<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 33-85988
----------------- --------
C.M. LIFE INSURANCE COMPANY
---------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1041383
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
140 Garden Street, Hartford, Connecticut 06154
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(860) 987-6500
--------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former
fiscal year, if changed since last report)
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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
Registrant has 12,500 shares of common stock outstanding on June 30, 1996, all
of which are owned by Massachusetts Mutual Life Insurance Company.
The Registrant meets the conditions set forth in General Instruction (1) (a) and
(b) of Form 10Q and is therefore filing this form with the reduced disclosure
format.
<PAGE>
C.M. LIFE INSURANCE COMPANY
INDEX
PART I: Financial Information
---------------------
Item 1: Financial Statements:
Statement of Financial Position -
June 30, 1996 and December 31, 1995 . . . 3
Statement of Operations -
Three Months Ended
June 30, 1996 and 1995 . . . . . . 4
Statement of Operations -
Six Months Ended
June 30, 1996 and 1995 . . . . . . 5
Statement of Stockholder's Equity -
Six Months Ended
June 30, 1996 and 1995 . . . . . . 6
Statement of Cash Flows -
Six Months Ended
June 30, 1996 and 1995 . . . . . . .7
Notes to Financial Statements . . . . .8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . .10
PART II: Other Information
-----------------
Item 1: Not applicable.
Item 2: Not applicable.
Item 3: Not applicable.
Item 4: Not applicable.
Item 5: Not applicable.
Item 6: Exhibits and Reports on Form 8-K . . . . . . 13
Item 7: Financial Data Schedule
2
<PAGE>
C.M. Life Insurance Company
Statement of Financial Position
($ In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------- -------------------
ASSETS:
Investments:
<S> <C> <C>
Fixed maturities at cost $764,372 $736,099
Equity securities at cost 46,650 72,572
Mortgage loans on real estate at net
realizable value 31,752 26,705
Policy loans at outstanding balance 128,243 126,014
Cash and cash equivalents 92,563 15,069
---------------- -------------------
Total Investments 1,063,580 976,459
---------------- -------------------
Investment and insurance amounts
receivable 22,450 22,515
Other assets 1,386 3,069
Assets of Separate Account 640,058 531,432
---------------- -------------------
TOTAL ASSETS $1,727,474 $1,533,475
---------------- -------------------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Policyholders' reserves and funds $883,194 $867,672
Policy claims and benefits currently
payable 2,007 2,086
Federal income tax payable 1,597 2,821
Asset valuation reserve 19,798 15,869
Remittances and items not allocated 57,825 3,861
Transfers due from Separate Account (23,832) (22,301)
Liabilities of Separate Account 640,058 531,432
Other liabilities 26,567 18,836
---------------- -------------------
Total Liabilities 1,607,214 1,420,276
---------------- -------------------
STOCKHOLDER'S EQUITY:
Common stock, $200 par value -
50,000 shares authorized,
12,500 shares issued and
outstanding 2,500 2,500
Additional paid-in capital 43,759 43,759
Retained earnings 74,001 66,940
---------------- -------------------
Total Stockholder's Equity 120,260 113,199
---------------- -------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $1,727,474 $1,533,475
================ ===================
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
3
<PAGE>
C.M. Life Insurance Company
Statement of Operations
For the Three Months Ended June 30, 1996 and 1995
($ in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
REVENUES:
<S> <C> <C>
Premiums and annuity considerations $75,760 $71,793
Net investment income and other income 19,205 17,680
------------ ------------
Total revenues 94,965 89,473
BENEFITS AND EXPENSES:
Policy payments and benefits 23,214 12,831
Additions to policyholders'
reserves and funds 52,711 58,398
Operating expenses 6,209 9,801
Commissions 5,441 3,138
State taxes, licenses and fees 882 1,316
------------ ------------
Total benefits and expenses 88,457 85,484
------------ ------------
Net gain before federal income 6,508 3,989
taxes
FEDERAL INCOME TAX EXPENSE 3,312 1,198
------------ ------------
Net gain from operations 3,196 2,791
NET REALIZED CAPITAL GAIN 8 104
------------ ------------
NET INCOME $3,204 $2,895
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
Prior year amounts have been reclassed to conform with 1996 presentation.
