- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
COMMISSION FILE NUMBERS 33-26322; 33-46827; 33-52254; 33-60290;
33-58303; 333-33863; 333-34192
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
<Table>
ARKANSAS 91-1325756
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</Table>
1300 Merrill Lynch Drive, 2nd Floor
Pennington, NJ 08534
(Address of Principal Executive Offices)
(609) 274-6900
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 250,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I Financial Information
Item 1. Financial Statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Dollars in thousands) (Unaudited)
March 31, December 31,
2004 2003 (1)
----------- -----------
ASSETS
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 2004 - $2,050,349; 2003 - $2,108,310) $ 2,129,343 $ 2,157,127
Equity securities, at estimated fair value
(cost: 2004 - $74,315; 2003 - $78,816) 78,609 82,469
Trading account securities, at estimated fair value 26,721 26,186
Limited partnerships, at cost 12,470 11,880
Policy loans on insurance contracts 1,062,982 1,086,537
----------- -----------
Total Investments 3,310,125 3,364,199
CASH AND CASH EQUIVALENTS 176,392 75,429
ACCRUED INVESTMENT INCOME 57,765 63,565
DEFERRED POLICY ACQUISITION COSTS 365,458 364,414
REINSURANCE RECEIVABLES 8,183 6,004
AFFILIATED RECEIVABLES - NET 1,037 -
RECEIVABLES FROM SECURITIES SOLD 525 1,349
OTHER ASSETS 46,409 36,245
SEPARATE ACCOUNTS ASSETS 10,908,825 10,736,343
----------- -----------
TOTAL ASSETS $14,874,719 $14,647,548
=========== ===========
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements. (Continued)
1
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS (Continued)
(Dollars in thousands, except common stock par value and shares) (Unaudited)
March 31, December 31,
2004 2003 (1)
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 2,947,463 $ 2,887,937
Claims and claims settlement expenses 46,619 101,718
----------- -----------
Total policyholder liabilities and accruals 2,994,082 2,989,655
OTHER POLICYHOLDER FUNDS 12,443 12,915
LIABILITY FOR GUARANTY FUND ASSESSMENTS 7,127 7,139
FEDERAL INCOME TAXES - DEFERRED 24,347 31,965
FEDERAL INCOME TAXES - CURRENT 31,831 20,146
PAYABLES FOR SECURITIES PURCHASED 29,671 683
AFFILIATED PAYABLES - NET - 2,365
UNEARNED POLICY CHARGE REVENUE 113,686 107,761
OTHER LIABILITIES 4,317 3,480
SEPARATE ACCOUNTS LIABILITIES 10,908,825 10,730,601
----------- -----------
Total Liabilities 14,126,329 13,906,710
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares;
issued and outstanding: 250,000 shares) 2,500 2,500
Additional paid-in capital 397,324 397,324
Retained earnings 317,063 329,549
Accumulated other comprehensive income 31,503 11,465
----------- -----------
Total Stockholder's Equity 748,390 740,838
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $14,874,719 $14,647,548
=========== ===========
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements.
2
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
--------------------
2004 2003 (1)
-------- --------
REVENUES:
Policy charge revenue $ 53,954 $ 51,817
Net investment income 39,907 44,455
Net realized investment gains 2,138 2,038
-------- --------
Total Revenues 95,999 98,310
-------- --------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 30,136 33,197
Market value adjustment expense 1,027 1,497
Policy benefits (net of reinsurance recoveries: 2004 - $7,110;
2003 - $5,353) 16,106 19,605
Reinsurance premium ceded 6,195 5,635
Amortization of deferred policy acquisition costs 6,356 12,497
Insurance expenses and taxes 13,234 10,985
-------- --------
Total Benefits and Expenses 73,054 83,416
-------- --------
Net Earnings Before Federal Income Tax Provision 22,945 14,894
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 11,685 8,131
Deferred (3,654) (2,918)
-------- --------
Total Federal Income Tax Provision 8,031 5,213
NET EARNINGS BEFORE CHANGE IN ACCOUNTING PRINCIPLE 14,914 9,681
-------- --------
Change in Accounting Principle, Net of Tax (27,400) -
-------- --------
NET EARNINGS (LOSS) $(12,486) $ 9,681
======== ========
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements.
3
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
--------------------
2004 2003 (1)
-------- --------
NET EARNINGS (LOSS) $(12,486) $ 9,681
OTHER COMPREHENSIVE INCOME:
Net unrealized gains on available-for-sale securities:
Net unrealized holding gains arising during the period 32,418 17,218
Reclassification adjustment for gains included in net earnings (1,259) (2,141)
-------- --------
Net unrealized gains on investment securities 31,159 15,077
Adjustments for:
Policyholder liabilities (218) 8,929
Deferred policy acquisition costs (113) (2,211)
Deferred federal income taxes (10,790) (7,628)
-------- --------
Total other comprehensive income, net of taxes 20,038 14,167
-------- --------
COMPREHENSIVE INCOME $ 7,552 $ 23,848
======== ========
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements.
4
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands) (Unaudited)
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings(1) income (loss) equity (1)
-------- ---------- ----------- ------------- -------------
BALANCE, JANUARY 1, 2003 $ 2,500 $ 347,324 $ 290,092 $ (23,010) $ 616,906
Capital contribution from parent 50,000 50,000
Net earnings 39,457 39,457
Other comprehensive income, net of tax 34,475 34,475
-------- ---------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 2003 2,500 397,324 329,549 11,465 740,838
Net loss (12,486) (12,486)
Other comprehensive income, net of tax 20,038 20,038
-------- ---------- ----------- ------------- -------------
BALANCE, MARCH 31, 2004 $ 2,500 $ 397,324 $ 317,063 $ 31,503 $ 748,390
======== ========== =========== ============= =============
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements.
