balances.
Non-asset based policy charges increased $13.2 million (or 20%) during 1999 as
compared to 1998. Approximately $5.5 million of the increase is attributable to
the retrospective adjustment of Merrill Lynch Life's unearned revenue liability
during 1998. Excluding this adjustment, non-asset based policy charges increased
11% as compared to 1998 primarily due to an increase in cost of insurance
charges.
Reinsurance premium ceded increased $1.7 million (or 9%) to $21.7 million during
1999. This increase is attributable to the combined effect of the increasing age
of contract owners and increased insurance inforce.
Amortization of deferred policy acquisition costs increased $20.8 million during
1999 as compared to 1998. The retrospective adjustment of deferred policy
acquisition costs that occurred during 1998 resulted in a $26.4 million increase
in amortization of deferred policy acquisition costs. Excluding this adjustment,
amortization of deferred policy acquisition costs decreased $5.6 million as
compared to 1998. This decrease is primarily due to the reduction in interest
related realized gains during 1999 as compared to 1998.
Merrill Lynch Life's effective federal income tax rate increased to 33% for 1999
from 30% for 1998 primarily due to a reduction of certain permanent differences
recorded during 1999 as compared to 1998.
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
contract owner 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 inforce.
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 three 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.
-11-
<PAGE> 12
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 contract owners' variable account balances. During 1998, average
variable account balances increased $1.3 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 Merrill Lynch Life's variable annuity product.
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
contract owners and increased insurance inforce.
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 inforce life and annuity contracts.
Merrill Lynch Life's effective federal income tax rate decreased to 30% for 1998
from 33% for 1997 primarily due to adjustments for foreign tax credits recorded
during 1998.
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. Other earnings represent earnings on assets
that do not support contract owner liabilities. Net earnings by segment were as
follows:
<TABLE>
<CAPTION>
Segment 1999 1998 1997
------- ---- ---- ----
<S> <C> <C> <C>
Life Insurance $36 $35 $26
Annuities 49 52 45
Other 11 6 10
</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 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 1999.
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.
A number of assumptions must be made to obtain the expected fair value changes
illustrated below. 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 volatility experienced during recent years demonstrates
the limitations of these models.
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.
-12-
<PAGE> 13
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 Fair Value
(In Millions)
---------------------------------
Change in Interest Rates 1999 1998
- ------------------------ ------------- --------------
<S> <C> <C>
+ 100 basis points ($24.3) ($24.0)
+ 50 basis points ($11.9) ($12.3)
- - 50 basis points $11.3 $13.5
- - 100 basis points $21.8 $29.0
</TABLE>
Merrill Lynch Life's model is based on existing business inforce as of year-end
1999 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
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
3% 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 Fair Value
(In Millions)
---------------------------------
Change in Credit Spreads 1999 1998
- ----------------------------- -------------- --------------
<S> <C> <C>
+ 50 basis points ($38.5) ($40.3)
+ 10 basis points ($8.2) ($8.1)
- - 10 basis points $7.4 $8.3
- - 50 basis points $38.6 $41.5
</TABLE>
Merrill Lynch Life's model is based on existing business inforce as of year-end
1999 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. Contract owner 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.
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.
-13-
<PAGE> 14
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 28, 2000.
b. Balance Sheets at December 31, 1999 and 1998.
c. Statements of Earnings for the Years Ended December 31,
1999, 1998 and 1997.
d. Statements of Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997.
e. Statements of Stockholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997.
f. Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997.
g. Notes to Financial Statements for the Years Ended December
31, 1999, 1998 and 1997.
(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> 15
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.)
4.2c Modified Guaranteed Annuity Contract. (Incorporated by
reference to Exhibit 4(a), filed August 18, 1997, as part of
the Registrant's registration statement on Form S-3, File
No. 333-33863.)
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> 16
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.)
-16-
<PAGE> 17
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.)
4.10c Individual Retirement Annuity Endorsement. (Incorporated by
reference to Exhibit 4(b) to Pre-Effective Amendment No. 1
to the Registrant's registration statement on Form S-3, File
No. 333-33863, filed October 31, 1997.)
