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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
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
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 250,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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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)
September 30, December 31,
2005 2004
------------- ------------
ASSETS
INVESTMENTS:
Fixed maturity securities, available-for-sale, at estimated fair value
(amortized cost: 2005 - $1,907,787; 2004 - $1,978,713) $ 1,901,034 $ 2,012,589
Equity securities, available-for-sale, at estimated fair value
(cost: 2005 - $63,647; 2004 - $46,264) 66,745 50,103
Trading account securities, at estimated fair value 27,573 27,996
Limited partnerships, at cost 13,176 13,623
Policy loans on insurance contracts, at outstanding loan balances 990,536 1,030,036
------------ -----------
Total Investments 2,999,064 3,134,347
CASH AND CASH EQUIVALENTS 73,201 64,203
ACCRUED INVESTMENT INCOME 54,869 57,646
DEFERRED POLICY ACQUISITION COSTS 368,965 392,516
DEFERRED SALES INDUCEMENTS 6,294 -
REINSURANCE RECEIVABLES 10,038 3,832
AFFILIATED RECEIVABLES - NET 5,200 5,611
RECEIVABLES FROM SECURITIES SOLD 2,941 3,021
OTHER ASSETS 33,501 36,186
SEPARATE ACCOUNTS ASSETS 10,921,182 11,052,839
------------ -----------
TOTAL ASSETS $ 14,475,255 $14,750,201
============ ===========
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)
September 30, December 31,
2005 2004
------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 2,623,668 $ 2,775,917
Claims and claims settlement expenses 37,860 35,145
------------- ------------
Total Policyholder Liabilities and Accruals 2,661,528 2,811,062
OTHER POLICYHOLDER FUNDS 7,814 7,224
LIABILITY FOR GUARANTY FUND ASSESSMENTS 6,875 7,056
FEDERAL INCOME TAXES - DEFERRED 12,188 22,022
FEDERAL INCOME TAXES - CURRENT 16,147 23,616
PAYABLES FOR SECURITIES PURCHASED 821 2,429
UNEARNED POLICY CHARGE REVENUE 97,711 112,221
OTHER LIABILITIES 2,830 266
SEPARATE ACCOUNTS LIABILITIES 10,921,182 11,052,839
------------- ------------
Total Liabilities 13,727,096 14,038,735
------------- ------------
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 355,701 297,344
Accumulated other comprehensive income (loss) (7,366) 14,298
------------- ------------
Total Stockholder's Equity 748,159 711,466
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,475,255 $ 14,750,201
============= ============
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
September 30,
----------------------
2005 2004
--------- ---------
REVENUES:
Policy charge revenue $ 78,457 $ 57,349
Net investment income 36,923 38,842
Net realized investment gains 4,683 1,003
--------- ---------
Total Revenues 120,063 97,194
--------- ---------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 26,883 29,340
Market value adjustment expense 214 449
Policy benefits (net of reinsurance recoveries: 2005 - $2,946;
2004 - $3,509) 13,940 13,174
Reinsurance premium ceded 6,594 7,398
Amortization of deferred policy acquisition costs 26,653 (29,952)
Insurance expenses and taxes 14,631 14,013
--------- ---------
Total Benefits and Expenses 88,915 34,422
--------- ---------
Earnings Before Federal Income Tax Provision 31,148 62,772
--------- ---------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 13,146 492
Deferred (4,094) 17,128
--------- ---------
Total Federal Income Tax Provision 9,052 17,620
--------- ---------
NET EARNINGS $ 22,096 $ 45,152
========= =========
See accompanying notes to financial statements.
3
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
---------------------
2005 2004
--------- ---------
REVENUES:
Policy charge revenue $ 193,994 $ 173,295
Net investment income 110,613 117,988
Net realized investment gains 4,130 4,686
--------- ---------
Total Revenues 308,737 295,969
--------- ---------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 80,463 89,982
Market value adjustment expense 722 2,259
Policy benefits (net of reinsurance recoveries: 2005 - $13,581;
2004 - $13,593) 38,624 40,507
Reinsurance premium ceded 20,343 20,857
Amortization of deferred policy acquisition costs 45,980 (9,417)
Insurance expenses and taxes 44,907 41,330
--------- ---------
Total Benefits and Expenses 231,039 185,518
--------- ---------
Earnings Before Federal Income Tax Provision 77,698 110,451
--------- ---------
FEDERAL INCOME TAX PROVISION:
Current 17,510 16,718
Deferred 1,831 16,453
--------- ---------
Total Federal Income Tax Provision 19,341 33,171
--------- ---------
EARNINGS BEFORE CHANGE IN ACCOUNTING PRINCIPLE 58,357 77,280
--------- ---------
Change in Accounting Principle, Net of Tax - (27,400)
--------- ---------
NET EARNINGS $ 58,357 $ 49,880
========= =========
See accompanying notes to financial statements.