5
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
----------------------
2004 2003(1)
--------- ---------
Cash Flows From Operating Activities:
Net earnings (loss) $ (12,486) $ 9,681
Noncash items included in earnings:
Change in accounting principle, net of tax 27,400 -
Amortization of deferred policy acquisition costs 6,356 12,497
Capitalization of policy acquisition costs (8,363) (8,299)
Amortization of investments 2,900 1,892
Interest credited to policyholders' account balances 30,136 33,197
Change in variable contract reserves 1,314 -
Benefit for deferred Federal income tax (3,654) (2,918)
(Increase) decrease in operating assets:
Accrued investment income 5,800 2,529
Federal income taxes - current - 8,131
Reinsurance receivables (2,179) (36)
Affiliated receivables - net (1,037) 1,733
Other (10,164) 1,497
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 14,122 (1,318)
Other policyholder funds (472) 1,598
Liability for guaranty fund assessments (12) -
Federal income taxes - current 11,685 -
Affiliated payables - net (2,365) -
Unearned policy charge revenue 5,925 137
Other 837 6,011
Other operating activities:
Net realized investment gains (2,138) (2,038)
--------- ---------
Net cash and cash equivalents provided by operating activities 63,605 64,294
--------- ---------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 74,998 68,047
Maturities of available-for-sale securities 48,337 214,081
Purchases of available-for-sale securities (26,619) (477,725)
Trading account securities 344 (276)
Sales of limited partnerships 410 -
Purchases of limited partnerships (1,000) -
Policy loans on insurance contracts 23,555 18,340
Recapture of investments in separate accounts - 192
--------- ---------
Net cash and cash equivalents provided by (used in) investing activities $ 120,025 $(177,341)
--------- ---------
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements. (Continued)
6
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
----------------------
2004 2003(1)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from (payments for):
Capital contribution received from parent $ - $ 50,000
Policyholder deposits (excludes internal policy replacement deposits) 205,524 187,939
Policyholder withdrawals (including transfers from separate accounts) (288,191) (279,578)
--------- ---------
Net cash and cash equivalents used in financing activities (82,667) (41,639)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 100,963 (154,686)
CASH AND CASH EQUIVALENTS:
Beginning of year 75,429 312,217
--------- ---------
End of period $ 176,392 $ 157,531
========= =========
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Intercompany interest $ 29 $ 97
(1) Prior period amounts have been restated as discussed in Note 3 to the
financial statements.
See accompanying notes to financial statements.
7
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The Merrill Lynch Life Insurance Company (the "Company") is a wholly owned
subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). The Company is an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch &
Co."). The Company sells non-participating annuity products, including variable
annuities, modified guaranteed annuities, and immediate annuities. The Company
is domiciled in the State of Arkansas.
The interim Financial Statements for the three month periods are unaudited;
however, in the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the financial statements
have been included. These unaudited Financial Statements should be read in
conjunction with the audited financial statements included in the 2003 Annual
Report on Form 10-K. The December 31, 2003 unaudited Balance Sheet was derived
from the audited 2003 financial statements and was adjusted for the amounts
included in Note 3. The nature of the Company's business is such that the
results of any interim period are not necessarily indicative of results for a
full year. In presenting the Financial Statements, management makes estimates
that affect the reported amounts and disclosures in the financial statements.
Estimates, by their nature, are based on judgment and available information.
Therefore, actual results could differ from those estimates and could have a
material impact on the Financial Statements, and it is possible that such
changes could occur in the near term.
Certain reclassifications and format changes have been made to prior period
financial statements, where appropriate, to conform to the current period
presentation.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
On January 1, 2004, the Company adopted the provisions of Statement of Position
("SOP") 03-1, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts. The SOP
requires the establishment of a liability for contracts that contain death or
other insurance benefits using a reserve methodology that is different from the
methodology that the Company previously employed. As a result, the Company
recorded a $41.3 million increase in policyholder liabilities and a $0.9 million
decrease in deferred policy acquisition costs resulting in a charge to earnings
of $27.4 million, net of a federal income tax benefit of $14.8 million, which
was reported as a cumulative effect of a change in accounting principle. For the
three months ended March 31, 2004, the increase in policyholder liabilities of
$1.3 million did not have a material impact on the Company's Statement of
Earnings.
SOP 03-1 also addresses the financial statement treatment of the Company's
investment in the Separate Accounts (i.e. seed money investments). SOP 03-1
requires seed money investments to be reported as a General Account asset rather
than as a component of Separate Accounts assets. Accordingly, the Company's seed
money investment at March 31, 2004 is reported as an available-for-sale equity
security. In addition, SOP 03-1 requires new disclosures regarding the Company's
Separate Accounts and insurance contracts containing guarantee provisions. See
Note 5 to the Financial Statements for these disclosures.
NOTE 3. OTHER EVENTS
On December 31, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123, Accounting for Stock Based Compensation. Effective for the
first quarter 2004, Merrill Lynch & Co. adopted the fair value method of
accounting for stock-based compensation under SFAS 123, using the retroactive
restatement method described in SFAS 148. Under the fair value recognition
provisions of SFAS 123, stock-based compensation cost is measured at the grant
date based on the value of the award and is recognized as expense over the
vesting period. The adoption of the fair value method of accounting by Merrill
Lynch & Co. resulted in additional allocated compensation expense to the
Company. The Company's December 31, 2003 Balance Sheet has been restated to
reflect such expenses. Accordingly, the December 31, 2003 Balance Sheet reflects
a $1.0 million decrease in current federal income taxes payable, a $3.0 million
increase in net affiliated payables, and a $2.0 million decrease in retained
earnings. For the three months ended March 31, 2004 and 2003, the allocation of
additional compensation expense did not have a material impact on the Company's
Statements of Earnings.
NOTE 4. INVESTMENTS
8
The Company's investments in fixed maturity and equity securities are classified
as either available-for-sale or trading and are carried at estimated fair value.
Unrealized gains and losses on available-for-sale securities are included in
stockholder's equity as a component of accumulated other comprehensive income,
net of tax. Unrealized gains and losses on trading account securities are
included in net realized investment gains (losses). If management determines
that a decline in the value of a security is other-than-temporary, the carrying
value is adjusted to estimated fair value and the decline in value is recorded
as a net realized investment loss.
The Company has recorded certain adjustments to deferred policy acquisition
costs and policyholders' account balances in connection with unrealized holding
gains or losses on investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized holdings gains or
losses had actually been realized, with corresponding credits or charges
reported in accumulated other comprehensive income, net of taxes. The components
of net unrealized gains (losses) included in accumulated other comprehensive
income were as follows:
March 31, December 31,
2004 2003
-------- ------------
Assets:
Fixed maturity securities $ 78,994 $ 48,817
Equity securities 4,294 3,653
Deferred policy acquisition costs 147 260
Separate Accounts assets - (341)
-------- --------
83,435 52,389
-------- --------
Liabilities:
Policyholders' account balances 34,968 34,750
Federal income taxes - deferred 16,964 6,174
-------- --------
51,932 40,924
-------- --------
Stockholder's equity:
Accumulated other comprehensive income $ 31,503 $ 11,465
======== ========
Net realized investment gains (losses) for the three months ended March 31 were
as follows:
March 31, March 31,
2004 2003
---------- ----------
Available-for-sale securities $ 1,259 $ 2,153
Trading account securities:
Net realized investment gains (losses) 701 (94)
Net unrealized holding gains (losses) 178 (10)
Investment in Separate Accounts - (11)
---------- ----------
Total net realized investment gains $ 2,138 $ 2,038
========== ==========
NOTE 5. SEPARATE ACCOUNTS
The Company's Separate Accounts consist of variable annuities and variable life
contracts, of which the assets and liabilities are legally segregated and
reported as separate captions in the Balance Sheets. Separate Accounts are
established in conformity with Arkansas State Insurance Law and are generally
not chargeable with liabilities that arise from any other business of the
Company. Separate Accounts assets may be subject to claims of the Company only
to the extent the value of such assets exceeds Separate Accounts liabilities.
