<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBERS 33-26322; 33-46827; 33-52254; 33-60290;
33-58303; 333-33863; 333-34192
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
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<S> <C>
ARKANSAS 91-1325756
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
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800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
(609) 282-1429
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 250,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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<PAGE> 2
PART I Financial Information
Item 1. Financial Statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Dollars in thousands) (Unaudited)
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<CAPTION>
March 31, December 31,
ASSETS 2000 1999
- ------ ------------ ------------
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INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 2000 - $2,233,619; 1999 - $2,228,921) $ 2,142,874 $ 2,138,335
Equity securities, at estimated fair value
(cost: 2000 - $231,567; 1999 - $214,153) 207,196 186,575
Trading account securities, at estimated fair value 24,127 22,212
Real estate held-for-sale 19,447 20,072
Policy loans on insurance contracts 1,163,290 1,159,163
------------ ------------
Total Investments 3,556,934 3,526,357
CASH AND CASH EQUIVALENTS 71,160 92,181
ACCRUED INVESTMENT INCOME 71,204 73,167
DEFERRED POLICY ACQUISITION COSTS 481,840 475,915
FEDERAL INCOME TAXES - DEFERRED 36,911 37,383
REINSURANCE RECEIVABLES 4,271 4,194
AFFILIATED RECEIVABLES - NET - 287
RECEIVABLES FROM SECURITIES SOLD 2,308 566
OTHER ASSETS 42,334 47,437
SEPARATE ACCOUNTS ASSETS 13,457,202 12,860,562
------------ ------------
TOTAL ASSETS $17,724,164 $17,118,049
============ ============
See accompanying notes to financials statements. (continued)
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Continued)
(Dollars in thousands, except common stock par value and shares)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2000 1999
- ------------------------------------ ------------ ------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,537,381 $ 3,587,867
Claims and claims settlement expenses 94,334 85,696
------------ ------------
Total policyholder liabilities and accruals 3,631,715 3,673,563
OTHER POLICYHOLDER FUNDS 15,505 25,095
LIABILITY FOR GUARANTY FUND ASSESSMENTS 14,568 14,889
FEDERAL INCOME TAXES - CURRENT 17,374 12,806
AFFILIATED PAYABLES - NET 263 -
PAYABLE FOR SECURITIES PURCHASED 10,922 339
UNEARNED POLICY CHARGE REVENUE 86,007 77,663
OTHER LIABILITIES 36,316 25,868
SEPARATE ACCOUNTS LIABILITIES 13,450,059 12,853,960
------------ ------------
Total Liabilities 17,262,729 16,684,183
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares;
issued and outstanding: 250,000 shares) 2,500 2,500
Additional paid-in capital 347,324 347,324
Retained earnings 158,362 134,127
Accumulated other comprehensive loss (46,751) (50,085)
------------ ------------
Total Stockholder's Equity 461,435 433,866
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,724,164 $17,118,049
============ ============
See accompanying notes to financial statements.
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in thousands) (Unaudited)
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<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
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REVENUES:
Investment revenue:
Net investment income $ 60,348 $ 67,326
Net realized investment gains 2,071 1,357
Policy charge revenue 62,910 53,961
------------ ------------
Total Revenues 125,329 122,644
------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 41,068 44,848
Market value adjustment expense 29 835
Policy benefits (net of reinsurance recoveries:
2000 - $5,475, 1999 - $3,282) 10,195 7,950
Reinsurance premium ceded 5,711 5,197
Amortization of deferred policy acquisition costs 16,091 16,695
Insurance expenses and taxes 14,950 12,531
------------ ------------
Total Benefits and Expenses 88,044 88,056
------------ ------------
Earnings Before Federal Income Tax Provision 37,285 34,588
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 14,374 14,150
Deferred (1,324) (2,044)
------------ ------------
Total Federal Income Tax Provision 13,050 12,106
------------ ------------
NET EARNINGS $ 24,235 $ 22,482
============ ============
See accompanying notes to financial statements.