4
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
September 30,
--------------------
2005 2004
-------- --------
NET EARNINGS $ 22,096 $ 45,152
-------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during the period (23,308) 34,820
Reclassification adjustment for gains included in net earnings (4,079) (1,534)
-------- --------
Net unrealized gains (losses) on available-for-sale securities (27,387) 33,286
Adjustments for:
Policyholder liabilities 5,214 (4,554)
Deferred policy acquisition costs - (734)
Deferred federal income taxes 7,761 (9,800)
-------- --------
Total other comprehensive income (loss), net of taxes (14,412) 18,198
-------- --------
COMPREHENSIVE INCOME $ 7,684 $ 63,350
======== ========
See accompanying notes to financial statements.
5
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
--------------------
2005 2004
-------- --------
NET EARNINGS $ 58,357 $ 49,880
-------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized losses on available-for-sale securities:
Net unrealized holding losses arising during the period (36,869) (3,767)
Reclassification adjustment for gains included in net earnings (4,501) (4,942)
-------- --------
Net unrealized losses on available-for-sale securities (41,370) (8,709)
Adjustments for:
Policyholder liabilities 8,041 11,574
Deferred policy acquisition costs - (46)
Deferred federal income taxes 11,665 (987)
-------- --------
Total other comprehensive income (loss), net of taxes (21,664) 1,832
-------- --------
COMPREHENSIVE INCOME $ 36,693 $ 51,712
======== ========
See accompanying notes to financial statements.
6
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 income (loss) equity
------ ---------- -------- ------------- -------------
BALANCE, JANUARY 1, 2004 $2,500 $ 397,324 $329,549 $ 11,465 $ 740,838
Net earnings 65,295 65,295
Cash dividend paid to parent (97,500) (97,500)
Other comprehensive income, net of tax 2,833 2,833
------ ---------- -------- --------- ---------
BALANCE, DECEMBER 31, 2004 2,500 397,324 297,344 14,298 711,466
Net earnings 58,357 58,357
Other comprehensive loss, net of tax (21,664) (21,664)
------ ---------- -------- --------- ---------
BALANCE, SEPTEMBER 30, 2005 $2,500 $ 397,324 $355,701 $ (7,366) $ 748,159
====== ========== ======== ========= =========
See accompanying notes to financial statements.
7
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
----------------------
2005 2004
--------- ---------
Cash Flows From Operating Activities:
Net earnings $ 58,357 $ 49,880
Noncash items included in earnings:
Change in accounting principle, net of tax - 27,400
Amortization of deferred policy acquisition costs 45,980 (9,417)
Capitalization of policy acquisition costs (22,429) (25,442)
Amortization of investments 7,277 8,281
Amortization of deferred sales inducements 84 -
Capitalization of deferred sales inducements (6,378) -
Interest credited to policyholders' account balances 80,463 89,982
Change in variable contract reserves and accruals 3,232 (2,140)
Provision for deferred Federal income tax 1,831 16,453
(Increase) decrease in operating assets:
Trading account securities 113 (402)
Accrued investment income 2,777 3,372
Reinsurance receivables (6,206) 508
Affiliated receivables - net 411 -
Other 2,685 (3,284)
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 2,715 (332)
Other policyholder funds 590 (3,911)
Liability for guaranty fund assessments (181) (369)
Federal income taxes - current (7,469) (16,654)
Affiliated payables - net - 1,560
Unearned policy charge revenue (14,510) 5,658
Other 2,564 499
Other operating activities:
Net realized investment gains (4,130) (4,686)
--------- ---------
Net cash and cash equivalents provided by operating activities 147,776 136,956
--------- ---------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 331,034 113,587
Maturities of available-for-sale securities 159,491 245,829
Purchases of available-for-sale securities (441,347) (289,428)
Sales of limited partnerships 2,547 610
Purchases of limited partnerships (2,100) (2,800)
Policy loans on insurance contracts 39,500 56,075
--------- ---------
Net cash and cash equivalents provided by investing activities $ 89,125 $ 123,873
--------- ---------
See accompanying notes to financial statements. (Continued)
8
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
----------------------
2005 2004
--------- ---------
Cash Flows From Financing Activities:
Proceeds from (payments for):
Policyholder deposits (excludes internal policy replacement deposits) $ 469,396 $ 567,420
Policyholder withdrawals (including transfers from separate accounts) (697,299) (810,662)
--------- ---------
Net cash and cash equivalents used in financing activities (227,903) (243,242)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,998 17,587
CASH AND CASH EQUIVALENTS:
Beginning of year 64,203 75,429
--------- ---------
End of period $ 73,201 $ 93,016
========= =========
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 24,979 $ 33,372
Intercompany interest 269 152
See accompanying notes to financial statements.
9
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)
NOTE 1. BASIS OF PRESENTATION
Merrill Lynch Life Insurance Company (the "Company") is a wholly owned
subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). The Company is an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch &
Co."). The Company sells non-participating annuity products, including variable
annuities, modified guaranteed annuities, and immediate annuities. The Company
is domiciled in the State of Arkansas.
For a complete discussion of the Company's 2004 financial statements and
accounting policies, refer to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004.