The assets of the Separate Accounts are carried at the daily net asset value of
the mutual funds in which they invest.
Absent any contract provision wherein the Company guarantees either a minimum
return or account value upon death or annuitization, the net investment income
and net realized and unrealized gains and losses attributable to Separate
Accounts assets supporting variable annuities and variable life contracts accrue
directly to the contract owner and are not reported as revenue in the Statements
of Earnings. Mortality, policy administration and surrender charges to all
Separate Accounts are included in revenue in the Statements of Earnings.
9
VARIABLE ANNUITY CONTRACTS CONTAINING GUARANTEES
The Company issues variable annuity contracts in which the Company may
contractually guarantee to the contract owner a guaranteed minimum death benefit
("GMDB"). In addition, some contracts include an optional guaranteed minimum
income benefit ("GMIB"). In general, contracts containing GMDB provisions
provide a death benefit equal to the greater of the GMDB or the contract value.
Depending on the type of contract, the GMDB may equal: i) contract premiums
accumulated at a specified interest rate, ii) the contract value on specified
contract anniversaries, iii) return of contract premiums, or iv) some
combination of these benefits. Each benefit type is reduced for contract
withdrawals. In general, contracts containing GMIB provisions provide the option
to receive a guaranteed future income stream upon annuitization. There is a
waiting period of ten years that must elapse before the GMIB provision can be
exercised. These guarantees include benefits that are payable in the event of
death or annuitization.
At March 31, 2004, the Company had the following variable annuity contracts
containing guarantees:
GMDB GMIB
---------- ----------
Net amount at risk $1,238,263(1) $ -(2)
Average attained age of contract owners 67 57
Weighted average period remaining until expected annuitization n/a 9 yrs
(1) Net amount at risk is defined as the current GMDB in excess of the
current account balance at the balance sheet date.
(2) Net amount at risk is defined as the current GMIB benefit base in
excess of the current account balance at the balance sheet date.
The Company has recorded General Account policyholder liabilities for contracts
containing guarantees. The liabilities are included as a component of
policyholder liabilities in the March 31, 2004 Balance Sheet. Prior to the
adoption of SOP 03-1, the Company's liability was $69,221 and was included as a
component of claims and claims settlement expenses in the December 31, 2003
Balance Sheet. Changes in these liabilities are included as a component of
policy benefits in the Statement of Earnings. The variable annuity liability at
March 31, 2004 was as follows:
GMDB
---------
Balance at January 1, 2004 $ 108,702
Incurred guarantee benefits 7,116
Paid guarantee benefits (5,841)
---------
Balance at March 31, 2004 $ 109,977
=========
At March 31, 2004, substantially all contracts containing GMIB provisions were
reinsured, thus no reserve was established.
The GMDB liability is determined by projecting future expected guaranteed
benefits under multiple scenarios for returns on Separate Accounts assets. The
Company uses estimates for mortality and surrender assumptions that are deemed
appropriate for each contract type. These estimates are consistent with the
estimates used in the calculation of deferred policy acquisition costs.
At March 31, 2004, account balances by mutual fund class for contracts
containing each type of guarantee were distributed as follows:
10
Money
Market Bond Equity Balanced Total
---------- ---------- ---------- ---------- ----------
GMDB only $ 346,657 1,611,076 4,659,539 558,686 $7,175,958
GMDB and GMIB (3) $ 48,406 209,098 574,379 101,944 $ 933,827
---------- ---------- ---------- ---------- ----------
Total $ 395,063 1,820,174 5,233,918 660,630 $8,109,785
========== ========== ========== ========== ==========
(3) All variable annuity contracts with GMIB provisions include a GMDB.
VARIABLE LIFE CONTRACTS CONTAINING GUARANTEES
The Company has issued variable life contracts in which the Company
contractually guarantees to the contract owner a GMDB. In general, contracts
containing GMDB provisions provide a death benefit equal to the amount specified
in the contract regardless of the level of the contract's account value.
The Company has established General Account policyholder liabilities for
contracts containing guarantees. The liabilities are included as a component of
policyholder liabilities in the Balance Sheets. Changes in the liability are
included as a component of policy benefits in the Statement of Earnings. The
variable life GMDB liability at March 31, 2004 was $1,862. The variable life
GMDB liability is set as a percentage of all mortality, expense, and insurance
charges deducted from contracts that include a GMDB provision. The percentage is
established based on the Company's estimate of the likelihood of future GMDB
claims.
At March 31, 2004, account balances by mutual fund class for contracts
containing GMDB provisions were distributed as follows:
Money
Market Bond Equity Balanced Other Total
---------- ------- --------- --------- ----- ----------
GMDB $ 325,942 454,001 1,001,068 1,006,664 6,677 $2,794,352
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY ACCOUNTING PRACTICES
The Company's statutory financial statements are presented on the basis of
accounting practices prescribed or permitted by the Insurance Department of the
State of Arkansas. The State of Arkansas has adopted the National Association of
Insurance Commissioners' statutory accounting practices as the basis of its
statutory accounting practices.
Statutory capital and surplus at March 31, 2004 and December 31, 2003 were
$314,809 and $295,722, respectively. For the three month periods ended March 31,
2004 and 2003, statutory net income was $16,765 and $14,419, respectively.
NOTE 7. SEGMENT INFORMATION
In reporting to management, the Company's operating results are categorized into
two business segments: Annuities and Life Insurance. The Company's Annuity
segment consists of variable annuities and interest sensitive annuities. The
Company's Life Insurance segment consists of variable life insurance products
and interest-sensitive life insurance products. The Company currently does not
manufacture, market, or issue life insurance products. The accounting policies
of the business segments are the same as those for the Company's financial
statements included herein. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level for review by
management. The "Other" category, presented in the following segment financial
information, represents net revenues and net earnings on assets that do not
support annuity or life insurance contract owner liabilities.