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands) (Unaudited)
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<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
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NET EARNINGS $ 24,235 $ 22,482
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during the period 4,898 (34,208)
Reclassification adjustment for gains included in net earnings (1,783) (1,324)
------------ ------------
Net unrealized gains (losses) on investment securities 3,115 (35,532)
Adjustments for:
Policyholder liabilities 4,066 5,808
Deferred policy acquisition costs (2,051) 4,586
Deferred federal income taxes (1,796) 8,798
------------ ------------
Total other comprehensive income (loss), net of tax 3,334 (16,340)
------------ ------------
COMPREHENSIVE INCOME $ 27,569 $ 6,142
============ ============
See accompanying notes to financial statements.
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands, except common stock par value and shares) (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings loss equity
----------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 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
Net earnings 24,235 24,235
Other comprehensive income, net of tax 3,334 3,334
----------- ----------- ----------- --------------- --------------
BALANCE, MARCH 31, 2000 $ 2,500 $ 347,324 $ 158,362 $ (46,751) $ 461,435
=========== =========== =========== =============== ==============
See accompanying notes to financial statements.
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
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<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
----------- ------------
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Cash Flows From Operating Activities:
Net earnings $ 24,235 $ 22,482
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 16,091 16,695
Capitalization of policy acquisition costs (24,067) (19,252)
Accretion of investments (387) (873)
Interest credited to policyholders' account balances 41,068 44,848
Benefit for deferred Federal income tax (1,324) (2,044)
(Increase) decrease in operating assets:
Trading account securities 79 (44)
Accrued investment income 1,963 (890)
Affiliated receivables 287 (7,556)
Other 5,009 426
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 8,638 10,542
Other policyholder funds (9,590) (3,331)
Liability for guaranty fund assessments (321) (109)
Federal income taxes - current 4,568 751
Affiliated payables 263 (822)
Unearned policy charge revenue 8,344 5,486
Other 10,448 795
Other operating activities:
Net realized investment gains (excluding gains on cash and
cash equivalents) (2,071) (1,357)
----------- ------------
Net cash and cash equivalents provided by operating
activities 83,233 65,747
----------- ------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 79,237 225,972
Maturities of available-for-sale securities 75,289 134,871
Purchases of available-for-sale securities (168,095) (310,576)
Sales of real estate held-for-sale 1,375 -
Policy loans on insurance contracts (4,127) (2,129)
Recapture of investments in separate accounts 555 5,281
Investment in separate accounts (1,000) (84)
----------- ------------
Net cash and cash equivalents provided (used) by investing
activities $ (16,766) $ 53,335
----------- ------------
See accompanying notes to financial statements. (continued)
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in thousands) (Unaudited)
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<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from (payments for):
Policyholder deposits (excludes internal policy replacement $ 314,150 $ 250,215
deposits)
Policyholder withdrawals (including transfers to/from separate (401,638) (353,797)
accounts) ------------ ------------
Net cash and cash equivalents used by financing activities (87,488) (103,582)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,021) 15,500
CASH AND CASH EQUIVALENTS:
Beginning of year 92,181 95,377
------------ ------------
End of period $ 71,160 $ 110,877
============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 9,806 $ 13,398
Intercompany interest 198 184
See accompanying notes to financial statements.
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION:
Merrill Lynch Life Insurance Company (the "Company") is a wholly owned
subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). The Company is
an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co."). The Company sells life insurance and annuity products,
including variable life insurance and variable annuities.
The interim financial statements for the three month periods are unaudited. In
the opinion of management, these unaudited financial statements include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of operations in
accordance with generally accepted accounting principles. These unaudited
financial statements should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K ("1999 10K") for
the year ended December 31, 1999. The nature of the Company's business is such
that the results of any interim period are not necessarily indicative of results
for a full year. Certain reclassifications have also been made to prior period
financial statements, where appropriate, to conform to the current period
presentation.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Arkansas and the National Association of Insurance Commissioners.
Statutory capital and surplus at March 31, 2000 and December 31, 1999 was $301
million and $268 million, respectively. For the three month periods ended March
31, 2000 and 1999, statutory net income was $31 million and $33 million,
respectively.
NOTE 3. INVESTMENTS:
The Company's investments in debt and equity securities are classified as either
available-for-sale or trading and are recorded at fair value. Unrealized gains
and losses on available-for-sale securities are included in 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.
