1
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-14603
THE MONY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3976138
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1740 BROADWAY
NEW YORK, NEW YORK 10019
(212) 708-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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.
Yes [X] No [ ]
As of May 8, 2000 there were 46,444,257 shares of the Registrant's common
stock, par value $0.01, outstanding.
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2
THE MONY GROUP INC. AND SUBSIDIARIES
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
Item 1: Unaudited interim condensed consolidated balance sheets as
of March 31, 2000 and December 31, 1999................... 3
Unaudited interim condensed consolidated statements of
income and comprehensive income for the three-month
periods ended March 31, 2000 and 1999..................... 4
Unaudited interim condensed consolidated statement of
changes in shareholders' equity for the three-month period
ended March 31, 2000...................................... 5
Unaudited interim condensed consolidated statements of cash
flows for the three-month periods ended March 31, 2000 and
1999...................................................... 6
Notes to unaudited interim condensed consolidated financial
statements................................................ 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Investments................................................. 37
Item 3: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 46
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................... 47
Item 2: Changes in Securities....................................... 48
Item 3: Defaults upon Senior Securities............................. 48
Item 4: Submission of Matters to a Vote of Security Holders......... 48
Item 5: Other Information........................................... 48
Item 6: Exhibits and Reports on Form 8-K............................ 48
SIGNATURES........................................................... S-1
1
3
FORWARD-LOOKING STATEMENTS
The Company's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning the Company's operations,
economic performance and financial condition. Forward-looking statements
include, among other things, discussions concerning the Company's potential
exposure to market risks, as well as statements expressing management's
expectations, beliefs, estimates, forecasts, projections and assumptions, as
indicated by words such as "believes," "estimates," "anticipates," "expects,"
"projects," "forecasts," "plans," "intends," "may," "could," "possible," "will,"
"should," "probably," "risk," "target," "goals," "objectives," or similar
expressions. The Company claims the protection afforded by the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and assumes no duty to update any forward-looking statement.
Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those anticipated by forward-looking
statements due to a number of important factors including those discussed
elsewhere in this report and in the Company's other public filings, press
releases, oral presentations and discussions and the following: (i) losses with
respect to the Company's equity real estate, and the success of the Company's
continuing process of selectively selling its equity real estate; (ii) the
success of the restructuring of the Company's career agency sales force, and the
ability to attract and retain productive agents; (iii) the success of the
restructuring of agent compensation; (iv) the Company's ability to control
operating expenses; (v) the outcome of pending litigation; (vi) deterioration in
the experience of the "closed block" established in connection with the
Demutualization; (vii) the performance of the financial markets; (viii) the
intensity of competition from other financial institutions; (ix) the Company's
mortality, morbidity, persistency and claims experience; (x) the Company's
ability to develop, distribute and administer competitive products and services
in a timely, cost-effective manner; (xi) the Company's financial and claims
paying ratings; (xii) the effect of changes in laws and regulations affecting
the Company's businesses, including changes in tax laws affecting insurance and
annuity products; (xiii) market risks related to interest rates, equity prices,
derivatives, foreign currency exchange and credit and; (xiv) the ability of the
Company to identify and consummate on successful terms any future acquisitions,
and to successfully integrate acquired businesses with minimal disruption.
2
4
ITEM 1:
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value.................................................. $ 3,089.8 $ 3,066.7
Equity securities available-for-sale, at fair value....... 517.5 519.8
Mortgage loans on real estate............................. 1,335.2 1,270.4
Policy loans.............................................. 73.0 69.1
Real estate to be disposed of............................. 304.5 300.9
Real estate held for investment........................... 46.6 46.2
Other invested assets..................................... 61.0 37.9
--------- ---------
$ 5,427.6 $ 5,311.0
========= =========
Cash and cash equivalents................................... 295.0 265.9
Accrued investment income................................... 75.5 74.6
Amounts due from reinsurers................................. 491.0 488.0
Deferred policy acquisition costs........................... 593.0 558.3
Other assets................................................ 356.2 365.4
Assets transferred in Group Pension Transaction (Note 4).... 5,100.1 5,109.8
Separate account assets..................................... 6,373.9 6,398.3
Closed Block assets (Note 6)................................ 6,160.1 6,182.1
--------- ---------
Total assets........................................... $24,872.4 $24,753.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 966.4 $ 954.3
Policyholders' account balances............................. 1,899.1 1,942.9
Other policyholders' liabilities............................ 117.1 120.4
Amounts due to reinsurers................................... 86.7 83.8
Accounts payable and other liabilities...................... 602.5 581.1
Short-term debt............................................. 53.1 53.4
Long-term debt.............................................. 310.8 245.4
Current federal income taxes payable........................ 170.3 148.0
Liabilities transferred in Group Pension Transaction (Note
4)........................................................ 5,122.8 5,099.1
Separate account liabilities................................ 6,371.5 6,396.2
Closed Block liabilities (Note 6)........................... 7,274.4 7,303.3
--------- ---------
Total liabilities...................................... $22,974.7 $22,927.9
========= =========
Commitments and contingencies (Note 5)
Common stock, $0.01 par value; 400 million shares
authorized; 47.2 million shares issued.................... $ 0.5 $ 0.5
Capital in excess of par.................................... 1616.1 1,615.9
Treasury stock at cost: 494,100 shares...................... (14.2) --
Retained earnings........................................... 339.7 238.5
Accumulated other comprehensive income...................... (44.3) (29.4)
Unamortized restricted stock compensation................... (0.1) --
--------- ---------
Total shareholders' equity............................. 1,897.7 1,825.5
--------- ---------
Total liabilities and shareholders' equity............. $24,872.4 $24,753.4
========= =========
See accompanying notes to unaudited interim condensed consolidated financial
statements
3
5
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999
-------------- ---------------
($ IN MILLIONS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
REVENUES:
Premiums.................................................... $ 29.3 $ 23.3
Universal life and investment-type product policy fees...... 49.9 45.4
Net investment income....................................... 255.4 94.8
Net realized gains on investment............................ 21.1 28.9
Group Pension Profits (Note 4).............................. 10.1 14.3
Other income................................................ 58.8 42.0
Contribution from the Closed Block (Note 6)................. 10.6 10.5
----------- -----------
435.2 259.2
----------- -----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 39.1 39.9
Interest credited to policyholders' account balances........ 26.2 27.9
Amortization of deferred policy acquisition costs........... 19.9 16.8
Dividends to policyholders.................................. 0.6 0.0
Other operating costs and expenses.......................... 137.2 103.8
----------- -----------
223.0 188.4
----------- -----------
Income before income taxes and extraordinary item........... 212.2 70.8
Income tax expense.......................................... 74.3 24.8
----------- -----------
Income before extraordinary item............................ 137.9 46.0
----------- -----------
Extraordinary items, net of tax............................. 36.7 0.0
----------- -----------
Net income.................................................. 101.2 46.0
----------- -----------
Other comprehensive loss, net............................... (14.9) (55.1)
----------- -----------
Comprehensive income/(loss)................................. $ 86.3 $ (9.1)
=========== ===========
PER SHARE DATA:
Income before extraordinary items........................... $ 137.9 $ 46.0
=========== ===========
Basic earnings per share.................................... 2.93 0.97
=========== ===========
Diluted earnings per share.................................. 2.89 0.97
=========== ===========
Net income.................................................. $ 101.2 $ 46.0
=========== ===========
Basic earnings per share.................................... $ 2.15 $ 0.97
=========== ===========
Diluted earnings per share.................................. $ 2.12 $ 0.97
=========== ===========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 47,104,995 47,238,156
Plus: incremental shares from assumed conversion of dilutive
securities................................................ 598,886 196,538
----------- -----------
Weighted-average shares used in diluted per share
calculations.............................................. 47,703,881 47,434,694
=========== ===========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
4
6
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
THREE-MONTH PERIOD ENDED MARCH 31, 2000
ACCUMULATED UNAMORTIZED
CAPITAL OTHER RESTRICTED TOTAL
COMMON IN EXCESS TREASURY RETAINED COMPREHENSIVE STOCK SHAREHOLDERS'
STOCK OF PAR STOCK EARNINGS INCOME COMPENSATION EQUITY
------ --------- -------- -------- ------------- ------------ -------------
($ IN MILLIONS)
BALANCE, DECEMBER 31,
1999.................. $0.5 $1,615.9 $238.5 $(29.4) $1,825.5
Issuance of Shares...... 0.2 0.2
Treasury Stock at
cost.................. (14.2) (14.2)
Unamortized restricted
stock compensation.... (0.1) (0.1)
Comprehensive income/
(loss)................
Net income.............. 101.2 101.2
Other comprehensive
loss:
Unrealized losses on
investments, net
of unrealized
gains,
reclassification
adjustments, and
taxes............. (14.9) (14.9)
--------
Comprehensive income.... 72.2
---- -------- ------ ------ ------ ----- --------
BALANCE, MARCH 31,
2000.................. 0.5 1,616.1 (14.2) 339.7 (44.3) (0.1) 1,897.7
==== ======== ====== ====== ====== ===== ========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
5
7
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999
-------- --------
($ IN MILLIONS)
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 22.1 $ 64.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities.......................................... 109.1 110.2
Equity securities......................................... 194.3 93.4
Mortgage loans on real estate............................. 27.4 38.7
Real estate............................................... 0.3 12.4
Other invested assets..................................... 1.6 0.6
Acquisitions of investments:
Fixed maturities.......................................... (155.6) (124.2)
Equity securities......................................... (29.1) (30.5)
Mortgage loans on real estate............................. (90.1) (111.9)
Real estate............................................... (3.2) (6.8)
Other invested assets..................................... (2.8) (0.7)
Policy loans, net......................................... (3.8) (4.6)
Other, net................................................ 0.0 (0.5)
Property and equipment, net................................. (6.8) (9.3)
------- -------
Net cash provided by/(used in) investing activities......... $ 41.3 $ (33.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt............................................ 297.0 --
Repayments of debt.......................................... (286.6) (0.7)
Receipts from annuity and universal life policies credited
to policyholder account balances.......................... 640.9 393.4
Return of policyholder's account balances on annuity and
universal life policies................................... (673.2) (365.1)
Treasury stock.............................................. (12.4) --
Dividends paid to shareholders.............................. -- (4.7)
Payments to eligible policyholders.......................... -- (8.0)
------- -------
Net cash (used in)/provided by financing activities......... (34.3) 14.9
------- -------
Net increase/decrease in cash and cash equivalents.......... 29.1 46.0
Cash and cash equivalents, beginning of period.............. 265.9 329.1
------- -------
Cash and cash equivalents, end of period.................... $ 295.0 $ 375.1
======= =======
See accompanying notes to unaudited interim condensed consolidated financial
statements
6
8
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
On November 16, 1998, pursuant to its Plan of Reorganization (the "Plan")
which was approved by the New York Superintendent of Insurance on the same day
(the "Plan Effective Date"), The Mutual Life Insurance Company of New York
("MONY") converted from a mutual life insurance company to a stock life
insurance company (the "Demutualization") and became a wholly owned subsidiary
of The MONY Group Inc., (the "MONY Group" or the "Holding Company"), a Delaware
corporation organized on June 24, 1997 for the purpose of becoming the parent
holding company of MONY. The MONY Group has no other operations or subsidiaries.
In connection with the Plan, MONY established a closed block to fund the
guaranteed benefits and dividends of certain participating insurance policies,
and eligible policyholders received cash, policy credits, or shares of common
stock of the MONY Group in exchange for their membership interests in MONY.
Also, on November 16, 1998, the MONY Group consummated an initial public
offering (the "Offerings") of approximately 12.9 million shares of its common
stock and MONY changed its name to MONY Life Insurance Company (MONY Life
Insurance Company and its subsidiaries are hereafter referred to as "MONY
Life"). The shares of common stock issued in the Offerings are in addition to
approximately 34.3 million shares of common stock of the MONY Group distributed
to the aforementioned policyholders. The Plan and the Offerings are hereafter
collectively referred to as the "Transaction".
The MONY Group, through MONY Life and its subsidiaries (hereafter
collectively referred to as the "Company"), is primarily engaged in the business
of providing a wide range of life insurance, annuity, and investment products to
higher income individuals, particularly family builders, pre-retirees, and small
business owners (see Note 5). The Company distributes its products primarily
through its career agency sales force and various complementary distribution
channels. These include sales of mutual funds sold by Enterprise Capital
Management through third-party broker dealers, sales of protection products sold
by U.S. Financial Life Insurance Company ("USFL") through brokerage general
agencies, sales of corporate-owned life insurance ("COLI") products by the
Company's corporate marketing team and sales of a variety of financial products
and services through the Company's Trusted Securities Advisors Corp. subsidiary.
The Company primarily sells its products in all 50 of the United States, the
District of Columbia, the U.S. Virgin Islands, Guam and the Commonwealth of
Puerto Rico.
2. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles in the United States ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In the opinion of management these statements include all
normal recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented.
These statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 1999, which are
presented in the Company's 1999 Annual Report on Form 10-K. The results of
operations for the three-month period ended March 31, 2000 is not necessarily
indicative of the results to be expected for the full year. Certain
reclassifications have been made in the amounts presented for prior periods to
conform those periods to the current presentation.
3. SEGMENT INFORMATION:
The Company's business activities consist of the following: protection
product operations, accumulation product operations, mutual fund operations,
securities broker-dealer operations, insurance brokerage operations, and certain
insurance lines of business no longer written by the Company (the "run-off
businesses"). These business activities represent the Company's operating
segments. Except as discussed below, these segments are managed separately
because they either provide different products or services, are subject to
different regulation, require different strategies, or have different technology
requirements.
7
9
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Management considers the Company's mutual fund operations to be an integral
part of the products offered by the Company's accumulation products segment. The
Company's mutual fund operation, which is conducted through its Enterprise
Capital Management subsidiary, offers proprietary mutual funds directly to
retail customers as well as proprietary and non-proprietary mutual funds offered
through the products marketed by the accumulation products segment. Accordingly,
for management purposes (including, performance assessment and making decisions
regarding the allocation of resources), the Company aggregates its mutual fund
operations with its accumulation products segment.
Of the aforementioned segments, only the protection products segment and
the accumulation products segment qualify as reportable segments in accordance
with FASB Statement No. 131. All of the Company's other segments are combined
and reported in an other products segment.
Products comprising the protection products segment primarily include a
wide range of insurance products, including; whole life, term life, universal
life, variable universal life, corporate-owned life insurance, last survivor
variable universal life, last survivor universal life, group universal life and
special-risk products. In addition, included in the protection products segment
are: (i) the assets and liabilities transferred pursuant to the Group Pension
Transaction, as well as the Group Pension Profits (see Note 4) and (ii) the
Closed Block assets and liabilities, as well as the Contribution from the Closed
Block (see Note 6). Products comprising the accumulation products segment
primarily include flexible premium variable annuities, single premium deferred
annuities, immediate annuities, proprietary mutual funds, investment management
services, and certain other financial services products. The Company's other
products segment primarily consists of the securities broker-dealer operation,
the insurance brokerage operation, and the run-off businesses. The securities
broker-dealer operation markets the Company's proprietary investment products
and, in addition, provides customers of the Company's protection and
accumulation products access to other non-proprietary investment products
(including stocks, bonds, limited partnership interests, tax-exempt unit
investment trusts and other investment securities). The insurance brokerage
operation provides the Company's field agency force with access to life,
annuity, small group health and specialty insurance products written by other
carriers to meet the insurance and investment needs of its customers. The
run-off businesses primarily consist of group life and health business, as well
as group pension business that was not included in the Group Pension Transaction
(see Note 4).