4
<PAGE>
C.M. Life Insurance Company
Statement of Operations
For the Six Months Ended June 30, 1996 and 1995
($ in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
REVENUES:
<S> <C> <C>
Premiums and annuity considerations $161,683 $130,158
Net investment income and other 37,188 34,218
income ------------ ------------
Total revenues 198,871 164,376
BENEFITS AND EXPENSES:
Policy payments and benefits 45,590 28,657
Additions to policyholders' reserves
and funds 113,088 102,707
Operating expenses 12,290 13,503
Commissions 8,603 5,850
State taxes, licenses and fees 2,097 2,515
------------ ------------
Total benefits and expenses 181,668 153,232
------------ ------------
Net gain before federal income
taxes 17,203 11,144
FEDERAL INCOME TAX EXPENSE 7,545 3,823
------------ ------------
Net gain from operations 9,658 7,321
NET REALIZED CAPITAL GAIN (LOSS) 2,271 (203)
------------ ------------
NET INCOME $11,929 $7,118
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
Prior year amounts have been reclassed to conform with 1996 presentation.
5
<PAGE>
C.M. Life Insurance Company
Statement of Stockholder's Equity
For the Six Months Ended June 30, 1996 and 1995
($ in Thousands)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
STOCKHOLDER'S EQUITY, beginning of year $113,199 $103,837
Increases (decreases) due to:
Net gain from operations 11,929 7,118
Net unrealized capital gain 335 2,261
Change in asset valuation reserve (3,929) (6,015)
Change in nonadmitted assets (287) (834)
Change in mortgage investment reserve (987) -
---------- ----------
Net increase 7,061 2,530
---------- ----------
TOTAL STOCKHOLDER'S EQUITY, end of year $120,260 $106,367
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
Prior year amounts have been reclassed to conform with 1996 presentation.
6
<PAGE>
C.M. Life Insurance Company
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
($ in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
CASH PROVIDED:
<S> <C> <C>
Premiums and annuity considerations,
net of reinsurance $ 177,068 $120,362
Net investment and other income 36,606 42,992
------------ -----------
213,674 163,354
Benefits and interest to policyholders
and beneficiaries, net of reinsurance (110,384) (73,254)
Operating expenses, commissions,
other expenses and taxes paid (18,488) (30,441)
Other payments, net (2,228) (9,163)
------------ -----------
Net cash provided by operations 82,574 50,496
------------ -----------
Proceeds from the disposition of fixed
maturities, equity securities and
mortgage loans on real estate 80,896 261,738
Other cash provided 14,268 4,860
------------ -----------
Total cash provided 177,738 317,094
------------ -----------
CASH APPLIED:
Purchases of fixed maturities, equity
securities and mortgage loans on real
estate 100,244 313,212
Other applications - 562
------------ -----------
Total cash applied 100,244 313,774
------------ -----------
Net increase in cash and cash
equivalents 77,494 3,320
CASH AND CASH EQUIVALENTS:
Beginning of year 15,069 3,025
------------ -----------
End of period $ 92,563 $ 6,345
============ ===========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
Prior year amounts have been reclassed to conform with 1996 presentation.
7
<PAGE>
C.M. Life Insurance Company
Notes to Financial Statements
June 30, 1996 and 1995
(Amounts in Thousands)
(Unaudited)
1. General:
-------
C.M. Life Insurance Company (C.M. Life) is a wholly owned stock life
insurance subsidiary of Massachusetts Mutual Life Insurance Company
(MassMutual).
Effective February 29, 1996 Connecticut Mutual Life Insurance Company
(Connecticut Mutual) merged with MassMutual. Connecticut Mutual was the
former parent of C.M. Life.