The following table summarizes each business segment's contribution to
consolidated net revenues and net earnings for the three month periods ended
March 31. The prior period amounts have been restated.
11
Three Months Ended
March 31,
--------------------
2004 2003
-------- --------
NET REVENUES (1):
Annuities $ 41,765 $ 37,152
Life Insurance 19,874 28,579
Other 4,224 (618)
-------- --------
Total Net Revenues $ 65,863 $ 65,113
======== ========
NET EARNINGS BEFORE CHANGE IN ACCOUNTING PRINCIPLE:
Annuities $ 8,415 $ 2,829
Life Insurance 3,754 7,250
Other 2,745 (398)
-------- --------
Net Earnings Before Change in Accounting Principle $ 14,914 $ 9,681
-------- --------
CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX:
Annuities (26,215) -
Life Insurance (1,185) -
-------- --------
Change in Accounting Principle, Net of Tax $(27,400) $ -
-------- --------
Total Net Earnings (Loss) $(12,486) $ 9,681
======== ========
(1) Net revenues include investment income net of interest credited to
policyholders' account balances.
12
ITEM 2 MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Certain statements contained in this Report may be considered forward-looking,
including statements about management expectations, strategic objectives,
business prospects, anticipated financial performance, and other similar
matters. These forward-looking statements are not statements of historical fact
and represent only management's beliefs regarding future events, which are
inherently uncertain. There are a variety of factors, many of which are beyond
the Company's control, which affect its operations, performance, business
strategy, and results and could cause its actual results and experience to
differ materially from the expectations and objectives expressed in any
forward-looking statements. These factors include, but are not limited to, the
factors listed in the Economic Environment section listed below, as well as
actions and initiatives taken by both current and potential competitors, general
economic conditions, the effects of current, pending, and future legislation,
regulation and regulatory actions, and the other risks and uncertainties
detailed in the Company's Financial Statements and Notes to Financial
Statements. Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the dates on which they are
made. The Company does not undertake to update forward-looking statements to
reflect the impact of circumstances or events that arise after the dates the
forward-looking statements are made. The reader should, however, consult any
further disclosures the Company may make in future filings of its Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
DISCONTINUANCE OF VARIABLE LIFE INSURANCE
During the first quarter 2003, the Company discontinued manufacturing its single
premium variable life insurance product. As a result, the Company currently does
not manufacture, market, or issue life insurance products. The Company continues
to service all life insurance contracts inforce.
TAX LEGISLATION
During May 2003, Congress passed the Jobs and Growth Tax Relief Reconciliation
Act of 2003 (the "Act"). A key provision in the Act is reduced federal income
tax rates on dividends and capital gains paid to investors on stocks and mutual
funds held individually. Pending future Congressional action, these federal
income tax rate reductions are set to expire after 2008. These enacted tax rate
reductions may impact the relative attractiveness of annuities relative to
stocks and mutual funds.
BUSINESS OVERVIEW
The Company's gross earnings are principally derived from two sources:
- - the charges imposed on variable annuity and variable life insurance
contracts, and
- - the net earnings from investment of fixed rate life insurance and annuity
contract owner deposits less interest credited to contract owners, commonly
known as interest spread
The costs associated with acquiring contract owner deposits (deferred policy
acquisition costs) are amortized over the period in which the Company
anticipates holding those funds, as noted in the Critical Accounting Policies
section below. Insurance expenses and taxes reported in the Statements of
Earnings are net of amounts deferred. In addition, the Company incurs expenses
associated with the maintenance of inforce contracts.
ECONOMIC ENVIRONMENT
The Company's financial position and/or results of operations are primarily
impacted by the following economic factors: equity market performance,
fluctuations in medium term interest rates, and the corporate credit environment
via credit quality and fluctuations in credit spreads. The following discusses
the impact of each economic factor.
Equity Market Performance
Changes in the U.S. equity market directly affect the values of the underlying
U.S. equity-based mutual funds supporting separate accounts assets and,
accordingly, the values of variable contract owner account balances. Since
asset-based fees collected on inforce variable contracts represent a significant
source of revenue, the Company's financial condition will be impacted by
fluctuations in investment performance of separate accounts assets. Fluctuations
in the U.S. equity market also directly impact the Company's exposure to
guaranteed minimum death benefit ("GMDB") provisions contained in the variable
contracts it manufactures. Negative investment performance generally results in
greater exposure to GMDB provisions, to the extent there is an increase in the
number of variable contracts (and amount per contract) in which the GMDB exceeds
the variable account balance. Prolonged periods of negative investment
performance may result in greater GMDB expense. GMDB expense, defined as the
change in GMDB liabilities, is
13
recorded as a component of policy benefits. Prior to the adoption of Statement
of Position ("SOP") 03-1 GMDB expense was defined as the amount of GMDB expense
paid in excess of the variable account balance and was also recorded as a
component of policy benefits.
Additionally, the Company is impacted by the U.S. equity markets through its
trading account investments. The Company's trading account is invested in
convertible debt and convertible preferred stocks. The valuations of these types
of securities are impacted by changes in value of the underlying equity
security. The trading account is carried at market value with changes in market
value included in earnings as a component of net realized investment gains
(losses).
There are several standard indices published on a daily basis that measure
performance of selected components of the U.S. equity market. Examples include
the Dow Jones Industrial Average ("Dow"), NASDAQ Composite Index ("NASDAQ") and
the Standard & Poor's 500 Composite Stock Price Index ("S&P"). The following
table provides the increase (decrease) for each equity market index at March 31,
2004 as compared to March 31, 2003.
March 31, 2004
vs
March 31, 2003
--------------
Dow 29.6%
NASDAQ 48.7%
S&P 32.8%
The investment performance of the underlying U.S. equity-based mutual funds
supporting the Company's variable products do not replicate the returns of any
specific U.S. equity market index. However, investment performance will
generally increase or decrease with corresponding increases or decreases in the
overall U.S. equity market.
Medium Term Interest Rates
Changes in interest rates affect the value of investments, primarily fixed
maturity securities and preferred equity securities, as well as interest
sensitive liabilities. Changes in interest rates have an inverse relationship to
the value of investments and interest sensitive liabilities. Also, since the
Company has certain fixed products that contain guaranteed minimum crediting
rates, decreases in interest rates can decrease the amount of interest spread
earned by the Company.