The interim Financial Statements for the three and nine 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 2004
Annual Report on Form 10-K. The December 31, 2004 unaudited Balance Sheet was
derived from the audited 2004 financial statements. 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. SOP 03-1
requires the establishment of a liability for contracts that contain death or
other insurance benefits using a reserve methodology that was different from the
methodology that the Company previously employed. As a result, the Company
recorded a $41,304 increase in policyholder liabilities and a $850 decrease in
deferred policy acquisition costs resulting in a charge to earnings of $27,400,
net of a federal income tax benefit of $14,754, which was reported as a
cumulative effect of a change in accounting principle.
NOTE 3. INVESTMENTS
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
(loss), net of tax. Unrealized gains and losses on trading account securities
are included in net realized investment gains. If management determines that a
decline in the value of an available-for-sale 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. There were no realized investment
losses on securities deemed to have incurred other-than-temporary declines in
fair value for the three and nine months ended September 30, 2005 and 2004.
The Company has recorded certain adjustments to policyholders' account balances
in connection with unrealized holding gains or losses on investments classified
as available-for-sale. The Company adjusts policyholders' account balances as if
the unrealized holdings gains or losses had actually been realized, with
corresponding credits or charges reported in accumulated other comprehensive
income (loss), net of taxes.
10
The components of net unrealized gains (losses) included in accumulated other
comprehensive income (loss) were as follows:
September 30, December 31,
2005 2004
------------- ------------
Assets:
Fixed maturity securities $ (6,753) $ 33,876
Equity securities 3,098 3,839
-------- --------
(3,655) 37,715
-------- --------
Liabilities:
Policyholders' account balances 7,676 15,717
Federal income taxes - deferred (3,965) 7,700
-------- --------
3,711 23,417
-------- --------
Stockholder's equity:
Accumulated other comprehensive income (loss) $ (7,366) $ 14,298
======== ========
Net realized investment gains (losses) were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
------- ------- ------- -------
Available-for-sale securities $ 4,026 $ 1,535 $ 4,440 $ 4,942
Trading account securities:
Net realized investment gains (losses) 285 (524) 982 970
Net unrealized holding gains (losses) 372 (8) (1,292) (1,226)
------- ------- ------- -------
Total net realized investment gains $ 4,683 $ 1,003 $ 4,130 $ 4,686
======= ======= ======= =======
NOTE 4. DEFERRED POLICY ACQUISITION COSTS AND UNEARNED POLICY CHARGE REVENUE
The impact of revisions to estimates on cumulative amortization of deferred
policy acquisition costs ("DAC") and unearned policy charge revenue (`UPCR") is
recorded as a charge or benefit to current operations ("unlocking").
The components of amortization of DAC for the three and nine month periods ended
September 30 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Normal amortization related to variable life
and annuity insurance products $ 12,183 $ 11,374 $ 31,510 $ 31,909
Unlocking related to variable annuity insurance products - (41,326) - (41,326)
Unlocking related to variable universal life insurance product 14,470 - 14,470 -
-------- -------- -------- --------
Total amortization of DAC $ 26,653 $(29,952) $ 45,980 $ (9,417)
======== ======== ======== ========
During the third quarter 2004 the Company elected to adopt new assumptions for
market returns associated with assets held in the Company's variable annuity
separate accounts. If returns over a determined historical period differ from
the Company's long-term assumption, returns for future determined periods are
calculated so that the long-term assumption is achieved. This method for
projecting market returns is known as reversion to the mean. The Company
previously established estimates for market returns based on actual historical
results and on future anticipated market returns without the use of a mean
reversion technique.
11
The components of amortization (accretion) of UPCR for the three and nine month
periods ended September 30 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2005 2004 2005 2004
-------- -------- -------- --------
Normal amortization (accretion) related to variable
universal life insurance product $ 677 $ (1,479) $ (1,181) $ (3,631)
Unlocking related to variable universal life insurance product 17,089 - 17,089 -
-------- -------- -------- --------
Total amortization (accretion) of UPCR $ 17,766 $ (1,479) $ 15,908 $ (3,631)
======== ======== ======== ========
NOTE 5. DEFERRED SALES INDUCEMENTS
During March 2005, the Company introduced a new variable annuity product
platform in which certain contracts contain sales inducements. The Company
currently offers a sales inducement whereby the contract owner receives a bonus
which increases the initial account balance by an amount equal to a specified
percentage of the contract owner's deposit. This amount may be subject to
recapture under certain circumstances. The expense associated with offering this
bonus is deferred and amortized over the anticipated life of the related
contracts consistent with the amortization of DAC. The components of deferred
sales inducements were as follows:
September 30,
2005
-------------
Balance at January 1, 2005 $ -
Capitalization 6,378 (1)
Amortization (84)(1)
-----------
Balance at September 30, 2005 $ 6,294
===========
(1) Recorded as a component of policy benefits in the Statements of Earnings.