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 holdings 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 are as follows:
March 31, December 31,
2000 1999
----------- ------------
Assets:
Fixed maturity securities $ (90,745) $ (90,586)
Equity securities (24,371) (27,578)
Deferred policy acquisition costs 40,516 42,567
Federal income taxes - deferred 25,173 26,969
Other assets (21) (4)
Separate Accounts assets 1,112 1,028
----------- ------------
(48,336) (47,604)
----------- ------------
Liabilities:
Policyholders' account balances (1,585) 2,481
----------- ------------
Stockholder's equity:
Accumulated other comprehensive loss $ (46,751) $ (50,085)
=========== ============
The following summarizes the net impact of available-for-sale securities,
trading account securities and real estate held-for-sale on net realized
investment gains:
March 31, March 31,
2000 1999
---------- ----------
Available-for-sale securities:
Net realized investment gains (losses) $ (673) $ 1,362
Trading account securities:
Net realized investment gains 3,372 475
Net unrealized holding losses (1,378) (480)
Real estate held-for-sale:
Net realized investment gains 750 -
---------- ----------
Total net realized investment gains $ 2,071 $ 1,357
========== ==========
NOTE 4. 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.
NOTE 5. SEGMENT INFORMATION
In reporting to management, the Company's operating results are categorized into
two business segments: Life Insurance and Annuities. The Company's Life
Insurance segment consists of variable life insurance products and interest-
sensitive life products. The Company's Annuity segment consists of variable
annuities and interest sensitive annuities.
The Company's organization is structured in accordance with its two business
segments. Each segment has its own administrative service center that provides
product support to the Company and customer service support to the Company's
policyholders. Additionally, marketing and sales management functions, within
MLIG, are organized according to these two business segments.
The accounting policies of the business segments are the same as those for the
Company's financial statements included herein. All revenue and expense
transactions are recorded at the product level and accumulated at the business
segment level for review by management.
The "Other" category, presented in the following segment financial information,
represents earnings on assets that do not support policyholder liabilities.
The following table summarizes each business segment's contribution to
consolidated net revenues and net earnings for the three month period ended
March 31:
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
Net Revenues (a):
Life Insurance $ 33,177 $ 32,047
Annuities 47,362 42,364
Other 3,722 3,385
---------- ----------
Total Net Revenues $ 84,261 $ 77,796
========== ==========
Net Earnings:
Life Insurance $ 8,800 $ 8,352
Annuities 13,016 11,930
Other 2,419 2,200
---------- ----------
Total Net Earnings $ 24,235 $ 22,482
========== ==========
(a) Management considers investment income net of interest credited to
policyholders' account balances in evaluating results.
Item 2 Management's Narrative Analysis of the Results of Operations
This Management's Narrative Analysis of the Results of Operations addresses
changes in revenues and expenses for the three month periods ended March 31,
2000 and 1999. This discussion should be read in conjunction with the
accompanying unaudited financial statements and notes thereto, in addition to
the 1999 Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 1999 10K.
In addition to providing historical information, the Company 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 the Company's control,
affect the operations, performance, business strategy, and results of the
Company 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 Economic Environment section 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. The Company undertakes no responsibility to update or revise any
forward-looking statements.
Business Overview
The Company's gross earnings are principally derived from two sources:
the net earnings from investment of fixed rate life insurance and annuity
contract owner deposits less interest credited to contract owners, commonly
known as interest spread, and
the charges imposed on variable life insurance and variable annuity contracts
The costs associated with acquiring contract owner deposits are amortized over
the period in which the Company anticipates holding those funds. In addition,
the Company incurs expenses associated with the maintenance of inforce
contracts.
Economic Environment
The Company'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
The Company defines medium term interest rates as the average interest rate on
U.S. Treasury securities with terms of 1 to 10 years. During the first quarter
2000, medium term interest rates were relatively flat as compared to December
1999, but increased approximately 156 basis points as compared to the first
quarter 1999.
The Company 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 the first quarter 2000, credit spreads widened approximately 47 basis
points to end the quarter at 150 basis points. During the first quarter 1999,
credit spreads contracted approximately 52 basis points to end the quarter at
117 basis points.
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 the
first quarter 2000, the U.S. equity market experienced increased volatility
especially in the segments as measured by the Dow and NASDAQ indices. During
the first quarter 2000, the Dow decreased 5% as compared to a 12% increase in
the NASDAQ. The S&P Index, during the same time period, increased 2%. The
investment performance in the underlying mutual funds supporting the Company'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.