Set forth in the table below is certain financial information with respect
to the Company's operating segments as of March 31, 2000 and December 31, 1999
and for the three-month periods ended March 31, 2000 and 1999, as well as
amounts not allocated to the segments. The Company evaluates the performance of
each operating segment based on profit or loss from operations before income
taxes and certain nonrecurring items (e.g. items of an unusual or infrequent
nature). In addition, all segment revenues are from external customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. In addition, capital is allocated to
each segment in amounts sufficient to maintain a targeted regulatory risk -based
capital ("RBC") level for each segment. Allocations of net investment income and
net realized gains on investments were based on the amount of assets allocated
to each segment. Other costs and operating expenses were allocated to each of
the segments based on: (i) a review of the nature of such costs, (ii) time
studies analyzing the amount of employee compensation costs incurred by each
segment, and (iii) cost estimates included in the Company's product pricing.
Substantially all non-cash transactions and impaired real estate (including real
estate acquired in satisfaction of debt) are included in the protection products
segment.
Amounts reported as "reconciling amounts" in the table below represent
amounts not allocated to segments and primarily relate to: (i) contracts issued
by MONY Life relating to its employee benefit plans, and (ii) assets,
liabilities, revenues and expenses of the MONY Group.
8
10
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT SUMMARY FINANCIAL INFORMATION
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
-----------------------
2000 1999
------ ------
($ IN MILLIONS)
PREMIUMS:
Protection Products(1)...................................... $ 26.8 $ 20.5
Accumulation Products....................................... 0.1 0.4
Other Products.............................................. 2.4 2.4
------ ------
$ 29.3 $ 23.3
====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products......................................... $ 30.3 $ 27.8
Accumulation Products....................................... 18.9 17.2
Other Products.............................................. 0.7 0.4
------ ------
$ 49.9 $ 45.4
====== ======
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products(2)...................................... $189.7 $ 82.0
Accumulation Products....................................... 50.6 28.9
Other Products.............................................. 33.7 10.9
Reconciling amounts......................................... 2.5 1.9
------ ------
$276.5 $123.7
====== ======
OTHER INCOME:
Protection Products(3)(9)................................... $ 24.0 $ 28.1
Accumulation Products....................................... 31.3 20.9
Other Products.............................................. 22.9 16.8
Reconciling amounts......................................... 1.3 1.0
------ ------
$ 79.5 $ 66.8
====== ======
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products(13)..................................... $ 12.4 $ 9.1
Accumulation Products....................................... 7.5 7.7
------ ------
$ 19.9 $ 16.8
====== ======
BENEFITS TO POLICYHOLDERS:(4)
Protection Products......................................... $ 40.0 $ 40.1
Accumulation Products....................................... 17.8 18.3
Other Products.............................................. 6.4 7.1
Reconciling amounts......................................... 1.1 2.3
------ ------
$ 65.3 $ 67.8
====== ======
9
11
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
-----------------------
2000 1999
------ ------
($ IN MILLIONS)
OTHER OPERATING COSTS AND EXPENSES:
Protection Products......................................... $ 77.3 $ 60.1
Accumulation Products....................................... 29.9 23.4
Other Products.............................................. 27.6 20.3
Reconciling amounts......................................... 2.4 --
------ ------
$137.2 $103.8
====== ======
INCOME BEFORE INCOME TAXES:
Protection Products......................................... $141.1 $ 49.8
Accumulation Products....................................... 45.3 17.6
Other Products.............................................. 25.5 2.8
Reconciling amounts......................................... 0.3 0.6
------ ------
$212.2 $ 70.8
====== ======
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS:(7)
Protection Products(5)(10).................................. $16,393.0 $16,181.4
Accumulation Products....................................... 6,111.3 6,175.0
Other Products.............................................. 1,176.5 1,187.6
Reconciling amounts......................................... 1,191.6 1,209.4
--------- ---------
$24,872.4 $24,753.4
========= =========
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(11)..................................... $ 1,112.9 $ 1,094.9
Accumulation Products....................................... 152.9 153.3
--------- ---------
$ 1,265.8 $ 1,248.2
========= =========
POLICYHOLDERS' LIABILITIES:
Protection Products(6)(12).................................. $10,185.4 $10,231.7
Accumulation Products....................................... 1,188.8 1,236.3
Other Products.............................................. 404.5 418.9
Reconciling amounts......................................... 16.9 17.4
--------- ---------
$11,795.6 $11,904.3
========= =========
SEPARATE ACCOUNT LIABILITIES:(7)
Protection Products(8)...................................... $ 3,976.5 $ 3,843.5
Accumulation Products....................................... 4,508.9 4,548.9
Other Products.............................................. 589.4 604.2
Reconciling amounts......................................... 821.4 832.3
--------- ---------
$ 9,896.2 $ 9,828.9
========= =========
- ---------------
(1) Excludes $135.7 million and $146.4 million of revenues in individual life
related to the Closed Block for the three-month periods ended March 31, 2000
and 1999, respectively (see Note 6).
10
12
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(2) Excludes net investment income and net realized capital gains on
investments in individual life related to the Closed Block of $93.9 million
and $97.6 for the three-month periods ended March 31, 2000 and 1999,
respectively (see Note 6).
(3) Includes Group Pension Profits of $10.1 million and $14.3 million for the
three-month periods ended March 31, 2000 and 1999, respectively (see Note
4).
(4) Includes interest credited to policyholders' account balances. Excludes
$143.8 and $149.2 million of benefits and interest credited to
policyholders' account balances related to individual life business in the
Closed Block for the three-month periods ended March 31, 2000 and 1999,
respectively (see Note 6).
(5) Includes assets transferred in the Group Pension Transaction of $5,100.1
million and $5,109.8 million as of March 31, 2000 and December 31, 1999,
respectively (see Note 4).
(6) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,586.1 million and $1,645.7 million as of March 31, 2000
and December 31, 1999, respectively (see Note 4).
(7) Each segment includes separate account assets in an amount equal to the
corresponding liability reported.
(8) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,524.7 million and $3,432.7 million as of March 31, 2000
and December 31, 1999 respectively (see Note 4).
(9) Includes $10.6 million and $10.5 million relating to the Contribution from
the Closed Block for the three-month periods ended March 31, 2000 and 1999,
respectively (see Note 6).
(10) Includes Closed Block assets of $6,160.1 million and $6,182.1 million as of
March 31, 2000 and December 31, 1999, respectively (see Note 6).
(11) Includes deferred policy acquisition costs allocated to the Closed Block of
$672.8 million and $689.9 million as of March 31, 2000 and December 31,
1999, respectively (see Note 6).
(12) Includes Closed Block policyholders' liabilities of $7,226.9 million and
$7,241.0 million as of March 31, 2000 and December 31, 1999, respectively
(see Note 6).
(13) Excludes $17.6 million and $17.9 million of amortization of deferred policy
acquisition costs related to the Closed Block for the three-month periods
ended March 31, 2000 and 1999, respectively (see Note 6).
The following is a summary of premiums and universal life and
investment-type product policy fees by product for the three-month period ended
March 31, 2000 and 1999, respectively.
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2000 1999
------ ------
($ IN MILLIONS)
PREMIUMS:
Individual life(1).......................................... $26.7 $20.4
Group insurance............................................. 2.4 2.4
Disability income insurance................................. 0.1 0.1
Other....................................................... 0.1 0.4
----- -----
Total.................................................. $29.3 $23.3
===== =====
11
13
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2000 1999
------ ------
($ IN MILLIONS)
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Universal life.............................................. $15.8 $17.6
Variable universal life(2).................................. 11.6 7.7
Group universal life........................................ 2.9 2.5
Individual variable annuities............................... 18.7 17.0
Individual fixed annuities.................................. 0.9 0.6
----- -----
Total.................................................. $49.9 $45.4
===== =====
- ---------------
(1) Excludes revenues from individual life in the Closed Block of $135.7 million
and $146.4 million for the three-month periods ending March 31, 2000 and
1999, respectively.
(2) Includes Corporate Sponsored variable universal life products.
4. THE GROUP PENSION TRANSACTION:
On December 31, 1993 (the "Group Pension Transaction Date"), MONY entered
into an agreement (the "Agreement") with AEGON USA, Inc. ("AEGON") under which
the Company transferred a substantial portion of its group pension business
(hereafter referred to as the "Group Pension Transaction"), to AEGON's
wholly-owned subsidiary, AUSA Life Insurance Company, Inc. ("AUSA"). The Company
also transferred to AUSA the corporate infrastructure supporting the group
pension business, including data processing systems, facilities and regional
offices. AUSA was newly formed by AEGON solely for the purpose of facilitating
this transaction. In connection with the transaction, the Company and AEGON have
entered into certain service agreements. These agreements, among other things,
provide that the Company will continue to manage the transferred assets, and
that AUSA will continue to provide certain administrative services to the
Company's remaining group pension contracts not included in the transfer.
Pursuant to the Agreement, MONY agreed to make a $200 million capital
investment in AEGON by purchasing $150 million face amount of Series A Notes and
$50 million face amount of Series B Notes (hereinafter referred to as the
"Notes"). The Series A Notes pay interest at 6.44 percent per annum and the
Series B Notes pay interest at 6.24 percent per annum. Both the Series A Notes
and the Series B Notes mature on December 31, 2002. MONY's investment in the
Series A Notes was intended to provide AEGON with the funding necessary to
capitalize AUSA.
In accordance with GAAP, the transaction did not constitute a sale because
MONY retained substantially all the risks and rewards associated with the
deposits on contracts in force and transferred to AEGON on the Group Pension
Transaction Date (the "Existing Deposits"). Accordingly, the Company continues
to reflect the transferred assets and liabilities on its balance sheet under
separate captions entitled "Assets transferred in Group Pension Transaction" and
"Liabilities transferred in Group Pension Transaction". In addition, MONY
reports in its GAAP earnings the profits from the Existing Deposits as discussed
below.
Pursuant to the Agreement, MONY receives from AUSA (i) payments on an
annual basis through December 31, 2002 (the "Group Pension Payments") equal to
all of the earnings from the Existing Deposits, (ii) a final payment (the "Final
Value Payment") at December 31, 2002 based on the remaining fair value of the
Existing Deposits, and (iii) a contingent payment (the "New Business Growth
Payment") at December 31, 2002 based on new business growth subsequent to the
Group Pension Transaction Date. However, the
12
14
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
level of new business growth necessary for MONY to receive the New Business
Growth Payment make it unlikely that MONY will ever receive any such payment.
With respect to the Group Pension Payments, the annual results from the
Existing Deposits are measured on a basis in accordance with the Agreement (such
basis hereafter referred to as the "Earnings Formula") which is substantially
the same as GAAP, except that: (i) asset impairments on fixed maturity
securities are only recognized when such securities are designated with a
National Association of Insurance Commissioners ("NAIC") rating of "6", and (ii)
no impairment losses are recognized on mortgage loans until such loans are
disposed of or at the time, and in the calculation, of the Final Value Payment.
Earnings which emerge from the Existing Deposits pursuant to the
application of the Earnings Formula are recorded in MONY's financial statements
only after adjustments (primarily to recognize asset impairments in accordance
with SFAS Nos. 114 and 115) to reflect such earnings on a basis entirely in
accordance with GAAP (such earnings hereafter referred to as the "Group Pension
Profits"). Losses which arise from the application of the Earnings Formula for
any annual period will be reflected in MONY's results of operations (after
adjustments to reflect such losses in accordance with GAAP) only up to the
amount for which MONY is at risk (as described below), which at any time is
equal to the then outstanding principal amount of the Series A Notes.
Operating losses reported in any annual period pursuant to the Earnings
Formula are carried forward to reduce any earnings in subsequent years reported
pursuant to the Earnings Formula. Any resultant deficit remaining at December
31, 2002 will be deducted from the Final Value Payment and New Business Growth
Payment, if any, due to MONY. If a deficit still remains, it will be applied (as
provided for in the Agreement) as an offset against the principal payment due to
MONY upon maturity of the Series A Notes.
Management expects that Group Pension Profits will continue to decrease in
the future consistent with the runoff of the Existing Deposits.
13
15
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth certain summarized financial information
relating to the Group Pension Transaction as of and for the periods indicated,
including information regarding: (i) the general account assets transferred to
support the Existing Deposits in the Group Pension Transaction (hereafter
referred to as the "AEGON Portfolio"), (ii) the transferred separate account
assets and liabilities and (iii) the components of revenue and expense
comprising the Group Pension Profits:
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
ASSETS:
General Account
Fixed maturities: available for sale, at estimated fair
value (amortized cost; $1,489.9 million and $1,532.4
million, respectively)................................. $1,462.0 $1,510.0
Mortgage loans on real estate............................. 83.4 98.5
Real estate to be disposed of............................. 5.2 16.8
Cash and cash equivalents................................. 1.4 25.3
Accrued investment income................................. 23.4 26.5
-------- --------
Total general account assets........................... 1,575.4 1,677.1
Separate account assets..................................... 3,524.7 3,432.7
-------- --------
Total assets........................................... $5,100.1 $5,109.8
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................... $1,586.1 $1,645.7
Other liabilities......................................... 12.0 20.7
-------- --------
Total general account liabilities...................... 1,598.1 1,666.4
Separate account liabilities(2)............................. 3,524.7 3,432.7
-------- --------
Total liabilities...................................... $5,122.8 $5,099.1
======== ========
- ---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $83.4 million
and $88.9 million as of March 31, 2000 and December 31, 1999, respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $16.9 million
and $20.3 million as of March 31, 2000 and December 31, 1999, respectively.
FOR THE
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2000 1999
------ ------
($ IN MILLIONS)
REVENUES:
Product policy fees......................................... $ 6.1 $ 6.1
Net investment income....................................... 30.1 34.1
Net realized gains on investments........................... 0.6 3.3
----- -----
Total revenues......................................... 36.8 43.5
----- -----
14
16
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2000 1999
------ ------
($ IN MILLIONS)
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances........ 20.9 22.5
Other operating costs and expenses.......................... 5.8 6.7
----- -----
Total benefits and expenses............................ 26.7 29.2
----- -----
Group Pension Profits.................................. $10.1 $14.3
===== =====
5. COMMITMENTS AND CONTINGENCIES:
Since late 1995 a number of purported class actions were commenced in
various state and federal courts against the Company alleging that the Company
engaged in deceptive sales practices in connection with the sale of whole and
universal life insurance policies from the early 1980s through the mid 1990s.