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 September 30, 2005 and December 31, 2004 were
$348,376 and $284,765, respectively. For the nine month periods ended September
30, 2005 and 2004, statutory net income was $64,489 and $55,076, 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. During 2003, the Company ceased
manufacturing or issuing 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 invested assets that do
not support annuity or life insurance contract owner liabilities.
12
The following table summarizes each business segment's contribution to
consolidated net revenues and net earnings.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net Revenues (1):
Annuities $ 47,305 $ 43,309 $ 133,514 $ 127,841
Life Insurance 43,498 24,101 90,098 70,661
Other 2,377 444 4,662 7,485
--------- --------- --------- ---------
Net Revenues $ 93,180 $ 67,854 $ 228,274 $ 205,987
========= ========= ========= =========
Net Earnings Before Change in Accounting Principle:
Annuities $ 12,529 $ 39,036 $ 34,001 $ 52,626
Life Insurance 8,022 5,828 21,326 19,790
Other 1,545 288 3,030 4,864
--------- --------- --------- ---------
Net Earnings Before Change in Accounting Principle 22,096 45,152 58,357 77,280
--------- --------- --------- ---------
Change in Accounting Principle, Net of Tax:
Annuities - - - (26,215)
Life Insurance - - - (1,185)
--------- --------- --------- ---------
Change in Accounting Principle, Net of Tax - - - (27,400)
--------- --------- --------- ---------
Net Earnings $ 22,096 $ 45,152 $ 58,357 $ 49,880
========= ========= ========= =========
(1) Net revenues include total revenues net of interest credited to
policyholders' account balances.
13
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
This Management's Narrative Analysis of Results of Operations should be read in
conjunction with the Financial Statements and Notes to Financial Statements
included herein.
FORWARD LOOKING STATEMENTS
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.
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.
LIFE INSURANCE STRATEGY
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.
During the first quarter 2005, the Company transitioned the policy
administration of its inforce life insurance contracts to an unaffiliated third
party service provider. The Company remains committed to the delivery of high
quality services for all life insurance contracts inforce.
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.
14
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 annuities 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 because it
may change the Company's assumptions regarding the long term cost of GMDBs. If
the Company increases its estimated long term GMDB cost, it will result in
establishing greater GMDB reserves as compared to current practice. GMDB expense
is recorded as a component of policy benefits.
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. 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"). Despite rising short-term interest rates and steep oil prices,
market conditions were favorable during the third quarter 2005 with most major
U.S. equity indices ending the quarter slightly higher in comparison to the
second quarter 2005. The Dow ended the third quarter up 2.9%, the NASDAQ
increased by 4.6%, and the S&P increased 3.1%. During the first nine months of
2005, the Dow and NASDAQ decreased 2.0% and 1.1%, respectively, while the S&P
increased 1.4%.
Despite these equity market decreases, equity market indices were higher during
the first nine months of 2005 as compared to the first nine months of 2004.
During the first nine months of 2005, average variable account balances
increased $109.3 million (or 1%) to $10.9 billion as compared to the same period
in 2004. Asset-based policy fees increased $2.7 million (or 2%) while GMDB
expense was relatively unchanged during the first nine months of 2005 as
compared to the same period in 2004.
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). The Company's trading account incurred net realized investment losses
of $0.3 million during the nine months ended September 30, 2005 and 2004.
Medium Term Interest Rates
The Company defines medium term interest rates as the average interest rate on
U.S. Treasury securities with terms of 1 to 5 years. 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.
Interest rates continued to trend upward, but with a flatter yield curve
throughout the third quarter 2005. Long-term rates, as measured by the yield on
the 10-year U.S. Treasury bond, increased to 4.33%, up from 3.92% at the end of
the second quarter 2005. The U.S. Federal Reserve System's Federal Open Market
Committee raised the federal funds rate twice during the third quarter 2005 to
3.75%, up from 3.25%.
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.
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. Credit
spreads represent the credit risk premiums required by market participants for a
given credit quality, i.e. the additional yield that a debt instrument issued by
a AA-rated entity must produce over a risk-free alternative (e.g., U.S. Treasury
instruments). Changes in credit spreads have an inverse relationship to the
value of investments.
15
The impact of changes in medium term interest rates, corporate credit and credit
spreads on market valuations were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2005 2004 2005 2004
--------- -------- -------- --------
Average medium term interest rate yield 4.08% 2.69% 4.08% 2.69%
Increase (decrease) in medium term interest rates (in basis points) 48 (18) 92 65
Credit spreads (in basis points) 90 80 90 80
Widening (contracting) of credit spreads (in basis points) (3) (8) 18 (5)
Increase (decrease) on market valuations: (in millions)
Available-for-sale investment securities $ (27.4) $ 33.3 $ (41.4) $ (8.7)
Interest-sensitive policyholder liabilities 5.2 (4.6) 8.0 11.6
--------- -------- -------- --------
Net increase (decrease) on market valuations $ (22.2) $ 28.7 $ (33.4) $ 2.9
========= ======== ======== ========
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.
The Company's critical accounting policies and estimates are discussed below.