In the opinion of C.M. Life these financial statements contain all
adjustments, consisting of only normal recurring adjustments, necessary
to present fairly the financial position as of June 30, 1996 and
December 31, 1995, the results of its operations for the three month and
six month periods ended June 30, 1996 and 1995, stockholder's equity and
its cash flows for the six months ended June 30, 1996 and 1995 .
C.M. Life's financial statements have been prepared in conformity with
accounting practices and procedures of the National Association of
Insurance Commissioners (NAIC) as prescribed or permitted by the
Insurance Department of the State of Connecticut.
The Financial Accounting Standards Board (FASB), which has no role in
establishing regulatory practices, issued Interpretation 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises for Certain Long-Duration Participating Contracts. The
American Institute of Certified Public Accountants, which also has no
role in establishing regulatory accounting practices, issued Statement
of Position 95-1, Accounting for Certain Insurance Activities of Mutual
Life Insurance Enterprises. These pronouncements will require mutual
life insurance companies and their wholly owned stock life insurance
subsidiaries to modify their financial statements in order to continue
to be in accordance with generally accepted accounting principles,
effective for financial statements issued for 1996 and prior periods
presented. The manner in which policy reserves, new business acquisition
costs, asset valuations and related tax effects are recorded will
change. Management has not determined the impact of such changes on C.M.
Life's Statement of Operations, but believes implementation of these
pronouncements will cause Stockholders' Equity to increase. C.M. Life is
in the process of reviewing if it will adopt the above pronouncements.
2. Related Party Transactions:
--------------------------
The parent, MassMutual, allocates certain expenses to C.M. Life for
providing operating facilities, human resources, computer software
development and managerial services. Total expenses allocated to C.M.
Life were approximately $6,542 and $12,360 for the three and six month
periods ended June 30, 1996 and $9,958 and $14,484 for the same periods
in 1995.
Effective March 1, 1996, C.M. Life modified its variable annuity selling
agreement with G.R. Phelps (an affiliated broker-dealer) such that
variable annuity commissions will be paid by C.M. Life and all related
expense and surrender fees will be retained by C.M. Life.
8
<PAGE>
3. Net Investment and Other Income:
-------------------------------
Net investment and other income is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed Maturities $14,381 $13,598 $28,364 $27,049
Mortgage loans on real estate 2,150 750 2,875 1,512
Policy loans 2,460 2,480 4,990 4,757
Amortization of IMR (23) 153 (38) (85)
Other 1,515 603 1,823 904
---------- --------- ---------- ---------
Total Investment Income 20,483 17,584 38,014 34,137
Less: Applicable investment expense 564 339 728 665
---------- --------- ---------- ---------
Net Investment Income 19,919 17,245 37,286 33,472
Other Income/(Loss) (714) 435 (98) 746
---------- --------- ---------- ---------
Net Investment and Other Income $19,205 $17,680 $37,188 $34,218
========== ========= ========== =========
</TABLE>
9
<PAGE>
Item 2.
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Results of Operations (dollar amounts in thousands)
---------------------------------------------------
Three Months Ended June 30, 1996 Compared with 1995
---------------------------------------------------
For the three months ended June 30, 1996, C.M. Life had net income of $3,204
as compared with net income of $2,895 for the same period in 1995. The
increase in net income of $309 was attributable to increased premium and
annuity considerations of $3,967 and an increase in net investment and other
income of $1,525 partially offset by increased policy benefits, operating
and commission expenses of $2,973; the increase in federal income taxes of
$2,114; and a decrease in net realized capital gains of $96 to $8 in 1996
from a gain of $104 in 1995.
Premium income for the three months ended June 30, 1996 increased $3,967 to
$75,760 in 1996 from $71,793 in 1995; primarily due to increased sales of
the Universal Life Enterprise Plus product.