Life insurance premiums and annuity deposits recorded increased $66 million (or
25%) to $333 million during the three month period ended March 31, 2000, as
compared to the same period in 1999. Excluding internal tax-free exchanges,
life insurance premiums and annuity deposits collected increased $64 million
during the current three month period. Variable annuity deposits continue to
dominate the Company's overall sales by comprising 84% of total sales for both
three month periods. Life insurance premiums and annuity deposits by type of
product were as follows:
Premiums Collected Change
-------------------- ----------------------
1Q 2000 1Q 1999 2000 - 1999 %
-------- -------- ----------- --------
($ In Millions)
Variable Annuities $ 281 $ 223 $ 58 26%
Modified Guaranteed Annuities 12 4 8 200
Variable Life Insurance 38 38 - -
Other 2 2 - -
-------- -------- ----------- --------
Total Premiums Recorded 333 267 66 25
Internal tax-free exchanges (19) (17) (2) 12
-------- -------- ----------- --------
Total Premiums Collected $ 314 $ 250 $ 64 26%
======== ======== =========== ========
Management attributes the increase in variable annuity deposits to the combined
effects of:
an increase in the number of annuity specialists supporting the Company's
sales force
sales force participation in annuity focus programs
a generally favorable economic environment
Previously, specialists supporting the sales force were responsible for both
life and annuity products. Beginning in 1997, the Company created two
specialist positions within each district where it was geographically feasible.
One specialized in estate planning life insurance products while the other
specialized in annuity products. This increase in the number of product
specialists, including an increase in specialist support staff, has resulted in
a greater and more focused coverage of the Company's sales force. In
management's view, the Company is beginning to realize the benefits resulting
from the implementation of this distribution structure.
Annuity focus programs are designed to promote education and training of the
Company's sales force. These programs, which were initiated during 1999 in
select districts, were expanded during the first quarter 2000 to additional
districts. Management believes that the sales force's participation in these
programs has had a favorable impact on variable annuity deposits.
Management believes that variable annuity deposits have been positively
impacted by the extended strength of the equity markets, despite increased
volatility during the first quarter 2000. However, future variable annuity
deposits could be negatively impacted due to continued volatility in the
equity markets.
Modified guaranteed annuity deposits increased $8.0 million (or 200%)
primarily due to the increasing interest rate environment as compared to the
first quarter 1999.
Policy and contract surrenders increased $62 million (or 30%) to $268 million
during the current three month period as compared to the equivalent period in
1999 primarily due to an increase in variable annuity surrenders. During the
first three months of 2000, variable annuity surrenders increased $67 million
(or 61%) to $178 million. This increase is primarily a result of the
significant growth of this block of business over the past three years, as well
as the anticipated increase in lapse rates on contracts reaching the end of
their surrender charge period.
During the first three months of 2000, separate accounts assets increased $597
million (or 4.6%) to $13.5 billion, primarily due to strong investment
performance associated with the generally rising equity markets. During the
first three months of 2000, separate accounts assets increased $610 million due
to price appreciation in the underlying mutual funds supporting variable
products.
To fund all business activities, the Company maintains a high quality and
liquid investment portfolio. As of March 31, 2000, the Company'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.
As of March 31, 2000, approximately $81.2 million (or 3.8%) of the Company's
fixed maturity securities were considered non-investment grade. The Company
defines non-investment grade as unsecured debt obligations that do not have a
rating equivalent to Standard and Poor's BBB- or higher (or similar rating
agency). Non-investment grade securities are speculative and are subject to
significantly greater risks related to the creditworthiness of the issuers and
the liquidity of the market for such securities. The Company carefully selects,
and closely monitors, such investments.
The Company has exposure to selected emerging markets that include securities
issued by sovereigns or corporations of Asia (excluding Japan), Latin America
and Mexico. At March 31, 2000, the Company held $104 million in emerging
market securities with an approximate unrealized loss of $7.4 million.
The Company sold one real estate property with a carrying value of $0.6 million
for a realized gain of $0.8 million during the current three month period.
Results of Operations
For the three month periods ended March 31, 2000 and 1999, the Company reported
net earnings of $24 million and $22 million, respectively.
Net earnings derived from interest spread decreased $3.2 million during the
first quarter 2000 as compared to the same period in 1999. The reduction in
interest spread is primarily a result of the Company's $135 million dividend
payment to MLIG during the fourth quarter 1999, as well as the reduction of
fixed rate contracts inforce.