For a full description of these and other accounting policies see Note 1 of the
2004 Annual Report.
Valuation of Fixed Maturity and Equity Securities
The Company's principal investments are available-for-sale fixed maturity and
equity securities as defined by Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The fair value of publicly traded fixed maturity and equity
securities are based on independently quoted market prices. The Company
primarily utilizes pricing services and broker quotes to determine the fair
value of non-publicly traded fixed maturity and equity securities. Since
significant judgment is required for the valuation of non-publicly traded
securities, the estimated fair value of these securities may differ from amounts
realized upon an immediate sale. At September 30, 2005 and December 31, 2004,
approximately, $226.3 million (or 12%) and $220.9 million (or 11%),
respectively, of the Company's fixed maturity and equity securities portfolio
consisted of non-publicly traded securities.
Changes in the fair value of fixed maturity and equity securities are reported
as a component of accumulated other comprehensive income (loss) on the Balance
Sheets and are not reflected in the Statements of Earnings until a sale
transaction occurs or when declines in fair value are deemed
other-than-temporary.
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, information obtained from
external sources (i.e. company announcements, ratings agency announcements, or
news wire services) and the Company's ability and intent to hold the investments
for a period of time sufficient for a forecasted market price recovery up to or
beyond the amortized cost of the investment. The factors that may give rise to a
potential OTT impairment include, but are not limited to, i) certain
credit-related events such as default of principal or interest payments by the
issuer, ii) bankruptcy of issuer, iii) certain security restructurings, and iv)
fair market value less than amortized cost for an extended period of time. In
the absence of a readily ascertainable market value, the estimated fair value on
these securities represents management's best estimate and is based on
comparable securities and other assumptions as appropriate. Management bases
this determination on the most recent information available. OTT impairment
losses result in a permanent reduction of the cost basis of the investment.
There were no OTT impairments on investments in fixed maturity
16
securities for the three and nine month periods ended September 30, 2005. For
the three and nine month periods ended September 30, 2004, OTT impairments on
investments in fixed maturity securities were $0.5 million.
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 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. Deferred policy acquisition costs ("DAC")
are subject to recoverability testing at the time of policy issuance and loss
recognition testing at the end of each reporting period. At September 30, 2005,
variable annuities and variable life insurance accounted for $209.2 million (or
57%) and $148.7 million (or 40%), respectively, of the Company's DAC asset. At
December 31, 2004, variable annuities and variable life insurance accounted for
$211.4 million (or 54%) and $170.2 million (or 43%), 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. For variable annuities, the Company generally establishes a
long-term rate of net separate accounts growth. The long-term rate may be
adjusted if the Company's long-term expectations change. Using the mean
reversion technique, the Company modifies the rate of net variable annuity
separate accounts growth over the near term, based on recent historical returns.
The result is that the long-term rate is assumed to be realized over a period of
approximately ten years. For variable life, the Company generally assumes a
level long-term rate of net variable life 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, commonly referred to as "DAC unlocking". See Note
4 to the Financial Statements for period-to-period differences in DAC unlocking.
During 2004, the Company elected to adopt new assumptions for market returns
associated with assets held in the Company's variable annuity separate accounts.
If returns over a determined historical period differ from the Company's
long-term assumption, returns for future determined periods are calculated so
that the long-term assumption is achieved. This method for projecting market
returns is known as reversion to the mean, a standard industry practice. The
Company previously established estimates for market returns based on actual
historical results and on future anticipated market returns without the use of a
mean reversion technique. 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 returns and increases in surrender or mortality
assumptions reduce the expected future profitability of the underlying business
and may increase the rate of DAC amortization.
Policyholder Liabilities
The Company establishes liabilities for amounts payable for its life insurance
and annuity contracts. At September 30, 2005 and December 31, 2004, life and
annuity policyholder liabilities were $2.6 billion and $2.8 billion,
respectively. These liabilities are actuarially determined reserves, which are
calculated to meet the Company's future obligations. Reserves are calculated
using actuarial methods and mortality tables in general use in the United States
and in accordance with 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 Statement of Position ("SOP") 03-1, Accounting and Reporting
by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and
for Separate Accounts. Inherent in these standards are estimates and assumptions
regarding mortality, surrender rates, policy expenses, investment yields, and
inflation. These estimates and assumptions are influenced by the Company's
historical experience, current developments, and anticipated
17
market trends. Changes in actuarial estimates and assumptions or differences
between actual and expected experience can significantly affect the Company's
reserve liabilities and subsequently impact future operations.
Unearned Policy Charge Revenue Liability for Variable Life Insurance
The Company's variable universal life insurance product 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 policy charge
revenue liability is subject to the same periodic reassessment as DAC. See Note
4 to the Financial Statements for period-to-period differences in unearned
policy charge revenue unlocking. At September 30, 2005 and December 31, 2004,
the Company's unearned policy charge revenue liability was $97.7 million and
$112.2 million, respectively.