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> 18
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.)
4.13b Qualified Plan Endorsement. (Incorporated by reference to
Exhibit 4(c), filed October 31, 1997, as part of
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-3, File No. 333-33863.)
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.)
4.15a Application for Modified Guaranteed Annuity Contract.
(Incorporated by reference to Exhibit 4(d), filed August 18,
1997, as part of the Registrant's registration statement
on Form S-3, File No. 333-33863.)
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> 19
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> 20
(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> 21
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> 22
(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, 1999.
-22-
<PAGE> 23
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ........................................................................
Balance Sheets at December 31, 1999 and 1998 ........................................................
Statements of Earnings for the Years Ended December 31, 1999, 1998 and 1997..........................
Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997..............
Statements of Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997 .............
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................
Notes to Financial Statements for the Years Ended December 31, 1999, 1998 and 1997 ..................
</TABLE>
<PAGE> 24
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, 1999
and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted
accounting principles.
February 28, 2000
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except common stock par value and shares)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $2,228,921; 1998 - $2,504,599) $ 2,138,335 $ 2,543,097
Equity securities, at estimated fair value
(cost: 1999 - $214,153; 1998 - $162,710) 186,575 158,591
Trading account securities, at estimated fair value 22,212 17,280
Real estate held-for-sale 20,072 25,960
Policy loans on insurance contracts 1,159,163 1,139,456
------------ -----------
Total Investments 3,526,357 3,884,384
CASH AND CASH EQUIVALENTS 92,181 95,377
ACCRUED INVESTMENT INCOME 73,167 73,459
DEFERRED POLICY ACQUISITION COSTS 475,915 405,640
FEDERAL INCOME TAXES - DEFERRED 37,383 9,403
REINSURANCE RECEIVABLES 4,194 2,893
AFFILIATED RECEIVABLES - NET 287 -
RECEIVABLES FROM SECURITIES SOLD 566 14,938
OTHER ASSETS 47,437 46,512
SEPARATE ACCOUNTS ASSETS 12,860,562 10,571,489
------------ ------------
TOTAL ASSETS $17,118,049 $15,104,095
============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,587,867 $ 3,816,744
Claims and claims settlement expenses 85,696 63,925
------------ ------------
Total policyholder liabilities and accruals 3,673,563 3,880,669
OTHER POLICYHOLDER FUNDS 25,095 20,802
LIABILITY FOR GUARANTY FUND ASSESSMENTS 14,889 13,864
FEDERAL INCOME TAXES - CURRENT 12,806 15,840
AFFILIATED PAYABLES - NET - 822
PAYABLES FOR SECURITIES PURCHASED 339 10,541
UNEARNED POLICY CHARGE REVENUE 77,663 55,235
OTHER LIABILITIES 25,868 24,273
SEPARATE ACCOUNTS LIABILITIES 12,853,960 10,559,459
------------ ------------
Total Liabilities 16,684,183 14,581,505
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares;
issued and outstanding: 1999 - 250,000 shares,
1998 - 200,000 shares) 2,500 2,000
Additional paid-in capital 347,324 347,324
Retained earnings 134,127 173,496
Accumulated other comprehensive loss (50,085) (230)
------------ ------------
Total Stockholder's Equity 433,866 522,590
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,118,049 $15,104,095
============ ============
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 253,835 $ 272,038 $ 308,702
Net realized investment gains 8,875 12,460 13,289
Policy charge revenue 233,029 197,662 178,933
------------ ------------- ------------
Total Revenues 495,739 482,160 500,924
------------ ------------- ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 175,839 195,676 209,542
Market value adjustment expense 2,400 5,528 4,079
Policy benefits (net of reinsurance recoveries: 1999 - $14,175;
1998 - $9,761; 1997 - $10,439) 32,983 31,891 27,029
Reinsurance premium ceded 21,691 19,972 17,879
Amortization of deferred policy acquisition costs 65,607 44,835 72,111
Insurance expenses and taxes 53,377 51,735 49,105
------------ ------------ ------------
Total Benefits and Expenses 351,897 349,637 379,745
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 143,842 132,523 121,179
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 48,846 40,535 52,705