The Company defines medium term interest rates as the average interest rate on
U.S. Treasury securities with terms of 1 to 10 years. During the current three
month period ended March 31, 2004, average medium term interest rates decreased
approximately 3 basis points, to yield, on average, 2.39%. During the three
month period ended March 31, 2003, average medium term interest rates decreased
approximately 76 basis points, to yield, on average, 2.40%.
Corporate Credit and Credit Spreads
Changes in the corporate credit environment directly impact the value of the
Company's investments, primarily fixed maturity securities. The Company
primarily invests in investment-grade corporate debt to support its fixed rate
product liabilities.
Credit spreads represent the credit risk premiums required by market
participants for a given credit quality, e.g. the additional yield that a debt
instrument issued by a AA-rated entity must produce over a risk-free alternative
(e.g., U.S. Treasury instruments). Changes in credit spreads have an inverse
relationship to the value of investments.
The Company defines credit spreads according to the Merrill Lynch U.S. Corporate
Bond Index for BBB-A Rated bonds with three to five year maturities. During the
current three month period ended March 31, 2004, credit spreads contracted
approximately 4 basis points and ended the period at 81 basis points. During the
three month period ended March 31, 2003, credit spreads contracted approximately
48 basis points and ended the period at 150 basis points.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses. Estimates, by their nature, are based on judgment and
available information. Therefore, actual results could differ and could have a
material impact on the Financial Statements, and it is possible that such
changes could occur in the near term.
14
The Company's critical accounting policies and estimates are discussed below:
Deferred Policy Acquisition Costs for Variable Annuities and Variable Life
Insurance
The costs of acquiring business, principally commissions, certain expenses
related to policy issuance, and certain variable sales expenses that relate to
and vary with the production of new and renewal business, are deferred and
amortized in accordance with Statement of Financial Accounting Standards No. 97,
Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments.
Deferred policy acquisition costs ("DAC") is subject to recoverability testing
at the time of policy issuance and loss recognition testing at the end of each
reporting period. At March 31, 2004, variable annuities and variable life
insurance account for $172.1 million (or 47%) and $181.6 million (or 50%),
respectively, of the Company's DAC asset.
DAC for variable annuities is amortized with interest over the lives of the
policies in relation to the present values of estimated future gross profits
from asset-based fees, contract fees, and surrender charges, less a provision
for GMDB expenses, policy maintenance expenses, and non-capitalized commissions.
DAC for variable life insurance is amortized with interest over the lives of the
policies in relation to the present values of estimated future gross profits
from fees related to contract loans, asset-based fees, and cost of insurance
charges, less claims (net of reinsurance), cost of mortality reinsurance, policy
maintenance expenses, and non-capitalized commissions.
The most significant assumptions involved in the estimation of future gross
profits are future net separate accounts performance, surrender rates, and
mortality rates. The Company generally assumes a level long-term rate of net
separate accounts growth for all future years. The long-term rate may be
adjusted if the Company's long-term expectations change. Additionally, the
Company may modify the rate of net separate accounts growth over the short term
to reflect the Company's near-term expectations of the economy and financial
market performance in which separate accounts assets are invested.
Future gross profit estimates are subject to periodic evaluation by the Company,
with necessary revisions applied against amortization to date. The impact of
revisions to estimates on cumulative amortization is recorded as a charge or
benefit to current operations. Changes in assumptions can have a significant
impact on the amount of DAC reported for variable annuities and variable life
insurance products and their related amortization patterns. In general,
increases in the estimated separate accounts return and decreases in surrender
or mortality assumptions increase the expected future profitability of the
underlying business and may lower the rate of DAC amortization. Conversely,
decreases in the estimated separate accounts return and increases in surrender
or mortality assumptions reduce the expected future profitability of the
underlying business and may increase the rate of DAC amortization.
Unearned Revenue Liability for Variable Life Insurance
One of the Company's variable life insurance products includes a premium load
that is higher in early policy years than in later years. The excess of the
initial load over the ultimate load is recognized as income over time in the
same manner that DAC is amortized. In addition, the unearned revenue liability
is subject to the same periodic reassessment as DAC.
Other-Than-Temporary Impairment Losses on Investments
The Company regularly reviews each investment in its fixed maturity and equity
securities portfolio to evaluate the necessity of recording impairment losses
for other-than-temporary ("OTT") declines in the fair value of investments.
Management makes this determination through a series of discussions with the
Company's portfolio managers and credit analysts, as well as information
obtained from external sources (i.e. company announcements, ratings agency
announcements, or news wire services). The factors that give rise to potential
impairments include, but are not limited to, i) certain credit-related events
such as default of principal or interest payments, ii) bankruptcy of issuer, and
iii) certain security restructurings. In the absence of a readily ascertainable
market value, the estimated fair value on these securities represents
management's estimate of the security's ultimate recovery value. OTT impairment
losses result in a permanent reduction of the cost basis of the underlying
investment. There were no OTT impairments on investments in fixed maturity
securities for the three month periods ended March 31, 2004 and 2003,
respectively.
15
RECENT DEVELOPMENTS
New Accounting Pronouncements
On January 1, 2004, the Company adopted the provisions of SOP 03-1, Accounting
and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts. SOP 03-1 requires the establishment of a
liability for contracts that contain death or other insurance benefits using a
reserve methodology that is different from the methodology that the Company
previously employed. As a result, the Company recorded a $41.3 million increase
in policyholder liabilities and a $0.9 million decrease in deferred policy
acquisition costs resulting in a charge to earnings of $27.4 million, net of a
federal income tax benefit of $14.8 million, which was reported as a cumulative
effect of a change in accounting principle. For the three months ended March 31,
2004, the increase in policyholder liabilities of $1.3 million did not have a
material impact on the Company's Statement of Earnings.
NEW BUSINESS
Annuity and life insurance premiums increased $23.4 million (or 12%) to $217.8
million during the first three months of 2004 as compared to the same period in
2003. Annuity and life insurance premiums by type of product were as follows:
($ In Millions) Change
---------------------------- ------------------------
First Quarter First Quarter
2004 2003 $ %
------------- ------------- ---------- ----------
Variable Annuities:
B-Share $ 187.0 $ 140.7 $ 46.3 33%
C-Share 14.9 33.7 -18.8 -56%
L-Share 4.0 3.8 0.2 5%
---------- ---------- ---------- ----------
205.9 178.2 27.7 16%
---------- ---------- ---------- ----------
Variable Life Insurance 9.0 10.5 -1.5 -14%
Modified Guaranteed Annuities 2.6 2.4 0.2 8%
Other 0.3 3.3 -3.0 -91%
---------- ---------- ---------- ----------
Total Direct Premiums $ 217.8 $ 194.4 $ 23.4 12%
========== ========== ========== ==========
During the first three months of 2004, variable annuity premiums increased $27.7
million (or 16%) as compared to the same period in 2003. Management attributes
the increase in variable annuity premiums to the inclusion of guaranteed living
benefit provisions within B-Share variable annuity products. Living benefit
provisions have increased in popularity due to consumers' increasing demand for
guaranteed benefits. Management believes that the volatility in the equity
markets over the past three years has been the catalyst for this demand. The
C-Share and L-Share variable annuities do not contain guaranteed living benefit
provisions.