Premiums ceded decreased $672 from $12,291 in 1995 to $11,613 in 1996, due
to lower direct premiums for the reinsured block of business.
Net investment and other income increased by $1,525 from 1995; this increase
was primarily attributable to increased invested assets, primarily fixed
maturities, policy loans and short-term investments.
Expenses related to policy benefits and payments, insurance operations,
acquisitions and state taxes and fees increased $2,973 to $88,457 in 1996
from $85,484 in 1995. This increase is partially attributed to the $3,967
increase in premiums and annuity considerations. Surrenders increased
$3,331 from $6,140 in 1995 to $9,471 in 1996 while death claims increased
$5,828 from $11,623 in 1995 to $17,451 in 1996. Reserves ceded increased
$1,950 to $2,527 in 1996 from $577 in 1995. Commissions increased $2,303 as
a result of the revised variable annuity selling agreement with G.R. Phelps,
discussed above.
Reinsurance benefits and expenses decreased $317 to $16,090 in 1996 from
$16,407 in 1995.
Federal income tax expense increased by $2,114 from 1995. The change in
taxable income increased $6,021 from $3,426 in 1995 to $9,447 in 1996. The
change in taxable income is primarily attributable to the $2,519 increase in
net gain from operations, policyholder acquisition expenses and other book
tax differences.
Six Months Ended June 30, 1996 Compared with 1995
-------------------------------------------------
For the six months ended June 30, 1996, C.M. Life had net income of $11,929
as compared with net income of $7,118 for the same period in 1995. The
increase in net income of $4,811 was attributable to increased premium and
annuity considerations of $31,525 partially offset by increased policy
benefits, operating and commission expenses of $28,436 and the increase in
net realized capital gains of $2,474 to a gain of $2,271 in 1996 from a
loss of $203 in 1995.
Premium income increased $31,525 to $161,683 in 1996 from $130,158 in 1995;
primarily due to increased sales of the Universal Life Enterprise Plus
product and increased variable annuity sales.
10
<PAGE>
Premiums ceded decreased $2,250 from $26,497 in 1995 to $24,247 in 1996, due
to lower direct premiums for the reinsured block of business.
Net investment and other income increased by $2,970 from 1995; this increase
was primarily attributable to increased invested assets, primarily fixed
maturities, policy loans and short-term investments..
Expenses related to policy benefits, claims payments, insurance operations,
acquisitions and state taxes and fees increased $28,436 to $181,668 in 1996
from $153,232 in 1995. This increase is partially attributed to the 24%
increase in premiums. Surrenders increased $11,788 from $14,133 in 1995 to
$25,921 in 1996 while death claims decreased $1,712 from $20,961 in 1995 to
$19,249 in 1996. Reserves ceded increased $4,626 to $5,717 in 1996 from
$1,091 in 1995. Commissions increased $2,753 as a result of the revised
variable annuity selling agreement with G.R. Phelps, previously discussed.
Reinsurance benefits and expenses decreased $170 to $29,366 in 1996 from
$29,196 in 1995.
Federal income tax expense increased by $3,722 from 1995. The change in
taxable income increased $10,560 from $10,925 in 1995 to $21,485. The
change in taxable income is primarily attributable to the $6,059 increase in
net gain from operations, policyholder acquisition expenses and other book
tax adjustments.
Net realized capital gains increased $2,474 from 1995 primarily due to sales
of unaffiliated common stocks.
Liquidity and Capital Resources
-------------------------------
C.M. Life's operations have historically provided substantial cash flow.
The majority of the Company's cash is invested in investment-grade
securities to provide ample protection for policyholders. The liabilities
of the Company are predominantly long-term in nature and, therefore, the
Company invests in long-term fixed maturity investments such as bonds.
C.M. Life's liquidity requirements were met by funds provided from
operations and investment activity. The primary uses of funds were to
purchase investments and to pay commissions, insurance operating expenses
and policy benefits.