Deferred (1,135) (773) (12,261)
------------ ------------ ------------
Total Federal Income Tax Provision 47,711 39,762 40,444
------------ ------------ ------------
NET EARNINGS $ 96,131 $ 92,761 $ 80,735
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 96,131 $ 92,761 $ 80,735
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during the period (143,202) (31,718) 22,347
Reclassification adjustment for gains included in net earnings (8,347) (15,932) (12,390)
------------ ------------ ------------
Net unrealized gains (losses) on investment securities (151,549) (47,650) 9,957
Adjustments for:
Policyholder liabilities 31,959 14,483 10,094
Deferred policy acquisition costs 42,890 5,129 (822)
Deferred federal income taxes 26,845 9,813 (6,730)
------------ ------------ ------------
Total other comprehensive income (loss), net of tax (49,855) (18,225) 12,499
------------ ------------ ------------
COMPREHENSIVE INCOME $ 46,276 $ 74,536 $ 93,234
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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, 1999, 1998 AND 1997
(Dollars in thousands, except common stock par value and shares)
<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, 1997 $ 2,000 $ 402,937 $ 79,387 $ 5,496 $ 489,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1997 2,000 347,624 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
Stock dividend paid to parent
($10 par value, 500 shares) 500 (500) -
Cash dividend paid to parent (135,000) (135,000)
Net earnings 96,131 96,131
Other comprehensive loss, net of tax (49,855) (49,855)
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1999 $ 2,500 $ 347,324 $ 134,127 $ (50,085) $ 433,866
=========== =========== =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
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, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 96,131 $ 92,761 $ 80,735
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 65,607 44,835 72,111
Capitalization of policy acquisition costs (92,992) (80,241) (71,577)
Amortization (accretion) of investments (1,649) (5,350) (4,672)
Interest credited to policyholders' account balances 175,839 195,676 209,542
Benefit for deferred Federal income tax (1,135) (773) (12,261)
(Increase) decrease in operating assets:
Trading account securities (154) (287) (14,928)
Accrued investment income 292 4,765 7,962
Affiliated receivables (287) 166 (166)
Other (2,230) 1,565 (5,470)
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 21,771 13,351 10,908
Other policyholder funds 4,293 (6,358) 7,740
Liability for guaranty fund assessments 1,025 (1,510) (3,399)
Federal income taxes - current (3,034) (8,598) 3,470
Affiliated payables (822) 822 (6,164)
Unearned policy charge revenue 22,428 23,133 11,269
Other 1,595 1,941 5,922
Other operating activities:
Net realized investment gains (excluding gains on cash and
cash equivalents) (8,892) (12,460) (13,289)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activities 277,786 263,438 277,733
------------ ------------ ------------
Cash Flow From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 595,836 893,619 846,041
Maturities of available-for-sale securities 378,914 451,759 595,745
Purchases of available-for-sale securities (748,436) (1,028,086) (1,156,222)
Mortgage loans principal payments received - - 68,864
Purchases of mortgage loans - - (5,375)
Sales of real estate held-for-sale 13,282 14,135 6,060
Policy loans on insurance contracts (19,707) (21,317) (26,068)
Recapture of investment in separate accounts 12,267 - 11,026
Investment in separate accounts (5,381) (12,000) (21)
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 226,775 298,110 340,050
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements. (Continued)
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, 1999, 1998 AND 1997
(Continued) (Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from (payments for):
Dividends paid to parent $ (135,000) $ - $ (135,000)
Policyholder deposits 1,196,120 1,042,509 1,101,934
Policyholder withdrawals (including transfers to/from separate (1,568,877) (1,595,068) (1,593,320)
accounts) ------------ ------------ ------------
Net cash and cash equivalents used by financing activities: (507,757) (552,559) (626,386)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,196) 8,989 (8,603)
CASH AND CASH EQUIVALENTS
Beginning of year 95,377 86,388 94,991
------------ ------------ ------------
End of year $ 92,181 $ 95,377 $ 86,388
============ ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 51,880 $ 49,133 $ 49,235
Interest 688 860 842
</TABLE>
See accompanying notes to financial statements.