During the first three months of 2004, variable life insurance premiums
decreased $1.5 million (or 14%) as compared to the same period in 2003. The
decrease in variable life insurance premiums is primarily due to the
discontinuation of manufacturing variable life insurance products during the
first quarter 2003. Variable life insurance premiums displayed above generally
represent renewal premiums on existing life insurance contracts.
SURRENDERS
Policy and contract surrenders increased $32.2 million (or 12%) to $297.1
million during the first three months of 2004 as compared to the same period in
2003. During the first three months of 2004, variable annuity surrenders
increased $39.0 million (or 24%) to $201.1 million as compared to the first
three months of 2003. Management attributes the increase in variable annuity
surrenders to the increasing consumer demand for variable annuity products
containing living benefit provisions. As contracts reach the end of their
surrender charge period, contract owners are more willing to surrender variable
annuities without living benefit provisions in favor of variable annuities with
living benefit provisions.
16
FINANCIAL CONDITION
At March 31, 2004, the Company's assets were $14.9 billion, or $227.2 million
higher than the $14.6 billion at December 31, 2003 primarily due to an increase
in separate accounts assets. Separate accounts assets increased $172.5 million
(or 2%) to $10.9 billion. Changes in separate accounts assets for the first
three months of 2004 were as follows:
First Quarter
2004
(In Millions)
-------------
Investment performance - variable products $ 244.0
Net cash outflow - variable products (71.5)
-------------
Net increase $ 172.5
=============
At March 31, 2004 and December 31, 2003, approximately $70.5 million (or 3%) and
$97.9 million (or 5%), respectively, of the Company's fixed maturity securities
were considered non-investment grade. The Company defines non-investment grade
securities as unsecured debt obligations that have a rating equivalent to
Standard and Poor's BB+ or lower (or similar rating agency). Non-investment
grade securities are speculative and are subject to significantly greater risks
related to the creditworthiness of the issuers and the liquidity of the market
for such securities. Current non-investment grade holdings are the result of
ratings downgrades on the Company's portfolio as the Company does not purchase
non-investment grade securities. Also, at March 31, 2004, approximately $165.9
million (or 8%) of the Company's fixed maturity securities were rated BBB-,
which is the lowest investment grade rating given by Standard and Poor's,
compared to $177.0 million (or 8%) of the Company's fixed maturity securities at
December 31, 2003. The Company closely monitors such investments.
During the first three months of 2004, the Company experienced contract owner
withdrawals that exceeded deposits by $178.2 million. The components of contract
owner transactions for all products were as follows:
March 31,
2004
(In Millions)
-------------
Premiums collected $ 217.8
Internal tax-free exchanges (12.3)
-------------
Net contract owner deposits 205.5
Contract owner withdrawals 288.2
Net transfers from separate accounts 95.5
-------------
Net contract owner withdrawals 383.7
-------------
Net contract owner activity $ (178.2)
=============
LIQUIDITY
To fund all business activities, the Company maintains a high quality and liquid
investment portfolio. As of March 31, 2004, the Company's assets included $2.3
billion of cash, short-term investments and investment grade publicly traded
available-for-sale securities that could be liquidated if funds were required.
During June 2003, the Company and Merrill Lynch & Co. executed a "keepwell"
agreement. The agreement obligates Merrill Lynch & Co. to maintain a level of
capital in the Company in excess of minimum regulatory capital requirements.
RESULTS OF OPERATIONS
For the three month periods ended March 31, 2004 and 2003, the Company recorded
net earnings (loss) of ($12.5) million and $9.7 million, respectively.
Policy charge revenue increased $2.1 million (or 4%) to $53.9 million during the
first three months of 2004 as compared to $51.8 million during the same period
in 2003. During the first three months of 2004, asset-based policy charge
revenue increased $8.1
17
million (or 26%). The increase in asset-based policy charge revenue is
attributable to higher average variable account balances. During the same
comparative period, average variable account balances increased $2.0 billion (or
23%). Partially offsetting the increase in asset-based policy charge revenue was
a decrease in non-asset based policy charge revenue. Non-asset based policy
charge revenue decreased $6.0 million (or 30%) during the first three months of
2004 as compared to the same period in 2003. The decrease in non-asset based
policy charge revenue is primarily due to a decrease in deferred policy load
amortization resulting from increased mortality.
Net earnings derived from interest spread decreased $1.5 million (or 13%) to
$9.8 million during the first three months of 2004 as compared to $11.3 million
during the same period in 2003. The decrease in interest spread is primarily due
to the reduction in fixed rate contracts inforce, as well as, reductions in
invested asset yields resulting from i) the generally lower interest rate
environment during the first three months of 2004 as compared to the same period
in 2003 and ii) the increase in credit quality of the portfolio.
The market value adjustment expense is attributable to the Company's modified
guaranteed annuity products. This contract provision results in a market value
adjustment to the cash surrender value of those contracts that are surrendered
before the expiration of their interest rate guarantee period. During the first
three months of 2004, the market value adjustment expense decreased $0.5 million
(or 31%) to $1.0 million as compared to $1.5 million during the same period in
2003. The decrease is primarily due to a decrease in surrender volume as a
result of the declining number of inforce contracts.
Policy benefits decreased $3.5 million (or 18%) to $16.1 million during the
first three months of 2004 as compared to $19.6 million during the same period
in 2003. The following table provides the changes in policy benefits by type for
each respective period:
Policy benefits 1Q 2004 1Q 2003 Change
- ---------------------------------- ------- ------- ------
($ in Millions)
Life insurance mortality expense $ 9.0 $ 4.9 $ 4.1(1)
Variable annuity mortality expense 7.1 14.7 (7.6)(2)
------- ------- ------
$ 16.1 $ 19.6 $ (3.5)
======= ======= ======
(1) The increase in life insurance mortality expense is due to an increase in
the number of death claims.