Although the claims asserted in each case are not identical, they seek
substantially the same relief under essentially the same theories of recovery
(i.e., breach of contract, fraud, negligent misrepresentation, negligent
supervision and training, breach of fiduciary duty, unjust enrichment and
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primarily equitable relief (e.g., reformation, specific performance, mandatory
injunctive relief prohibiting the Company from canceling policies for failure to
make required premium payments, imposition of a constructive trust and creation
of a claims resolution facility to adjudicate any individual issues remaining
after resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts. The Company
has answered the complaints in each action, (except for one being voluntarily
held in abeyance), has denied any wrongdoing and has asserted numerous
affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified one of those
cases the Goshen v. The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America, the Goshen case, being the first of the
aforementioned class actions filed, as a nationwide class consisting of all
persons or entities who have, or at the time of the policy's termination had, an
ownership interest in a whole or universal life insurance policy issued by the
Company and sold on an alleged "vanishing premium" basis during the period
January 1, 1982 to December 31, 1995. On March 27, 1997, the Company filed a
motion to dismiss or, alternatively, for summary judgment on all counts of the
complaint. All of the other putative class actions have been consolidated and
transferred by the Judicial Panel on Multidistrict Litigation to the United
States District Court for the District of Massachusetts, or are being
voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On December 20, 1999, the New York State
Court of Appeals affirmed the dismissal of all but one of the claims in the
Goshen case (a claim under New York's General Business Law), which has been
remanded back to the New York State Supreme Court for further proceedings
consistent with the opinion. The Company intends to defend itself vigorously
against the sole remaining claim. There can be no assurance that the present
litigation relating to sales practices will not have a material adverse effect
on the Company.
On March 27, 2000, the MONY Group and MONY Life Insurance Company were
served with a complaint in an action entitled Calvin Chatlos, M.D. and Alvin H.
Clement, On Behalf of Themselves And All Others Similarly Situated v. The MONY
Life Insurance Company, The MONY Group Inc., and Neil Levin, Superintendent, New
York Insurance Department, filed in the Supreme Court of the State of
15
17
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
New York, County of New York. The action purports to be a class action on behalf
of all persons or entities who had an ownership interest in one or more in-force
life insurance policies issued by MONY Life Insurance Company as of November 16,
1998. Plaintiffs seek a declaratory judgment that the New York Superintendent of
Insurance and the Company violated Section 7312 of the New York Insurance Law in
connection with its demutualization. Plaintiffs also allege that the Company
breached its contractual obligations and alleged fiduciary duties to its
policyholders in connection with the demutualization. Plaintiffs seek damages
against the Company for wrongfully denying them a fair and equitable amount for
their membership interests. The Company believes that the claims are without
merit and intends to defend itself vigorously.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts.
While the outcome of such matters cannot be predicted with certainty, in
the opinion of management, any additional liability beyond that recorded in the
consolidated financial statements at March 31, 2000, resulting from the
resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, such assessments will not have a
material adverse effect on the consolidated financial position and the results
of operations of the Company.
The Company maintains two lines of credit with domestic banks totaling
$150.0 million with scheduled renewal dates in September 2000 and September
2003. Under these lines of credit, the Company is required to maintain a certain
statutory tangible net worth and debt to capitalization ratio. The Company has
complied with all covenants relating thereto. The Company has not borrowed
against these lines of credit since their inception.
At March 31, 2000, the Company had commitments to issue $9.2 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 8.4% to 9.2%. In
addition, the Company had commitments to issue $92.4 million of fixed rate and
floating rate commercial mortgage loans with interest rates ranging from 7.0% to
9.14%. The Company had commitments outstanding to purchase private fixed
maturity securities as of March 31, 2000 of $131.6 million with interest rates
from 6.2% to 11.0%. At March 31, 2000, the Company had commitments to contribute
capital to its equity partnership investments of $118.5 million.
6. CLOSED BLOCK:
In accordance with New York State Insurance Law, on November 16, 1998, the
Company established a closed block (the "Closed Block") of certain participating
insurance policies as defined in the Plan (the "Closed Block Business"). In
conjunction therewith, the Company allocated assets to the Closed Block expected
to produce cash flows which, together with anticipated revenues from the Closed
Block Business, are reasonably expected to be sufficient to support the Closed
Block Business, including but not limited to, provision for payment of claims
and surrender benefits, certain expenses and taxes, and for continuation of
current payable dividend scales in effect at the date of Demutualization,
assuming the experience underlying such dividend scales continues, and for
appropriate adjustments in such scales if the experience changes. The assets
allocated to the Closed Block and the aforementioned revenues inure solely to
the benefit of the owners of policies included in the Closed Block.
16
18
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The assets and liabilities allocated to the Closed Block were recorded in
the Company's financial statements at their historical carrying values. The
carrying values of the assets allocated to the Closed Block are less than the
carrying value of the Closed Block liabilities at the Plan Effective Date. The
excess of the Closed Block liabilities over the Closed Block assets at the Plan
Effective Date represents the total estimated future post-tax contribution
expected to emerge from the operation of the Closed Block, which will be
recognized in the Company's income over the period the policies and the
contracts in the Closed Block remain in force.
To the extent that the actual cash flows, subsequent to the Plan Effective
Date, from the assets allocated to the Closed Block and the Closed Block
Business are, in the aggregate, more favorable than assumed in establishing the
Closed Block, total dividends paid to the Closed Block policyholders in future
years will be greater than the total dividends that would have been paid to such
policyholders if the current payable dividend scales had been continued.
Conversely, to the extent that the actual cash flows, subsequent to the Plan
Effective Date, from the assets allocated to the Closed Block and the Closed
Block Business are, in the aggregate, less favorable than assumed in
establishing the Closed Block, total dividends paid to the Closed Block
policyholders in future years will be less than the total dividends that would
have been paid to such policyholders if the current payable dividend scales had
been continued. Accordingly, the recognition of the aforementioned estimated
future post-tax contribution expected to emerge from the operation of the Closed
Block is not affected by the aggregate actual experience of the Closed Block
assets and the Closed Block Business subsequent to the Plan Effective Date,
except in the unlikely event that the Closed Block assets and the actual
experience of the Closed Block Business subsequent to the Plan Effective Date
are not sufficient to pay the guaranteed benefits on the Closed Block Policies,
in which case the Company will be required to fund any such deficiency from its
general account assets outside of the Closed Block.
In addition, MONY has undertaken to reimburse the Closed Block from it's
general account assets outside the Closed Block for any reduction in principal
payments due on the Series A Notes (which have been allocated to the Closed
Block) pursuant to the terms thereof, as described in Note 4. Since the Closed
Block has been funded to provide for payment guaranteed benefits and the
continuation of current payable dividends on the policies included therein, it
will not be necessary to use general funds to pay guaranteed benefits unless the
Closed Block Business experiences very substantial ongoing adverse experience in
investment, mortality, persistency or other experience factors. The Company
regularly (at least quarterly) monitors the experience from the Closed Block and
may make changes to the dividend scale, when appropriate, to ensure the profits
are distributed to Closed Block policyholders in a fair and equitable manner. In
addition, periodically the New York Insurance Department requires the filing of
an independent auditor's report on the operations of the Closed Block.
The results of the Closed Block are presented as a single line item in the
Company's statements of income entitled, "Contribution from the Closed Block".
Prior to the establishment of the Closed Block the results of the assets and
policies comprising the Closed Block were reported in various line items in the
Company's income statements, including: premiums, investment income, net
realized gains and losses on investments, benefits, amortization of deferred
policy acquisition costs, etc. In addition, all assets and liabilities allocated
to the Closed Block are reported in the Company's balance sheet separately under
the captions "Closed Block assets" and "Closed Block liabilities", respectively.
Accordingly, certain line items in the Company's financial statements subsequent
to the establishment of the Closed Block reflect material reductions in reported
amounts, as compared to years prior to the establishment of the Closed Block,
while having no effect on net income.
The pre-tax Contribution from the Closed Block includes only those
revenues, benefit payments, dividends, premium taxes, state guaranty fund
assessments, and investment expenses considered in funding the Closed Block.
However, many expenses associated with operating the Closed Block and
administering the policies included therein were excluded from and, accordingly,
not funded in the Closed Block. These
17
19
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
expenses are reported in the Company's statement of operations, outside of the
Contribution from the Closed Block, consistent with how they are funded. Such
expenses are reported in the separate line items to which they apply based on
the nature of such expenses. Federal income taxes applicable to the Closed
Block, which are funded in the Closed Block, are reflected as a component of
federal income tax expense in the Company's statement of operations. Since many
expenses related to the Closed Block are funded outside the Closed Block,
operating costs and expenses outside the Closed Block are disproportionate to
the level of business outside the Closed Block.
The following tables set forth certain summarized financial information
relating to the Closed Block, as of and for the periods indicated:
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost; $3,604.0 and $3,554.7, respectively)............. $3,490.4 $3,479.5
Mortgage loans on real estate............................. 490.0 443.0
Policy loans.............................................. 1,190.3 1,199.1
Real estate............................................... 22.4 22.1
Cash and cash equivalents................................. 46.5 111.3
Premiums receivable....................................... 6.9 14.2
Deferred policy acquisition costs......................... 672.8 689.9
Other assets.............................................. 240.8 223.0
-------- --------
Total Closed Block assets.............................. $6,160.1 $6,182.1
======== ========
LIABILITIES:
Future policy benefits.................................... $6,766.2 $6,781.5
Policyholders' account balances........................... 293.6 294.6
Other Policyholders' liabilities.......................... 167.1 164.9
Other liabilities......................................... 47.5 62.3
-------- --------
Total Closed Block liabilities......................... $7,274.4 $7,303.3
======== ========
FOR THE THREE-MONTH FOR THE THREE-MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
($ IN MILLIONS)
REVENUES:
Premiums.......................................... $135.7 $146.4
Net investment income............................. 96.4 93.3
Net realized gains(losses) on investments......... (2.5) 4.3
Other income...................................... 0.8 0.4
------ ------
Total revenues............................... 230.4 244.4
------ ------
18
20
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE-MONTH FOR THE THREE-MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
($ IN MILLIONS)
BENEFITS AND EXPENSES:
Benefits to policyholders......................... 141.6 147.0
Interest credited to policyholders' account
balances........................................ 2.2 2.2
Amortization of deferred policy acquisition
costs........................................... 17.6 17.9
Dividends to policyholders........................ 56.6 63.7
Other operating costs and expenses................ 1.8 3.1
------ ------
Total benefits and expenses.................. 219.8 233.9
------ ------
Contribution from Closed Block.................... $ 10.6 $ 10.5
====== ======
For the three-month periods ended March 31, 2000 and March 31, 1999, there
were $3.0 million and $0.0 million, respectively, in adjustments in the value of
fixed maturity securities in the Closed Block deemed to be other than
temporarily impaired or fixed maturity securities which have been non-income
producing for the twelve months preceding such dates. At March 31, 2000 and
December 31, 1999, the carrying value of mortgage loans in the Closed Block that
were non-income producing for the twelve months preceding such date, were $0.3
million and $0.0 million, respectively.
7. EXTRAORDINARY AND OTHER ITEMS
a) On January 12, 2000, the Company announced a plan to repurchase up to 5%
of the outstanding common shares of the Company or approximately 2.4 million
shares. Under the plan, the Company may repurchase such shares from time to
time, as market conditions and other factors warrant. The plan may be
discontinued at any time. As of March 31, 2000, 494,100 shares had been
repurchased at a cost of $14.2 million.
b) In January 2000, the New York Insurance Department approved, and MONY
Life paid, a dividend to MONY Group in the amount of $75 million.
c) On January 12, 2000, the Holding Company filed a registration statement
on Form S-3 with the Securities and Exchange Commission (the "SEC") to register
certain securities. This registration, known as a "Shelf Registration", provides
the Company with the ability to offer various securities to the public, when it
deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion
in the aggregate for all issuances of securities thereunder. It is the intention
of the Company to use this facility to raise proceeds for mergers and
acquisitions and for other general corporate matters, as it considers necessary.
d) On March 8, 2000, the Holding Company issued $300.0 million principal
amount of senior notes (the "Senior Notes") pursuant to the aforementioned Shelf
Registration. The Senior Notes mature on March 15, 2010 and bear interest at
8.35% per annum. The principal amount of the Senior Notes is payable at maturity
and interest is payable semi-annually. The net proceeds to the Company from the
issuance of the Senior Notes, after deducting underwriting commissions and other
expenses (primarily legal and accounting fees), were approximately $296.7
million. Approximately $280.0 million of the net proceeds from the issuance of
the Senior Notes was used by the Holding Company to finance the repurchase, on
March 8, 2000, by MONY Life of all of its outstanding $115.0 million face amount
9.5% coupon surplus notes, and $116.5 million face amount of its $125.0 million
face amount 11.25% coupon surplus notes (hereafter referred to as the "9.5%
Notes" and "11.25% Notes", respectively), which were outstanding at December 31,
1999. The balance of the net proceeds from the issuance of the Senior Notes will
be used by the Holding Company for general corporate purposes.
19
21
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes, the Company recorded a before tax loss of $56.5 million ($36.7
million after tax) during the first quarter of 2000. The loss resulted from the
premium paid by MONY Life to the holders of the 9.5% Notes and the 11.25% Notes
reflecting the excess of their fair value over their carrying value on the
Company's books at the date of the transaction of approximately $7.0 million and
$49.5 million, respectively. This loss is reported, net of tax, as an
extraordinary item on the Company's income statement for the three-month period
ended March 31, 2000.
20
22
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition and results of
operations of the Company for the periods indicated. The discussion of the
Company's financial results of operations is based on the results of the Closed
Block combined on a line by line basis with the results of operations outside
the Closed Block, for such respective periods as further discussed below. The
discussion and analysis of the Company's financial condition and results of
operations presented below should be read in conjunction with the Company's
unaudited interim condensed consolidated financial statements and related notes
to the unaudited interim condensed consolidation financial statements included
elsewhere herein and the Company's 1999 Annual Report on Form 10-K.
GENERAL
The MONY Group was incorporated on June 24, 1997, under the laws of
Delaware, as a wholly owned subsidiary of MONY. The MONY Group was formed for
the purpose of becoming the parent holding company of MONY pursuant to the Plan.
On November 16, 1998, the Plan was approved by the New York Superintendent of
Insurance and MONY converted from a mutual life insurance company to a stock
life insurance company and became a wholly owned subsidiary of the MONY Group.
In connection with the Plan, MONY established the Closed Block to fund the
guaranteed benefits and dividends of certain participating insurance policies
(see Note 3 to the Consolidated Financial Statements) and eligible policyholders
of MONY received either cash, policy credits, or shares of common stock in the
MONY Group in exchange for their membership interests in MONY. Also, on November
16, 1998, the MONY Group consummated an initial public offering (the
"Offerings") of approximately 12.9 million shares of its common stock (see
"Liquidity and Capital Resources") and MONY changed its name to MONY Life. The
shares of common stock issued in the Offerings are in addition to approximately
34.3 million shares of common stock of the MONY Group distributed to the
aforementioned eligible policyholders. The MONY Group has no other operations or
subsidiaries.