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 including 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, Puerto Rico, 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 cashflows, 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 risks 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 loss, net of tax. Unrealized gains and losses on
trading account securities are included in net realized
investment gains (losses). If management determines that a
decline in the value of a security is other-than-temporary, the
carrying value is adjusted to estimated fair value and the
decline in value is recorded as a net realized investment loss.
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. Investment transactions are recorded on the
trade date.
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 as a net realized investment loss.
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. The impact of these revisions on
cumulative amortization is recorded as a charge or credit to
current operations. 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.
Insurance expenses and taxes 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.
During 1990, the Company entered into an assumption
reinsurance agreement with an unaffiliated insurer. The
acquisition costs relating to this agreement are being
amortized over a twenty-five 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:
1999 1998 1997
---------- ---------- ----------
Beginning balance $ 101,793 $ 102,252 $ 112,249
Capitalized amounts 11,759 6,085 5,077
Interest accrued 7,634 7,669 9,653
Amortization (19,112) (14,213) (24,727)
---------- ---------- ----------
Ending balance $ 102,074 $ 101,793 $ 102,252
========== ========== ==========
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.
2000 $6,110
2001 $5,670
2002 $5,400
2003 $5,386
2004 $5,619
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, 1999 and 1998,
the Company's Separate Accounts assets exceeded Separate
Accounts liabilities by $6,602 and $12,030, respectively. This
excess represents the Company's temporary investment in certain
Separate Accounts 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:
Interest-sensitive life products 4.00% - 4.85%
Interest-sensitive deferred annuities 3.60% - 8.61%
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: Liabilities for claims
and claims settlement expenses equal the death benefit for
claims that have been reported to the Company and an estimate
based upon prior experience for unreported claims.
Additionally, the Company has established a mortality benefit
accrual for its variable annuity products.
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 income 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: In June 1999, the Financial
Accounting Standards Board deferred for one year the effective
date of the accounting and reporting requirements of SFAS No.
133, Accounting for Derivative Instruments and Hedging
Activities. The Company will adopt the provisions of SFAS No.
133 on January 1, 2001. The adoption of the standard is not
expected to have a material impact on the Company's financial
position or results of operations.
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:
1999 1998
------------ ------------
Assets:
Fixed maturity securities (1) $ 2,138,335 $ 2,543,097
Equity securities (1), (2) 186,575 158,591
Trading account securities (1) 22,212 17,280
Policy loans on insurance contracts (3) 1,159,163 1,139,456
Cash and cash equivalents (4) 92,181 95,377
Separate Accounts assets (5) 12,860,562 10,571,489
------------ ------------
Total financial instruments $16,459,028 $14,525,290
============ ============
(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 utilizes pricing
services and broker quotes. 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, 1999 and 1998, securities without a readily ascertainable
market value, having an amortized cost of $440,947 and $376,993,
had an estimated fair value of $417,710 and $375,470,
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,
1999 and 1998, the Company's limited partnership investments were
$10,427 and $11,569, 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 the net
asset value provided by the fund managers.