(2) The decrease in variable annuity mortality expense is due to decreased
death benefit expense incurred under GMDB provisions.
Reinsurance premium ceded increased $0.6 million (or 10%) to $6.2 million during
the first three months of 2004 as compared to $5.6 million during the same
period in 2003. Reinsurance premium ceded related to the Company's annuity
products increased $1.0 million during the first three months of 2004 as
compared to the same period in 2003. This increase is attributable to the
Company's effort to reinsure variable annuity products containing living benefit
provisions. Reinsurance premium ceded related to the Company's life insurance
products decreased $0.4 million during the first three months of 2004 as
compared to the same period in 2003. This decrease is attributable to a decrease
in life insurance inforce.
Amortization of deferred policy acquisition costs decreased $6.1 million (or
49%) to $6.4 million during the first three months of 2004 as compared to $12.5
million during the same period in 2003. The decrease in amortization of deferred
policy acquisition costs is primarily due to increased life insurance mortality
expense during the first three months of 2004 as compared to the same period in
2003.
Insurance expenses and taxes increased $2.2 million (or 20%) to $13.2 million
during the first three months of 2004 as compared to $11.0 million during the
same period in 2003. The following table provides the changes in insurance
expenses and taxes by type for each respective period:
Insurance expenses and taxes - net of capitalization 1Q 2004 1Q 2003 Change
- ---------------------------------------------------- ------- ------- ------
($ in Millions)
Commissions $ 7.2 $ 5.0 $ 2.2(1)
General insurance expenses 5.8 5.7 0.1
Taxes, licenses, and fees 0.2 0.3 (0.1)
------- ------- -------
$ 13.2 $ 11.0 $ 2.2
======= ======= =======
18
(1) The increase in commissions is primarily due to increases in variable
annuity asset-based commissions.
As noted in the Recent Developments section above, effective January 1, 2004,
the Company adopted SOP 03-1 and recorded a cumulative change in accounting
principle of $27.4 million, net of a federal income tax benefit of $14.8
million.
SEGMENT INFORMATION
The products that comprise the Annuity and Life Insurance segments generally
possess similar economic characteristics. As such, the financial condition and
results of operations of each business segment are generally consistent with the
Company's consolidated financial condition and results of operations presented
herein.
19
ITEM 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by this
quarterly report on Form 10-Q, that the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective. There have been no changes in the Company's
internal control over financial reporting that occurred during the period
covered by this quarterly report on Form 10-Q that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.1 Merrill Lynch Life Insurance Company Board of Directors
Resolution in Connection with the Merger between Merrill Lynch
Life Insurance Company and Tandem Insurance Group, Inc.
(Incorporated by reference to Exhibit 2.1, filed September 5,
1991, as part of Post-Effective Amendment No. 4 to the
Registrant's registration statement on Form S-1, File No.
33-26322.)
2.2 Plan and Agreement of Merger between Merrill Lynch Life
Insurance Company and Tandem Insurance Group, Inc. (Incorporated
by reference to Exhibit 2.1a, filed September 5, 1991, as part
of Post-Effective Amendment No. 4 to the Registrant's
registration statement on Form S-1, File No. 33-26322.)
3.1 Articles of Amendment, Restatement and Redomestication of the
Articles of Incorporation of Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 10 to Merrill Lynch Life Variable
Annuity Separate Account A's registration statement on Form N-4,
File No. 33-43773, filed December 10, 1996.)
3.2 Amended and Restated By-Laws of Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to Merrill Lynch Life Variable
Annuity Separate Account A's registration statement on Form N-4,
File No. 33-43773, filed December 10, 1996.)
4.1 Group Modified Guaranteed Annuity Contract, ML-AY-361.
(Incorporated by reference to Exhibit 4.1, filed February 23,
1989, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No.
33-26322.)
4.2 Individual Certificate, ML-AY-362. (Incorporated by reference to
Exhibit 4.2, filed February 23, 1989, as part of Pre-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2a Individual Certificate, ML-AY-362 KS. (Incorporated by reference
to Exhibit 4.2a, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2b Individual Certificate, ML-AY-378. (Incorporated by reference to
Exhibit 4.2b, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2c Modified Guaranteed Annuity Contract. (Incorporated by reference
to Exhibit 4(a), filed August 18, 1997, as part of the
Registrant's registration statement on Form S-3, File No.
333-33863.)
4.3 Individual Tax-Sheltered Annuity Certificate, ML-AY-372. (Incorporated
by reference to Exhibit 4.3, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's registration statement
on Form S-1, File No. 33-26322.)
4.3a Individual Tax-Sheltered Annuity Certificate, ML-AY-372 KS.
(Incorporated by reference to Exhibit 4.3a, filed March 9, 1990, as part
of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.4 Qualified Retirement Plan Certificate, ML-AY-373. (Incorporated by
reference to Exhibit 4.4 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.4a Qualified Retirement Plan Certificate, ML-AY-373 KS. (Incorporated by
reference to Exhibit 4.4a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5 Individual Retirement Annuity Certificate, ML-AY-374. (Incorporated by
reference to Exhibit 4.5 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.5a Individual Retirement Annuity Certificate, ML-AY-374 KS. (Incorporated
by reference to Exhibit 4.5a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5b Individual Retirement Annuity Certificate, ML-AY-375 KS. (Incorporated
by reference to Exhibit 4.5b, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5c Individual Retirement Annuity Certificate, ML-AY-379. (Incorporated by
reference to Exhibit 4.5c, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.6 Individual Retirement Account Certificate, ML-AY-375. (Incorporated by
reference to Exhibit 4.6, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's registration statement
on Form S-1, File No. 33-26322.)
4.6a Individual Retirement Account Certificate, ML-AY-380. (Incorporated by
reference to Exhibit 4.6a, filed March 9, 1990, as part of
Post-Effective
Amendment No. 1 to the Registrant's registration statement on Form S-1,
File No. 33-26322.)
4.7 Section 457 Deferred Compensation Plan Certificate, ML-AY-376.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.7a Section 457 Deferred Compensation Plan Certificate, ML-AY-376 KS.
(Incorporated by reference to Exhibit 4.7a, filed March 9, 1990, as part
of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.8 Tax-Sheltered Annuity Endorsement, ML-AY-366. (Incorporated by reference
to Exhibit 4.8 to the Registrant's registration statement on Form S-1,
File No. 33- 26322, filed January 3, 1989.)