Segment Information
-------------------
During 1996 and 1995, C.M. Life's operations consisted of one business
segment which was principally the sale of universal life insurance and
annuity products. C.M. Life was not dependent upon any single customer and
no single customer accounted for more than 10% of revenues in 1996 and 1995.
11
<PAGE>
Reserves
--------
In accordance with the life insurance laws and regulations under which C.M.
Life operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
contracts. Reserves are based on mortality tables in general use in the
United States and are computed to equal amounts that, with additions from
premiums to be received, and with interest on such reserves computed
annually at certain assumed rates, will be sufficient to meet C.M. Life's
policy obligations at their maturities or in the event of an insured's
death. In the accompanying financial statements, these reserves are
determined in accordance with statutory regulations.
Competition
-----------
C.M. Life is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
marketing insurance products comparable to those of C.M. Life.
At December 31, 1995, MassMutual had over $52 billion in life insurance
assets and $103 billion in total assets under management. Best's Insurance
Reports, Life-Health Edition, upgraded C.M. Life's rating on March 4, 1996
to the highest possible rating of A++. MassMutual's ratings were the highest
possible from A.M. Best (A++), Duff & Phelps (AAA), and the second-highest
rating from Moody's Investors Service (Aa1).
Regulation
----------
Currently, the Federal government does not directly regulate the business of
insurance. However, Federal legislative, regulatory and judicial decisions
and initiatives often have significant effects on C.M. Life's business.
Types of changes that are most likely to affect C.M. Life's business include
changes to: (a) the taxation of life insurance companies; (b) the tax
treatment of insurance products; (c) the securities laws, particularly as
they relate to insurance and annuity products; (d) the "business of
insurance" exemption from any of the provisions of the anti-trust laws; and
(e) declining barriers which prevent most banks from selling or underwriting
insurance.
12
<PAGE>
Item 6.
Exhibits and Reports on Form 8-k
Form 8-K was filed on February 29, 1996 to disclose a Change in Control of
Registrant. The Registrant's sole shareholder, Connecticut Mutual Life
Insurance Company was merged with and into Massachusetts Mutual Life
Insurance Company with MassMutual as the surviving company on February 29,
1996 at 11:59 pm.
13
<PAGE>
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.
C.M. Life Insurance Company
Date August 14, 1996 /s/ David E. Sams, Jr.
--------------- ----------------------
David E. Sams
Director and President
Date August 14, 1996 /s/ John Miller, Jr.
- ------------------- --------------------
John Miller, Jr.
2nd Vice President
and Comptroller
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM C.M. LIFE'S
JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883232
<NAME> C.M. LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 764,372
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 46,650
<MORTGAGE> 31,752
<REAL-ESTATE> 0
<TOTAL-INVEST> 971,017
<CASH> 92,563
<RECOVER-REINSURE> 639
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,727,474
<POLICY-LOSSES> 883,208
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,992
<POLICY-HOLDER-FUNDS> 702,089
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 117,760
<TOTAL-LIABILITY-AND-EQUITY> 1,727,474
161,683
<INVESTMENT-INCOME> 37,188
<INVESTMENT-GAINS> 2,271
<OTHER-INCOME> (98)
<BENEFITS> 158,678
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 22,990
<INCOME-PRETAX> 17,204
<INCOME-TAX> 7,545
<INCOME-CONTINUING> 11,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,929
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1>C.M. LIFE'S FINANCIAL STATEMENTS HAVE BEEN PREPARED IN CONFORMITY WITH
ACCOUNTING PRACTICES AND PROCEDURES OF THE NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS AS PRESCRIBED OR PERMITTED BY THE INSURANCE DEPARTMENT OF THE
STATE OF CONNECTICUT. UNDER THESE ACCOUNTING PRACTICES, FIXED MATURITIES
ELIGIBLE FOR AMORTIZATION ARE REPORTED AT AMORTIZED COST.
</FN>
</TABLE>