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>
1999
---------------------------------------------------------
Cost/ Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 1,912,965 $ 8,778 $ 85,108 $ 1,836,635
Mortgage-backed securities 119,195 1,760 1,036 119,919
U.S. Government and agencies 149,835 408 12,306 137,937
Foreign governments 25,290 61 2,969 22,382
Municipals 21,636 152 326 21,462
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,228,921 $ 11,159 $ 101,745 $ 2,138,335
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 203,726 $ 43 $ 27,621 $ 176,148
Limited partnerships 10,427 - - 10,427
------------ ------------ ------------ ------------
Total equity securities $ 214,153 $ 43 $ 27,621 $ 186,575
============ ============ ============ ============
</TABLE>
<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>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1999 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
Fixed maturity securities: ----------- -----------
Due in one year or less $ 250,435 $ 250,396
Due after one year through five years 935,856 912,037
Due after five years through ten years 563,026 524,231
Due after ten years 360,409 331,752
----------- -----------
2,109,726 2,018,416
Mortgage-backed securities 119,195 119,919
----------- -----------
Total fixed maturity securities $2,228,921 $2,138,335
=========== ===========
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, 1999 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 396,644 $ 380,538
AA 196,792 188,710
A 670,531 645,929
BBB 884,446 847,858
Non-investment grade 80,508 75,300
----------- -----------
Total fixed maturity securities $2,228,921 $2,138,335
=========== ===========
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with unrealized holding gains or losses on
investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized
holding gains or losses had actually been realized, with
corresponding credits or charges reported in accumulated other
comprehensive loss, net of taxes. The components of net
unrealized gains (losses) included in accumulated other
comprehensive loss at December 31 were as follows:
1999 1998
------------ -----------
Assets:
Fixed maturity securities $ (90,586) $ 38,498
Equity securities (27,578) (4,119)
Deferred policy acquisition costs 42,567 (323)
Federal income taxes - deferred 26,969 124
Other assets (4) -
Separate Accounts assets 1,028 30
------------ -----------
(47,604) 34,210
------------ -----------
Liabilities:
Policyholders' account balances 2,481 34,440
------------ -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (50,085) $ (230)
============ ===========
The Company maintains a trading portfolio comprised of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities included in net
realized investment gains were $3,112, $932 and $520 at
December 31, 1999, 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:
1999 1998 1997
---------- ---------- ----------
Proceeds $ 595,836 $ 893,619 $ 846,041
Gross realized investment gains 12,196 20,232 16,783
Gross realized investment losses 15,936 17,429 7,193
The Company had investment securities with a carrying value
of $24,697 and $27,189 that were deposited with insurance
regulatory authorities at December 31, 1999 and 1998,
respectively.
Excluding investments in U.S. Government and Agencies the
Company is not exposed to any significant concentration of
credit risk in its fixed maturity securities portfolio.
Net investment income arose from the following sources for the
years ended December 31:
1999 1998 1997
---------- ---------- ----------
Fixed maturity securities $ 170,376 $ 202,313 $ 236,325
Equity securities 16,630 9,234 3,020
Mortgage loans - - 4,627
Real estate held-for-sale 3,792 2,264 1,939
Policy loans on insurance contracts 60,445 59,236 57,998
Cash and cash equivalents 7,995 3,912 9,570
Other 88 761 709
---------- ---------- ----------
Gross investment income 259,326 277,720 314,188
Less investment expenses (5,491) (5,682) (5,486)
---------- ---------- ----------
Net investment income $ 253,835 $ 272,038 $ 308,702
========== ========== ==========
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31 were as follows:
1999 1998 1997
---------- ---------- ----------
Fixed maturity securities $ (3,721) $ 2,617 $ 6,149
Equity securities (19) 186 3,441
Trading account securities 4,778 1,368 697
Investment in Separate Accounts 460 - 1,005
Mortgage loans - - 6,252
Real estate held-for-sale 7,394 8,290 (4,252)
Cash and cash equivalents (17) (1) (3)
---------- ---------- ----------
Net realized investment gains $ 8,875 $ 12,460 $ 13,289
========== ========== ==========
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:
1999 1998 1997
--------- --------- ---------
Provision for income taxes
computed at Federal stautory rate $ 50,345 $ 46,383 $ 42,413
Decrease in income taxes resulting from:
Dividend received deduction (1,594) (3,664) (1,969)
Foreign tax credit (1,040) (2,957) -
--------- --------- ---------
Federal income tax provision $ 47,711 $ 39,762 $ 40,444
========= ========= =========
The Federal statutory rate for each of the three years in the
period ended December 31, 1999 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:
1999 1998 1997
---------- ---------- ----------
Deferred policy acquisition costs $ 8,822 $ 11,062 $ (2,422)
Policyholders' account balances (9,635) (10,950) (16,099)
Liability for guaranty fund assessments (359) 529 1,190
Investment adjustments (27) (1,350) 5,070
Other 64 (64) -
---------- ---------- ----------
Deferred Federal income tax benefit $ (1,135) $ (773) $ (12,261)
========== ========== ==========
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1999 1998
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 115,767 $ 106,132
Investment adjustments 1,978 1,951
Liability for guaranty fund assessments 5,211 4,852
Net unrealized investment loss on
investment securities 26,969 124
---------- -----------
Total deferred tax assets 149,925 113,059
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 108,554 99,732
Other 3,988 3,924
----------- -----------
Total deferred tax liabilities 112,542 103,656
----------- -----------
Net deferred tax asset $ 37,383 $ 9,403
=========== ===========
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 $500 on single life policies and
$750 on joint life policies.