MONY's conversion to a stock life insurance company and the establishment
of the Closed Block have significantly affected the presentation of the
consolidated financial statements of the Company. The most significant affects
are as follows:
(i) the actual results of the Closed Block's operations are reflected as a
single line item in the Company's statements of income, entitled
"Contribution from the Closed Block", whereas, prior to the
establishment of the Closed Block the results of its operations were
reported in various line items in the Company's income statement,
including premiums, net investment income, net realized gains,
benefits, amortization of deferred policy acquisition costs, etc.
(ii) all assets and liabilities allocated to the Closed Block are reported
separately in the Company's balance sheet under the captions "Closed
Block assets" and "Closed Block liabilities", respectively, whereas
prior to the establishment of the Closed Block such assets and
liabilities were reported in various line items in the Company's
balance sheet, including fixed maturity securities, mortgage loans on
real estate, policy loans, deferred policy acquisition costs, etc.
The pre-tax Contribution from the Closed Block for the three-month periods
ended March 31, 2000 and 1999 was $10.6 million and $10.5 million, respectively.
The Closed Block includes only those revenues, benefit payments, dividends and
premium taxes considered in funding the Closed Block and excludes many costs and
expenses associated with operating the Closed Block and administering the
policies included therein. Since many expenses related to the Closed Block were
excluded from the calculation of the Closed Block contribution, the contribution
from the Closed Block does not represent the actual profitability of the
business in the Closed Block. As a result, operating costs and expenses outside
the Closed Block are disproportionate to the business outside the Closed Block.
21
23
SEGMENTS
For management and reporting purposes, the Company's business is organized
in two principal operating segments, the "Protection Products" segment and the
"Accumulation Products" segment. Substantially all of the Company's other
business activities are combined and reported in the "Other Products" segment.
In its Protection Products segment, the Company currently offers a wide range of
individual life insurance products, including; whole life, term life, universal
life, variable universal life, corporate-owned life insurance, last survivor
variable universal life, group universal life and special risk products. The
Protection Products segment also includes the in-force business from sales of
last survivor universal life and last survivor whole life. Also included in the
Protection Products segment are the: (i) assets and liabilities transferred
pursuant to the Group Pension Transaction, as well as the related profits
therefrom (see Note 4 to the Unaudited Interim Condensed Consolidated Financial
Statements included elsewhere herein), and (ii) the Closed Block assets and
liabilities, as well as the Contribution from the Closed Block. In its
Accumulation Products segment, the Company primarily offers flexible premium
variable annuities and proprietary retail mutual funds. The Accumulation
Products segment also includes the in-force business from single premium
deferred annuities and immediate annuities. The Company's Other Products segment
primarily consists of a securities broker-dealer operation, an insurance
brokerage operation and the runoff businesses which consist primarily of group
life and health business, as well as group pension business that was not
included in the Group Pension Transaction. In addition to selling the Company's
proprietary investment products, the securities broker-dealer operation provides
customers of the Company's protection and accumulation products access to other
non-proprietary investment products (including stocks, bonds, limited
partnership interests, tax-exempt unit investment trusts and other investment
securities). The insurance brokerage operation provides the Company's career
agency sales force with access to life, annuity, small group health and
specialty insurance products written by other carriers to meet the insurance and
investment needs of its customers. The Run-Off Businesses primarily consist of
group life and health insurance as well as the group pension business that was
not included in the Group Pension Transaction.
Except for various allocations discussed below, the accounting policies of
the segments are the same as those described in the preparation of the Unaudited
Interim Condensed Consolidated Financial Statements. The Company evaluates the
performance of each operating segment based on profit or loss from operations
before income taxes and nonrecurring items (e.g. items of an unusual or
infrequent nature). The Company does not allocate certain nonrecurring items to
the segments. In addition, all segment revenues are from external customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. Capital is allocated to each segment
in amounts sufficient to maintain a targeted regulatory risk-based capital
("RBC") level for each segment. Allocations of net investment income and net
realized gains on investments were primarily based on the amount of assets
allocated to each segment. Other costs and operating expenses were allocated to
each of the segments based on: (i) a review of the nature of such costs, (ii)
time studies analyzing the amount of employee compensation costs incurred by
each segment, and (iii) cost estimates included in the Company's product
pricing. Substantially all non-cash transactions and impaired real estate
(including real estate acquired in satisfaction of debt) have been allocated to
the Protection Products segment.
FACTORS AFFECTING PROFITABILITY
The Company derives its revenues principally from: (i) premiums on
participating individual life insurance, (ii) insurance, administrative and
surrender charges on universal life and annuity products, (iii) asset management
fees from separate account and mutual fund products, (iv) net investment income
on general account assets, (v) the Group Pension Profits, See "-- The Group
Pension Transaction" and (vi) commissions from securities and insurance
brokerage operations. The Company's expenses consist of insurance benefits
provided to policyholders, interest credited on policyholders' account balances,
dividends to policyholders, the cost of selling and servicing the various
products sold by the Company, including commissions to sales representatives
(net of any deferrals), and general business expenses.
22
24
The Company's profitability depends in large part upon (i) the amount of
its assets, (ii) the adequacy of its product pricing (which is primarily a
function of competitive conditions, management's ability to assess and manage
trends in mortality and morbidity experience as compared to the level of benefit
payments, and its ability to maintain expenses within pricing assumptions),
(iii) the maintenance of the Company's target spreads between credited rates on
policyholders' account balances and the rate of earnings on its investments,
(iv) the persistency of its policies (which affects the ability of the Company
to recover the costs incurred to sell a policy) and (v) its ability to manage
the market and credit risks associated with its invested assets. External
factors, such as legislation and regulation of the insurance marketplace and
products, may also affect the Company's profitability.
The following tables present the Company's consolidated and segment results
of operations for the three-month periods ended March 31, 2000 and 1999.
Management's Discussion and Analysis, which follows this table, discusses the
Company's consolidated and segment results of operations on the aforementioned
combined basis unless otherwise noted. See Note 6 to the Unaudited Interim
Condensed Consolidated Financial Statements for a summarized Closed Block income
statement which has been combined on a line by line basis with the results of
operations outside the Closed Block for purposes of the following table and
discussion.
RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
REVENUES:
Premiums.................................... $162.5 $ 0.1 $ 2.4 $ -- $165.0
Universal life and investment-type product
policy fees............................... 30.3 18.9 0.7 -- 49.9
Net investment income and realized gains on
investments............................... 283.6 50.6 33.7 2.5 370.4
Group Pension Profits(2).................... 10.1 -- -- -- 10.1
Other income................................ 4.1 31.3 22.9 1.3 59.6
------ ------ ----- ----- ------
490.6 100.9 59.7 3.8 655.0
BENEFITS AND EXPENSES:
Benefits to policyholders................... 170.4 5.3 3.9 1.1 180.7
Interest credited to policyholders' account
balances.................................. 13.4 12.5 2.5 -- 28.4
Amortization of deferred policy acquisition
costs..................................... 30.0 7.5 -- -- 37.5
Dividends to policyholders.................. 56.6 0.4 0.2 -- 57.2
Other operating costs and expenses.......... 79.1 29.9 27.6 2.4 139.0
------ ------ ----- ----- ------
349.5 55.6 34.2 3.5 442.8
------ ------ ----- ----- ------
Income before income taxes and extraordinary
item...................................... $141.1 $ 45.3 $25.5 $ 0.3 212.2
====== ====== ===== =====
Income tax expense.......................... 74.3
------
Income before extraordinary items........... 137.9
Extraordinary items......................... 36.7
------
Net Income.................................. $101.2
======
23
25
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999
-----------------------------------------------------------------
PROTECTION ACCUMULATION OTHER RECONCILING(1) CONSOLIDATED
---------- ------------ ----- -------------- ------------
REVENUES:
Premiums.................................... $166.9 $ 0.4 $ 2.4 $ -- $169.7
Universal life and investment-type product
policy fees............................... 27.8 17.2 0.4 -- 45.4
Net investment income and realized gains on
investments............................... 179.6 28.9 10.9 1.9 221.3
Group Pension Profits(2).................... 14.3 -- -- -- 14.3
Other income................................ 3.7 20.9 16.8 1.0 42.4
------ ------ ----- ----- ------
392.3 67.4 30.5 2.9 493.1
BENEFITS AND EXPENSES:
Benefits to policyholders................... 176.8 4.3 3.5 2.3 186.9
Interest credited to policyholders' account
balances.................................. 12.5 14.0 3.6 -- 30.1
Amortization of deferred policy acquisition
costs..................................... 27.0 7.7 -- -- 34.7
Dividends to policyholders.................. 62.9 0.4 0.3 -- 63.6
Other operating costs and expenses.......... 63.3 23.4 20.3 -- 107.0
------ ------ ----- ----- ------
342.5 49.8 27.7 2.3 422.3
------ ------ ----- ----- ------
Income before income taxes and extraordinary
item...................................... $ 49.8 $ 17.6 $ 2.8 $ 0.6 70.8
====== ====== ===== =====
Income tax expense.......................... 24.8
------
Income before extraordinary items........... 46.0
Extraordinary items......................... --
------
Net Income.................................. $ 46.0
======
- ---------------
(1) Amounts reported as "reconciling" primarily relate to: (i) contracts issued
by MONY Life relating to its employee benefit plans, and (ii) revenues and
expenses of the MONY Group.
(2) See Note 4 to the Unaudited Interim Condensed Consolidated Financial
Statements contained herein.
Three-Month Period Ended March 31, 2000
Compared to the Three-Month Period Ended March 31, 1999.
Premiums --
Premium revenue was $165.0 million for the three-month period ended March
31, 2000, a decrease of $4.7 million, or 2.8%, from $169.7 million reported for
the comparable prior year period ended March 31, 1999. Substantially all of the
decrease related to traditional life insurance products offered through the
Company's Protection Products segment. The decrease was comprised of (i) lower
new and single premiums of $7.2 million, and (ii) lower renewal premiums of $2.9
million, offset by (iii) an increase of $5.7 million in new premiums on special
risk term insurance products offered by the Company's U.S. Financial Life
Insurance Company ("USFL") subsidiary. Contributing to the increase in premiums
generated by USFL was an abnormally high volume of applications received in the
4th quarter of 1999, which management attributes to customers anticipation of
higher rates resulting from new regulation, known as "Triple X", requiring
companies to increase reserves on term life insurance business. Management
believes that the decrease in traditional life insurance new, single and renewal
premiums is consistent with industry trends, particularly the continuing shift
by consumers from traditional protection products to asset accumulation
products.
Universal life and investment-type product policy fees --
Universal life and investment-type product policy fees were $49.9 million
for three-month period ended March 31, 2000, an increase of $4.5 million, or
9.9%, from $ 45.4 million reported for the comparable prior year period ended
March 31, 1999. The increase consisted primarily of higher Protection Products
segment fees of $2.5 million and higher Accumulation Product segment fees of
$1.7 million. The increase in fees in the Protection Products segment was
primarily due to higher fees from the Company's variable universal life
24
26
("VUL") business of approximately $4.2 million. This increase was offset by
higher ceded reinsurance of $2.4 million across the Protection Products segment.
For the three-month period ended March 31, 2000, the Company reported total fees
from its VUL business of $11.1 million, as compared to $6.9 million reported for
comparable prior year period. The increase in fees resulted primarily from new
sales of such business and the growing inforce block. The VUL fees consist of
charges for the cost of insurance, loading, and surrender charges. The increase
in fees in the Accumulation Products segment was primarily due to an increase in
surrender charges of $1.8 million on the Company's FPVA business. Surrenders
were $245.3 million, as compared to $180.1 million for the three-month period
ended March 31, 1999. The increase in surrenders was primarily due to the aging
of the block of business and an increase in competition in the marketplace. For
the three-month period ended March 31, 2000, the Company reported total fees
from its FPVA business of $18.7 million, as compared to $17.0 million reported
for the comparable prior year period. Management has undertaken several actions
in response to the increase in surrenders which it believes will normalize such
experience. Such actions included; the establishment of a conservation unit,
institution of product improvements, changes in agents compensations plans, and
enhanced training of agents. See "New Business Information".
Net investment income and realized gains on investments --
Net investment income was $351.8 million for the three-month period ended
March 31, 2000, an increase of $163.7 million, or 87.0%, from $188.1 million
reported for the comparable prior year period. The increase in net investment
income is primarily related to an increase in income recorded by the Company
from its investments in limited partnership interests. Such partnerships provide
venture capital funding to companies through the purchase of, or investment in,
equity securities issued by such companies. For the three month period ended
March 31, 2000, the company earned 165.8 million relating to such partnership
investments, an increase of $152.9 million from $12.9 million recorded for the
three-month period ended March 31, 1999. The balance of the increase in
investment income resulted from other invested asset categories collectively and
is attributable primarily to higher yields and an increase in average invested
assets. As of March 31, 2000, invested assets were $10,968.7 million (including
cumulative unrealized losses of $208.1 million for fixed maturity securities)
compared to $10,948.9 million (including cumulative unrealized gains of $124.2
million for fixed maturity securities) as of the comparable prior year period.
The annualized yield on the Company's invested assets, excluding limited
partnership interests, before and after realized gains/(losses) on investments
was 6.9% and 7.6%, respectively, for the three-month periods ended March 31,
2000, as compared to 6.6% and 7.9%, respectively, for the three-month period
ended March 31, 1999. The annualized yield on the Company's invested assets,
including limited partnership interests, before and after realized
gains/(losses) on investments was 12.7% and 13.4%, respectively, for the
three-month periods ended March 31, 2000, as compared to 6.9% and 8.1%,
respectively, for the three-month period ended March 31, 1999. See
"Investments."
As of March 31, 2000, the company had approximately $167 million of
additional pretax gains related to its partnership investments that may be
realized in the future subject to market fluctuations.
Net realized gains on investments were $18.6 million for the three-month
period ended March 31, 2000, a decrease of $14.6 million, from $33.2 million for
the comparable prior year period. The decrease is due to lower gains on sales of
equity securities of $12.2 million, lower sales and prepayment gains on fixed
maturity securities of $5.0 million, lower gains on sales of real estate of $3.9
million, and higher losses on other than temporary impairments of fixed maturity
securities of $2.9 million, offset with lower valuation allowances for real
estate added to the held for sale category of $6.8 million, lower valuation
allowances on mortgages of $1.8 million, and lower provisions for
other-than-temporary impairments on equity securities of $0.8 million. Gains on
the sales of equity securities were $20.9 million for the three-month period
ended March 31, 2000, compared to $33.1 million for the prior year period.
Prepayment and sales gains and losses for fixed maturities were losses of $0.1
million for the three-month period ended March 31, 2000, compared to gains of
$4.9 million for the prior year period. Losses on the sale of real estate
properties were $1.5 million for the three-month period ended March 31, 2000,
compare to gains of $2.4 million for the prior year period. Losses from other
than temporary impairments on fixed maturity securities were $2.9 million for
the three-month period ended March 31, 2000, compared to $0.0 million for the
prior year period. Additional provisions for valuation allowances on real estate
held for sale were recoveries of $0.9 million for the three-month period ended
March 31, 2000, compared to
25
27
losses of $5.9 million for the prior year period. Recoveries on allowances for
mortgages were $2.1 million for three-month period ended March 31, 2000,
compared to recoveries of $0.3 million for the prior year period. Losses on
other than temporary impairments on equity securities were $0.7 million for the
three-month period ended March 31, 2000, compared to $1.5 million for the prior
year period.