4.8a Tax-Sheltered Annuity Endorsement, ML-AY-366 190. (Incorporated by
reference to Exhibit 4.8a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.8b Tax-Sheltered Annuity Endorsement, ML-AY-366 1096. (Incorporated by
reference to Exhibit 4(h)(3), filed March 27, 1997, as part of
Post-Effective Amendment No. 2 to the Registrant's registration
statement on Form S-1, File No. 33-58303.)
4.9 Qualified Retirement Plan Endorsement, ML-AY-364. (Incorporated by
reference to Exhibit 4.9 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.10 Individual Retirement Annuity Endorsement, ML-AY-368. (Incorporated by
reference to Exhibit 4.10 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.10a Individual Retirement Annuity Endorsement, ML-AY-368 190. (Incorporated
by reference to Exhibit 4.10a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.10b Individual Retirement Annuity Endorsement, ML009. (Incorporated by
reference to Exhibit 4(j)(3) to Post-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No. 33-60290,
filed March 31, 1994.)
4.10c Individual Retirement Annuity Endorsement. (Incorporated by reference to
Exhibit 4(b) to Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-3, File No. 333-33863, filed October
31, 1997.)
4.11 Individual Retirement Account Endorsement, ML-AY-365. (Incorporated by
reference to Exhibit 4.11 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.11a Individual Retirement Account Endorsement, ML- AY-365 190. (Incorporated
by reference to Exhibit 4.11a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.12 Section 457 Deferred Compensation Plan Endorsement, ML-AY-367.
(Incorporated by reference to Exhibit 4.12 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.12a Section 457 Deferred Compensation Plan Endorsement, ML-AY-367 190.
(Incorporated by reference to Exhibit 4.12a, filed March 9, 1990, as
part of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.13 Qualified Plan Endorsement, ML-AY-369. (Incorporated by reference to
Exhibit 4.13 to the Registrant's registration statement on Form S-1,
File No. 33-26322, filed January 3, 1989.)
4.13a Qualified Plan Endorsement, ML-AY-448. (Incorporated by reference to
Exhibit 4.13a, filed March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
4.13b Qualified Plan Endorsement. (Incorporated by reference to Exhibit 4(c),
filed October 31, 1997, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-3, File No. 333-33863.)
4.14 Application for Group Modified Guaranteed Annuity Contract.
(Incorporated by reference to Exhibit 4.14 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.15 Annuity Application for Individual Certificate Under Modified Guaranteed
Annuity Contract. (Incorporated by reference to Exhibit 4.15 to the
Registrant's registration statement on Form S-1, File No. 33-26322,
filed January 3, 1989.)
4.15a Application for Modified Guaranteed Annuity Contract. (Incorporated by
reference to Exhibit 4(d), filed August 18, 1997, as part of the
Registrant's registration statement on Form S-3, File No. 333-33863.)
4.16 Form of Company Name Change Endorsement. (Incorporated by reference to
Exhibit 4.16, filed September 5, 1991, as part of Post-Effective
Amendment No. 4 to the Registrant's registration statement on Form S-1,
File No. 33-26322.)
4.17 Group Modified Guaranteed Annuity Contract, ML-AY-361/94. (Incorporated
by reference to Exhibit 4(a)(2), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.18 Individual Certificate, ML-AY-362/94. (Incorporated by reference to
Exhibit 4(b)(4), filed December 7, 1994, as part of Post-Effective
Amendment No. 3 to the Registrant's registration statement on Form S-1,
File No. 33-60290.)
4.19 Individual Tax-Sheltered Annuity Certificate, ML-AY-372/94.
(Incorporated by reference to Exhibit 4(c)(3), filed December 7, 1994,
as part of Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60290.)
4.20 Qualified Retirement Plan Certificate, ML-AY-373/94. (Incorporated by
reference to Exhibit 4(d)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.21 Individual Retirement Annuity Certificate, ML-AY-374/94. (Incorporated
by reference to Exhibit 4(e)(5), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.22 Individual Retirement Account Certificate, ML-AY-375/94. (Incorporated
by reference to Exhibit 4(f)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.23 Section 457 Deferred Compensation Plan Certificate, ML-AY-376/94.
(Incorporated by reference to Exhibit 4(g)(3), filed December 7, 1994,
as part of Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60290.)
4.24 Qualified Plan Endorsement, ML-AY-448/94. (Incorporated by reference to
Exhibit 4(m)(3), filed December 7, 1994, as part of Post-Effective
Amendment No. 3 to the Registrant's registration statement on Form S-1,
File No. 33-60290.)
10.1 Management Services Agreement between Family Life Insurance Company and
Merrill Lynch Life Insurance Company. (Incorporated by reference to
Exhibit 10.1 to the Registrant's registration statement on Form S-1,
File No. 33-26322, filed January 3, 1989.)
10.2 General Agency Agreement between Merrill Lynch Life Insurance Company
and Merrill Lynch Life Agency, Inc. (Incorporated by reference to
Exhibit 10.2, filed
February 23, 1989, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No. 33-26322.)
10.3 Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life
Insurance Company and Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 10.3, filed March 13, 1991, as
part of Post-Effective Amendment No. 2 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
10.3a Amendment to Service Agreement among Merrill Lynch Insurance Group,
Inc., Family Life Insurance Company and Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 10(c)(2) to
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60290, filed March 31, 1994.)
10.4 Indemnity Reinsurance Agreement between Merrill Lynch Life Insurance
Company and Family Life Insurance Company. (Incorporated by reference to
Exhibit 10.4, filed March 13, 1991, as part of Post-Effective Amendment
No. 2 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
10.5 Assumption Reinsurance Agreement between Merrill Lynch Life Insurance
Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance
Company and Family Life Insurance Company. (Incorporated by reference to
Exhibit 10.6, filed April 24, 1991, as part of Post-Effective Amendment
No. 3 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
10.6 Amended General Agency Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated by reference
to Exhibit 10(g) to the Registrant's registration statement on Form S-1,
File No. 33-46827, filed March 30, 1992.)
10.7 Indemnity Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit
10(h) to the Registrant's registration statement on Form S-1, File No.
33-46827, filed March 30, 1992.)
10.8 Management Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated by reference to
Exhibit 10(i) to the Registrant's registration statement on Form S-1,
File No. 33-46827, filed March 30, 1992.)
10.9 Amendment No. 1 to Indemnity Reinsurance Agreement between Family Life
Insurance Company and Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 10.5, filed April 24, 1991, as
part of Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ Joseph E. Justice
-----------------------------------------
Joseph E. Justice
Senior Vice President, Treasurer and
Chief Financial Officer
Date: May 14, 2004
EXHIBIT INDEX
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.