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 $686 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1999 the Company had the following life
insurance inforce:
<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 $14,356,639 $ 3,670,860 $ 2,001 $10,687,780 0.02%
</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 $43,410, $43,179 and $43,028 for the years
ended December 31, 1999, 1998 and 1997, respectively. Charges
attributable to this agreement are included in insurance
expenses and taxes, except for investment related expenses,
which are included in net investment income. The Company is
allocated interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany
interest incurred was $688, $860 and $842 for 1999, 1998 and
1997, respectively. Intercompany interest is included in net
investment income.
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
$1,823, $1,915 and $1,913 for 1999, 1998 and 1997,
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 inforce. 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 $21,630, $20,289 and $19,057
during 1999, 1998 and 1997, respectively. Revenue attributable
to these agreements is included in policy charge revenue.
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 $88,955, $79,117 and $72,729 for
1999, 1998 and 1997, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
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
During 1999 and 1997, the Company paid cash dividends of
$135,000 to MLIG. Of these cash dividends, $105,793 and
$110,030, respectively, were extraordinary dividends as defined
by Arkansas Insurance Law and were paid pursuant to approval
granted by the Arkansas Insurance Commissioner. The Company
also paid a $500 stock dividend to MLIG during 1999. The
Company paid no cash or stock dividends in 1998.
At December 31, 1999 and 1998, approximately $26,518 and
$29,707, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1999 and 1998, were $267,679 and $299,069,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices differ
from principles utilized in these financial statements as
follows: policy acquisition costs are expensed as incurred,
future policy benefit reserves are established using different
actuarial assumptions, there is no provision for deferred
income taxes, and securities are valued on a different basis.
The Company's statutory net income for 1999, 1998 and 1997 was
$106,266, $55,813 and $81,963, 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, 1999 and 1998, based on the
RBC formula, the Company's total adjusted capital level was in
excess of the minimum amount of capital required to avoid
regulatory action.
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. 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, 1999 and 1998, the Company has
established an estimated liability for future guaranty fund
assessments of $14,889 and $13,864, 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, 1999, $8,116 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.