Net investment income and net realized gains on investments are allocated
to the Company's segments based on the assets allocated to such segments to
support the associated liabilities of each segment and to maintain a targeted
regulatory risk-based capital level for each segment. See "Segments".
Group Pension Profits --
Group Pension Profits were $10.1 million for the three-month period ended
March 31, 2000, a decrease of $4.2 million, or 29.4%, from $14.3 million in the
comparable prior period ended March 31, 1999. Group Pension Profits for the
three-month period ended March 31, 2000 and 1999, consisted of $1.2 million and
$9.1 million, respectively of Group Pension Payments and $8.9 million and $5.2
million, respectively relating to adjustments required to reflect the earnings
from such payments in accordance with GAAP. Such adjustments primarily relate to
changes in the valuation allowances established to recognize impairment of
assets supporting the business transferred in the Group Pension Transaction as
well as certain adjustments relating to policyholder liabilities. The decrease
of $4.2 million in the Group Pension Profits is primarily due to lower realized
gains of $2.7 million on investments between the periods due to recoveries on
mortgage allowances that occurred in the first quarter of 1999, as well as a
decrease in operating income of $1.5 million due to the normal run-off of the
Group Pension business.
For a description of the Group Pension Transaction, the Group Pension
Profits and certain summary financial information relating thereto, refer to
Note 4 of the Consolidated Financial Statements included herein. Management
expects that Group Pension Profits will decline in future periods through to the
termination of the Group Pension Transaction on December 31, 2002 consistent
with the continuing run-off of the underlying business.
Other income --
Other income (which consists primarily of fees earned by the Company's
mutual fund management, broker-dealer, and insurance brokerage operations, as
well as revenues from interest on deposits held under financial reinsurance
arrangements, certain other asset management fees, and other miscellaneous
revenues) was $59.6 million for the period ended March 31, 2000, an increase of
$17.2 million, or 40.6%, from $42.4 million reported for the comparable prior
period ended March 31, 1999. The increase was primarily due to higher income of
$10.4 million and $6.1 million in the Accumulation Products and Other Products
segments, respectively. The increase in income recorded in the Accumulation
Products segment was primarily attributable to higher fees earned by the
Company's mutual fund management operations. The Company's mutual fund
management operations reported $27.3 million in fees from advisory, underwriting
and distribution services in the three-month period ended March 31, 2000, as
compared to $18.4 million reported in the comparable prior period ended March
31, 1999, as assets under management increased to approximately $9.1 billion at
March 31, 2000 from $7.3 billion at March 31, 1999. The increase in income
recorded in the Other Products segment was primarily due to higher commissions
earned by the Company's broker-dealer operations of $5.3 million. During the
three-month period ending March 31, 2000, the Company's broker-dealer operations
reported commission earnings of $18.5 million, as compared to $13.2 million
reported in the comparable prior period ended March 31, 1999.
Benefits to policyholders --
Benefits to policyholders were $180.7 million for the three-month period
ended March 31, 2000, a decrease of $6.2 million, or 3.3%, from $186.9 million
reported for comparable prior year period. The decrease occurred primarily in
the Protection Products Segment and consisted of the following: (i) lower change
in traditional reserves of $3.2 million, (ii) a $3.2 million decrease in
surrenders on traditional business, and
26
28
(iii) a $3.4 million decrease in universal life death benefits, offset by an
increase of $2.8 million related to USFL.
Interest credited to policyholders' account balances --
Interest credited to policyholders' account balances was $28.4 million for
the three-month period ended March 31, 2000, a decrease of $1.7 million, or
5.6%, from $30.1 million reported for the comparable prior year period. The
decrease consisted primarily of lower interest crediting of $1.1 million on the
Company's retained group pension business which is reported in the Other
Products segment, and a decrease of $1.1 million relating to the Company's
single premium deferred annuity ("SPDA) business which is reported in the
Accumulation Products segment. This was offset by higher crediting of $0.9
million in the Protection Products segment. During the first quarter of 2000,
SPDA account value decreased approximately $17.2 million to $362.3 million. The
decrease in account value in the three-month period ended March 31, 2000 was
primarily due to continuing withdrawals, which management believes partially
reflects consumer preferences for separate account products as well as the aging
of the inforce block of business. Average interest crediting rates on the
Company SPDA's were approximately 5.21% and 5.29% in the first quarter of 2000
and 1999, respectively.
Amortization of deferred policy acquisition costs --
Amortization of deferred policy acquisition costs ("DAC") was $37.5 million
for the three-month period ended March 31, 2000, an increase of $2.8 million, or
8.1%, from $34.7 million reported in the comparable prior year period. The
increase primarily resulted from higher amortization in the Protection Products
segments of approximately $3.0 million. The increase in DAC amortization in the
Protection Products segment primarily consisted of: (i) $1.1 million of higher
amortization related to the Company's VUL business due to higher profits and the
growth of variable business, (ii) $0.9 million of higher UL amortization due to
lower death claims, and (iii) a $0.8 million increase in USFL's amortization.
Dividends to policyholders --
Dividends to policyholders were $57.2 million for three-month period ended
March 31, 2000, a decrease of $6.4 million, or 10.1%, from $63.6 million
reported for the comparable prior period. The decrease, substantially all of
which occurred in the Protection Products segment, resulted primarily from a
reduction in the additional dividend liability established in the Closed Block
as of March 31, 2000, as compared to March 31, 1999. As further discussed in
Note 6 to the Unaudited Interim Condensed Consolidated Financial Statements
included elsewhere herein, all the assets in the Closed Block inure solely to
the benefit of the Closed Block policyholders, and to the extent that the
results of the Closed Block are more favorable than assumed in establishing the
Closed Block, total dividends paid to Closed Block policyholders will be
increased and are, accordingly, accrued as an additional dividend liability.
Only the excess of the Closed Block liabilities over the Closed Block assets at
the date of the establishment of the Closed Block (November 16, 1998) will be
recognized in the Company's income over the period the policies and contracts in
the Closed Block remain in force.
Other operating costs and expenses --
Other operating costs and expenses were $139.0 million for the three-month
period ended March 31, 2000, an increase of $32.0 million, or 29.9%, from $107.0
million reported for the comparable prior year period. The increase consisted of
$4.3 million, $5.0 million, and $5.7 million of costs directly attributable to
the Protection Products, Accumulation Products and Other Products segment,
respectively, as well as higher allocable and other miscellaneous direct costs
of approximately $17.0 million. To the extent that costs are not directly
identifiable with an operating segment, such costs are allocated to the
Company's operating segments based on cost allocations utilizing time studies,
and cost estimates included in the Company's product pricing (see "Segments").
As further discussed below, the increase in operating costs and expenses in the
first quarter of 2000 as compared to the first quarter of 1999 was primarily
attributable to: (i) higher commissions and other selling costs associated with
the increase in revenues reported by the Company's mutual fund and
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29
broker-dealer operations, and (ii) the Company's continuing investment in its
international operations, offset by (iii) certain operating efficiencies and
other cost reductions. The following sets forth additional information with
respect to the increase in operating costs in the first quarter of 2000, as
compared to the first quarter 1999:
The increase of $4.3 million in costs directly attributable to the
Protection Products segment consisted of $2.1 million related to an increase in
USFL's expenses, and an increase of $2.2 million in costs related to the
company's international operations, which was primarily due to increased
compensation costs associated with the recruitment of additional international
sales representatives and costs incurred to develop and administer new products.
The increase of $5.0 million in costs directly attributable to the Accumulation
Products segment primarily consisted of higher sub-advisory fees and other
expenses incurred by the Company's mutual fund management operations, which
directly corresponded with an increase in revenues from such operations (see
discussion and analysis of other income above). The increase of $5.7 million in
costs directly attributable to the Other Products segment primarily consisted of
higher commissions and other expenses incurred by the Company's broker-dealer
operations, which directly corresponded with an increase in revenues from such
operations (see discussion and analysis of other income above). The increase in
allocable costs of $17.0 million was due primarily to a $10.0 million increase
in long term incentive compensation and increases in other miscellaneous items.
NEW BUSINESS INFORMATION
The Company distributes its products primarily through its career agency
sales force and various complementary distribution channels which include: (i)
sales of proprietary retail mutual funds through third party broker-dealers,
(ii) sales of Protection Products by the Company's U.S. Financial subsidiary
through brokerage general agencies, (iii) sales of COLI products by the
Company's corporate marketing team, and (iv) sales of a variety of financial
products and services through the Company's Trusted Advisors subsidiary. The
table below and discussion which follows presents certain information with
respect to the Company's sales of protection and accumulation products during
the three-month period ended March 31, 2000 and 1999 by source of distribution.
Management uses this information to measure the Company's sales production from
period to period by source of distribution. The amounts presented with respect
to life insurance sales represent annualized statutory-basis premiums. Statutory
basis premiums are used in lieu of GAAP basis premiums because, in accordance
with statutory accounting practices, revenues from all classes of long-duration
contracts are measured on the same basis, whereas GAAP provides different
revenue recognition rules for different classes of long-duration contracts as
defined by the requirements of SFAS No. 60, Accounting and Reporting by
Insurance Enterprises, SFAS No. 97, Accounting and Reporting by Insurance
Enterprises for Certain Long Duration Contracts and for Realized Gains and
Losses from the Sale of Investments, and SOP 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. The amounts presented
with respect to annuity and mutual funds sales represent deposits made by
customers during the periods presented.
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30
FOR THE
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2000 1999
------ ------
($ IN MILLIONS)
SOURCE OF DISTRIBUTION/SEGMENT
PROTECTION PRODUCTS(1):
Career Agency System(2)..................................... $20.2 $20.8
U.S. Financial(2)........................................... 8.9 3.5
Complementary Distribution.................................. 23.6 19.3
----- -----
Total New Annualized Life Insurance Premiums................ $52.7 $43.6
===== =====
ACCUMULATION PRODUCTS(1):
Variable Annuity(2)(3)...................................... $ 116 $ 104
Career Agency System -- Proprietary Retail Mutual Funds..... 212 141
Third-Party Distribution -- Proprietary Retail Mutual
Funds..................................................... 549 287
----- -----
Total Accumulation Product Sales............................ $ 877 $ 532
===== =====
- ---------------
(1) Annualized premiums represent the total premium scheduled to be collected on
a policy or contract over a twelve-month period. Pursuant to the terms of
certain of the policies and contracts issued by the Company, premiums and
deposits may be paid or deposited on a monthly, quarterly, or semi-annual
basis. Annualized premium does not apply to COLI business or single premium
paying business. All premiums received on COLI business and single premium
paying policies during the periods presented are included.
(2) Includes premiums or deposits that have been annualized.
(3) Excludes annualized premiums associated with an exchange program offered by
the Company wherein contractholders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
Protection Segment -- New Business Information for the three-month period
ended March 31, 2000 compared to the three-month period ended March 31,
1999.
Total new annualized and single life insurance premiums for the three-month
period ended March 31, 2000 were $52.7 million, an increase of $9.1 million or
21% from $43.6 million for the comparable prior year period year. The increase
was primarily attributable to an increase in sales of USFL products through
brokerage general agencies and an increase in sales of corporate-owned life
insurance and bank-owned life insurance ("COLI" and "BOLI").
COLI and BOLI are large premium cases that typically fluctuate over the
course of the year. Sales of COLI and BOLI through the Company's complementary
distribution channels rose to $23.2 million in the first quarter 2000 from $19.3
million in the first quarter of 1999. $20.7 million or 89% of COLI sales in the
three-month period ended March 31, 2000 consisted of recurring premiums compared
to $7.0 million in the three-month period ended March 31, 1999.
USFL more than doubled its first-quarter 2000 new premiums through this
brokerage general agency distribution channel. New premiums rose to $8.9 million
in the first quarter of 2000 from $3.5 million for the first quarter of 1999.
Contributing to the increase in premiums generated by USFL was an abnormally
high volume of applications received in the 4th quarter of 1999, which
management attributes to customers anticipation of higher rates resulting from
new regulation, known as "Triple X", requiring companies to increase reserves on
terms life insurance business.
New career agency life insurance premiums (first-year and single premiums)
were $20.2 million in the first quarter of 2000, in line with the company's
expectations and roughly even with 1999's strong first-quarter production of
$20.8 million. The agent count (career and international) was 2,285 at March 31,
2000, compared with 2,335 at March 31, 1999 and 2,417 at December 31, 1999. The
decrease in the number of
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agents from period to period was primarily due to actions taken by the Company
to terminate unproductive agents. Per-agent productivity continued to increase
in the first quarter of 2000.
Accumulation Segment --
The following tables set forth assets under management at March 31, 2000
and 1999, as well as the changes in the primary components of assets under
management during the years then ended:
MARCH 31,
---------
2000 1999
----- -----
($ IN BILLIONS)
ASSETS UNDER MANAGEMENT:(1)
Individual variable annuities............................... $ 4.9 $ 4.7
Individual fixed annuities.................................. 0.8 1.0
Proprietary retail mutual funds............................. 5.2 3.3
----- -----
$10.9 $ 9.0
===== =====
INDIVIDUAL VARIABLE ANNUITIES:
Beginning account value..................................... $ 4.9 $ 4.8
Sales(2).................................................... 0.1 0.1
Market appreciation......................................... 0.1 --
Surrenders and withdrawals(2)............................... (0.2) (0.2)
----- -----
Ending account value........................................ $ 4.9 $ 4.7
PROPRIETARY RETAIL MUTUAL FUNDS:
Beginning account value..................................... $ 4.8 $ 3.0
Sales....................................................... 0.8 0.4
Dividends reinvested........................................ 0.1 --
Market appreciation......................................... (0.2) 0.1
Redemptions................................................. (0.3) (0.2)
----- -----
Ending account value........................................ $ 5.2 $ 3.3
===== =====
- ---------------
(1) Results exclude recently acquired subsidiary -- U.S. Financial Life
(2) Amounts presented in the three-month periods ended March 31, 2000 and 1999
are net of transfers to the new product series.
New Business Information for the three months ended March 31, 2000 compared
to the three months ended March 31, 1999.
New sales of variable annuities during the three-month period ended March
31, 2000 were $116 million, a increase of $12 million, or 12%, from $104 million
reported for the three-month period ended March 31, 1999. The increase reflects
the positive impact of actions undertaken in 1999 and early 2000 which include
changes in compensation plans, product improvements and enhanced training as
well as the receipt of regulatory product approvals in all key states.