Federal Income Taxes
The Company uses the asset and liability method in providing income taxes on all
transactions that have been recognized in the financial statements. The asset
and liability method requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or realized. The Company
provides for federal income taxes based on amounts the Company believes it will
ultimately owe. Inherent in the provision for federal income taxes are estimates
regarding the realization of certain tax deductions and credits.
Specific estimates include the realization of the dividend-received deduction
("DRD") and the foreign tax credit ("FTC"). A portion of the Company's
investment income related to separate accounts business qualifies for the DRD
and FTC. Information necessary to calculate these tax adjustments is typically
not available until the following year. However, within the current year's
provision, management makes estimates regarding the future tax deductibility of
these items. These estimates are primarily based on recent historic experience.
During the three and nine month periods ended September 30, 2005, the Company
reduced its provision for federal income taxes by $1.8 million and $7.9 million,
respectively, due to DRD and FTC adjustments. During the three and nine month
periods ended September 30, 2004, the Company reduced its provision for federal
income taxes by $4.4 million and $5.5 million, respectively, due to DRD and FTC
adjustments.
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 was 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.
NEW BUSINESS
The Company has strategically placed its marketing emphasis on the sale of
variable annuity products. These products are designed to address the retirement
planning needs of Merrill Lynch & Co.'s clients. Each variable annuity product
provides tax-deferred retirement savings with the opportunity for diversified
investing in a wide selection of underlying mutual fund portfolios. The Company
issues four classes of variable annuity products including B-Share, C-Share,
L-Share, and Bonus classes. These classes are differentiated by the surrender
charge period and the types of contract fees charged to the contract owner. The
Bonus class offers a specified amount that is added to the contract value with
each deposit. Current available contract features include guaranteed minimum
death benefits, guaranteed minimum income benefits, and additional death
benefits. During March 2005, the Company introduced a new variable annuity
product line, which is intended to replace the existing variable annuity
products (subject to state approval). The new variable annuity product line
provides the ability to customize variable annuity products with specific
contract features, charge structures, and investment options. Total deposits for
the new product line were $338.3 million through September 30, 2005.
In addition, the Company issues modified guaranteed annuity products. The
modified guaranteed annuity products also provide tax-deferred retirement
savings through guaranteed fixed interest rates for a period selected by the
contract owner, but impose a market value adjustment for withdrawals prior to
the expiration of the guarantee period.
18
Annuity and life insurance deposits increased $34.1 million (or 19%) to $215.0
and decreased $69.5 million (or 12%) to $528.8 million during the three and nine
month periods ended September 30, 2005, respectively, as compared to the same
periods in 2004. Annuity and life insurance deposits by product were as follows:
($ In Millions) % Change
--------------------------- ------------------------------
Third Quarter Nine Months Third Quarter Nine Months
2005 2005 2005 vs. 2004 2005 vs. 2004
------------- ----------- ------------- -------------
Variable Annuities:
B-Share $ 53.6 $ 213.8 -66% -59%
L-Share 70.1 132.6 n/m 1073
Bonus 65.4 116.0 100 100
C-Share 15.7 39.0 118 7
------- ------- --- ----
204.8 501.4 21 -12
------- ------- --- ----
Variable Life Insurance 6.2 18.3 - -15
Modified Guaranteed Annuities 3.3 8.3 -35 -9
Other 0.7 0.8 600 60
------- ------- --- ----
Total Direct Deposits $ 215.0 $ 528.8 19% -12%
======= ======= === ====
During the current three and nine month periods, variable annuity deposits
increased $35.3 million (or 21%) to $204.8 million and decreased $65.8 million
(or 12%) to $501.4 million, respectively, as compared to the same periods in
2004. As mentioned above, the Company was focused and committed to the new
variable annuity product line, which was subsequently launched in March 2005.
Management believes third quarter 2005 sales were favorably impacted by
marketing efforts supporting the new variable annuity product line.
During the first nine months of 2005, variable life insurance deposits decreased
$3.2 million (or 15%) to $18.3 million as compared to the same period in 2004.
Variable life insurance deposits displayed above generally represent renewal
deposits on existing life insurance contracts as the Company no longer
manufactures variable life insurance contracts.
SURRENDERS
Policy and contract surrenders increased $20.9 million (or 7%) to $327.0 million
and $58.9 million (or 6%) to $978.3 million during the current three and nine
month periods ended September 30, 2005, respectively, as compared to the same
periods in 2004. During the current three and nine month periods variable
annuity surrenders increased $45.4 million (or 22%) to $248.2 million and $114.5
million (or 19%) to $713.6 million, respectively, as compared to the same
periods in 2004. The increases in variable annuity surrenders are primarily a
result of the anticipated increase in lapse rates on variable annuity contracts
reaching the end of their surrender charge period. Partially offsetting the
increases in variable annuity surrenders was a decrease in variable life
surrenders, which decreased $18.3 million (or 26%) to $51.0 million and $54.9
million (or 25%) to $164.0 million, respectively, during the current three and
nine month periods as compared to the same periods in 2004. The decreases in
variable life surrenders are attributable to the decrease in variable life
insurance contracts inforce.