Net realized investment gains increased $0.7 million during the current three
month period as compared to the same period during 1999. The following table
provides net realized investment gains (losses) by type:
Realized Gain (Loss) 2000 1999 Difference
-------------------- ------ ------ -----------
Interest related gains $ 0.4 $ 6.1 $ (5.7)(1)
Credit related losses (1.1) (4.9) 3.8 (2)
Trading account 2.0 - 2.0 (3)
Real estate 0.8 - 0.8
Investment in Separate Accounts - 0.2 (0.2)
------ ------ -----------
$ 2.1 $ 1.4 $ 0.7
====== ====== ===========
(1) The decrease in interest related gains is primarily attributable to
the period to period increase in interest rates, which resulted in a
reduction in invested asset market valuations since the first
quarter 1999.
(2) Prior period credit related losses were impacted by increases in
book value writedowns and asset sales of several large security holdings.
(3) The trading account, which is comprised of convertible debt and
equity securities, was positively impacted by favorable equity market
performance during the current three month period as compared to the
same period in 1999.
Policy charge revenue increased $8.9 million (or 17%) during the first quarter
2000 as compared to the same period during 1999. The increase in policy charge
revenue is attributable to the increase in contract owners' variable account
balances. Average variable account balances increased $2.2 billion (or 21%)
during the current three month period as compared to the same period in 1999.
During the same time period, asset based policy charges increased $8.6 million
(or 24%). The increase in asset based policy charges was also positively
impacted by an increase in the number of processing days as compared to the
first quarter 1999. Non-asset based charges increased $0.3 million (or 2%)
during the same period.
Policy benefits increased approximately $2.2 million to $10.2 million during
the current three month period from $8.0 million in the same period during
1999.The increase is primarily due to an increase in variable life death
claims, as well as normal reserve increases for the mortality component of
the Company's variable annuity product.
The market value adjustment expense is attributable to the Company's modified
guaranteed annuity product. This contract provision results in a market value
adjustment to the cash surrender value of those contracts that are surrendered
before the expiration of their interest rate guarantee period. The market
value adjustment expense decreased $0.8 million (or 97%) during the current
three month period primarily due to the rising interest rate environment as
compared to the first period quarter 1999. The market value adjustment has
an inverse relationship to changes in interest rates.
Reinsurance premium ceded increased $0.5 million (or 10%) to $5.7 million
during the first three months of 2000 as compared to the same period in 1999.
This increase is attributable to the combined effect of the increasing age of
policyholders and increased insurance inforce.
Insurance expenses and taxes increased $2.4 million (or 19%) during the current
three month period compared to the same period in 1999. The increase is
primarily due to an increase in certain employee compensation related expense
allocations from Merrill Lynch & Co., as well as an increase in non-
capitalizable asset-based commissions paid on inforce life and annuity
contracts.
Segment Information
The products that comprise the Life Insurance and Annuity segments generally
possess similar economic characteristics. As such, the financial condition
and results of operations of each business segment are generally consistent
with the Company's consolidated financial condition and results of operations
presented herein.
<PAGE> 3
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ JOSEPH E. CROWNE, JR.
-----------------------------------------
Joseph E. Crowne, Jr.
Senior Vice President and
Chief Financial Officer
Date: May 11, 2000
<PAGE> 5
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 2,142,874
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 207,196
<MORTGAGE> 0
<REAL-ESTATE> 19,447
<TOTAL-INVEST> 3,556,934
<CASH> 71,160
<RECOVER-REINSURE> 4,271
<DEFERRED-ACQUISITION> 481,840
<TOTAL-ASSETS> 17,724,164
<POLICY-LOSSES> 94,334
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 15,505
<POLICY-HOLDER-FUNDS> 3,537,381
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 458,935
<TOTAL-LIABILITY-AND-EQUITY> 17,724,164
0
<INVESTMENT-INCOME> 60,348
<INVESTMENT-GAINS> 2,071
<OTHER-INCOME> 62,910
<BENEFITS> 10,195
<UNDERWRITING-AMORTIZATION> 16,091
<UNDERWRITING-OTHER> 14,950
<INCOME-PRETAX> 37,285
<INCOME-TAX> 13,050
<INCOME-CONTINUING> 24,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,235
<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>