Sales of proprietary retail mutual funds offered by the Company's mutual
fund subsidiary increased by $333 million, or 78%, to $761 million for the
three-month period ended March 31, 2000, as compared to $428 million for the
three-month period ended March 31, 1999. Proprietary mutual fund sales through
the Company's career agency system increased approximately $71 million, or 50%
to $212 million for the three-month period ended March 31, 2000 from $141
million for the three-month period ended March 31, 1999, while proprietary
mutual fund sales through third-party broker-dealers increased approximately
$262 million, or 91%, to $549 million for the three-month period ended March 31,
2000 from approximately $287 million for the three-month period ended March 31,
1999. The increase in sales primarily resulted from the expansion of third party
distribution arrangements and the introduction of a new internet fund and a
multicap fund.
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REPURCHASE OF SURPLUS NOTES
On March 8, 2000, MONY Life repurchased substantially all of the surplus
note indebtedness it had outstanding at December 31, 1999. As a result of the
repurchase, the Company will record an after-tax loss of approximately $36.7
million during the first quarter of 2000. The loss resulted from the premium
paid by MONY Life to the holders of the aforementioned surplus notes, reflecting
the excess of their fair value over their carrying value on the Company's books
at the date if the transaction, which aggregated approximately $56.5 million,
This loss will be reported, net of tax, as an extraordinary item of the
Company's income statement in 2000. See Liquidity and Capital
Resources -- Issuance of Senior Notes and Repurchase of Surplus Notes and Note 7
to the Unaudited Interim Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company
MONY Group's cash flow consists of investment income from its invested
assets (including interest form intercompany Surplus Notes, as hereafter
defined), and dividends from MONY Life, if declared and paid, offset by expenses
incurred in connection with the administration of MONY Group's affairs and
interest expense on the Senior Notes, as hereafter defined (sees Insurance of
Senior Notes and Repurchase of Surplus Notes below). As a holding company, MONY
Group's ability to meet its cash requirements pay interest expense on Senior
Notes, and pay dividends on its Common Stock substantially depend upon payments
from MONY Life, including the receipt of; (i) dividends, (ii) interest income on
the Inter-company Surplus Notes, and (iii) other payments. The payment of
dividends by MONY Life to MONY Group is regulated under state insurance law.
Under the New York Insurance Law, MONY Life will be permitted to pay shareholder
dividends to the MONY Group only if it files notice of its intention to declare
such a dividend and the amount thereof with the New York Superintendent and the
New York Superintendent does not disapprove the distribution. Under the New York
Insurance Law, the New York Superintendent has broad discretion in determining
whether the financial condition of a stock life insurance company would support
the payment of dividends to its shareholders. The New York Insurance Department
has established informal guidelines for the New York Superintendent's
determinations that focus on, among other things, overall financial condition
and profitability under statutory accounting practices. In addition, payments of
principal and interest on the Inter-company Surplus Notes can only be made with
the prior approval of the New York Superintendent "whenever, in his judgement,
the financial condition of such insurer warrants". Such payments further may be
made only out of surplus funds, which are available for such payments under the
New York Insurance Law. There can be no assurance that MONY Life will have
statutory earnings to support the payment of dividends to the MONY Group or that
the New York Superintendent will approve interest payments to MONY Group on the
Inter-company Surplus Notes. Accordingly, there can be no assurance that MONY
Group will have sufficient funds to meet its cash requirements and pay cash
dividends to shareholders. In addition, state insurance laws contain similar
restrictions on the ability of the life insurance subsidiaries to pay dividends
to MONY Life. There can be no assurance that state insurance laws will in the
future permit the payment of dividends by the life insurance subsidiaries to
MONY Life in an amount sufficient to support the ability of MONY Life to pay
dividends to the MONY Group.
In January 2000, the New York State Insurance Department approved, and MONY
life paid, a dividend to MONY Group in the amount of $75.0 million.
The MONY Group expects to continue to pay a dividend on its common stock of
at least $0.40 per share in 2000. However, because the company has changed the
frequency of dividend payments from quarterly to annual it expects to increase
the $0.40 per share dividend to compensate shareholders for the time value of
money.
Issuance of Senior Notes and Repurchase of Surplus Notes --
On January 12, 2000, the Holding Company filed a registration statement of
Form S-3 with the Securities and Exchange Commission (the "SEC") to register
certain securities. This registration, known as a "Shelf Registration", provides
the Company with the ability to offer various securities to the public, when it
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deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion
in the aggregate for all issuance's of securities thereunder. It is the
intention of the Company to use this facility to raise proceeds for mergers and
acquisitions and for other general corporate matters, as it considers necessary.
On March 8, 2000, the Holding Company issued $300.00 million principal
amount of senior notes (the "Senior Notes") pursuant to the aforementioned Shelf
Registration. The senior notes mature on March 15, 2010, bear interest at 8.35%
per annum and were priced at a discount to yield 8.38%. The principal amount of
senior notes is payable at maturity and interest is payable semi-annually. The
net proceeds to the Company from the issuance of the senior notes, after
deducting underwriting commissions and other expenses (primarily legal and
accounting fees), were approximately $296.7 million. Approximately $280.0
million of the net proceeds from the issuance of the senior notes was used by
the Holding Company as discussed below to finance the repurchase, on March 3,
2000, by MONY Life of all of its outstanding $115.0 million face amount 9.5%
coupon surplus notes, and a $116.5 million face amount of its $125.0 million
face amount 11.25% coupon surplus notes (hereafter referred to as the "9.5%
Notes" and "11.25% Notes, respectively), which were outstanding at December 31,
1999.
To finance MONY Life's repurchase of the 9.5% Notes and the 11.25% Notes,
the Holding Company, on March 8, 2000;
(i) purchased two surplus notes from MONY Life (hereafter referred to as
the "Inter-company Surplus Notes") to replace the 9.5% Notes and the
11.25% Notes. The terms of the Inter-company Surplus Notes are
identical to the 9.5% Notes and the 11.25% notes, except that the
Inter-company Surplus Notes were priced to yield a current market rate
of interest and the inter-company surplus note issued to replace the
$116.5 million face amount of the 11.25% Notes was issued at a face
amount of $100.0 million and
(ii) contributed capital to MONY Life in the amount of $65.0 million
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes, the Company will record an after-tax loss of approximately
$36.7 million during the first quarter of 2000. The loss resulted from the
premium paid by MONY Life to the holders of the 9.5% Notes and the 11.25% Notes
reflecting the excess of their fair value over their carrying value on the
Company's books at the date of the transaction of approximately $7.0 million and
$49.5 million, respectively. This loss will be reported, net of tax, as an
extraordinary item on the Company's income statement in 2000.
Capitalization
The Company's total capitalization, excluding accumulated comprehensive
income, increased $152.2 million or 7.1%, to $2,305.9 million at March 31, 2000,
as compared to $2,153.7 million at December 31, 1999. The increase was primarily
the result of net income of $101.2 million. The Company's total debt to equity
(excluding accumulated comprehensive income) and total debt to total
capitalization ratios increased to 18.7% and 15.8% at March 31, 2000,
respectively, from 16.1% and 13.9% at December 31, 1999, respectively. Included
in total debt used in the above calculations are $58.7 million and $58.8 million
of non-recourse indebtedness at March 31, 2000 and December 31, 1999,
respectively.
MONY Life
MONY Life's cash inflows are provided mainly from life insurance premiums,
annuity considerations and deposit funds, investment income and maturities and
sales of invested assets. Cash outflows primarily relate to the liabilities
associated with its various life insurance and annuity products, dividends to
policyholders, operating expenses, income taxes, acquisitions of invested
assets, and principal and interest on its outstanding debt obligations. The life
insurance and annuity liabilities relate to the Company's obligation to make
benefit payments under its insurance and annuity contracts, as well as the need
to make payments in connection with policy surrenders, withdrawals and loans.
The Company develops an annual cash flow projection which shows expected asset
and liability cash flows on a monthly basis. At the end of each quarter actual
cash flows are compared to projections, projections for the balance of the year
are adjusted in light of the actual results, if
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appropriate, and investment strategies are also changed, if appropriate. The
quarterly cash flow reports contain relevant information on all of the
following: new product sales and deposits versus projections, existing liability
cash flow versus projections and asset portfolio cash flow versus projections.
An interest rate projection is a part of the initial annual cash flow
projections for both assets and liabilities. Actual changes in interest rates
during the year and, to a lesser extent, changes in rate expectations will
impact the changes in projected asset and liability cash flows during the course
of the year. When the Company is formulating its cash flow projections it
considers, among other things, its expectations about sales of the Company's
products, its expectations concerning customer behavior in light of current and
expected economic conditions, its expectations concerning competitors and the
general outlook for the economy and interest rates.
The events most likely to cause an adjustment in the Company's investment
policies are: (i) a significant change in its product mix, (ii) a significant
change in the outlook for either the economy in general or for interest rates in
particular and (iii) a significant reevaluation of the prospective risks and
returns of various asset classes.
The following table sets forth the withdrawal characteristics and the
surrender and withdrawal experience of the Company's total annuity reserves and
deposit liabilities at March 31, 2000 and December 31, 1999.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
AMOUNT AT AMOUNT AT
MARCH 31, PERCENT DECEMBER 31, PERCENT
2000 OF TOTAL 1999 OF TOTAL
--------- -------- ------------ --------
($ IN MILLIONS)
Not subject to discretionary withdrawal Provisions.... $1,436.8 18.7% $1,449.9 18.5%
Subject to discretionary withdrawal -- with market
value adjustment or at carrying value less surrender
charge.............................................. 5,084.7 66.0 5,165.6 66.1
-------- ----- -------- -----
Subtotal.............................................. 6,521.5 84.7 6,615.5 84.6
-------- ----- -------- -----
Subject to discretionary withdrawal --without
adjustment at carrying value........................ 1,181.4 15.3 1,205.1 15.4
-------- ----- -------- -----
Total annuity reserves and deposit liabilities
(gross)............................................. 7,702.9 100.0% 7,820.6 100.0%
======== ===== ======== =====
Less reinsurance...................................... 83.8 89.3
-------- --------
Total annuity reserves and deposit liabilities
(net)............................................... $7,619.1 $7,731.3
======== ========
The following table sets forth by product line the actual surrenders and
withdrawals paid for the periods indicated.
SURRENDERS AND WITHDRAWALS
FOR THE
THREE-MONTH PERIOD
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
($ IN MILLIONS)
PRODUCT LINE:(1)
Traditional life(2)......................................... $109.5 $110.9
Variable and universal life................................. 10.3 12.3
Annuities(3)................................................ 241.1 182.7
Pensions(4)................................................. 102.8 32.4
------- -------
TOTAL.................................................. $463.7 $338.3
======= =======
- ---------------
(1) Prior years' amounts have been restated primarily to include surrenders and
withdrawals related to the retained group pension business and the Company's
benefit plans.
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(2) Includes approximately $19 million in 1999 of surrenders in the Closed
Block, the proceeds from which remained with the Company to fund premiums on
newly issued traditional life policies outside the Closed Block.
(3) Excludes surrenders associated with an exchange program offered by the
Company wherein contractholders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
(4) Excludes transfers between funds within the company benefit plans.
Annuity surrenders have increased for the three-month period ended March
31, 2000 as compared to the comparable prior year periods primarily due to the
aging of the block of business and consequent decrease in surrender charge rates
and due to an increase in competition. In July, 1999, the Company responded to
this trend by enhancing its variable annuity products by offering new investment
fund choices. In addition, the Company has established a special conservation
unit and offers policyholders the opportunity to exchange their contracts for a
new product series.
The Company's principal sources of liquidity to meet cash outflows are its
portfolio of liquid assets and its net operating cash flow. During the
three-month period ended March 31, 2000, the net cash flow from operations
reported in the Company's consolidated cash flow statement was $22.1 million.
This amount excludes $0.1 million of cash flow relating to the Closed Block.
Total combined cash flow for the three-month period ended March 31, 2000
(including the Closed Block) was $22.2 million, a decrease of $42.1 million from
$64.3 million reported for the three-month period ended March 31, 1999. The
decrease primarily relates to higher operating expenses, higher death benefits
and lower Group Pension Payments. The Company's liquid assets include
substantial U.S. Treasury holdings, short-term money market investments and
marketable long-term fixed maturity securities. Management believes that the
Company's sources of liquidity are adequate to meet its anticipated needs. As of
March 31, 2000, the Company had readily marketable fixed maturity securities
with a carrying value of $6,580.2 million (including fixed maturities in the
Closed Block), which were comprised of $3,609.7 million public and $2,970.5
million private fixed maturity securities. At that date, approximately 93.1% of
the Company's fixed maturity securities were designated in NAIC rating
categories 1 and 2 (considered investment grade, with a rating of "Baa" or
higher by Moody's or "BBB" or higher by S&P). In addition, at March 31, 2000 the
Company had cash and cash equivalents of $341.5 million (including cash and cash
equivalents in the Closed Block).
In addition, the Company maintains two bank line of credit facilities with
domestic banks aggregating $150.0 million, with scheduled renewal dates in
September 2000 and September 2003. In accordance with certain covenants under
these lines of credit, the Company is required to maintain a certain statutory
tangible net worth and debt to capitalization ratio. The purpose of these
facilities is to provide additional liquidity for any unanticipated short-term
cash needs the Company might experience and also to serve as support for the
Company's $250 million commercial paper program which was activated in the
second quarter of 1999. The Company has complied with all covenants under these
lines of credit, has not borrowed against these lines of credit since their
inception, and does not have any commercial paper outstanding as of March 31,
2000.
On January 12, 2000, the Company announced a plan to repurchase up to 5% or
approximately 2.4 million shares of the outstanding common shares of the
Company. Under the repurchase plan, the Company may repurchase common shares
from time to time, as market conditions and other factors warrant. The
repurchase program may be discontinued at any time.
At March 31, 2000, the Company had commitments to issue $9.2 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from 8.4% to 9.2%. In addition, the
Company had commitments to issue $92.4 million of fixed rate commercial mortgage
loans with interest rates ranging from 7.0% to 9.14%. The Company also had
commitments outstanding to purchase $131.6 million of private fixed and floating
maturity securities as of March 31, 2000 with interest rates ranging from 6.2%
to 11.0%. At March 31, 2000, the Company had commitments to contribute capital
to its equity partnership investments of $118.5 million.
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Of the $1,261.6 million of currently outstanding commercial mortgage loans
in the Company's investment portfolio at March 31, 2000, $29.2 million, $94.3
million, $202.6 million, and $67.8 million are scheduled to mature in 2000,
2001, 2002 and 2003, respectively.
The Company has mortgage loans on certain of its real estate properties.
The interest rates on these loans range from 7.29% to 7.89%. Maturities range
from June 2000 to February 2002. Interest expense on mortgage loans was $0.9
million and $1.5 million for the three-month period ended March 31, 2000 and
1999, respectively.
In 1988, the Company financed one of its real estate properties under a
sale/leaseback arrangement. The facility was sold for $66.0 million, $56.0
million of which was in the form of an interest bearing note receivable and
$10.0 million in cash. The note was due January 1, 2009. The remaining balance
of the interest-bearing note was paid in full on December 1, 1999, as part of
the sale of the property to a third party. This transactions continues to be
accounted for as a sale/leaseback arrangement, with the proceeds received of
approximately $44 million amortized into income over the life of the lease. The
lease has a term of 20 years beginning December 21, 1988 and requires minimum
annual rental payments of $7.3 million in 2000, $7.4 million in 2001, $7.6
million 2002, $7.7 million in 2003, $7.9 million in 2004 and $33.1 million
thereafter. The Company has the option to renew the lease at the end of the
lease term.