FINANCIAL CONDITION
At September 30, 2005, the Company's assets were $14.5 billion, or $275.0
million lower than the $14.8 billion in assets at December 31, 2004. Assets
excluding separate accounts assets decreased $143.3 million (or 4%) primarily
due to a reduction in the number of fixed rate contracts inforce, a decrease in
market values on investment securities as a result of the rising interest rate
environment during the first nine months of 2005, and federal income tax
payments of $25.0 million. Separate accounts assets, which represent 75% of
total assets, decreased $131.7 million (or 1%) to $10.9 billion. Changes in
separate accounts assets were as follows:
19
1Q05 2Q05 3Q05 Total
-------- -------- -------- ---------
(In Millions)
Net cash outflow - variable products $ (215.7) $ (212.1) $ (186.1) $ (613.9)
Investment performance - variable products (120.3) 172.4 430.1 482.2
-------- -------- -------- --------
Net increase (decrease) $ (336.0) $ (39.7) $ 244.0 $ (131.7)
======== ======== ======== ========
During the first nine months of 2005, the Company experienced contract owner
withdrawals that exceeded deposits on all products by $714.9 million. The
components of contract owner transactions were as follows:
September 30,
2005
-------------
(In Millions)
Deposits collected $ 528.8
Internal tax-free exchanges (59.4)
--------
Net contract owner deposits 469.4
--------
Contract owner withdrawals 697.3
Net transfers from separate accounts 487.0
--------
Net contract owner withdrawals 1,184.3
--------
Net contract owner activity $ (714.9)
========
At September 30, 2005 and December 31, 2004, approximately $1.9 billion (or 98%)
and $2.0 billion (or 99%), respectively, of the Company's fixed maturity
securities were considered investment grade. The Company defines investment
grade securities as unsecured debt obligations that have a rating equivalent to
Standard and Poor's BBB- or higher (or similar rating agency). Also, at
September 30, 2005, approximately $129.8 million (or 7%) of the Company's fixed
maturity securities were rated BBB-, which is the lowest investment grade rating
given by Standard and Poor's, as compared to $156.4 million (or 8%) of the
Company's fixed maturity securities at December 31, 2004.
At September 30, 2005 and December 31, 2004, approximately $31.7 million (or 2%)
and $21.1 million (or 1%), respectively, of the Company's fixed maturity
securities were considered below investment grade. Below 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 below investment grade holdings are the result of
ratings downgrades on the Company's portfolio as the Company does not purchase
below investment grade securities. The Company closely monitors such
investments.
LIQUIDITY
To fund all business activities, the Company maintains a high quality and liquid
investment portfolio. As of September 30, 2005, the Company's assets included
$2.0 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.
20
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
September 30, 2005:
Less Than Three to More Than
Three Years Five Years Five Years Total
----------- ---------- ---------- -----
(In Millions)
Contractual Obligations:
Long-term liabilities (1) $29.7 $ 34.6 $ 249.8 $314.1
Limited partnership investments (2) 0.5 - - 0.5
----- ------ ------- ------
Total $30.2 $ 34.6 $ 249.8 $314.6
===== ====== ======= ======
(1) The long-term liabilities include policyholder liabilities for which the
Company believes the amount and timing of the payments are essentially
fixed and determinable. These amounts primarily relate to contracts where
the Company is currently making payments to policyholders and will
continue to do so until the occurrence of a specific event.
Liabilities for policyholders' account balances of $2.3 billion have been
excluded from this table. These amounts primarily relate to contracts
where i) the Company is not currently making payments and will not make
payments in the future until the occurrence of an insurable event or ii)
the occurrence of a payment triggering event (i.e. death or withdrawal) is
outside the control of the Company. Such amounts are not determinable.
(2) During 2000, the Company committed to participate in a limited
partnership. As of September 30, 2005, $9.5 million had been advanced
towards the Company's $10.0 million commitment to the limited partnership.
The contractual commitment expires June 2006.
RESULTS OF OPERATIONS
For the three month periods ended September 30, 2005 and 2004, the Company
recorded net earnings of $22.1 million and $45.2 million, respectively. For the
nine month periods ended September 30, 2005 and 2004, the Company reported net
earnings of $58.4 million and $49.9 million, respectively.
Policy charge revenue increased $21.1 million (or 37%) and $20.7 million (or
12%) during the current three and nine month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. The current three and
nine month period increases are primarily due to unearned policy charge revenue
unlocking recorded during the third quarter 2005.
Net earnings derived from interest spread increased $0.5 million (or 6%) and
$2.1 million (or 8%) during the current three and nine month periods ended
September 30, 2005, respectively, as compared to the same periods in 2004. The
following table provides the components and changes in interest spread for each
respective period.