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 the earnings on
those assets that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1999 Insurance Annuities Other Total
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 36,805 $ 31,098 $ 10,093 $ 77,996
Other revenues 94,821 140,541 6,542 241,904
------------ ------------ ------------ ------------
Net revenues 131,626 171,639 16,635 319,900
------------ ------------ ------------ ------------
Policy benefits 16,569 16,414 - 32,983
Reinsurance premium ceded 21,691 - - 21,691
Amortization of deferred policy
acquisition costs 22,464 43,143 - 65,607
Other non-interest expenses 16,728 39,049 - 55,777
------------ ------------ ------------ ------------
Total non-interest expenses 77,452 98,606 - 176,058
------------ ------------ ------------ ------------
Net earnings before Federal income
tax provision 54,174 73,033 16,635 143,842
Income tax expense 18,442 23,447 5,822 47,711
------------ ------------ ------------ ------------
Net earnings $ 35,732 $ 49,586 $ 10,813 $ 96,131
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,492,686 $10,523,453 $ 101,910 $17,118,049
Deferred policy acquisition costs 251,017 224,898 - 475,915
Policyholder liabilities and accruals 2,150,671 1,522,892 - 3,673,563
Other policyholder funds 18,345 6,750 - 25,095
</TABLE>
<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 premium ceded 19,972 - - 19,972
Amortization of deferred policy
acquisition costs 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
Policyholder liabilities and accruals 2,186,001 1,694,668 - 3,880,669
Other policyholder funds 16,033 4,769 - 20,802
</TABLE>
<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 premium ceded 17,879 - - 17,879
Amortization of deferred policy
acquisition costs 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
Policyholder liabilities and accruals 2,229,533 2,009,151 - 4,238,684
Other policyholder funds 18,788 8,372 - 27,160
</TABLE>
(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 1999, 1998, and 1997:
1999 1998 1997
---------- ---------- ----------
Life Insurance
Variable life insurance $ 104,036 $ 91,806 $ 92,245
Interest-sensitive life insurance 27,590 28,258 32,882
---------- ---------- ----------
Total Life Insurance 131,626 120,064 125,127
---------- ---------- ----------
Annuities
Variable annuities 130,039 105,545 88,509
Interest-sensitive annuities 41,600 52,084 62,246
---------- ---------- ----------
Total Annuities 171,639 157,629 150,755
---------- ---------- ----------
Other 16,635 8,791 15,500
---------- ---------- ----------
Total $ 319,900 $ 286,484 $ 291,382
========== ========== ==========
* * * * *
<PAGE> 25
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 30, 2000 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 30, 2000
Anthony J. Vespa and Chief Executive Officer --------------
/s/ Joseph E. Crowne, Jr. Director, Senior Vice President, March 30, 2000
- ----------------------------- Chief Financial Officer, Chief --------------
Joseph E. Crowne, Jr. Actuary and Treasurer
/s/ Barry G. Skolnick Director, Senior Vice President March 30, 2000
- ----------------------------- and General Counsel* --------------
Barry G. Skolnick
*
- ----------------------------- Director, Senior Vice President March 30, 2000
David M. Dunford and Chief Investment Officer --------------
*
- ----------------------------- Director and Senior Vice President March 30, 2000
Gail R. Farkas --------------
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
<PAGE> 26
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> 27
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> 28
<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.
4.2c Modified Guaranteed Incorporated by reference to Exhibit 4(a),
Annuity Contract filed August 18, 1997, as part of the
Registrant's registration statement on
Form S-3, File No. 333-33863.
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> 29
<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> 30
<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> 31
<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.
4.10c Individual Retirement Incorporated by reference to Exhibit 4(b) to Pre-
Annuity Endorsement Effective Amendment No. 1 to the Registrant's
registration statement on Form S-3, File No.
333-33863, filed October 31, 1997.
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.
4.13b Qualified Plan Endorsement Incorporated by reference to Exhibit 4(c), filed
October 31, 1997, as part of Pre-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-3, File No. 333-33863.
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.
4.15a Application for Modified Guaranteed Incorporated by reference to Exhibit 4(d), filed
Annuity Contract August 18, 1997, as part of the Registrant's
registration statement on Form S-3, File No.
333-33863.
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-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 2,138,335
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 186,575
<MORTGAGE> 0
<REAL-ESTATE> 20,072
<TOTAL-INVEST> 3,526,357
<CASH> 92,181
<RECOVER-REINSURE> 4,194
<DEFERRED-ACQUISITION> 475,915
<TOTAL-ASSETS> 17,118,049
<POLICY-LOSSES> 85,696
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 25,095
<POLICY-HOLDER-FUNDS> 3,587,867
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 431,366
<TOTAL-LIABILITY-AND-EQUITY> 17,118,049
0
<INVESTMENT-INCOME> 253,835
<INVESTMENT-GAINS> 8,875
<OTHER-INCOME> 233,029
<BENEFITS> 32,983
<UNDERWRITING-AMORTIZATION> 65,607
<UNDERWRITING-OTHER> 53,377
<INCOME-PRETAX> 143,842
<INCOME-TAX> 47,711
<INCOME-CONTINUING> 96,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,131
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