At March 31, 2000, aggregate maturities of long-term debt based on required
remaining principal payments for 2000 and the succeeding four years are $0.0
million, $0.0 million, $5.7 million, $0.0 million and $0.0 million,
respectively, and $308.5 million thereafter.
Aggregate contractual debt service payments on the Company's long term debt
at March 31, 2000, for the remainder of 2000 and the succeeding four years are
$15.0 million, $26.4 million, $31.7 million, $26.0 million and $26.0 million,
respectively and $465.4 million thereafter.
Among the assets allocated to the Closed Block are the Series A Notes. MONY
Life has undertaken to reimburse the Closed Block from its general account
assets outside the Closed Block for any reduction in principal payments on the
Series A Notes pursuant to the terms thereof, as described in Note 4 to the
Unaudited Condensed Consolidated Financial Statements
The NAIC established RBC requirements to help state regulators monitor and
safeguard life insurers' financial strength by identifying those companies that
may be inadequately capitalized. The RBC guidelines provide a method to measure
the adjusted capital (statutory-basis capital and surplus plus the Asset
Valuation Reserve and other adjustments) that a life insurance company should
have for regulatory purposes, taking into consideration the risk characteristics
of such company's investments and products. A life insurance company's RBC ratio
will vary over time depending upon many factors, including its earnings, the
nature, mix and credit quality of its investment portfolio and the nature and
volume of the products that it sells.
While the RBC guidelines are intended to be a regulatory tool only, and are
not intended as a means to rank insurers generally, comparisons of RBC ratios of
life insurers have become generally available. The adjusted RBC capital ratios
of all the Company's insurance subsidiaries at March 31, 2000 and December 31,
1999 were in excess of the minimum required RBC.
YEAR 2000
The Company successfully completed its Year 2000 Project (the "Project") to
ensure Year 2000 readiness. The Company developed and implemented an
enterprise-wide plan to prepare for the Year 2000 issue by ensuring compliance
of all applications, operating systems and hardware of mainframe, PC and local
area network ("LAN") platforms; ensuring the compliance of voice and data
network software and hardware; addressing the compliance of key vendors and
other third parties.
The total cost of the Project was $25.4 million. The Company does not
expect to incur any material future cost on the Project.
The Company has not experienced any significant Year 2000 related problems
post-December 31, 1999 with its operations of with any external parties with
which business is conducted. Based on this experience and
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37
the amount of work and testing previously performed, the Company believes the
likelihood of a Year 2000 issue that would have a material effect on the
Company's consolidated financial position and results of its operations
continues to be remote as the Company performs month-end, leap year,
quarter-end, and year-end processing. However, there is still the possibility
that future Year 2000 related failures in the Company's systems of equipment
and/or failure of external parties to achieve Year 2000 compliance could have a
material adverse effect on the Company's consolidated financial position and
results of its operations.
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INVESTMENTS
On the effective date of the Plan, the Company's invested assets were
allocated between the Closed Block and operations outside the Closed Block. In
view of the similar asset quality characteristics of the major asset categories
in the two portfolios, the invested assets in the Closed Block have been
combined with the Company's invested assets outside the Closed Block for
purposes of the following discussion and analysis. In addition, the following
discussion excludes invested assets transferred in the Group Pension
Transaction. Accordingly, this discussion should be read in conjunction with the
summary financial information regarding assets transferred in the Group Pension
Transaction presented in Note 4 to the Unaudited Interim Condensed Consolidated
Financial Statements.
The yield on general account invested assets (including net realized gains
and losses on investments) was 13.4% and 8.1% for the three-month periods ended
March 31, 2000 and 1999, respectively.
The following table illustrates the net investment income yields on average
assets for each of the components of the Company's investment portfolio,
excluding net realized gains. The yields are based on quarterly average carrying
values, (excluding unrealized gains (losses) in the fixed maturity asset
category). Equity real estate income is shown net of operating expenses,
depreciation and minority interest.
INVESTMENT RESULTS BY ASSET CATEGORY
THREE-MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
NET INVESTMENT AVERAGE ASSET NET INVESTMENT AVERAGE ASSET
INCOME YIELD BALANCES INCOME YIELD BALANCES
-------------- ------------- -------------- -------------
Fixed maturities...................... 7.3% $ 6,770.5 7.3% $ 6,516.7
Equity securities..................... 128.6 518.7 12.9 436.1
Mortgage loans on real estate......... 8.0 1,769.3 7.8 1,454.7
Policy loans.......................... 6.7 1,265.8 6.3 1,270.8
Real estate........................... 6.7 371.3 5.1 638.1
Other invested assets................. 17.4 52.8 (3.2) 37.3
Cash and cash equivalents............. 6.7 359.3 5.0 428.2
--------- ---------
Total invested assets before
investment expenses.............. 13.0% $11,107.7 7.2% $10,781.9
========= =========
Investment expenses................. (0.3) (0.2)
----- ----
Total invested assets after
investment expenses(1)........... 12.7% 6.9%
===== ====
- ---------------
(1) The increase in net investment income yields was primarily due to an
increase in limited partnership income included in the equity securities
asset category of $152.9 million. The net investment income yields excluding
limited partnership income is 6.9% and 6.6% for the three-month periods
ended March 31, 2000 and 1999, respectively.
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities, privately
placed debt securities and small amounts of redeemable preferred stock, and
represented 60.0% and 60.4% of total invested assets at March 31, 2000 and
December 31, 1999, respectively.
The Securities Valuation Office of the NAIC evaluates the bond investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC Designations". The NAIC Designations
closely mirror the Nationally Recognized Securities Rating Organizations' credit
ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered
investment grade ("Baa" or
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higher by Moody's, or "BBB" or higher by S&P) by such rating organizations. NAIC
Designations 3 through 6 are referred to as below investment grade ("Ba" or
lower by Moody's, or "BB" or lower by S&P).
Of the Company's total portfolio of fixed maturity securities at March 31,
2000, 93.1% were investment grade and 6.9% were below-investment grade.
The Company reviews all fixed maturity securities at least once each
quarter and identifies investments that management concludes require additional
monitoring. Among the criteria are: (i) violation of financial covenants, (ii)
public securities trading at a substantial discount as a result of specific
credit concerns, and (iii) other subjective factors relating to the issuer.
The Company defines problem securities in the fixed maturity category as
securities (i) as to which principal and/or interest payments are in default or
are to be restructured pursuant to commenced negotiations or (ii) issued by a
company that went into bankruptcy subsequent to the acquisition of such
securities or (iii) are deemed to have other than temporary impairments to
value.
The Company defines potential problem securities in the fixed maturity
category as securities that are deemed to be experiencing significant operating
problems or difficult industry conditions. Typically these credits are
experiencing or anticipating liquidity constraints, having difficulty meeting
projections/budgets and would most likely be considered a below investment grade
risk.
The Company defines restructured securities in the fixed maturity category
as securities where a concession has been granted to the borrower related to the
borrower's financial difficulties that the Company would not have otherwise
considered. The Company restructures certain securities in instances where a
determination was made that greater economic value will be realized under the
new terms than through liquidation or other disposition. The terms of the
restructure generally involve some or all of the following characteristics: a
reduction in the interest rate, an extension of the maturity date and a partial
forgiveness of principal and/or interest. There were no restructured fixed
maturities at March 31, 2000 and December 31, 1999.
As of March 31, 2000 the fair value of the Company's problem, potential
problem and restructured fixed maturities were $57.0 million, $46.0 million and
$0.0 million, respectively, which, in the aggregate, represented approximately
1.6% of total fixed maturities. As of December 31, 1999, the fair value of the
Company's problem, potential problem and restructured fixed maturities were
$45.9 million, $32.8 million and $0.0 million, respectively, which, in the
aggregate, represented approximately 1.9% of total fixed maturities.
At March 31, 2000, the Company's largest unaffiliated single concentration
of fixed maturities was $231.7 million of Federal National Mortgage Association
("FNMA") which represents 2.1% of total invested assets. The largest
non-government issuer consists of $193.4 million of AEGON notes purchased in
connection with the Group Pension Transaction. These notes represent
approximately 1.8% of total invested assets at March 31, 2000. No other
individual non-government issuer represents more than 0.4% of invested assets.
The Company held approximately $1,165.0 million and $1,138.5 million of
mortgage-backed and asset-backed securities as of March 31, 2000 and December
31, 1999, respectively. Of such amounts, $380.8 million and $391.5 million, or
32.7% and 34.4%, respectively, represented agency-issued pass-through and
collateralized mortgage obligations ("CMOs") secured by Federal National
Mortgage Association, FHLMC, Government National Mortgage Association and
Canadian Housing Authority collateral. The balance of such amounts were
comprised of other types of mortgage-backed and asset-backed securities. The
Company believes that its active monitoring of its portfolio of mortgage-backed
securities and the limited extent of its holdings of more volatile types of
mortgage-backed securities mitigate the Company's exposure to losses from
prepayment risk associated with interest rate fluctuations for this portfolio.
At March 31, 2000 and December 31, 1999, 85.6% and 85.7%, respectively, of the
Company's mortgage-backed and asset-backed securities were assigned an NAIC
Designation of 1.
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40
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
CMOs........................................................ $ 522.9 $ 500.1
Pass-through securities..................................... 30.2 31.0
Commercial MBSs............................................. 99.8 118.5
Asset-backed securities..................................... 512.1 488.9
-------- --------
Total MBSs and asset-backed securities............ $1,165.0 $1,138.5
======== ========
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of March
31, 2000 and December 31, 1999 are as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
AS OF AS OF
MARCH 31, 2000 DECEMBER 31, 1999
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
Due in one year or less............................. $ 192.5 $ 193.3 $ 206.5 $ 208.5
Due after one year through five years............... 1,574.7 1,545.3 1,506.6 1,487.9
Due after five years through ten years.............. 2,717.2 2,614.2 2,711.9 2,612.9
Due after ten years................................. 1,111.1 1,062.4 1,153.9 1,098.4
-------- -------- -------- --------
Subtotal.................................. 5,595.5 5,415.2 5,578.9 5,407.7
Mortgage-backed and other asset-backed securities... 1,192.7 1,165.0 1,173.7 1,138.5
-------- -------- -------- --------
Total..................................... $6,788.2 $6,580.2 $6,752.6 $6,546.2
======== ======== ======== ========
MORTGAGE LOANS
Mortgage loans comprised 16.6% and 15.8% of total invested assets as of
March 31, 2000 and December 31, 1999, respectively. Mortgage loans consist of
commercial, agricultural and residential loans. As of March 31, 2000 and
December 31, 1999 commercial mortgage loans comprised $1,261.6 million and
$1,141.4 million or 69.1% and 66.6% of total mortgage loan investments,
respectively. Agricultural loans comprise $562.3 million and $570.7 million, or
30.8% and 33.3% of total mortgage loans, respectively. Residential mortgage
loans comprised $1.3 million and $1.3 million, or 0.1% and 0.1% of total
mortgage loan investments at March 31, 2000 and December 31, 1999, respectively.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $45.5 million and represented less than
0.5% of general account invested assets as of March 31, 2000. Amounts loaned on
19 properties were $20 million or greater, representing in the aggregate 43.6%
of the total carrying value of the commercial loan portfolio at the same date.
Total mortgage loans to the five largest borrowers accounted in the aggregate
for approximately 22.5% of the total carrying value of the commercial loan
portfolio and less than 2.6% of total invested assets at March 31, 2000.
39
41
The following table presents the Company's commercial mortgage loan
maturity profile for the periods indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
AS OF AS OF
MARCH 31, 2000 DECEMBER 31, 1999
---------------- ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- --------- ------
($ IN MILLIONS)
1 year or less........................................... $ 48.7 3.9% $ 26.6 2.3%
Due after one year through five years.................... 467.0 37.0 401.0 35.2
Due after five years through ten years................... 454.3 36.0 425.6 37.3
Due after ten years...................................... 291.6 23.1 288.2 25.2
-------- ----- -------- -----
$1,261.6 100.0% $1,141.4 100.0%
======== ===== ======== =====
Problem, Potential Problem and Restructured Commercial Mortgages
Commercial mortgage loans are stated at their unpaid principal balances,
net of valuation allowances and writedowns for impairment. The Company provides
valuation allowances for commercial mortgage loans considered to be impaired.
Mortgage loans are considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When the Company
determines that a loan is impaired, a valuation allowance for loss is
established for the excess of the carrying value of the mortgage loan over its
estimated fair value.
Estimated fair value is based on either the present value of expected
future cash flows discounted at the loan's original effective interest rate, the
loan's observable market price of the fair value of the collateral. The
provision for loss is reported as a realized loss on investment.
The Company reviews its mortgage loan portfolio and analyzes the need for a
valuation allowance for any loan which is delinquent for 60 days or more, in
process of foreclosure, restructured, on "watchlist", or which currently has a
valuation allowance. Loans which are delinquent and loans in process of
foreclosure are categorized by the Company as "problem" loans. Loans with
valuation allowances, but which are not currently delinquent, and loans which
are on watchlist are categorized by the Company as "potential problem" loans.
Loans for which the original terms of the mortgages have been modified or for
which interest or principal payments have been deferred are categorized by the
Company as "restructured" loans.
The following table presents the carrying amounts of problem, potential
problem and restructured commercial mortgage loans relative to the carrying
value of all commercial mortgage loans as of the dates indicated. The table also
presents the valuation allowances and writedowns recorded by the Company
relative to commercial mortgages defined as problem, potential problem and
restructured as of each of the dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
COMMERCIAL MORTGAGES AT CARRYING VALUE
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Total commercial mortgages.................................. $1,261.6 $1,141.4
-------- --------
Problem commercial mortgages(1)............................. 7.7 0.0
Potential problem commercial mortgages...................... 72.0 72.1
Restructured commercial mortgages........................... 129.0 134.8
Total problem, potential problem & restructured commercial
mortgages................................................. $ 208.7 $ 206.9
-------- --------
Total problem, potential problem and restructured commercial
mortgages as a percent of total commercial mortgages...... 16.5% 18.1%
======== ========
40
42
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Valuation allowances/writedowns(2)
Problem loans............................................... $ -- $ --
Potential problem loans..................................... 15.9 16.2
Restructured loans.......................................... 23.8 26.0
-------- --------
Total valuation allowances/writedowns(2).................... $ 39.7 $ 42.2
-------- --------
Total valuation allowances/writedowns as a percent of
problem, potential problem and restructured commercial
mortgages at carrying value before valuation allowances
and writedowns............................................ 16.0% 16.9%
======== ========
- ---------------
(1) Problem commercial mortgages included delinquent mortgages of $7.7 million
and $0.0 million at March 31, 2000 and December 31, 1999 respectively. There
were no loans in process of foreclosure at either date.