Three Months Nine Months
Interest Spread 2005 vs. 2004 2005 vs. 2004
- ---------------------------------------------------- ------------- -------------
(In Millions)
Net investment income $ (1.9) $ (7.4)(1)
Interest credited to policyholders' account balances 2.4 9.5 (2)
------- -------
$ 0.5 $ 2.1
======= =======
(1) The changes are primarily due to the reduction in fixed rate contracts
inforce. However, net investment income was favorably impacted by an
increase in asset yields during the first nine months of 2005 as compared
to the same period in 2004.
(2) The changes are primarily due to the reduction in fixed rate contracts
inforce.
Net realized investment gains increased $3.7 million and decreased $0.6 million
during the current three and nine month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. The following table
provides the changes in net realized investment gains by type for each
respective period:
21
Three Months Nine Months
Net Realized Gains (Losses) 2005 vs. 2004 2005 vs. 2004
- --------------------------- ------------- -------------
(In Millions)
Interest related $ (2.5) $ (5.7)(1)
Trading account 1.2 (0.1)(2)
Credit related 5.0 5.2 (3)
------ ------
$ 3.7 $ (0.6)
====== ======
(1) The decreases in interest related net realized gains are primarily due to
decreases to asset market valuations resulting from the increasing
interest rate environment during the first nine months of 2005 as compared
to the same period in 2004.
(2) The trading account is comprised of convertible debt and convertible
preferred equity securities. The valuations of these securities generally
fluctuate in a direct relationship to changes in the valuations of the
underlying common equity.
(3) The increases in credit related net realized gains are primarily due to
one large credit related gain incurred during the third quarter 2005.
Market value adjustment expense decreased $0.2 million (or 52%) and $1.5 million
(or 68%) during the current three and nine month periods ended September 30,
2005, respectively, as compared to the same periods in 2004. 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. The decreases in market
value adjustment expense are primarily due to the higher interest rate
environment during the first nine months of 2005 as compared to the same period
in 2004. The market value adjustment expense has an inverse relationship to
changes in interest rates.
Policy benefits increased $0.8 million (or 6%) and decreased $1.9 million (or
5%) during the current three and nine month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. The following table
provides the changes in policy benefits by product for each respective period:
Three Months Nine Months
Policy Benefits 2005 vs. 2004 2005 vs. 2004
- ---------------------------------- ------------- -------------
(In Millions)
Life insurance mortality expense $ 0.3 $ (2.9)(1)
Variable annuity mortality expense 0.5 1.0 (2)
----- ------
$ 0.8 $ (1.9)
===== ======
(1) Primarily due to period-to-period mortality fluctuations.
(2) Primarily due to increased guaranteed minimum income benefit reserve
accumulations.
Reinsurance premium ceded decreased $0.8 million (or 11%) and $0.5 million (or
2%) during the current three and nine month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. The decreases during the
current periods are primarily due to decreased sales of certain variable annuity
products containing guaranteed minimum income benefit provisions.
Amortization of deferred policy acquisition costs increased $56.6 million and
$55.4 million during the current three and nine month periods ended September
30, 2005, respectively, as compared to the same periods in 2004. The increases
in amortization of deferred policy acquisition costs are primarily due to
period-to-period differences in DAC unlocking.
Insurance expenses and taxes increased $0.6 million (or 4%) and $3.6 million (or
9%) during the current three and nine month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. The following table
provides the changes in insurance expenses and taxes by type for each respective
period:
22
Three Months Nine Months
Insurance Expenses and Taxes - Net of Capitalization 2005 vs. 2004 2005 vs. 2004
- ---------------------------------------------------- ------------- -------------
(In Millions)
General insurance expenses $ 0.1 $ 2.4(1)
Commissions 0.6 1.2(2)
Taxes, licenses, and fees (0.1) -
------ -------
$ 0.6 $ 3.6
====== =======
(1) The increases in general insurance expenses are primarily due to new
product development expenses.
(2) The increases in commissions are primarily due to increases in variable
annuity asset-based commissions.
The Company's effective federal income tax rate was 29% and 25% during the
current three and nine month periods ended September 30, 2005, respectively, as
compared to 28% and 30% during the equivalent periods in 2004. The changes in
the effective federal income tax rate during the respective periods are
primarily due to DRD and FTC adjustments recorded during the current three and
nine month periods.
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.
23
ITEM 4. Controls and Procedures
In 2002, the Company formed a Disclosure Committee to assist with the monitoring
and evaluation of its disclosure controls and procedures. The Company's Chief
Executive Officer, Chief Financial Officer, and Disclosure Committee have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934) as of
the end of the period covered by this Report. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are effective.
In addition, no change in the Company's internal control over financial
reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of
1934) occurred during the period covered by this quarterly report that has
materially affected, or is 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.
(a) Nothing to report.
(b) Nothing to report.
Item 6. 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 Rule 15d-14(a).
31.2 Certification by the Chief Financial Officer pursuant to Rule 15d-14(a).
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.
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: November 10, 2005
EXHIBIT INDEX
31.1 Certification by the Chief Executive Officer pursuant to Rule 15d-14(a).
31.2 Certification by the Chief Financial Officer pursuant to Rule 15d-14(a).
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.