(2) Includes impairment writedowns recorded prior to the adoption of FASB No.
114, Accounting by Creditors for Impairment of a Loan, of $26.3 million at
March 31, 2000 and December 31, 1999.
In addition to valuation allowances and impairment writedowns recorded on
specific commercial mortgage loans classified as problem, potential problem, and
restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other such mortgage loans based on its historical loss
experience for such investments. As of March 31, 2000 and December 31, 1999
1999, such reserves were $15.3 million, and $15.9 million, respectively.
AGRICULTURAL MORTGAGE LOANS
Problem, Potential Problem and Restructured Agricultural Mortgages
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the Company relative to agricultural
mortgages defined as problem, potential problem and restructured as of each of
the aforementioned dates indicated.
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
AGRICULTURAL MORTGAGES AT CARRYING VALUE
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
($ IN MILLIONS)
Total agricultural mortgages................................ $562.3 $ 570.7
------ --------
Problem agricultural mortgages(1)........................... $ 14.4 $ 7.4
Potential problem agricultural mortgages.................... 0.5 1.4
Restructured agricultural mortgages......................... 5.8 9.3
------ --------
Total problem, potential problem & restructured agricultural
mortgages................................................. $ 20.7 $ 18.1
------ --------
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 3.7% 3.2%
====== ========
41
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AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
($ IN MILLIONS)
Valuation allowances/writedowns:
Problem loans............................................. $ 0.2 $ 0.2
Potential problem loans................................... 0.1 0.1
Restructured loans........................................ 0.2 0.5
------ --------
Total valuation allowances/writedowns....................... $ 0.5 $ 0.8
------ --------
Total valuation allowances as a percent of problem,
potential problem and restructured agricultural mortgages
at carrying value before valuation allowances and
writedowns................................................ 2.4% 4.2%
====== ========
- ---------------
(1) Problem agricultural mortgages include delinquent mortgage loans of $13.0
million and $3.1 million and loans in process of foreclosure of $1.4 million
and $4.3 million at March 31, 2000 and December 31, 1999, respectively.
In addition to valuation allowances and impairments writedowns recorded on
specific agricultural mortgage loans classified as problem, potential problem,
and restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other agricultural mortgage loans based on its historical
loss experience for such investments. As of March 31, 2000 and December 31,
1999, such reserves were $5.5 million and $5.6 million, respectively.
EQUITY REAL ESTATE
The Company holds real estate as part of its general account investment
portfolio. The Company has adopted a policy of not investing new funds in equity
real estate except to safeguard values in existing investments or to honor
outstanding commitments. As of March 31, 2000 and December 31, 1999, the
carrying value of the Company's real estate investments was $373.5 million and
$369.1 million, respectively, or 3.5% and 3.4%, respectively, of general account
invested assets. The Company owns real estate, interests in real estate joint
ventures (both majority owned and minority owned), and real estate acquired upon
foreclosure of commercial and agricultural mortgage loans. The following table
presents the carrying value of the Company's equity real estate investments by
such classifications.
EQUITY REAL ESTATE
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Real estate................................................. $140.7 $140.3
Joint ventures.............................................. 108.6 107.8
------ ------
Subtotal.......................................... 249.3 248.1
Foreclosed.................................................. 124.2 121.0
------ ------
Total............................................. $373.5 $369.1
====== ======
REAL ESTATE SALES
In accordance with its ongoing strategy to strengthen the Company's
financial position, management expects to continue to selectively sell equity
real estate. Once management identifies a real estate property to be sold and
commences a plan for marketing the property, the property is classified as to be
disposed of and a valuation allowance is established and periodically revised,
if necessary, to adjust the carrying value of the property to reflect the lower
of its current carrying value or the fair value, less associated selling costs.
At March 31, 2000 and December 31, 1999, the carrying value of real estate to be
disposed of was $326.9 million
42
44
and $322.9 million, respectively, or 3.1% and 3.0%, respectively of invested
assets at such dates. The aforementioned carrying values are net of valuation
allowances of $21.1 million and $22.0 million, at March 31, 2000 and December
31, 1999, respectively. In addition, the carrying value of real estate to be
disposed of at such dates is net of $62.3 million and $62.3 million of
impairment adjustments. For the three-months period ended March 31, 2000 and the
year ended December 31 1999, such changes in valuation allowances aggregated
($0.9) million and $12.1 million, respectively.
The following table analyzes the Company's real estate sales during the
periods indicated.
REAL ESTATE SALES(1)
FOR THE
THREE-MONTH
PERIOD ENDED
MARCH 31,
---------------
2000 1999
----- ------
($ IN MILLIONS)
Sales proceeds.............................................. $0.3 $17.5
---- -----
Carrying value before impairment adjustments and valuation
allowances................................................ $0.2 $22.2
Impairment adjustments...................................... 0.0 (6.1)
Valuation allowances........................................ 0.0 (1.0)
---- -----
Carrying value after impairment adjustments and valuation
allowances................................................ $0.2 $15.1
---- -----
Gain (loss)................................................. $0.1 $ 2.4
---- -----
Most of the proceeds from real estate sales have been invested in
investment grade bonds. This has served to make the overall asset portfolio
somewhat more sensitive to changes in interest rates. It has also served to
reduce exposure to an illiquid asset class, real estate, and increase exposure
to a more liquid asset class, investment grade public bonds.
EQUITY SECURITIES
The Company's equity securities consist of investments in common stocks and
limited partnership interests. The following table presents the carrying values
of the Company's equity securities at the dates indicated:
INVESTMENTS IN EQUITY SECURITIES
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Common stocks............................................... $213.5 $277.2
Limited partnership interests............................... 304.0 242.6
------ ------
Total.................................................. $517.5 $519.8
====== ======
Common Stocks:
The Company's investments in common stocks represented 1.9% and 2.6% of
invested assets at March 31, 2000 and December 31, 2000, respectively. The
Company's investments in common stocks are classified as available-for-sale and
are reported at estimated fair value. Unrealized gains and losses on the
Company's common stocks are reported as a separate component of other
comprehensive income, net of deferred income taxes, and an adjustment for the
effect on deferred policy acquisition costs that would have occurred if such
gains and losses had been realized.
43
45
Limited Partnership Interests:
The Company accounts for its investments in limited partnership interests
in accordance with either the equity method of accounting or the cost method of
accounting depending upon the Company's percentage of ownership of the
partnership and the date the partnership was acquired. In general, partnership
interests acquired after May 18, 1995 are accounted for in accordance with the
equity method of accounting if the Company's ownership interest exceeds 3
percent, whereas, if the partnership was acquired prior to May 18, 1995, the
equity method would be applied only if the Company's ownership interest exceeded
20 percent. In all other circumstances, the Company accounts for its investment
in equity limited partnership interests in accordance with the cost method.
Under the equity method of accounting, an investor is required to record in
its income its share of the income or loss reported by the investee, and
correspondingly, increase or decrease the carrying value of such investment in
its balance sheet. Distributions of income or dividends from the partnership are
recorded as a reduction in the carrying value of the investment. In applying the
equity method, the investor is not permitted to adjust the income reported by an
investee to conform the investee's accounting policies to that followed by the
investor.
Under the cost method of accounting, the investment is carried at its
original cost and income is recognized when distributed as dividends from the
partnership. The carrying amount of the investment is reduced upon receipt of a
distribution characterized by the partnership as a return of capital or
liquidating dividend or when management has determined that the investment or
portion thereof may not be recovered.
In accordance with GAAP, limited partnerships report their investments at
fair value. Changes in the fair value of the investments are reflected in the
net income of the partnerships. Accordingly, a significant portion of the income
reported by the Company from partnerships accounted for under the equity method
results from unrealized appreciation in the investments of the partnerships.
The limited partnerships in which the Company has invested are
partnerships, which invest in the equity of private companies, generally in the
form of common stock. These partnerships will generally hold such equity until
the underlying company issues its securities to the public through an initial
public offering, or the equity is purchased by other public companies through
exchange of stock. At that time or thereafter, at the general partners'
discretion, the partnership will generally distribute the underlying publicly
traded common stock to its partners. Upon distribution, the Company will record
the common stock received at fair value, reverse the carrying value of the
corresponding limited partnership investment, and record as investment income
any excess of the fair value of the common stock distributed over the carrying
value of the limited partnership investment. Accordingly, certain of the common
stocks owned by the Company at March 31, 2000 and December 31, 1999 were
acquired through distributions from the Company's investments in limited
partnership interests. However, it has been the Company's practice to sell such
positions shortly after such distributions occur.
44
46
The following table sets forth the carrying value of the Company's
investments in limited partnership interests sorted by the basis upon which the
Company accounts for such investments, as well as the amount of such investments
attributable to the partnerships' ownership of public and private common stock
at March 31, 2000 and December 31, 1999:
CARRYING VALUE AT
-------------------------
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
EQUITY METHOD
Public common stock....................................... $124.3 $ 57.6
Private common stock...................................... 59.0 69.3
------ ------
Sub Total.............................................. 183.3 126.9
COST METHOD
Public common stock....................................... 46.6 40.8
Private common stock...................................... 74.1 74.9
------ ------
Sub Total.............................................. 120.7 115.7
Total Limited Partnership Interests.................... $304.0 $242.6
====== ======
At March 31, 2000, and December 31, 1999, the Company had investments in
approximately 53 and 50 different limited partnerships which represented 2.8%
and 2.2%, respectively, of the Company's general account invested assets.
Investment results for the portfolio are dependent upon, among other things,
general market conditions for initial and secondary offerings of common stock.
For the three month period ended March 31, 2000 and March 31, 1999, investment
income from equity limited partnership interests (which is comprised primarily
of the Company's pro rata share of income reported by partnerships accounted for
under the equity method and income recognized upon distribution for partnership
investments accounted for under the cost method) was approximately $165.8
million and $12.9 million, respectively, representing 47.1% and 6.8%
respectively, of the net investment income for such periods. There can be no
assurance that the recent level of investment income and returns achieved on
limited partnership investments can be sustained in the future, and the failure
to do so could have a material adverse effect on the Company's financial
position and results of operations.
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS ON INVESTMENTS
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Fixed maturities............................................ $ 13.3 $ 19.2
Equity securities........................................... 4.5 4.7
Mortgages................................................... 26.3 26.3
Real estate(1).............................................. 73.2 73.2
------ ------
Total.................................................. $117.3 $123.4
====== ======
- ---------------
(1) Includes $48.0 million and $48.0 million as of March 31, 2000 and December
31, 1999, respectively, relating to impairments taken upon foreclosure of
mortgage loans.
45
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CUMULATIVE PROVISIONS FOR VALUATION ALLOWANCES ON INVESTMENTS
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Mortgages................................................... $35.2 $37.3
Real estate................................................. 21.2 22.0
----- -----
Total.................................................. $56.4 $59.3
===== =====
TOTAL CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN MILLIONS)
Fixed maturities............................................ $ 13.3 $ 19.2
Equity securities........................................... 4.5 4.7
Mortgages................................................... 61.5 63.6
Real estate................................................. 94.4 95.2
------ ------
Total.................................................. $173.7 $182.7
====== ======
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's 1999 Annual Report on Form 10-K for a description of
the Company's exposures to market risk, as well as the Company's objectives,
policies and strategies relating to the management of such risks. The relative
sensitivity to changes in fair value from interest rates and equity prices at
March 31, 2000 is not materially different from that presented in the Company's
1999 Annual Report on Form 10-K at December 31, 1999.
46
48
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since late 1995 a number of purported class actions were commenced in
various state and federal courts against the Company alleging that the Company
engaged in deceptive sales practices in connection with the sale of whole and
universal life insurance policies from the early 1980s through the mid 1990s.
Although the claims asserted in each case are not identical, they seek
substantially the same relief under essentially the same theories of recovery
(i.e., breach of contract, fraud, negligent misrepresentation, negligent
supervision and training, breach of fiduciary duty, unjust enrichment and
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primarily equitable relief (e.g., reformation, specific performance, mandatory
injunctive relief prohibiting the Company from canceling policies for failure to
make required premium payments, imposition of a constructive trust and creation
of a claims resolution facility to adjudicate any individual issues remaining
after resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts. The Company
has answered the complaints in each action, (except for one being voluntarily
held in abeyance), has denied any wrongdoing and has asserted numerous
affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified one of those
cases the Goshen v. The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America, the Goshen case, being the first of the
aforementioned class actions filed, as a nationwide class consisting of all
persons or entities who have, or at the time of the policy's termination had, an
ownership interest in a whole or universal life insurance policy issued by the
Company and sold on an alleged "vanishing premium" basis during the period
January 1, 1982 to December 31, 1995. On March 27, 1997, the Company filed a
motion to dismiss or, alternatively, for summary judgment on all counts of the
complaint. All of the other putative class actions have been consolidated and
transferred by the Judicial Panel on Multidistrict Litigation to the United
States District Court for the District of Massachusetts, or are being
voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On December 20, 1999, the New York State
Court of Appeals affirmed the dismissal of all but one of the claims in the
Goshen case (a claim under New York's General Business Law), which has been
remanded back to the New York State Supreme Court for further proceedings
consistent with the opinion. The Company intends to defend itself vigorously
against the sole remaining claim. There can be no assurance that the present
litigation relating to sales practices will not have a material adverse effect
on the Company.
On March 27, 2000, the MONY Group and MONY Life Insurance Company were
served with a complaint in an action entitled Calvin Chatlos, M.D. and Alvin H.
Clement, On Behalf of Themselves And All Others Similarly Situated v. The MONY
Life Insurance Company, The MONY Group Inc., And Neil Levin, Superintendent, New
York Insurance Department, filed in the Supreme Court of the State of New York,
County of New York. The action purports to be a class action on behalf of all
persons or entities who had an ownership interest in one or more in-force life
insurance policies issued by MONY Life Insurance Company as of November 16,
1998. Plaintiffs seek a declaratory judgment that the New York Superintendent of
Insurance and the Company violated Section 7312 of the New York Insurance Law in
connection with its demutualization. Plaintiffs also allege that the Company
breached its contractual obligations and alleged fiduciary duties to its
policyholders in connection with the demutualization. Plaintiffs seek damages
against the Company for wrongfully denying them a fair and equitable amount for
their membership interests. The Company believes that the claims are without
merit and intends to defend itself vigorously.
In addition to the foregoing, from time to time the Company is a party to
litigation and arbitration proceedings in the ordinary course of its business,
none of which is expected to have a material adverse effect on the Company.
47
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ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report in Form 8-K on March 3, 2000 announcing
fourth quarter 1999 financial results and the sale and issuance of $300
million face amount of 8.35% Senior Notes due in 2010.
48
50
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.
THE MONY GROUP INC.
By: /s/ RICHARD DADDARIO
------------------------------------
Richard Daddario
Executive Vice President and
Chief Financial Officer
(Authorized Signatory and Principal
Financial Officer)
Date: May 12, 2000
By: /s/ LARRY COHEN
------------------------------------
Larry Cohen
Vice President and Controller
(Principal Accounting Officer)
Date: May 12, 2000
S-1